-----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, KDe0SoFiC+9xaYxPU0mwQUjJ/YS2KnpyPqBrk+UrKEDp7O7SSf7qyfUP2efYEjFv MDIDdj0h2YTarscB+h4ZMA== 0001017062-96-000165.txt : 19960819 0001017062-96-000165.hdr.sgml : 19960819 ACCESSION NUMBER: 0001017062-96-000165 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19960816 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYNBIOTICS CORP CENTRAL INDEX KEY: 0000719483 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 953737816 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-10343 FILM NUMBER: 96617083 BUSINESS ADDRESS: STREET 1: 11011 VIA FRONTERA CITY: SAN DIEGO STATE: CA ZIP: 92127 BUSINESS PHONE: 6194513771 S-4 1 SYNBIOTICS CORPORATION SPECIAL PROXY As filed with the Securities and Exchange Commission on August 16, 1996 Registration No. 333-____________ ================================= SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- Form S-4 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 -------------------------- SYNBIOTICS CORPORATION (Exact name of Registrant as specified in its charter)
CALIFORNIA 283 95-3737816 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.) - ------------------------------- ---------------------------- ------------------
11011 VIA FRONTERA SAN DIEGO, CALIFORNIA 92127 (619) 451-3771 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) Kenneth M. Cohen, Chief Executive Officer Synbiotics Corporation 11011 Via Frontera San Diego, California 92121 (619) 451-3771 (Name, address, including zip code, and telephone number, including area code, of agent for service) -------------------------- COPIES OF ALL COMMUNICATIONS, INCLUDING ALL COMMUNICATIONS SENT TO THE AGENT FOR SERVICE, SHOULD BE SENT TO: HAYDEN J. TRUBITT BROBECK, PHLEGER & HARRISON LLP 550 W. C Street, Suite 1300 San Diego, CA 92101 (619) 234-1966 -------------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: UPON CONSUMMATION OF THE ACQUISITION DESCRIBED HEREIN AND AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. If any of the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] -------------------------- CALCULATION OF REGISTRATION FEE/1/
=============================================================================================================================== Title of Securities to be Amount to be Proposed Maximum Proposed Maximum Amount of Registered Registered Offering Price per Security Aggregate Offering Price Registration Fee - ------------------------------------------------------------------------------------------------------------------------------- Direct Shares: Common Stock..... 1,244,444 $3.9375 $4,899,998.25 $1,689.65 Warrant Shares: Common Stock... 467,698 $ 2.86 $1,337,616.28 $ 461.25 - ------------------------------------------------------------------------------------------------------------------------------- Totals: 1,712,142 $6,237,614.53 $2,150.90 ==============================================================================================================================
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ - --------------------------- /1/ Calculated pursuant to Rule 457(c) of the Securities Act of 1933, as amended (pursuant to specified date of August 12, 1996). 1 SYNBIOTICS CORPORATION ---------------------- CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-4
FORM S-4 REGISTRATION STATEMENT ITEM AND HEADING LOCATION IN PROSPECTUS ------------------------------------------------ ---------------------- (Information About the Transaction) 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus................................... Facing Page; Cross-Reference Sheet; Outside Front Cover Page 2. Inside Front and Outside Back Cover Pages of Prospectus....................................................... Inside Front and Outside Back Cover Pages 3. Risk Factors, Ratio of Earnings to Fixed Charges and Other Information................................................ Summary; Risk Factors 4. Terms of the Transaction......................................... The Acquisition 5. Pro Forma Financial Information.................................. Pro Forma Condensed Financial Statements 6. Material Contacts with the Company Being Acquired................ The Acquisition 7. Additional Information Required for Reoffering by Persons and Parties Deemed to be Underwriters.................... * 8. Interests of Named Experts and Counsel........................... Legal Matters; Experts 9. Disclosure of Commission Position on Indemnification for Securities Act Liabilities................................... * (Information about the Registrant) 10. Information with Respect to S-3 Registrants..................... * 11. Incorporation of Certain Information by Reference............... * 12. Information with Respect to S-2 or S-3 Registrants.............. * 13. Incorporation of Certain Information by Reference............... * 14. Information with Respect to Registrants other than Outside Front Cover Page; Summary; S-2 or S-3 Registrants.......................................... Introduction; Risk Factors; The Acquisition; Pro Forma Condensed Financial Statements; Market Price of Synbiotics Common Stock; Synbiotics Management's Discussion and Analysis or Plan of Operation; Financial Statements (Information about the Company being Acquired) 15. Information with Respect to S-3 Companies....................... * 16. Information with Respect to S-2 or S-3 Companies................ *
FORM S-4 REGISTRATION STATEMENT ITEM AND HEADING LOCATION IN PROSPECTUS ------------------------------------------------ ---------------------- 17. Information with Respect to Companies other than Outside Front Cover Page; Summary; S-2 or S-3 Companies............................................. Introduction; Risk Factors; The Acquisition; Pro Forma Condensed Financial Statements; Business (ICG); Market Price of ICG Common Stock; Dividends; ICG Management's Discussion and Analysis or Plan of Operation; Financial Statements (Voting and Management Information) 18. Information if Proxies, Consents or Authorizations are Summary; Election of Synbiotics Directors; to be Solicited.................................................. Amendment of Synbiotics Restated Articles of Incorporation; Shareholder Proposals for 1997 Synbiotics Proxy Statement; Executive Officers and Certain Other Significant Employees; Executive Compensation and Other Employment Matters 19. Information if Proxies, Consents or Authorizations are Not to be Solicited or in an Exchange Offer...................... * _________________________ * Not Applicable.
SYNBIOTICS CORPORATION 11011 VIA FRONTERA SAN DIEGO, CALIFORNIA 92127 Dear Shareholder: ________ __, 1996 An Annual Meeting of Shareholders of Synbiotics Corporation will be held on October 17, 1996, at 10:00 a.m., local time, at the Radisson Suite Hotel (Rancho Bernardo), 11520 West Bernardo Court, San Diego, California 92127 (the "Synbiotics Meeting"). At this Synbiotics Meeting, you will be asked to consider and vote (i) to approve Synbiotics' acquisition of substantially all the assets of International Canine Genetics, Inc., a Delaware corporation ("ICG") pursuant to a Purchase Agreement dated July 23, 1996 (the "Acquisition"), (ii) to elect a Board of Directors for the following year, (iii) to consider a proposal to amend Article Fourth of the Restated Articles of Incorporation, and (iv) to transact such other business as may properly come before the meeting or any postponements or adjournment thereof. Synbiotics will own substantially all the assets of ICG upon the effectiveness of the Acquisition (which will occur as soon as possible after obtaining all necessary shareholder approvals, and satisfaction of certain other conditions) (the "Acquisition Date"). On the Acquisition Date, ICG shall receive Synbiotics Common Stock (collectively, the "Acquisition Shares"), the number of which shall be 1,400,000, provided that the average closing sales price of the Common Stock of Synbiotics as quoted on the Nasdaq National Market for the five (5) trading days ending one business day prior to the Acquisition Date (the "Average Closing Sales Price") is not greater than $3.50 per share or less than $2.50 per share. If the Average Closing Sales Price is greater than $3.50 per share, the number of Acquisition Shares shall be equal to 1,400,000 multiplied by a fraction, the numerator of which shall be $3.50 and the denominator of which shall be the Average Closing Sales Price. If the Average Closing Sales Price is less than $2.50 per share, the number of Acquisition Shares shall be equal to 1,400,000 multiplied by a fraction, the numerator of which shall be $2.50 and the denominator of which shall be the Average Closing Sales Price. In addition, all outstanding options to purchase ICG Common Stock under ICG's 1992 Stock Option Plan and all outstanding warrants to purchase ICG Common Stock will be assumed and will become exercisable for shares of Synbiotics Common Stock as of the Acquisition Date. On the Acquisition Date, ICG will own approximately 18% of the then-outstanding Synbiotics Common Stock (assuming the Average Closing Sales Price is between $2.50 and $3.50). Each of these aspects of the Acquisition is more fully described in the enclosed Joint Proxy Statement/Prospectus. Synbiotics is registering the issuance of the Acquisition Shares and the shares of Synbiotics Common Stock to be issued upon exercise of the ICG Warrants (the "Warrant Shares") under the Securities Act of 1933, as amended. Synbiotics will cause the shares of Synbiotics Common Stock to be issued upon exercise of the ICG Options to be registered under the Securities Act of 1933, as amended on Form S-8 at or promptly after the Acquisition Date. THE SYNBIOTICS BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE PURCHASE AGREEMENT AND THE ACQUISITION DESCRIBED IN THE ATTACHED MATERIAL AND THE TRANSACTIONS CONTEMPLATED THEREBY AND HAS DETERMINED THAT THE ACQUISITION IS IN THE BEST INTERESTS OF SYNBIOTICS AND THE SYNBIOTICS SHAREHOLDERS. THE BOARD OF DIRECTORS RECOMMENDS THAT THE SYNBIOTICS SHAREHOLDERS APPROVE THE MATTERS DESCRIBED IN THE ACCOMPANYING MATERIAL. In the material accompanying this letter, you will find a Notice of Annual Meeting of Shareholders, a Joint Proxy Statement/Prospectus relating to, among other things, the actions to be taken by Synbiotics shareholders at the Synbiotics Meeting and a proxy card. The Joint Proxy Statement/Prospectus more fully describes the proposed Acquisition and the other matters to be considered by Synbiotics shareholders at the Synbiotics Meeting and includes important information about Synbiotics and ICG. It also serves as a Prospectus for Synbiotics describing the investment in Synbiotics that ICG will receive upon consummation of the Acquisition. All shareholders are cordially invited to attend the Synbiotics Meeting in person. However, whether or not you plan to attend the Synbiotics Meeting, please complete, sign, date and return your proxy in the enclosed postage-paid envelope. If you attend the Synbiotics Meeting, you may vote in person if you wish, even though you have previously returned your proxy. Sincerely, Kenneth M. Cohen President and Chief Executive Officer SYNBIOTICS CORPORATION 11011 VIA FRONTERA SAN DIEGO, CALIFORNIA 92127 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON OCTOBER 17, 1996 NOTICE IS HEREBY GIVEN that an Annual Meeting of Shareholders of Synbiotics Corporation, a California corporation ("Synbiotics"), will be held on October 17, 1996, at 10:00 a.m., local time, at the Radisson Suite Hotel (Rancho Bernardo), 11520 West Bernardo Court, San Diego, California 92127, to consider and vote upon the following matters, which are more fully described in the accompanying Joint Proxy Statement/Prospectus: 1. To approve the principal terms of the acquisition by Synbiotics of substantially all of the assets of International Canine Genetics, Inc., a Delaware corporation ("ICG") (the "Acquisition") pursuant to a Purchase Agreement dated July 23, 1996. On the Acquisition Date, ICG shall receive Synbiotics Common Stock (collectively, the "Acquisition Shares"), the number of which shall be 1,400,000, provided that the average closing sales price of the Common Stock of Synbiotics as quoted on the Nasdaq National Market for the five (5) trading days ending one business day prior to the Acquisition Date (the "Average Closing Sales Price") is not greater than $3.50 per share or less than $2.50 per share. If the Average Closing Sales Price is greater than $3.50 per share, the number of Acquisition Shares shall be equal to 1,400,000 multiplied by a fraction, the numerator of which shall be $3.50 and the denominator of which shall be the Average Closing Sales Price. If the Average Closing Sales Price is less than $2.50 per share, the number of Acquisition Shares shall be equal to 1,400,000 multiplied by a fraction, the numerator of which shall be $2.50 and the denominator of which shall be the Average Closing Sales Price. In addition, all outstanding options to purchase ICG Common Stock under ICG's 1992 Stock Option Plan and all outstanding warrants to purchase ICG Common Stock will be assumed and will become exercisable for shares of Synbiotics Common Stock as of the Acquisition Date. Each of these aspects of the Acquisition is more fully described in the enclosed Joint Proxy Statement/Prospectus. 2. To elect a Board of Directors for the following year. Management has nominated the following persons for election at the Synbiotics Meeting: Kenneth M. Cohen, James C. DeCesare, Brenda D. Gavin, DVM, M. Blake Ingle, Ph.D., and Donald E. Phillips. 3. To consider a proposal to amend Article Fourth of the Restated Articles of Incorporation. 4. To transact such other business as may properly come before the meeting or any postponements or adjournment thereof. Only shareholders of record at the close of business on September 6, 1996 are entitled to notice of, and to vote at the Synbiotics Meeting, or at any adjournment or postponement thereof. By Order of the Board of Directors, Michael K. Green Secretary APPROVAL OF THE PRINCIPAL TERMS OF THE ACQUISITION REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF SYNBIOTICS COMMON STOCK. ABSTENTIONS WILL BE COUNTED FOR PURPOSES OF DETERMINING WHETHER A QUORUM IS PRESENT AT THE SYNBIOTICS MEETING AND WILL HAVE THE EFFECT OF NEGATIVE VOTES. WHETHER OR NOT YOU PLAN TO ATTEND THE SYNBIOTICS MEETING, PLEASE COMPLETE, SIGN AND DATE THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. YOU MAY REVOKE YOUR PROXY IN THE MANNER DESCRIBED IN THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON, IF YOU WISH TO DO SO, EVEN IF YOU HAVE PREVIOUSLY SENT IN YOUR PROXY. INTERNATIONAL CANINE GENETICS, INC. 271 GREAT VALLEY PARKWAY MALVERN, PENNSYLVANIA 19355 Dear Stockholder: A Special Meeting of Stockholders of International Canine Genetics, Inc. will be held on October 15, 1996, at 10:00 a.m., local time, at the Desmond Hotel, One Liberty Boulevard, Malvern, Pennsylvania 19355 (the "ICG Meeting"). At this ICG Meeting, you will be asked to consider and vote (i) to approve ICG's sale of substantially all of its assets to Synbiotics Corporation, a California corporation ("Synbiotics"), pursuant to a Purchase Agreement dated July 23, 1996 (the "Acquisition"), and (ii) to transact such other business as may properly come before the meeting or any postponements or adjournment thereof. ICG will sell substantially all of its assets to Synbiotics upon the effectiveness of the Acquisition (which will occur as soon as possible after obtaining all necessary stockholder approvals, and satisfaction of certain other conditions)(the "Acquisition Date"). On the Acquisition Date, ICG shall receive Synbiotics Common Stock (collectively, the "Acquisition Shares"), the number of which shall be 1,400,000, provided that the average closing sales price of the Common Stock of Synbiotics as quoted on the NASDAQ National market for the five (5) trading days ending one business day prior to the Acquisition Date (the "Average Closing Sales Price") is not greater than $3.50 per share or less than $2.50 per share. If the Average Closing Sales Price is greater than $3.50 per share, the number of Acquisition Shares shall be equal to 1,400,000 multiplied by a fraction, the numerator of which shall be $3.50 and the denominator of which shall be the Average Closing Sales Price. If the Average Closing Sales Price is less than $2.50 per share, the number of Acquisition Shares shall be equal to 1,400,000 multiplied by a fraction, the numerator of which shall be $2.50 and the denominator of which shall be the Average Closing Sales Price. In addition, all outstanding options to purchase ICG Common Stock under ICG's 1992 Stock Option Plan and all outstanding warrants to purchase ICG Common Stock will be assumed and will become exercisable for shares of Synbiotics Common Stock as of the Acquisition Date. On the Acquisition Date, ICG will own approximately 18% of the then-outstanding Synbiotics common Stock (assuming the Average Closing Sales Price is between $2.50 and $3.50). Each of these aspects of the Acquisition is more fully described in the enclosed Joint Proxy Statement/Prospectus. Synbiotics is registering the issuance of the Acquisition Shares and the shares of Synbiotics Common Stock to be issued upon exercise of the ICG Warrants (the "Warrant Shares") under the Securities Act of 1933, as amended. Synbiotics will cause the shares of Synbiotics Common Stock to be issued upon exercise of the ICG Options to be registered under the Securities Act of 1933, as amended, on Form S-8 at or promptly after the Acquisition Date. The ICG Board of Directors has unanimously approved the Purchase Agreement and the Acquisition described in the attached material and the transactions contemplated thereby and has determined that the Acquisition is in the best interests of ICG and the ICG stockholders. The Board of Directors recommends that the ICG stockholders approve the Acquisition pursuant to the Purchase Agreement, as more fully described in the accompanying material. In the material accompanying this letter, you will find a Notice of Special Meeting of Stockholders, a Joint Proxy Statement/Prospectus relating to, among other things, the actions to be taken by ICG stockholders at the ICG Meeting and a proxy card. The Joint Proxy Statement/Prospectus more fully describes the proposed Acquisition of Synbiotics and includes important information about ICG and Synbiotics. It also serves as a Prospectus for Synbiotics describing the investment in Synbiotics that ICG will receive upon consummation of the Acquisition. All Stockholders are cordially invited to attend the ICG Meeting in person. However, whether or not you plan to attend the ICG Meeting, please complete, sign, date and return your proxy in the enclosed postage-paid envelope. If you attend the ICG Meeting, you may vote in person if you wish, even though you have previously returned your proxy. Sincerely, Paul A. Rosinack, President and Chief Executive Officer INTERNATIONAL CANINE GENETICS, INC. 271 GREAT VALLEY PARKWAY MALVERN, PENNSYLVANIA 19355 NOTICE OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON OCTOBER 15, 1996 NOTICE IS HEREBY GIVEN that a Special Meeting of stockholders of International Canine Genetics, Inc., a Delaware corporation ("ICG"), will be held on October 15, 1996, at 10:00, a.m., local time, at the Desmond Hotel, One Liberty Boulevard, Malvern, Pennsylvania 19355, to consider and vote upon the following matters, which are more fully described in the accompanying Joint Proxy Statement/Prospectus: 1. To approve the principal terms of the sale of substantially all of the assets of ICG to Synbiotics Corporation, a California corporation ("Synbiotics")(the "Acquisition") pursuant to a Purchase Agreement dated July 23, 1996. On the Acquisition Date, ICG shall receive Synbiotics Common Stock (collectively, the "Acquisition Shares"), the number of which shall be 1,400,000, provided that the average closing sales price of the Common Stock of Synbiotics as quoted on the NASDAQ National Market for the five (5) trading days ending one business day prior to the Acquisition Date (the "Average Closing Sales Price") is not greater than $3.50 per share or less than $2.50 per share. If the Average Closing Sales Price is greater than $3.50 per share, the number of Acquisition Shares shall be equal to 1,400,000 multiplied by a fraction, the numerator of which shall be $3.50 and the denominator of which shall be the Average closing Sales Price. If the Average Closing Sales Price is less than $2.50 per share, the number of Acquisition Shares shall be equal to 1,400,000 multiplied by a fraction, the numerator of which shall be $2.50 and the denominator of which shall be the Average Closing Sales Price. In addition, all outstanding options to purchase ICG Common Stock under ICG's 1992 Stock Option Plan and all outstanding warrants to purchase ICG Common Stock will be assumed and will become exercisable for shares of Synbiotics Common Stock as of the Acquisition Date. On the Acquisition Date, ICG will own approximately 18% of the then-outstanding Synbiotics Common Stock (assuming the Average Closing Sales Price is between $2.50 and $3.50). Each of these aspects of the Acquisition is more fully described in the enclosed Joint Proxy Statement/Prospectus. 2. To transact such other business as may properly come before the meeting or any postponements or adjournment thereof. Only stockholders of record at the close of business on September 4, 1996 are entitled to notice of, and to vote at the ICG Meeting, or at any adjournment or postponement thereof. By Order of the Board of Directors John R. Bauer, Secretary APPROVAL OF THE PRINCIPAL TERMS OF THE ACQUISITION REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF ICG COMMON STOCK. ABSTENTIONS WILL BE COUNTED FOR PURPOSES OF DETERMINING WHETHER A QUORUM IS PRESENT AT THE ICG MEETING AND WILL HAVE THE EFFECT OF NEGATIVE VOTES. WHETHER OR NOT YOU PLAN TO ATTEND THE ICG MEETING, PLEASE COMPLETE, SIGN AND DATE THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. YOU MAY REVOKE YOUR PROXY IN THE MANNER DESCRIBED IN THE ACCOMPANYING JOINT PROXY STATEMENT /PROSPECTUS. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON, IF YOU WISH TO DO SO, EVEN IF YOU HAVE PREVIOUSLY SENT IN YOUR PROXY. SYNBIOTICS CORPORATION PROSPECTUS (1,712,142 shares of Synbiotics Common Stock) and INTERNATIONAL CANINE GENETICS, INC. JOINT PROXY STATEMENT FOR THEIR ANNUAL AND SPECIAL MEETINGS OF STOCKHOLDERS, RESPECTIVELY, TO BE HELD OCTOBER 17, 1996 AND OCTOBER 15, 1996, RESPECTIVELY This Joint Proxy Statement/Prospectus is being furnished to holders of common stock of Synbiotics Corporation, a California corporation ("Synbiotics"), and common stock of International Canine Genetics, Inc., a Delaware corporation ("ICG"), in connection with the solicitation by their Boards of Directors for use at their Annual Meeting of Shareholders and Special Meeting of Stockholders, respectively, and at any adjournment or postponement thereof for the purposes set forth herein and in the accompanying Notice of Annual Meeting of Shareholders and Notice of Special Meeting of Stockholders. Synbiotics' meeting will be held on October 17, 1996 at the Radisson Suite Hotel (Rancho Bernardo), 11520 West Bernardo Court, San Diego, California 92127, commencing at 10:00 a.m. (the "Synbiotics Meeting"). ICG's meeting will be held on October 15, 1996 at the Desmond Hotel, One Liberty Boulevard, Malvern, Pennsylvania 19355 at 10:00 a.m. (the "ICG Meeting"). This Joint Proxy Statement/Prospectus is first being mailed to the shareholders of Synbiotics and the stockholders of ICG on or about September 20, 1996. AT THE SYNBIOTICS MEETING, SHAREHOLDERS ARE BEING ASKED TO VOTE ON EACH OF THE FOLLOWING SEPARATE PROPOSALS (COLLECTIVELY, THE "SYNBIOTICS PROPOSALS"): (A) To approve the principal terms of the acquisition by Synbiotics of substantially all the assets of ICG (the "Acquisition") pursuant to the Purchase Agreement dated July 23, 1996 (the "Purchase Agreement"). On the Acquisition Date (as defined below), ICG shall receive Synbiotics Common Stock (collectively, the "Acquisition Shares"), the number of which shall be 1,400,000, provided that the average closing sales price of the Common Stock of Synbiotics as quoted on the Nasdaq National Market for the five (5) trading days ending one business day prior to the Acquisition Date (the "Average Closing Sales Price") is not greater than $3.50 per share or less than $2.50 per share. If the Average Closing Sales Price is greater than $3.50 per share, the number of Acquisition Shares shall be equal to 1,400,000 multiplied by a fraction, the numerator of which shall be $3.50 and the denominator of which shall be the Average Closing Sales Price. If the Average Closing Sales Price is less than $2.50 per share, the number of Acquisition Shares shall be equal to 1,400,000 multiplied by a fraction, the numerator of which shall be $2.50 and the denominator of which shall be the Average Closing Sales Price. In addition, all outstanding options to purchase ICG Common Stock under ICG's 1992 Stock Option Plan (the "ICG Options") and all outstanding warrants to purchase ICG Common Stock (the "ICG Warrants") will be assumed and will become exercisable for shares of Synbiotics Common Stock as of the Acquisition Date. Each of these aspects of the Acquisition is more fully described in this Joint Proxy Statement/Prospectus. (B) To elect a Board of Directors for the following year. (C) To consider a proposal to amend Article Fourth of the Restated Articles of Incorporation (the "Synbiotics Charter Amendment"). AT THE ICG MEETING, ICG STOCKHOLDERS WILL BE ASKED TO VOTE TO APPROVE THE SALE OF SUBSTANTIALLY ALL OF ITS ASSETS TO SYNBIOTICS PURSUANT TO THE PURCHASE AGREEMENT, AS DESCRIBED IN PARAGRAPH (A) ABOVE (THE "ICG PROPOSAL"). This Joint Proxy Statement/Prospectus also constitutes the prospectus of Synbiotics filed as part of the Registration Statement on Form S-4 relating to the Synbiotics Common Stock issuable (i) in exchange for substantially all the assets of ICG in the Acquisition and (ii) upon exercise of the ICG Warrants. All information herein with respect to Synbiotics has been furnished by Synbiotics, and all information herein with respect to ICG has been furnished by ICG. SEE "RISK FACTORS" AT PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BEFORE VOTING. ------------------------------- THE SHARES OF SYNBIOTICS COMMON STOCK TO BE ISSUED IN THE ACQUISITION HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------------- THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS SEPTEMBER __, 1996 TABLE OF CONTENTS
Page ---- AVAILABLE INFORMATION.............................................................. 1 SUMMARY............................................................................ 2 INTRODUCTION....................................................................... 10 RISK FACTORS....................................................................... 14 THE ACQUISITION (PROPOSAL FOR BOTH SYNBIOTICS AND ICG MEETINGS).................... 19 BACKGROUND OF THE ACQUISITION................................................... 19 DESCRIPTION OF THE ACQUISITION.................................................. 21 General 21 Reasons of the Synbiotics and ICG Boards of Directors for the Acquisition... 21 Recommendation of the Synbiotics Board of Directors; Factors Considered..... 21 Recommendation of the ICG Board of Directors; Factors Considered............ 22 Federal Income Tax Consequences............................................. 23 Accounting Treatment......................................................... 23 ICG Redemptions.............................................................. 23 Resales of Synbiotics Common Stock; Affiliates............................... 24 Rosinack Employment Agreement................................................ 24 Regulatory Requirements...................................................... 24 Dissenters' Rights........................................................... 24 THE PURCHASE AGREEMENT........................................................... 27 General...................................................................... 27 The Acquisition.............................................................. 27 Acquisition Date............................................................. 27 Consideration for the Acquisition............................................ 27 S.R. One Closing............................................................. 27 Conditions................................................................... 27 Representations and Warranties............................................... 28 Termination.................................................................. 29 Treatment of Warrants........................................................ 29 Treatment of Stock Options................................................... 30 Expenses..................................................................... 30 Acquisition Proposals........................................................ 30 Standstill Provision......................................................... 30 Conduct of Business Pending Acquisition...................................... 31 Notification of Noncompliance................................................ 31 Best Efforts................................................................. 31 Meetings of Stockholders..................................................... 31 Rosinack Employment Agreement................................................ 32 Use of Name.................................................................. 32 ICG Liquidation.............................................................. 32 PRO FORMA CONDENSED FINANCIAL STATEMENTS............................................ 33
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ELECTION OF SYNBIOTICS DIRECTORS (PROPOSAL FOR THE SYNBIOTICS MEETING)............. 38 AMENDMENT OF SYNBIOTICS RESTATED ARTICLES OF INCORPORATION (PROPOSAL FOR THE SYNBIOTICS MEETING)........................................... 41 BUSINESS (SYNBIOTICS).............................................................. 42 MARKET PRICE OF SYNBIOTICS COMMON STOCK............................................ 46 SYNBIOTICS MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.............. 47 EXECUTIVE OFFICERS AND CERTAIN OTHER SIGNIFICANT EMPLOYEES......................... 52 EXECUTIVE COMPENSATION AND OTHER EMPLOYMENT MATTERS................................ 53 SECURITY OWNERSHIP OF CERTAIN SYNBIOTICS BENEFICIAL OWNERS AND MANAGEMENT........................................................... 56 COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.................................. 58 SHAREHOLDER PROPOSALS FOR 1997 SYNBIOTICS PROXY STATEMENT.......................... 58 SYNBIOTICS FORM 10-KSB............................................................. 58 BUSINESS (ICG)..................................................................... 59 MARKET PRICE OF ICG COMMON STOCK; DIVIDENDS........................................ 67 ICG MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION...................... 68 DIRECTORS AND EXECUTIVE OFFICERS OF ICG............................................ 75 EXECUTIVE COMPENSATION AND CERTAIN OTHER EMPLOYMENT MATTERS OF ICG................. 75 SECURITY OWNERSHIP OF CERTAIN ICG BENEFICIAL OWNERS AND MANAGEMENT................. 76 CERTAIN TRANSACTIONS OF ICG........................................................ 78 COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.................................. 78 STOCKHOLDER PROPOSALS FOR ICG 1997 PROXY STATEMENT................................. 78 DESCRIPTION OF SYNBIOTICS CAPITAL STOCK............................................ 79 COMPARISON OF RIGHTS OF HOLDERS OF SYNBIOTICS AND ICG COMMON STOCK................. 80 INDEPENDENT ACCOUNTANTS............................................................ 86 LEGAL MATTERS...................................................................... 86 EXPERTS............................................................................ 86 OTHER MATTERS...................................................................... 87 INDEX TO FINANCIAL STATEMENTS...................................................... F-1
-ii- AVAILABLE INFORMATION Synbiotics and ICG are each subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith file reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information filed by Synbiotics and ICG and the Registration Statement and exhibits and schedules thereto can be inspected and copied at the Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices located at 7 World Trade Center, 13th Floor, New York, New York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can also be obtained from the Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission maintains a World Wide Web site on the Internet at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. Such reports, proxy statements and other information concerning Synbiotics can also be inspected at the offices of Nasdaq Stock Market at 1735 K Street, N.W., Washington, D.C. 20006-1506. Synbiotics has filed with the Commission a Registration Statement on Form S-4 (together with any amendments or supplements thereto, the "Registration Statement") under the Securities Act of 1933, as amended (the "Act"), with respect to the shares of Synbiotics Common Stock offered hereby. This Joint Proxy Statement/Prospectus omits certain information contained in the Registration Statement and reference is made to the Registration Statement and the exhibits and schedules thereto for further information with respect to Synbiotics, ICG and the Acquisition. Statements contained herein concerning the provisions of any documents are not necessarily complete, and in each instance reference is made to the copy of such document filed as an exhibit to the Registration Statement or incorporated herein by reference. Each such statement is qualified in its entirety by such reference. THIS JOINT PROXY STATEMENT/PROSPECTUS CONTAINS REFERENCES TO TRADEMARKS OF SYNBIOTICS CORPORATION AND INTERNATIONAL CANINE GENETICS, INC. IN ADDITION TO THE TRADEMARKS OF THIRD PARTIES. 1 SUMMARY The following is a summary of certain of the information contained in this Joint Proxy Statement/Prospectus. The summary does not purport to be complete and is qualified in its entirety by the more detailed information contained in this Joint Proxy Statement/Prospectus, the appendices and the material incorporated by reference, all of which should be carefully reviewed. Cross- references in this Summary refer to indicated captions or portions of this Joint Proxy Statement/Prospectus. THE PARTIES SYNBIOTICS Synbiotics, incorporated in 1982, is an animal health business that develops, manufactures and markets biological products and monoclonal antibody based diagnostic products for use in the animal health care field. Synbiotics' principal markets are veterinarians and veterinary clinical laboratories in the United States and Europe. Synbiotics' products are sold primarily to wholesale distributors. The mailing address of Synbiotics' principal executive offices is 11011 Via Frontera, San Diego, California 92127. Its telephone number at that address is (619) 451-3771. ICG ICG, incorporated in 1986, develops, manufactures and markets products and services that serve the needs of veterinary specialty markets for companion animals. ICG is focused on developing new technology into high value-added products and services for breeders and owners of purebred dogs and their veterinarians. ICG currently sells products and services in the canine reproduction, genetic disorders, nutritional supplements and grooming products markets. ICG markets its products and services directly to breeders, through mailings, advertisements and telemarketing, through distributors and through its veterinarian referral networks. The mailing address of ICG's principal executive offices is 271 Great Valley Parkway, Malvern, Pennsylvania 19355. Its telephone number at that address is (610) 640-1244. 2 THE MEETINGS INTRODUCTION At the Synbiotics Meeting, Synbiotics shareholders will be asked to vote on the Synbiotics Proposals: (A) To approve the principal terms of the Acquisition pursuant to the Purchase Agreement. On the Acquisition Date ICG shall receive the Acquisition Shares, the number of which shall be 1,400,000, provided that the Average Closing Sales Price is not greater than $3.50 per share or less than $2.50 per share. If the Average Closing Sales Price is greater than $3.50 per share, the number of Acquisition Shares shall be equal to 1,400,000 multiplied by a fraction, the numerator of which shall be $3.50 and the denominator of which shall be the Average Closing Sales Price. If the Average Closing Sales Price is less than $2.50 per share, the number of Acquisition Shares shall be equal to 1,400,000 multiplied by a fraction, the numerator of which shall be $2.50 and the denominator of which shall be the Average Closing Sales Price. In addition, ICG Options and the ICG Warrants will be assumed and will become exercisable for shares of Synbiotics Common Stock as of the Acquisition Date. Each of these aspects of the Acquisition is more fully described in the enclosed Joint Proxy Statement/Prospectus. (B) To elect a Board of Directors for the following year. (C) To consider a proposal to amend Article Fourth of the Restated Articles of Incorporation. At the ICG Meeting, ICG stockholders will be asked to vote to approve the sale of substantially all of its assets to Synbiotics pursuant to the Purchase Agreement, as described in paragraph (A) above. See "Introduction--Voting and Proxies." TIME, DATE AND PLACE The Synbiotics Meeting will be held on October 17, 1996 at 10:00 a.m., Pacific Time, at the Radisson Suite Hotel (Rancho Bernardo), 11520 West Bernardo Court, San Diego, California 92127. The ICG Meeting will be held on October 15, 1996 at 10:00 a.m., Eastern Time, at the Desmond Hotel, One Liberty Boulevard, Malvern, Pennsylvania 19355. RECORD DATE; SHARES ENTITLED TO VOTE Holders of record of Synbiotics Common Stock at the close of business on September 6, 1996 (the "Synbiotics Record Date") will be entitled to notice of and to vote at the Synbiotics Meeting. At the close of business on September 6, 1996, 5,999,956 shares of Synbiotics Common Stock were issued and outstanding. Each outstanding share of Synbiotics Common Stock is entitled to one vote at the Synbiotics Meeting. Holders of record of ICG Common Stock at the close of business on September 4, 1996 (the "ICG Record Date") will be entitled to notice of and to vote at the ICG Meeting. At the close of business on September 4, 1996, 2,819,155 shares of ICG Common Stock were issued and outstanding. Each outstanding share of ICG Common Stock is entitled to one vote at the ICG Meeting. See "Introduction--Voting and Proxies." VOTE REQUIRED--SYNBIOTICS The affirmative vote of the holders of a majority of the outstanding shares of Synbiotics Common Stock is required for approval of the Synbiotics Charter Amendment and may be required for approval of the principal terms of the Acquisition. 3 California General Corporation Law (the "California Law") requires Synbiotics shareholder approval of the Acquisition if the Shares equal or exceed 20% of the number of shares of Synbiotics common stock outstanding as of immediately before the Acquisition. In addition, the NASD Bylaws require Synbiotics shareholder approval of the Acquisition if the Shares plus the Option Shares plus the Warrant Shares equal or exceed 20% of the number of shares of Synbiotics Common Stock outstanding before the issuance of the Shares. Assuming the shares of Synbiotics Common Stock to be purchased by S.R. One (the "S.R. One Purchase Stock") is deemed outstanding before the issuance of the Shares, the California Law will not require Synbiotics shareholder approval if the Average Closing Sales Price is $3.92 or above and (assuming further that 3,000,000 shares of ICG Common Stock are outstanding at the time of the Acquisition) the NASD Bylaws will not require Synbiotics shareholder approval if the Average Closing Sales Price is $5.16 or above. If the NASD Bylaws require Synbiotics shareholder approval but the California Law does not, Synbiotics will seek such shareholder approval at the Synbiotics Meeting and the Acquisition will not occur unless such approval is obtained. Nonetheless, if Synbiotics shareholder approval was obtained in those circumstances (under the NASD Bylaws only), Synbiotics shareholders would not have dissenters' rights under the California Law. See "Introduction" and "Description of the Acquisition--Dissenters' Rights." Under California Law, shareholders are permitted to cumulate votes for the election of directors whose names have been placed in nomination. Therefore, in voting for directors, each outstanding share of Common Stock would be entitled to six votes which may be cast for one candidate or distributed in any manner among the nominees for director. However, the right to cumulate votes in favor of one or more candidates may not be exercised until the candidate or candidates have been nominated and any shareholder has given notice at the Synbiotics Meeting of the intention to cumulate votes. The presence, either in person or by proxy, of the holders of at least a majority of the outstanding shares of Synbiotics Common Stock entitled to vote is necessary to constitute a quorum at the Synbiotics Meeting. VOTE REQUIRED--ICG The affirmative vote of the holders of a majority of the outstanding shares of ICG Common Stock entitled to vote is required for approval of the Acquisition and the Purchase Agreement. The presence, either in person or by proxy, of the holders of at least a majority of the outstanding shares of ICG Common Stock entitled to vote is necessary to constitute a quorum at the ICG Meeting. S.R. One, Limited, a Pennsylvania business trust ("S.R. One") and directors and executive officers of ICG as a group (seven persons) beneficially owned 2,571,781 shares of ICG Common Stock (including shares subject to options and warrants exercisable within sixty days of the ICG Record Date), or 79% of the total outstanding shares on the ICG Record Date. ICG has been advised that S.R. One and all of ICG's directors and executive officers intend to vote in favor of the Purchase Agreement. THE ACQUISITION GENERAL On the Acquisition Date, Synbiotics will acquire substantially all the assets of ICG in exchange for the Acquisition Shares. In addition, Synbiotics will assume the ICG Options and ICG Warrants and certain ICG liabilities. REASONS FOR THE ACQUISITION The Board of Directors of Synbiotics and ICG believe the Acquisition will strengthen the combined companies' product pipelines in the field of animal health care. In addition, the Boards believe that the two companies complement each other. By combining Synbiotics' financial strength, manufacturing capacity and broad product lines with ICG's unique position in the canine reproduction and canine genetic testing market and its direct sales channels to veterinarians and breeders, the Boards believe the Acquisition will result in a strengthened market position and an increase in shareholder value. See "Description of the Acquisition--Reasons of the Synbiotics and ICG Boards of Directors for the Acquisition." 4 RECOMMENDATION OF THE SYNBIOTICS BOARD OF DIRECTORS The Synbiotics Board of Directors unanimously approved the Acquisition and the Purchase Agreement. The Synbiotics Board of Directors unanimously recommends that Synbiotics shareholders vote FOR the Synbiotics Proposals, including a vote to approve the principal terms of the Acquisition. See "The Acquisition- Description of the Acquisition--Recommendation of the Synbiotics Board of Directors; Factors Considered" for a discussion of the factors considered by the Synbiotics Board of Directors. RECOMMENDATION OF THE ICG BOARD OF DIRECTORS The ICG Board of Directors unanimously approved the Acquisition and the Purchase Agreement. The ICG Board of Directors unanimously recommends that ICG stockholders vote FOR the proposal to approve the Acquisition pursuant to the Purchase Agreement. See "The Acquisition-Description of the Acquisition-- Recommendation of the ICG Board of Directors; Factors Considered" for a discussion of the factors considered by the ICG Board of Directors. RISK FACTORS In connection with a determination to approve the Purchase Agreement, stockholders should evaluate the risk factors associated with Synbiotics, ICG and the Acquisition. Stockholders should note that the market prices for securities of biotechnology companies, including those of Synbiotics and ICG, have been volatile. Factors such as competition from larger companies, technological innovations, failure to obtain regulatory approval when expected, general market conditions and other factors may impact the market price. Potential fluctuations of the market price of Synbiotics Common Stock make it impossible for stockholders to definitively calculate the value of the consideration to be received by ICG in the Acquisition until the Acquisition Date. FOR A MORE DETAILED DESCRIPTION OF THE RISK FACTORS ASSOCIATED WITH THE ACQUISITION AND THE BUSINESS OF SYNBIOTICS AND ICG, SEE "RISK FACTORS." ACQUISITION DATE The Acquisition will become effective when all conditions to consummation of the Acquisition have been satisfied or waived. It is expected the Acquisition Date will occur within two business days after the Synbiotics Meeting and the ICG Meeting. See "The Acquisition--The Purchase Agreement--Acquisition Date." ISSUANCE OF SHARES On the Acquisition Date, ICG shall receive the Acquisition Shares, the number of which shall be 1,400,000, provided that the Average Closing Sales Price is not greater than $3.50 per share or less than $2.50 per share. If the Average Closing Sales Price is greater than $3.50 per share, the number of Acquisition Shares shall be equal to 1,400,000 multiplied by a fraction, the numerator of which shall be $3.50 and the denominator of which shall be the Average Closing Sales Price. If the Average Closing Sales Price is less than $2.50 per share, the number of Acquisition Shares shall be equal to 1,400,000 multiplied by a fraction, the numerator of which shall be $2.50 and the denominator of which shall be the Average Closing Sales Price. TREATMENT OF ICG STOCK OPTIONS AND WARRANTS With appropriate adjustments in exercise price and number of underlying shares to reflect the Acquisition's effective valuation ratio, the ICG Options and the ICG Warrants will be assumed by Synbiotics and will become exercisable for shares of Synbiotics Common Stock as of the Acquisition Date. S.R. ONE CASH INVESTMENT IN SYNBIOTICS The Purchase Agreement provides that shortly before the closing of the Acquisition, S.R. One shall purchase unregistered Synbiotics Common Stock from Synbiotics for $1,000,000 cash. The number of such shares to be purchased by S.R. One is the quotient of $1,000,000 divided by the Average Closing Sales Price. 5 ACQUISITION PROPOSALS; NO SOLICITATION The Purchase Agreement provides that neither ICG nor any of its representatives on its behalf, shall (i) directly or indirectly, through any other party initiate, encourage or engage in any negotiations with or provide any information to any other person, firm or corporation with respect to an acquisition transaction involving ICG or the business of ICG, (ii) directly or indirectly through any other party solicit any proposal relating to the acquisition of, or other major transaction involving, the business of ICG. If ICG or any such representatives receives any inquiries from any other party relating to the proposed disposition of the business of ICG or the assets to be acquired in the Acquisition, ICG will (i) promptly advise such party that ICG is not entitled to enter into any discussions or negotiations and (ii) notify Synbiotics in writing of such inquiry. See "The Acquisition--The Purchase Agreement--Acquisition Proposals." CONDITIONS TO THE ACQUISITION The obligations of ICG and Synbiotics to consummate the Acquisition are each subject to the satisfaction of the following conditions: (i) requisite approval by their respective Board of Directors and stockholders of the transactions contemplated in the Purchase Agreement; (ii) the effectiveness under the Act of the Registration Statement on Form S-4 including a joint proxy statement relating to stockholder approval and no stop order having been issued with respect to the Form S-4 and (iii) there being no pending or threatened lawsuit challenging the transaction by any body or agency of the federal, state, or local government (or by any third party with respect to Synbiotics), and the consummation of the transaction not having been enjoined by a court of competent jurisdiction as of the Acquisition Date. The obligations of Synbiotics to consummate the Acquisition are also subject to the satisfaction of the following conditions: (i) the accuracy of the representations and warranties of ICG contained in the Purchase Agreement in all material respects at and as of the Acquisition Date; (ii) ICG having in all material respects performed and complied with all of its covenants, conditions and other obligations contained in the Purchase Agreement on or before the Acquisition Date; (iii) any applicable waiting period under any applicable federal law having expired and any and all filings under any applicable state bulk transfer laws having been timely made and having been completed; (iv) a certificate executed by the President of ICG certifying that the conditions set forth above have been satisfied having been delivered to Synbiotics; (v) ICG having provided to the satisfaction of Synbiotics termination statements of security interests from all secured creditors and releases of related liens; (vi) Synbiotics having received all licenses from all appropriate governmental agencies or third parties to operate the business of ICG in the same manner as ICG operated such business prior to the Closing Date; (vii) Synbiotics being satisfied in its reasonable business judgment discretion with the results of its due diligence investigation of ICG; (viii) the form and substance of all certificates, instruments, opinions and other documents delivered or to be delivered to Synbiotics pursuant to the Purchase Agreement being satisfactory to Synbiotics and its counsel in all reasonable respects; (ix) Synbiotics having received certain closing documents specified in the Purchase Agreement; and (x) Synbiotics having received an opinion of McCausland, Keen & Buckman, counsel to ICG. See "The Acquisition--The Purchase Agreement--Conditions." The obligations of ICG to consummate the Acquisition are also subject to the satisfaction of the following conditions: (i) the accuracy of the representations and warranties of Synbiotics contained in the Purchase Agreement in all material respects at and as of the Acquisition Date; (ii) Synbiotics having performed and complied in all material respects with all of its covenants, conditions and other obligations contained in the Purchase Agreement on or before the Acquisition Date; (iii) the approval upon notice of issuance for listing on the Nasdaq National Market of the shares of Synbiotics Common Stock to be issued in the Acquisition; (iv) ICG having received a certificate of the President of Synbiotics certifying that the conditions set forth in (i) and (ii) have been satisfied; (v) a mutually agreeable designee of ICG having been appointed to the Board of Directors of Synbiotics effective as of the Acquisition Date; (vi) ICG having received the certain closing documents specified in the Purchase Agreement; and (vii) ICG having received an opinion of Brobeck, Phleger & Harrison LLP, counsel to Synbiotics. See "The Acquisition-- The Purchase Agreement--Conditions." 6 TERMINATION The Purchase Agreement is subject to termination by Synbiotics or ICG upon the occurrence of certain events. See "The Acquisition--The Purchase Agreement-- Termination." EXPENSES Each side will bear its own expenses in connection with the Acquisition. ACCOUNTING TREATMENT Synbiotics will account for the Acquisition as a purchase. See "The Acquisition--Description of the Acquisition--Accounting Treatment." RESALES OF SYNBIOTICS COMMON STOCK; AFFILIATES The Synbiotics Common Stock to be issued to ICG and subsequently distributed to the ICG stockholders pursuant to the Purchase Agreement will be freely transferable under the Act, except for shares in ICG's hands and shares distributed by ICG to any person who as of the ICG Meeting may be deemed to be an "affiliate" of ICG within the meaning of Rule 405 under the Act. With respect to the Synbiotics Common Stock subsequently distributed to S.R. One, the volume limitations on resale as set forth in the now-current Rule 144 and Rule 145 under the Act shall apply until the second anniversary of the Acquisition Date. The certificates evidencing Synbiotics Common Stock issued upon the ICG Share Redemption to affiliates of ICG as of the ICG Meeting will bear a legend summarizing the restrictions on resale imposed on their Acquisition Shares under Rule 145 of the Act. See "The Acquisition--Description of the Acquisition-- Resales of Synbiotics Common Stock; Affiliates." DISSENTERS' RIGHTS Pursuant to Chapter 13 of the California Law, if the Synbiotics shareholders are required by California Law to and do approve the Acquisition at the Synbiotics Meeting, holders of shares of Synbiotics Common Stock are entitled under certain circumstances to dissenters' rights with respect to their shares of Synbiotics Common Stock in connection with the Acquisition. The failure of a dissenting shareholder to follow the appropriate procedures in connection with the Acquisition may result in the termination or waiver of such dissenters' rights. See "The Acquisition--Description of the Acquisition--Dissenters' Rights." If Synbiotics is not required either by the California Law or by the NASD Bylaws to obtain Synbiotics shareholder approval of the principal terms of the Acquisition, then that matter will not be presented at the Synbiotics Meeting. If the NASD Bylaws require Synbiotics shareholder approval of the Acquisition but the California Law does not, then the matter will be presented at the Synbiotics Meeting. However, in such event, no Synbiotics shareholders will be entitled to dissenters' rights. Whether a requirement exists under the California Law and/or the NASD Bylaws depends on the number of Synbiotics shares issuable in connection with the Acquisition, which in turn depends on the Average Closing Sales Price. See "Description of the Acquisition--Dissenters' Rights." In no event will ICG stockholders have any dissenters' rights (or any appraisal rights under the Delaware General Corporation Law) in connection with the Acquisition. TAX CONSEQUENCES The Acquisition is intended to be a taxable exchange. ICG STOCKHOLDERS SHOULD READ CAREFULLY THE DISCUSSION IN "THE ACQUISITION--DESCRIPTION OF THE ACQUISITION--CERTAIN FEDERAL INCOME TAX CONSEQUENCES." ICG STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES TO THEM OF THE ACQUISITION AND ICG'S CONTEMPLATED REDEMPTIONS OF SHARES UNDER FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS. 7 COMPARATIVE PER SHARE DATA The following table sets forth certain historical per share data of Synbiotics and ICG and combined per share data on an unaudited pro forma basis after giving effect to the proposed Acquisition using the purchase method of accounting assuming that 0.49 shares of Synbiotics Common Stock is issued in exchange for each share of ICG in the Acquisition. This data should be read in conjunction with the pro forma condensed financial statements and the separate historical financial statements of Synbiotics and the notes thereto and the historical financial statements of ICG and the notes thereto, incorporated in or included elsewhere in this Joint Proxy Statement/Prospectus. The pro forma condensed financial statements are not necessarily indicative of what actual results of operations would have been for the periods had the transactions occurred on the dates indicated and do not purport to indicate future financial position nor the results of future operations.
Year Ended Six Months Ended December 31, 1995 June 30, 1996 ------------------ ---------------- Historical - Synbiotics: Net Income per share................................ $ 0.09 $0.53 Cash dividends declared per share................... -- -- Book value per share (1)............................ 1.57 2.30 Year Ended June 30, 1996 ----------------- Historical - ICG: Net Income per share................................ $ (0.60) Cash dividends per share............................ -- Book value per share (1)............................ (0.37) Year Ended Six Months Ended December 31, 1995 June 30, 1996 ----------------- ---------------- Pro forma combined net income per share Pro forma net income per Synbiotics share........... $ (0.22) $0.31 Equivalent pro forma net income per ICG share (3)... (0.11) 0.15 Pro forma combined cash dividends per share......... -- -- Six Months Ended June 30, 1996 ---------------- Pro forma book value per share....................... Pro forma book value per Synbiotics share (2)....... $2.56 Equivalent pro forma book value per ICG share (3)... 1.26
- ---------------------------- (1) The historical book value per share is computed by dividing shareholders' equity by the number of shares of common stock outstanding at the end of each period. (2) The pro forma book value per share is computed by dividing pro forma combined shareholders' equity by the number of shares of common stock outstanding after giving effect to the Acquisition. (3) The ICG equivalent pro forma per share amounts are calculated by multiplying the Synbiotics combined pro forma per share amounts by the exchange ratio of 0.49 shares of Synbiotics Common Stock for each share of ICG Common Stock. 8 COMPARATIVE MARKET PRICES The following table sets forth, for the calendar quarters indicated (ended March 31, June 30, September 30 and December 31), the range of high and low sale prices of Synbiotics Common Stock as reported by the Nasdaq National Market and high and low closing bid prices of ICG Common Stock as reported by the National Quotation Bureau, Inc. On May 15, 1996, the last trading date prior to the joint public announcement by Synbiotics and ICG of the announcement of the letter of intent between Synbiotics and ICG concerning the Acquisition (the "Letter of Intent"), last reported sale price for the closing bid for Synbiotics Common Stock on the Nasdaq National Market was $3.50 per share and the ICG Common Stock on the over- the counter market was $_______ per share. Potential fluctuations of the market price of Synbiotics Common Stock make it impossible for stockholders to definitively calculate the value of the consideration to be received by ICG in the Acquisition until the Acquisition Date. See "Risk Factors."
PERIOD SYNBIOTICS COMMON STOCK ICG COMMON STOCK - ----------------------------------------- ----------------------- ------------------- HIGH LOW HIGH LOW ---------- ---------- ------- ------- Year Ended December 31, 1994 1st Quarter............................. $5.13 $3.13 $ 2 1/2 $2 1/2 2nd Quarter............................. 4.50 3.25 2 1/2 7/8 ----- 2.38 7/8 1/2 3rd Quarter............................. 3.63 1.63 23/32 5/8 4th Quarter............................. 2.75 Year Ended December 31, 1995 1st Quarter............................. $3.13 $1.50 $ 5/8 $ 1/4 2nd Quarter............................. 3.25 2.38 5/16 1/4 3rd Quarter............................. 5.25 2.50 1/2 3/16 4th Quarter............................. 4.13 1.88 9/16 5/16 Year Ending December 31, 1996 1st Quarter............................. $3.13 $2.25 $ 5/16 $ 5/16 2nd Quarter............................. 5.50 2.38 1 3/16 5/16 3rd Quarter (through August 1, 1996)... 4.50 3.63 1 3/16 3/4
Because the market price of Synbiotics Common Stock is subject to fluctuation, the market value of the shares of Synbiotics Common Stock that ICG will receive in the Acquisition may increase or decrease prior to the Acquisition. Synbiotics and ICG stockholders are urged to obtain a current market quotation for the Synbiotics Common Stock. 9 INTRODUCTION GENERAL This Joint Proxy Statement/Prospectus is being furnished to the stockholders of ICG in connection with the solicitation of proxies by the ICG Board of Directors from the holders of outstanding shares of ICG Common Stock, for use at the ICG Meeting. At the ICG Meeting, stockholders will be asked to consider and vote upon the proposal to approve and adopt the Purchase Agreement. This Joint Proxy Statement/Prospectus is also being furnished to the shareholders of Synbiotics, in connection with the solicitation of proxies by the Synbiotics Board from holders of outstanding shares of Synbiotics Common Stock, for use at the Synbiotics Meeting. At the Synbiotics Meeting, Synbiotics' shareholders will be asked to consider and vote upon the Synbiotics Proposals which include proposals (i) to approve the principal terms of the Acquisition, (ii) to elect a Board of Directors for the following year and (iii) to approve the Synbiotics Charter Amendment. This Joint Proxy Statement/Prospectus constitutes the Prospectus of Synbiotics with respect to the shares of Synbiotics Common Stock to be issued in the Acquisition. The information in this Joint Proxy Statement/Prospectus with respect to Synbiotics has been supplied by Synbiotics and the information with respect to ICG has been supplied by ICG. The principal executive offices of Synbiotics are located at 11011 Via Frontera, San Diego, California 92127 and its telephone number is (619) 451- 3771. The principal executive offices of ICG are located at 271 Great Valley Parkway, Malvern, Pennsylvania 19355 and its telephone number is (610) 640-1244. ACQUISITION--CONSIDERATION Upon consummation of the Acquisition, Synbiotics will acquire substantially all the assets of ICG in exchange for the Acquisition Shares, the number of which shall be 1,400,000, provided that the Average Closing Sales Price is not greater than $3.50 per share or less than $2.50 per share. If the Average Closing Sales Price is greater than $3.50 per share, the number of Acquisition Shares shall be equal to 1,400,000 multiplied by a fraction, the numerator of which shall be $3.50 and the denominator of which shall be the Average Closing Sales Price. If the Average Closing Sales Price is less than $2.50 per share, the number of Acquisition Shares shall be equal to 1,400,000 multiplied by a fraction, the numerator of which shall be $2.50 and the denominator of which shall be the Average Closing Sales Price. In addition, the ICG Options and the ICG Warrants will be assumed by Synbiotics and will become exercisable for shares of Synbiotics Common Stock as of the Acquisition Date, with appropriate adjustments in exercise price and number of underlying shares to reflect the Acquisition's effective valuation ratio. VOTING AND PROXIES Synbiotics. Holders of record of shares of Synbiotics Common Stock at the close of business on the Synbiotics Record Date will be entitled to vote at the Synbiotics Meeting and at any adjournment or postponement thereof. At the close of business on the Synbiotics Record Date, Synbiotics had 5,999,956 shares of its Common Stock outstanding. The affirmative vote of the holders of a majority of the outstanding shares of Synbiotics Common Stock is required for approval of the Synbiotics Charter Amendment and approval of the principal terms of the Acquisition. The holder of each outstanding share of Synbiotics Common Stock is entitled to one vote per share on the Synbiotics Proposals, other than the election of directors. Under California Law, shareholders are permitted to cumulate votes for the election of directors whose names have been placed in nomination. Therefore, in voting for directors, each outstanding share of Common Stock would be entitled to six votes which may be cast 10 for one candidate or distributed in any manner among the nominees for director. However, the right to cumulate votes in favor of one or more candidates may not be exercised until the candidate or candidates have been nominated and any shareholder has given notice at the Synbiotics Meeting of the intention to cumulate votes. The presence, either in person or by proxy, of the holders of at least a majority of the outstanding shares of Synbiotics Common Stock entitled to vote is necessary to constitute a quorum at the Synbiotics Meeting. Depending on the Average Closing Sales Price (which determines the number of Acquisition Shares, Warrant Shares and Option Shares), approval by Synbiotics shareholders of the Acquisition may or may not be required under California Law and/or under Part III, Section 5(i)(1)(c)(ii) of Schedule D to the Bylaws of the NASD. Synbiotics is subject to the NASD rules by virtue of the designation of Synbiotics Common Stock as a Nasdaq National Market security. Such provision requires stockholder approval of the acquisition of the assets of another company where the number of shares of common stock to be issued is or will be equal to or in excess of 20% of the number of shares of common stock outstanding before the issuance of such stock. California Law and the NASD Bylaws differ, however, in whether derivative securities are included in the 20% calculation. The California Law requires Synbiotics shareholder approval of the Acquisition if the Shares equal or exceed 20% of the number of shares of Synbiotics common stock outstanding as of immediately before the Acquisition. In addition, the NASD Bylaws require Synbiotics shareholder approval of the Acquisition if the Shares plus the Option Shares plus the Warrant Shares equal or exceed 20% of the number of shares of Synbiotics Common Stock outstanding before the issuance of the Shares. Assuming the S.R. One Purchase Stock is deemed outstanding before the issuance of the Shares, the California Law will not require Synbiotics shareholder approval if the Average Closing Sales Price is $3.92 or above and (assuming further that 3,000,000 shares of ICG Common Stock are outstanding at the time of the Acquisition) the NASD Bylaws will not require Synbiotics shareholder approval if the Average Closing Sales Price is $5.16 or above. See "Description of the Acquisition-Dissenters' Rights." All shares of Synbiotics Common Stock represented by properly executed proxies will be voted at the Synbiotics Meeting in accordance with the directions indicated on the respective proxies unless the proxies have been previously revoked. Unless contrary direction is given, all Synbiotics shares represented by such proxies will be voted FOR the Synbiotics Proposals and in the proxyholders' discretion as to such other matters incident to the conduct of the Synbiotics Meeting as may properly come before shareholders at the Synbiotics Meeting. Notwithstanding the foregoing, if Synbiotics shareholder approval of the principal terms of the Acquisition is required neither by the California Law nor by the NASD Bylaws, the proposal to approve the principal terms of the Acquisition will not be presented at the Synbiotics Meeting and the proxies will not be voted for approval of the principal terms of the Acquisition. THE SYNBIOTICS BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE SYNBIOTICS PROPOSALS (WHICH INCLUDE APPROVAL OF THE PRINCIPAL TERMS OF THE ACQUISITION). See "The Acquisition," "Approval of the Synbiotics Charter Amendment" and "Election of Directors." If any other matters are properly presented at the Synbiotics Meeting for action, including a question of adjourning the meeting from time to time, the persons named in the proxies and acting thereunder will have discretion to vote on those matters in accordance with their best judgment. The Synbiotics Meeting may be adjourned, and additional proxies solicited, if at the time of the Synbiotics Meeting the vote necessary to approve the Synbiotics Proposals has not been obtained. Any adjournment of the Synbiotics Meeting will require the affirmative vote of the holders of at least a majority of the shares of Synbiotics Common Stock represented at the Synbiotics Meeting (regardless of whether those shares constitute a quorum). A Synbiotics shareholder executing and returning a proxy has the power to revoke it at any time before it is voted. A shareholder who wishes to revoke a proxy can do so by executing a later-dated proxy relating to the same shares and delivering it to the Secretary of Synbiotics prior to the vote at the Synbiotics Meeting, by written notice of revocation to the Secretary prior to the vote at the Synbiotics Meeting or by appearing in person at the Synbiotics Meeting and voting in person the shares to which the proxy relates. Any written notice revoking 11 a Synbiotics proxy should be sent to Synbiotics at 11011 Via Frontera, San Diego, California 92127, Attention: Secretary. The expenses of printing and mailing proxy materials to Synbiotics shareholders will be borne by Synbiotics. In addition to the solicitation of proxies by mail, solicitation may also be made by personal interview, telephone, or facsimile transmission by certain directors, officers and employees of Synbiotics. No additional compensation will be paid to directors, officers or employees of Synbiotics for such services. Copies of solicitation materials will be furnished to brokerage houses, fiduciaries and custodians to forward to beneficial owners of shares held in their names. Those persons will be reimbursed for their reasonable expenses in forwarding solicitation materials to beneficial owners. ICG. Holders of record of ICG Shares at the close of business on the ICG Record Date will be entitled to vote at the ICG Meeting and any adjournment or postponement. As of the close of business on that date, ICG had 2,819,155 shares of ICG Common Stock outstanding. The affirmative vote of the holders of a majority of the outstanding shares of ICG Common Stock entitled to vote is required for approval of the Acquisition. The holder of each outstanding share of ICG Common Stock is entitled to one vote per share. The presence, either in person or by proxy, of the holders of at least a majority of the outstanding shares of ICG Common Stock entitled to vote is necessary to constitute a quorum at the ICG Meeting. As of the ICG Record Date, S.R. One and directors and executive officers of ICG as a group (seven persons) beneficially owned 2,571,781 shares of ICG Common Stock or 79% of the total outstanding shares of ICG Common Stock. See "ICG-- Principal Stockholders of ICG." ICG has been advised that S.R. One and all of ICG's directors and executive officers intend to vote in favor of the Acquisition. All shares of ICG Common Stock represented by properly executed proxies will be voted at the ICG Meeting in accordance with the directions indicated on the respective proxies unless the proxies previously have been revoked. Unless contrary direction is given, the shares of ICG Common Stock will be voted FOR the ICG Proposal. THE ICG BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PURCHASE AGREEMENT. See "The Acquisition--Description of the Acquisition--Recommendation of the ICG Board of Directors; Factors Considered." If any other matters are properly presented at the ICG Meeting for action, including a question of adjourning the meeting from time to time, the proxy holders will have discretion to vote on those matters in accordance with their best judgment. The ICG Meeting may be adjourned, and additional proxies solicited, if at the time of the ICG Meeting the vote necessary to approve the ICG Proposal has not been obtained. Any adjournment of the ICG Meeting will require the affirmative vote of the holders of at least a majority of the shares of Common Stock of ICG represented at the ICG Meeting (regardless of whether those shares constitute a quorum). A stockholder executing and returning a proxy has the power to revoke it at any time before it is voted. A stockholder who wishes to revoke a proxy can do so by executing a later-dated proxy relating to the same shares and delivering it to the Secretary of ICG prior to the vote at the ICG Meeting, by giving written notice of revocation to the Secretary of ICG prior to the vote at the ICG Meeting or by appearing in person at the ICG Meeting and voting in person the shares to which the proxy relates. Any written notice revoking a ICG proxy should be sent to ICG at 271 Great Valley Parkway, Malvern, Pennsylvania 19355, Attention: Secretary. Abstentions are counted as shares present for purposes of determining the presence or absence of a quorum for the transaction of business. Brokers holding shares for beneficial owners must vote their shares according to the specific instructions they receive from the owners. If specific instructions are not received, 12 brokers may vote the shares in their discretion, except if they are precluded from exercising their voting discretion on certain proposals pursuant to the rules of the New York Stock Exchange. In such a case, the broker may not vote on the proposal absent specific voting instructions. This results in what is known as a "broker non-vote." A broker non-vote has the effect of a negative vote when a majority of the shares issued and outstanding is required for approval of the proposal. For purposes of the proposal to approve the Acquisition, abstentions and broker non-votes will have the same effect as a vote against the proposal. The New York Stock Exchange determines whether brokers have discretionary authority to vote on a given proposal. The expense of printing and mailing proxy materials to ICG stockholders will be borne by ICG. In addition to the solicitation of proxies by mail, solicitation may be made by personal interview, telephone, or facsimile transmission by certain directors, officers and employees of ICG. No additional compensation will be paid to directors, officers or employees of ICG for such services. Copies of solicitation material will be furnished to brokerage houses, fiduciaries and custodians to forward to beneficial owners of shares held in their names. Those persons who will be reimbursed for their reasonable expenses in forwarding solicitation material to beneficial owners. 13 RISK FACTORS The following are among the factors that should be considered carefully in evaluating Synbiotics, ICG and the Acquisition. INABILITY TO CALCULATE VALUE OF CONSIDERATION RECEIVED IN ACQUISITION Potential fluctuations of the market price of Synbiotics Common Stock make it impossible for stockholders to definitively calculate the value of the consideration to be received by ICG in the Acquisition until the Acquisition Date. As a result, neither at the time of executing a proxy nor at the time of the Meetings will stockholders know such value. COMPETITION; TECHNOLOGICAL CHANGE Competition in the animal health care industry is intense. Many competitors, such as Pfizer Animal Health, Mallinckrodt Veterinary and IDEXX Laboratories, have substantially greater financial, manufacturing, marketing and product research resources than Synbiotics. Large companies in particular have extensive expertise in conducting pre-clinical and clinical testing of new products and in obtaining the necessary regulatory approvals to market products. Competition is based on test sensitivity, accuracy and speed; product price; and similar factors. IDEXX Laboratories requires its distributors not to carry the products of competitors such as Synbiotics. There can be no assurance that such competition will not adversely affect Synbiotics' results of operation or ability to maintain or increase sales and market share. See "Business (Synbiotics)--Competition." HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT Synbiotics has had a history of losses, and profitability in the six months ended June 30, 1996 may not result in profit for the year ended December 31, 1996. See "Synbiotics Management's Discussion and Analysis or Plan of Operations--Results of Operations." Synbiotics has incurred an accumulated deficit of $16.0 million through June 30, 1996. Revenues have been generated from product sales. However, there can be no assurance that Synbiotics can generate sufficient product or contract revenue to sustain profitability. See "Synbiotics Management's Discussion and Analysis or Plan of Operations." NO ASSURANCE THAT BUSINESSES CAN BE SUCCESSFULLY COMBINED There can be no assurance that the anticipated benefits of the Acquisition will be realized. The Acquisition involves numerous risks, including difficulties in the assimilation of the operations, technologies and products of ICG, potentially dilutive issuances of equity securities, accounting charges, operating companies in different geographic locations with different cultures, the potential loss of key employees of ICG, the diversion of management's attention from other business concerns and the risks of entering markets in which Synbiotics has no or limited direct prior experience. In addition, there can be no assurance that the Acquisition will not have a material adverse effect upon Synbiotics' business, results of operations or financial condition, particularly in the quarters immediately following the consummation of the Acquisition due to operational disruptions, severance expenses, unexpected expenses and accounting charges which may be associated with the integration of ICG and Synbiotics. SALES AND MARKETING Synbiotics markets its products to veterinarians, primarily through independent distributors. Synbiotics' United States distributors have approximately 90 outlets and a total sales force of approximately 600 field sales representatives and approximately 200 telemarketing sales representatives. This allows Synbiotics to focus its major emphasis on developing and manufacturing products. However, this strategy results in a large percentage of sales being to only a few customers. Synbiotics currently does not maintain a direct marketing sales force. Synbiotics markets its products outside of the U.S. through distributors and on an OEM basis. There can be no assurance that Synbiotics will be able to establish an adequate sales and marketing capability in any or all targeted markets or that it will be successful in gaining market acceptance for its products. To the extent 14 Synbiotics enters into distributor arrangements any revenues received by Synbiotics will be dependent on the efforts of third parties and there can be no assurance that such efforts will be successful. See "Business (Synbiotics)-- Marketing." ATTRACTION AND RETENTION OF KEY EMPLOYEES The success of Synbiotics is highly dependent, in part, on its ability to retain highly qualified personnel, including senior management and scientific personnel. Competition for such personnel is intense and the inability to retain additional key employees or the loss of one or more current key employees could adversely affect Synbiotics. Although Synbiotics has been successful in retaining required personnel to date, there can be no assurance that Synbiotics will be successful in the future. In addition, there can be no assurance that key employees of ICG will continue to be employees of Synbiotics. EARLY STAGE OF DEVELOPMENT Both ICG and Synbiotics rely on new and recently developed products. There can be no assurance that Synbiotics will obtain and maintain market acceptance of its products. With respect to future products, there can be no assurance that such products will meet applicable regulatory standards, be capable of being produced in commercial quantities at acceptable cost or be successfully commercialized. See "--Government Regulation." FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING The development and commercialization of Synbiotics' products will require substantial funds to conduct research and development and to manufacture and commercialize any products that are approved for commercial sale. Synbiotics' future capital requirements will depend on many factors, including continued scientific progress in its products and proven development programs, progress with product testing, the cost of manufacturing scale-up, the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims, competing technological and market developments, and the cost of establishing effective sales and marketing arrangements. Synbiotics anticipates that its existing, available cash, cash equivalents and short-term investments will be adequate to satisfy its capital requirements and fund operations at least through 1996. In the event that such sources of funds are not adequate to satisfy its capital requirements and fund its operations, Synbiotics will seek additional funding through collaborative arrangements or through public or private financings. There can be no assurance that additional financing will be available on acceptable terms or at all. If additional funds are raised by issuing equity securities, further dilution to then existing shareholders may result. If adequate funds are not available, Synbiotics may be required to delay, scale back or eliminate one or more of its research and development programs or seek to obtain funds through arrangements with collaborative partners or others even if the arrangements would require Synbiotics to relinquish certain rights to certain of its technologies, product candidates or products that Synbiotics would not otherwise relinquish. See "Synbiotics Management's Discussion and Analysis or Plan of Operations -- Liquidity and Capital Resources." RELIANCE ON THIRD PARTY MANUFACTURERS Certain of Synbiotics' products are manufactured by third parties under the terms of distribution and/or manufacturing agreements. In the event that these third parties are unable to supply Synbiotics with sufficient finished products, Synbiotics has the right, under certain circumstances, pursuant to the agreements to use alternate manufacturing sources. See "Business (Synbiotics)-- Raw Materials." There can be no assurance that new products can be manufactured at a cost or in quantities necessary to make them commercially viable. If Synbiotics were unable to produce internally, or to contract for, a sufficient supply of its products on acceptable terms, or if it should encounter delays or difficulties in its relationships with manufacturers, the introduction of new products and shipment of current products would be delayed, which could have a material adverse effect on Synbiotics. 15 PATENTS AND PROPRIETARY TECHNOLOGY ICG has been issued two patents from the U.S. Patent and Trademark Office ("PTO") relating to certain aspects of its canine pregnancy and ovulation timing testing. ICG has chosen not to obtain patent protection in foreign countries and has foregone the option to do so. ICG has elected to maintain its formulas for semen freezing and chilling medias (buffers) and nutritional supplements as trade secrets, and has not sought patent protection for those technologies. ICG has registered two trademarks with the United States Patent and Trademark Office. ICG currently uses seven trademarks in connection with its products and intends to file applications to register these marks with the PTO. ICG has obtained the rights to several trademarks through various license and distribution agreements. ICG also holds the exclusive licenses for a proprietary patented product and for the patented technology used in a canine pregnancy test. See "Business (Synbiotics)--Patents and Trade Secrets." See "Business (ICG)--Patents, Trademarks and Licenses." Synbiotics generally has sought and will continue to seek to protect its interests by treating its particular variations in the production of monoclonal antibodies as trade secrets. Synbiotics also has pursued and intends to continue aggressively to pursue protection for new products, new methodological concepts, and compositions of matter through the use of patents and trademarks where obtainable. At present, Synbiotics has been granted nine U.S. patents. There can be no assurance that Synbiotics will be issued any additional patents or that, if any patents are issued, they will provide Synbiotics with significant protection or will not be challenged. Even if such patents are enforceable, Synbiotics anticipates that any attempt to enforce its patents would be time consuming and costly. Moreover, the laws of some foreign countries do not protect Synbiotics' proprietary rights in the products to the same extent as do the laws of the United States. The patent positions of biotechnology companies, including Synbiotics and ICG, are uncertain and involve complex legal and factual issues. Additionally, the coverage claimed in a patent application can be significantly reduced before the patent is issued. As a consequence, there can be no assurance that any of Synbiotics' future patent applications will result in the issuance of patents or, if any patents issue, that they will provide significant proprietary protection or will not be circumvented or invalidated. Because patent applications in the United States are maintained in secrecy until patents issue and publication of discoveries in the scientific or patent literature often lag behind actual discoveries, Synbiotics cannot be certain that it was the first inventor of inventions covered by its pending patent applications or that it was the first to file patent applications for such inventions. Moreover, Synbiotics may have to participate in interference proceedings declared by the PTO to determine priority of invention that could result in substantial cost to Synbiotics, even if the eventual outcome is favorable to Synbiotics. There can be no assurance that Synbiotics' patents, if issued, would be held valid by a court of competent jurisdiction. An adverse outcome of any patent litigation could subject Synbiotics to significant liabilities to third parties, require disputed rights to be licensed from or to third parties or require Synbiotics to cease using the technology in dispute. There can be no assurance that third parties will not assert infringement claims against Synbiotics in the future or that any such assertions will not result in costly litigation or require Synbiotics to obtain a license to intellectual property rights of such parties. There can be no assurance that any such licenses would be available on terms acceptable to Synbiotics, if at all. Furthermore, parties making such claims may be able to obtain injunctive or other equitable relief that could effectively block Synbiotics' ability to further develop or commercialize its products in the United States and abroad and could result in the award of substantial damages. Defense of any lawsuit or failure to obtain any such license could have a material adverse affect on Synbiotics. Finally, litigation, regardless of outcome, could result in substantial cost to and a diversion of efforts by Synbiotics. GOVERNMENT REGULATION ICG's semen freezing products, diagnostic ovulation timing products and pregnancy testing services for dogs fall within the definition of devices as that term is defined in the Federal Food, Drugs, and Cosmetic Act ("FFDCA") and, therefore, may be subject to regulation by the United States Food and Drug Administration (the 16 "FDA"). ICG is also subject to additional regulation in connection with its pet food products. See "Business (ICG)--Government Regulation." Most diagnostic test kits for animal health applications, such as those sold by Synbiotics, require approval by the United States Department of Agriculture ("USDA"). In addition, Synbiotics manufactures and sells one product which does not require USDA licensing but has been registered with the Center for Veterinary Medicine of the FDA. Synbiotics' manufacturing facility has been registered with the FDA and is licensed by the USDA. Synbiotics adheres to Good Manufacturing Practices (GMP) standards. In addition, Synbiotics' operations may be subject to future legislation and/or rules issued by domestic or foreign governmental agencies with regulatory authority relating to Synbiotics' business. There can be no assurance that Synbiotics will be found in compliance with any of the various regulations to which it is subject. See "Business (Synbiotics)--Government Regulation." For marketing outside the United States, Synbiotics will be subject to foreign regulatory requirements in such foreign jurisdictions, which vary widely from country to country and there can be no assurance that Synbiotics will meet and sustain any such requirements. PRODUCT LIABILITY AND INSURANCE The design, development and manufacture of both Synbiotics' and ICG's products involve an inherent risk of product liability claims and associated adverse publicity. Synbiotics and ICG obtained liability insurance for potential product liability associated with the commercial sale of their products. There can be no assurance, however, that Synbiotics will be able to obtain or maintain insurance for any of its commercial products. Although Synbiotics and ICG currently maintain general liability insurance, there can be no assurance that the coverage limits of Synbiotics' or ICG's insurance policies will be adequate. Product liability insurance is expensive, difficult to obtain and may not be available in the future on acceptable terms or at all. A successful claim brought against Synbiotics or ICG in excess of Synbiotics' or ICG's insurance coverage would have a material adverse effect upon Synbiotics. See "Business (ICG)--Manufacturing and Operations." HAZARDOUS MATERIALS Synbiotics' research and development involves the controlled use of hazardous materials, chemicals and various radioactive compounds. Although Synbiotics believes that its safety procedures for handling and disposing of such materials comply with the standards prescribed by local, state and federal regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such an accident, Synbiotics could be held liable for any damages that result and any such liability could exceed the resources of Synbiotics. Synbiotics may incur substantial costs to comply with environmental regulations. VOLATILITY OF STOCK PRICE; ABSENCE OF DIVIDENDS The market prices for securities of biotechnology companies, including Synbiotics and ICG, have historically been highly volatile. Future announcements concerning Synbiotics or its competitors may have a significant impact on the market price of the Synbiotics Common Stock. Such announcements might include the results of research, development, testing, technological innovations, new commercial products, government regulations, developments concerning proprietary rights or litigation. No cash dividends have been paid on Synbiotics Common Stock to date, and Synbiotics does not anticipate paying cash dividends in the foreseeable future. See "Summary--Comparative Market Prices." CONCENTRATION OF OWNERSHIP Upon completion of this Acquisition, Synbiotics' executive officers, directors and affiliated entities together will beneficially own approximately 37.6% of the outstanding shares of Common Stock, assuming an Average Closing Sales Price of $3.50 per share. As a result, these stockholders, acting together, will be able to influence significantly and possibly control most matters requiring approval by the stockholders of Synbiotics, 17 including the election of directors. Such a concentration of ownership may have the effect of delaying or preventing a change in control of Synbiotics, including a transaction in which stockholders might otherwise receive a premium for their shares over the current market prices. See "Security Ownership of Certain Synbiotics Beneficial Owners and Management." SEASONALITY Synbiotics has experienced some seasonality in its business, with sales highest in December to April, the time period in which distributors purchase canine heartworm diagnostic products to sell to veterinarians for the heartworm season. There can be no assurance that such seasonality will not have a material adverse impact on Synbiotics' operations. See "Business (Synbiotics)-- Market and Product Overview" and "Synbiotics Management's Discussion and Analysis or Plan of Operation--Results of Operations." 18 THE ACQUISITION (PROPOSAL FOR BOTH SYNBIOTICS AND ICG MEETINGS) BACKGROUND OF THE ACQUISITION The history of events resulting in the Acquisition are as follows: On January 25, 1996, during a business trip to the West Coast, Paul Rosinack, President and CEO of ICG, met with Robert Widerkehr, then President and CEO, and Michael Green, CFO, of Synbiotics to discuss mutual business opportunities. On January 29, 1996, Synbiotics and ICG entered into a confidentiality agreement to exchange information and agreed to explore the possibility of a business combination. During February and March, 1996, the companies exchanged information about their respective businesses. ICG's and Synbiotics' senior executives met on several occasions to discuss the strategy of combining the two companies and to develop a synergistic plan that would strengthen the combined companies' market position and increase shareholder value. Financial terms were also discussed. On April 25, 1996, at a regular meeting of the Synbiotics Board of Directors, Synbiotics' management presented a proposal for Synbiotics to enter into a nonbinding letter of intent to acquire substantially all of ICG's assets and certain liabilities. Management presented a strategic overview of the acquisition and its analysis of the perceived complementary strengths of Synbiotics and ICG: Synbiotics' strategy to grow through acquisition, ICG's unique position in the canine reproduction and canine genetic testing market, ICG's diagnostic product line which could be transferred to Synbiotics and utilize Synbiotics' excess manufacturing capacity, ICG's breeder and veterinarian networks which could be utilized to expand the sales of Synbiotics' products. The Synbiotics Board authorized management to enter into a nonbinding letter of intent to acquire interest of Synbiotics' shareholders. On April 25, 1996, at a regular meeting of the ICG Board of Directors, ICG management presented a proposal for ICG to enter into a nonbinding letter of intent to sell substantially all of its assets and certain liabilities to Synbiotics. Management presented a strategic overview of the transaction and its analysis of the perceived complementary strengths of ICG and Synbiotics including Synbiotics' financial position, expanded distribution for ICG products in the U.S. and International markets, manufacturing capacity and broad product lines. The ICG Board of Directors authorized ICG management to enter into a nonbinding letter of intent to sell substantially all of its assets and certain liabilities to Synbiotics as the transaction was determined to be in the best interest of ICG's stockholders. On May 14, 1996, management of Synbiotics and ICG entered into a nonbinding letter of intent and made a joint public announcement with respect thereto on May 16, 1996. In the weeks that followed, additional confidential information was exchanged between the two companies. Synbiotics management visited the offices to conduct a review of ICG's business. ICG's management visited Synbiotics' offices to conduct a review of Synbiotics' business. Discussions between senior executives and their legal advisors also commenced regarding the terms of the definitive purchase agreement, including, but not limited to, financial structure, treatment of common stock warrants and stock options, certain employee benefits and management compensation. On June 27, 1996, at a regular meeting of the Synbiotics Board of Directors, Synbiotics' management reported on the progress of negotiations. Following discussion, the Synbiotics Board of Directors determined that the acquisition of substantially all of ICG's assets and certain liabilities was in the best interest of the Synbiotics shareholders, customers and employees and authorized management to conclude negotiations and finalize a Purchase Agreement. On June 28, 1996, at a regular meeting of the ICG Board of Directors, management reported on the progress of negotiations. Following a discussion of financing alternatives, ICG's Board of Directors determined 19 that the proposed transaction with Synbiotics was in the best interest of ICG's stockholders, customers and employees and authorized management to conclude negotiations and finalize a Purchase Agreement. On July 19, 1996, at a special telephone meeting of the ICG Board of Directors, ICG management and legal counsel, the ICG Board of Directors approved the transaction and authorized management to execute the Purchase Agreement. On July 22, 1996, at a special telephone meeting of the Synbiotics Board of Directors, Synbiotics management and legal counsel, the Synbiotics Board of Directors approved the transaction and authorized management to execute the Purchase Agreement. On July 23, 1996, Synbiotics and ICG entered into the Purchase Agreement and made a public announcement with respect thereto on July 25, 1996. 20 DESCRIPTION OF THE ACQUISITION GENERAL If the Acquisition is consummated, Synbiotics will acquire substantially all of the assets of ICG. ICG will receive the Acquisition Shares (and $1.00 cash) in exchange for the Assets. The Acquisition will be effective after satisfaction (absent waiver) of all conditions, including the approval of the Purchase Agreement by the stockholders of Synbiotics and ICG. All shares of Synbiotics Common Stock to be issued to ICG will be registered under the Act. After the Acquisition (and assuming both an Average Closing Sales Price of $3.50 and consummation of the S.R. One Cash Purchase), approximately 7.7 million shares of Synbiotics Common Stock will be outstanding. REASONS OF THE SYNBIOTICS AND ICG BOARDS OF DIRECTORS FOR THE ACQUISITION The Board of Directors of Synbiotics and ICG believe the Acquisition will strengthen the combined companies' product pipelines in the field of animal health care. In addition, the Boards believe that the two companies complement each other. By combining Synbiotics' financial strength, manufacturing capacity and broad product lines with ICG's unique position in the canine reproduction and canine genetic testing market and its direct sales channels to veterinarians and breeders, the Boards believe the Acquisition will result in a strengthened market position and an increase in shareholder value. RECOMMENDATION OF THE SYNBIOTICS BOARD OF DIRECTORS; FACTORS CONSIDERED The Synbiotics Board of Directors unanimously approved the Purchase Agreement as fair to and in the best interests of the stockholders of Synbiotics. The Synbiotics Board of Directors unanimously recommends that Synbiotics shareholders vote FOR the proposal to approve the principal terms of the Acquisition. See "The Acquisition--Description of the Acquisition--Reasons of the Synbiotics and ICG Boards of Directors for the Acquisition." In reaching this conclusion, the Synbiotics Board of Directors considered a number of factors, including the following: 1. The Synbiotics Board considered the benefits which the Synbiotics Board believed could be achieved from the combination of Synbiotics' business with ICG. The Synbiotics Board considered Synbiotics' strategy to grow through acquisition, as well as the perceived complementary strengths of Synbiotics and ICG. In particular, the Synbiotics Board considered ICG's unique position in the canine reproduction and canine genetic testing market and its synergies with Synbiotics. In addition, the Synbiotics Board considered the effects of transferring ICG's diagnostic product line to Synbiotics and utilizing Synbiotics' excess manufacturing capacity. The Synbiotics Board considered the marketing potential which could result from utilizing ICG's breeder and veterinarian networks to market Synbiotics' products. Accordingly, the Synbiotics Board believed that with ICG's and Synbiotics' complementary products and services, the Acquisition could provide for expanded sales opportunities at little additional expense. 2. The Synbiotics Board considered the increase in shareholder value that could result from the strength of the combined companies' market position. 3. The Synbiotics Board also considered potential disadvantages to Synbiotics and its shareholders which could result from the Acquisition, including (i) the possibility that Synbiotics could be unsuccessful in assimilating the operations, technologies and products of ICG; and (ii) the dilutive effect upon its shareholders resulting from the issuance of additional equity securities. The Synbiotics Board concluded, without reliance on any single factor, but based instead upon an evaluation of all pertinent considerations, that the advantages inherent in the Acquisition would outweigh the potential disadvantages, and that principal among the benefits would be the ability to acquire a product line which would complement its own and strengthen its market position. 21 In view of the variety of factors considered by the Synbiotics Board of Directors in connection with its evaluation of the Acquisition, the Synbiotics Board of Directors did not find it practicable to and did not quantify or otherwise assign relative weights to the specific factors considered in reaching its determination. RECOMMENDATION OF THE ICG BOARD OF DIRECTORS; FACTORS CONSIDERED The ICG Board of Directors unanimously approved the Purchase Agreement as fair to and in the best interests of the stockholders of ICG. The ICG Board of Directors unanimously recommends that shareholders vote FOR the Purchase Agreement. The ICG Board of Directors believes that the Acquisition represents an attractive opportunity that will enable shareholders of ICG to participate in the enhanced value of the combined technology base, increased scientific and management skills resulting from the Acquisition. See "--Reasons of the Synbiotics and ICG Boards of Directors for the Acquisition." In reaching this conclusion, the ICG Board of Directors considered a number of factors, including the following: 1. The Board considered the benefits which the ICG Board believed could be achieved from the combination of ICG's business with Synbiotics. The Board considered the opportunity for ICG to become part of a larger organization which has greater distribution channels, additional manufacturing capacities and greater financial resources than those of ICG. The ICG Board also took into consideration various synergies between Synbiotics' and ICG's businesses that might result from the Acquisition. Accordingly, the ICG Board believed that with ICG's and Synbiotics' complementary products and services, the Acquisition could provide for expanded sales opportunities at little additional expense. Further, Synbiotics' presence on the West coast provides greater access and exposure to potential customers for ICG's products on the West Coast. ICG believed that the enhanced profile of being part of a larger company would provide ICG's customers and vendors with greater confidence in ICG's products and services, which the Board believed could facilitate customer sales and more favorable vendor relations. 2. The ICG Board considered the increased liquidity for its stockholders because of the trading of Synbiotics' Common Stock on the NASDAQ National Market and alternative opportunities for increasing its liquidity. The ICG Board considered the fact that ICG's stock was no longer trading on the NASDAQ Small Cap market and that it would be difficult for ICG to satisfy the requirements for inclusion in either the Small Cap or the National Market. 3. The ICG Board considered alternative opportunities for growth and financing that might be available to ICG and its stockholders. In determining whether to approve the Acquisition, the ICG Board considered the following alternatives: (i) selling substantially all of ICG's assets for cash or entering into a stock transaction with an acquiror other than Synbiotics; (ii) seeking to obtain financing from other sources; and (iii) reducing the size of its operations. The ICG Board rejected the first alternative because Synbiotics presented the only firm proposal to ICG and ICG was not able to identify any other potential partners. The ICG Board rejected the second alternative because of the substantial dilution it anticipated would result in connection with obtaining adequate financing to support its growth and operations. In addition, there was no assurance that ICG would be able to obtain the necessary financing. The ICG Board rejected the third alternative because it did not believe that ICG could improve its financial condition or results of operations by scaling down its operations. 4. Certain potential disadvantages to ICG and its stockholders resulting from the Acquisition were also considered, including (i) the concentration of the value of ICG in the shares of a single publicly-held entity, with the resulting market value fluctuation risks inherent in the public equity markets; and (ii) the loss of control by ICG's management and Board of Directors over the operation of ICG's business. The ICG Board concluded, without reliance on any single factor, but based instead upon an evaluation of all pertinent considerations, that the advantages inherent in the Acquisition would outweigh the potential disadvantages, and that principal among the benefits would be the ability to obtain adequate capitalization for ICG's business and to preserve for its stockholders the opportunity to participate in the future growth of Synbiotics. In reaching these conclusions, the ICG Board considered a number of factors, including, among other things, the terms and conditions of the Purchase Agreement, information with respect to the financial condition, business operations and prospects of both ICG and Synbiotics on both a historical and prospective basis, 22 including information reflecting the two companies on a pro forma combined basis, and the views and opinions of ICG's management. After taking into consideration all the factors set forth above, the ICG Board determined that the Acquisition was in the best interests of the stockholders of ICG. In view of the various factors considered in connection with its evaluation of the Acquisition, the ICG Board did not find it practicable to, and did not, quantify or otherwise attempt to assign relative weights to the specific factors considered in reaching its decision. The amount of consideration to be paid in the Acquisition and the final determination of the form and amount of consideration, was made pursuant to arm's-length negotiations between ICG and Synbiotics. THE ICG BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT ICG STOCKHOLDERS VOTE TO APPROVE THE ACQUISITION AND THE PURCHASE AGREEMENT. FEDERAL INCOME TAX CONSEQUENCES This transaction will result in taxable income to ICG. However, ICG does not expect to pay any material income tax because it can use prior net operating losses to offset the gain. Following the Acquisition, ICG intends to redeem its stock from certain participating stockholders (the "Redeeming Stockholders") (see "--ICG Redemptions"). If the redemption constitutes a complete termination of a Redeeming Stockholder's interest in ICG which had been held for investment, the Redeeming Stockholder should recognize a capital gain or loss (depending upon such stockholder's basis in the redeemed ICG stock) upon receipt of Acquisition Shares and any other ICG property. If the Redeeming Stockholder has held his or her ICG stock for more than one year, the receipt of acquisition Shares and any other ICG property in exchange for ICG stock should constitute a long-term capital gain or loss; otherwise, the redemption will be treated as a short-term capital gain and loss. The same capital gain or loss treatment should be available to any Redeeming Stockholder who redeems less than all of his or her shares of ICG stock, provided that immediately after the redemption of his or her shares, (i) the Redeeming Stockholder owns less than 50% of the remaining outstanding shares of ICG common stock and (ii) the number of shares of ICG common stock held by the Redeeming Stockholder immediately after the redemption is less than 80% of the number of shares of ICG common stock held by the same Redeeming Stockholder immediately before the redemption. ACCOUNTING TREATMENT The Acquisition will be accounted for by Synbiotics as a purchase. ICG Redemptions Under ICG's plan to redeem its stock from the Redeeming Stockholders, ICG will distribute to each of the Redeeming Stockholders a substantial portion of the Acquisition Shares received in the Acquisition and such other property of ICG as its Board of Directors deems appropriate. The actual number of shares of Acquisition Shares distributed to the Redeeming Stockholders will depend upon the amount of the ICG liabilities not assumed in the Acquisition since ICG intends to satisfy its remaining unassumed liabilities from the proceeds of sale of some number of Acquisition Shares in the marketplace. ICG will distribute to each of the Redeeming Stockholders non- liquidated Acquisition Shares in the same proportion as the number of shares of ICG stock tendered by each Redeeming Stockholder bears to the total number of shares of ICG stock held by all ICG stockholders immediately prior to the redemption. Following the redemption, it is anticipated that there will be two remaining stockholders. One stockholder will be Paul A. Rosinack, the President and Chief Executive Officer of ICG, who will own a majority 23 of the remaining outstanding shares of ICG common stock. The other stockholder will be S.R. One, which will own the balance of the ICG common stock. RESALES OF SYNBIOTICS COMMON STOCK; AFFILIATES The Synbiotics Common Stock to be issued to ICG and subsequently distributed to the ICG stockholders pursuant to the Redemptions will be freely transferable under the Act, except for shares issued to any person who may be deemed as of the ICG Meeting to be an "affiliate" of ICG within the meaning of Rule 405 under the Act. Persons who may be deemed to be affiliates of ICG generally include individuals or entities that, directly or indirectly through one or more intermediaries, control, are controlled by or are under common control with ICG and may include certain officers, directors and principal stockholders of ICG. Affiliates of ICG will not be able to sell, pledge or otherwise transfer any Synbiotics Common Stock issued pursuant to the Purchase Agreement, except pursuant to an effective registration statement or in compliance with Rule 145 or another exemption from the registration requirements of the Act. With respect to the Synbiotics Common Stock subsequently distributed to any forty percent or greater stockholder of ICG (i.e., S.R. One), the volume limitations on resale as set forth in the now-current Rule 144 and Rule 145 under the Act shall apply until the second anniversary of the Acquisition Date. The certificates evidencing Synbiotics Common Stock issued to affiliates pursuant to the Redemptions will bear a legend summarizing the restrictions on resale imposed on their Acquisition Shares under Rule 145 of the Act. ROSINACK EMPLOYMENT AGREEMENT Pursuant to the Purchase Agreement, upon the Acquisition Date Paul A. Rosinack, now the Chief Executive Officer and President of ICG, will become Vice President and General Manager, Animal Health of Synbiotics at an annual salary of $160,000. In addition, he will receive stock options to purchase 25,000 shares of Synbiotics Common Stock and an interest-free loan of up to $50,000 to cover relocation expenses. The loan will be forgiven over time if Mr. Rosinack continues as a Synbiotics employee. REGULATORY REQUIREMENTS Other than the effectiveness of this Registration Statement, ICG and Synbiotics are not aware of any federal, state or foreign governmental or regulatory approval that is required in order to consummate the Acquisition. Should any such approval be required, it is currently contemplated that such approval would be sought. DISSENTERS' RIGHTS Holders of shares of ICG Common Stock are not entitled to dissenters' rights or to Delaware General Corporation Law "appraisal" rights. The California Law requires Synbiotics shareholder approval of the Acquisition if the Shares equal or exceed 20% of the number of shares of Synbiotics common stock outstanding as of immediately before the Acquisition. Assuming the S.R. One Purchase Stock, which will be purchased one hour before the Acquisition, is deemed outstanding as of immediately before the Acquisition, the California Law will not require Synbiotics shareholder approval if the Average Closing Sales Price is $3.92 or above. The NASD Bylaws require Synbiotics shareholder approval of the Acquisition if the Acquisition Shares plus the Option Shares plus the Warrant Shares equal or exceed 20% of the number of shares of Synbiotics common stock outstanding before the issuance of the Shares. Assuming the S.R. One Purchase Stock is deemed outstanding before the issuance of the Shares, and assuming 3,000,000 shares of ICG Common Stock outstanding at the Time of Closing, the NASD Bylaws will not require Synbiotics shareholder approval if the Average Closing Sales Price is $5.16 or above. If the NASD Bylaws require Synbiotics shareholder approval but the California Law does not, Synbiotics will seek such shareholder approval at the Synbiotics Meeting and the Acquisition will not occur unless such 24 approval is obtained. Nonetheless, if Synbiotics shareholder approval was obtained in those circumstances (under the NASD Bylaws only), Synbiotics shareholders would not have dissenters' rights under the California Law. As stated above, pursuant to Chapter 13 of the California Law, holders of shares of Synbiotics Common Stock may be entitled to dissenters' rights in connection with the Acquisition. The failure of a dissenting shareholder to follow the appropriate procedures may result in the termination or waiver of such dissenters' rights. In addition, such dissenters' rights shall not apply if the Synbiotics shareholders do not in fact approve the principal terms of the Acquisition at the Synbiotics Meeting. If it appears at the Synbiotics Meeting that Synbiotics shareholder approval of the Acquisition is required neither by California Law nor by the NASD Bylaws, the question of Synbiotics shareholder approval of the principal terms of the Acquisition will not be presented to the Synbiotics Meeting and dissenters' rights will be entirely inapplicable. The following discussion assumes the Acquisition is indeed presented to and approved by the Synbiotics shareholders at the Synbiotics Meeting. The following summary of the provisions of Chapter 13 of the California Law is not intended to be a complete statement of such provisions and is qualified in its entirety by the full text of Chapter 13. If the Acquisition is approved by the required vote of the Synbiotics shareholders and is not abandoned or terminated and if holders of five percent or more of the outstanding shares of Synbiotics Common Stock demand purchase prior to the commencement of the Synbiotics Meeting (the "5% Demand Requirement"), each holder of shares of Common Stock of Synbiotics who has voted against the Acquisition and who follows the procedures set forth in Chapter 13 will be entitled to have his or her shares of Synbiotics Common Stock purchased by Synbiotics for cash at their fair market value. The fair market value of shares of Synbiotics Common Stock will be determined as of the day before the first announcement of the terms of the proposed Acquisition, excluding any appreciation or depreciation in consequence of the proposed Acquisition. The last sales price of Synbiotics Common Stock on the last trading day prior to the announcement of the Letter of Intent was $3.50 per share as quoted on the Nasdaq National Market. Assuming the 5% Demand Requirement is satisfied, the shares of Synbiotics Common Stock with respect to which holders have perfected their purchase demand in accordance with Chapter 13 and have not effectively withdrawn or lost such dissenters' rights are referred to in this Joint Proxy Statement/Prospectus as the "Dissenting Shares." If the 5% Demand Requirement is satisfied, within ten days after approval of the Acquisition by the Synbiotics shareholders, Synbiotics must mail a notice of such approval (the "Approval Notice") to all shareholders who have not voted in favor of approval and adoption of the Purchase Agreement, together with a statement of the price determined by Synbiotics to represent the fair market value of the applicable Dissenting Shares (determined in accordance with the immediately preceding paragraph), a brief description of the procedures to be followed in order for the shareholder to pursue his or her dissenters' rights, and a copy of Sections 1300-1304 of the California Law. The statement of price by Synbiotics constitutes an offer by Synbiotics to purchase all Dissenting Shares at the stated amount. Only a holder of record of shares of Common Stock of Synbiotics on the Synbiotics Record Date (or his or her duly appointed representative) is entitled to assert a purchase demand for the shares registered in that holder's name. A shareholder of Synbiotics electing to exercise dissenters' rights must demand in writing from Synbiotics the purchase of his or her shares of Synbiotics Common Stock and payment to the shareholder of their fair market value and must submit the certificate representing the Dissenting Shares to Synbiotics for endorsement as Dissenting Shares. A holder who elects to exercise dissenters' rights should mail or deliver his or her written demand to Synbiotics at 11011 Via Frontera, San Diego, California 92127, directed to the attention of Michael K. Green, Secretary. The demand should specify the holder's name and mailing address, the number of shares of Synbiotics common stock owned by such shareholder and state that such holder is demanding purchase of his or her shares and payment of their fair market value and must also contain a statement as to what the shareholder claims to be the fair market value of such shares, determined in accordance with the second preceding paragraph. Such statement of the fair market value of the shares constitutes an offer by the shareholder to sell the shares to Synbiotics at that price. The demand must be received by Synbiotics not later than the date of the Synbiotics Meeting. The certificate representing the Dissenting Shares must be submitted for endorsement within 30 days after the date of the Approval Notice. 25 If Synbiotics and the shareholder agree that the shares are Dissenting Shares and agree upon the purchase price of the shares, the dissenting shareholder is entitled to the agreed upon price with interest thereon at the legal rate on judgments from the date of such agreement. Payment for the Dissenting Shares must be made within 30 days after the later date of such agreement or the date on which all statutory and contractual conditions to the Acquisition are satisfied, and is subject to surrender to Synbiotics of the certificates for the Dissenting Shares. If Synbiotics denies that the shares are Dissenting Shares, or if Synbiotics and the shareholder fail to agree upon the fair market value of the shares, then within six months after the date of Approval Notice was mailed to shareholders, any shareholder who has made a valid written purchase demand and who has not voted in favor of approval of the principal terms of the Acquisition may file a complaint in the Superior Court of San Diego County (the "Court") requesting a determination as to whether the shares are Dissenting Shares or as to the fair market value of such holder's shares of Synbiotics Common Stock, or both, or may intervene in any pending action brought by any other Synbiotics shareholder. Any holder of Dissenting Shares who has duly demanded the purchase of his or her shares under Chapter 13 of the California Law will not, after the Acquisition Date of the Acquisition, be entitled to vote the shares subject to such demand for any purpose or be entitled to the payment of dividends or other distributions on such Dissenting Shares (except dividends or other distributions payable to shareholders of record as of the date prior to the Acquisition Date of the Acquisition). If any holder of shares of Synbiotics Common Stock who demands the purchase of his or her shares under Chapter 13 of the California Law fails to perfect, or effectively withdraws or loses his or her right to such purchase, or if the 5% Demand Requirement is not satisfied, such holder will not be entitled to have his or her shares purchased by Synbiotics for cash at their fair market value. Dissenting Shares lose their status as Dissenting Shares if (a) the Acquisition is abandoned; (b) the shares are transferred prior to their submission for the required endorsement; (c) the dissenting shareholder fails to make a timely written demand for purchase, along with a statement of fair market value; (d) the dissenting shareholder does not vote against the approval of the principal terms of the Acquisition; (e) the dissenting shareholder and Synbiotics do not agree upon the status of the shares as Dissenting Shares or do not agree on the purchase price, but neither Synbiotics nor the shareholder files a complaint or intervenes in a pending action within six months after mailing of the Approval Notice; or (f) with Synbiotics's consent, the shareholder delivers to Synbiotics a written withdrawal of such shareholder's demand for purchase of his or her shares. 26 THE PURCHASE AGREEMENT GENERAL The Purchase Agreement and certain related matters are summarized below. The following summarizes the principal terms of the Acquisition. This summary does not purport to be a complete statement of the terms and conditions of the Acquisition and is qualified in its entirety by reference to the Purchase Agreement, which is set forth as Appendix A and is incorporated by reference. All capitalized terms set forth below in this section entitled "The Purchase Agreement" not otherwise defined herein shall be defined as set forth in the Purchase Agreement. All ICG and Synbiotics stockholders are urged to read the Purchase Agreement in its entirety. THE ACQUISITION The Purchase Agreement provides that, subject to the satisfaction or waiver of the various conditions to the Acquisition, Synbiotics will acquire substantially all of the assets of ICG. In addition, Synbiotics will assume certain liabilities and obligations of ICG, not to exceed the sum of Time of Closing cash, accounts receivable and inventory plus $95,000; provided that in no event shall the aggregate amount of assumed liabilities exceed Time of Closing accounts payable and accrued expenses (excluding all accounting and legal fees and other costs related to the transactions contemplated by the Purchase Agreement, and all payroll and payroll related items, unless the limit is not reached when these items are excluded). ACQUISITION DATE The Acquisition will close promptly after all conditions set forth in the Purchase Agreement have been satisfied or waived. See "--Termination." CONSIDERATION FOR THE ACQUISITION On the Acquisition Date, ICG shall receive $1.00 cash plus the Acquisition Shares, the number of which shall be 1,400,000, provided that the Average Closing Sales Price is not greater than $3.50 per share or less than $2.50 per share. If the Average Closing Sales Price is greater than $3.50 per share, the number of Acquisition Shares shall be equal to 1,400,000 multiplied by a fraction, the numerator of which shall be $3.50 and the denominator of which shall be the Average Closing Sales Price. If the Average Closing Sales Price is less than $2.50 per share, the number of Acquisition Shares shall be equal to 1,400,000 multiplied by a fraction, the numerator of which shall be $2.50 and the denominator of which shall be the Average Closing Sales Price. In addition, the ICG Options and the ICG Warrants will be assumed by Synbiotics and will become exercisable for shares of Synbiotics Common Stock as of the Acquisition Date, with appropriate adjustments in exercise price and number of underlying shares to reflect the Acquisition's effective valuation ratio. S.R. ONE CLOSING Pursuant to the terms of the Purchase Agreement, S.R. One has agreed to purchase at the S.R. One Closing, which shall occur one hour before the Time of Closing, the number of shares of Synbiotics Common Stock equal to $1,000,000 divided by the Average Closing Sales Price. CONDITIONS The obligations of ICG and Synbiotics to consummate the Acquisition are each subject to the satisfaction of the following conditions: (i) requisite approval by their respective Board of Directors and stockholders of the transactions contemplated in the Purchase Agreement; (ii) the effectiveness under the Act of the Registration Statement on Form S-4 including a joint proxy statement relating to stockholder approval and no stop order shall have been issued with respect to the Form S-4 and (iii) there being no pending or threatened lawsuit challenging the transaction by any body or agency of the federal, state, or local government (or by any third party with 27 respect to Synbiotics), and the consummation of the transaction shall not have been enjoined by a court of competent jurisdiction as of the Acquisition Date. The obligations of Synbiotics to consummate the Acquisition are also subject to the satisfaction of the following conditions: (i) the accuracy of the representations and warranties of ICG contained in the Purchase Agreement in all material respects at and as of the Acquisition Date; (ii) ICG having in all material respects performed and complied with all of its covenants, conditions and other obligations contained in the Purchase Agreement on or before the Acquisition Date; (iii) any applicable waiting period under any applicable federal law shall have expired and any and all filings under any applicable state bulk transfer laws shall have been timely made and have been completed; (iv) a certificate executed by the President of ICG shall have been delivered to Synbiotics; (v) ICG shall have provided to the satisfaction of Synbiotics termination statements of security interests from all secured creditors and releases of related liens; (vi) Synbiotics shall have received all licenses from all appropriate governmental agencies or third parties to operate the business of ICG in the same manner as ICG operated such business prior to the Closing Date; (vii) Synbiotics shall be satisfied in its reasonable business judgment with the results of its due diligence investigation of ICG; (viii) the form and substance of all certificates, instruments, opinions and other documents delivered or to be delivered to Synbiotics pursuant to the Purchase Agreement shall be satisfactory to Synbiotics and its counsel in all reasonable respects; (ix) Synbiotics shall have received certain closing documents specified in the Purchase Agreement; (x) the S.R. One Closing shall have occurred and (xi) Synbiotics shall have received an opinion of McCausland, Keen & Buckman, counsel to ICG. The obligations of ICG to consummate the Acquisition are also subject to the satisfaction of the following conditions: (i) the accuracy of the representations and warranties of Synbiotics contained in the Purchase Agreement in all material respects at and as of the Acquisition Date; (ii) Synbiotics having in all material respects performed and complied with all of its covenants, conditions and other obligations contained in the Purchase Agreement on or before the Acquisition Date; (iii) the approval upon notice of issuance for listing on the Nasdaq National Market of the shares of Synbiotics Common Stock to be issued in the Acquisition; (iv) ICG shall have received a certificate of the President of Synbiotics; (v) a mutually agreeable designee of ICG (now identified as Brenda D. Gavin, DVM shall have been appointed to the Board of Directors of Synbiotics effective as of the Acquisition Date; (vi) ICG shall have received the certain closing documents specified in the Purchase Agreement; and (vii) ICG having received an opinion of Brobeck, Phleger & Harrison LLP, counsel to Synbiotics. REPRESENTATIONS AND WARRANTIES In the Purchase Agreement, ICG and Synbiotics have made certain representations and warranties concerning corporate organization, good standing and power, corporate authorization, litigation, governmental consents and approvals, broker fees, information included in the Proxy Statement/Prospectus, filings made with the SEC, complete disclosure, absence of certain changes, information contained in the Form S-4 Registration Statement to be filed with the SEC in connection with the Acquisition and no reliance on forecasts. In addition, Synbiotics has made representations and warranties concerning compliance with other instruments, the validity of the issuance of shares of Common Stock of Synbiotics to ICG, and the capitalization of Synbiotics. Additionally, ICG has made representations and warranties concerning its conduct of business, no undisclosed liabilities, inventory, accounts and notes receivable, properties, taxes, compliance with laws, products, proprietary rights, restrictive documents or orders, contracts and commitments, assets, insurance, product warranties and product liability, conflicts or defaults, labor relations, employee benefit plans, interested party relationship, environmental matters, certain payments, books and records and customers and suppliers. 28 TERMINATION The Purchase Agreement may be terminated and the transactions therein contemplated may be abandoned at any time notwithstanding any party's Board or stockholder approval, but not later than the S.R. One Closing (as to S.R. One) or the Time of Closing (as to Synbiotics and ICG) as follows: 1. by Synbiotics, if there has been a material breach by either of S.R. One or ICG of its representations, warranties, covenants or agreements set forth in the Purchase Agreement and S.R. One or ICG, as the case may be, fails to cure within five (5) business days after notice thereof is given by Synbiotics (except that no cure period shall be provided for a breach by S.R. One or ICG which by its nature cannot be cured); 2. by S.R. One, if there has been a material breach by Synbiotics of the representations, warranties, covenants or agreements set forth in this Agreement as to S.R. One and Synbiotics fails to cure within five (5) business days after notice thereof is given by S.R. One (except that no cure period shall be provided for a breach by Synbiotics which by its nature cannot be cured); 3. by S.R. One (but only with respect to the Synbiotics/S.R. One transaction), if S.R. One in its reasonable business judgment determines that the ICG Closing is not going to occur; 4. by ICG, if there has been a material breach by Synbiotics of the representations, warranties, covenants or agreements set forth in this Agreement as to ICG and Synbiotics fails to cure within five (5) business days after notice thereof is given by ICG (except that no cure period shall be provided for a breach by Synbiotics which by its nature cannot be cured); 5. by Synbiotics, if the required approval of the stockholders of ICG contemplated by the Purchase Agreement has not been obtained within thirty (30) days from the solicitation of such consents or proxies; 6. by ICG, if the approval of the Purchase Agreement by the shareholders of Synbiotics is required and such approval has not obtained within forty-five (45) days from the solicitation of such consents or proxies; 7. by Synbiotics or ICG, if any permanent injunction or other order of a court or other competent authority preventing the Acquisition shall have become final and nonappealable; or 8. by Synbiotics or ICG, if any governmental or administrative agency shall have issued a temporary restraining order, preliminary injunction or permanent injunction or other order preventing the consummation of the Acquisition or any litigation shall be pending, the ultimate resolution of which is likely to (i) result in the issuance of such an order or injunction, or the imposition against Synbiotics or ICG, of substantial damages if the Acquisition is consummated, (ii) prohibit Synbiotics' ownership or operation of all or a material portion of the business rights of ICG or Synbiotics taken as a whole, or to compel Synbiotics or ICG to dispose of or hold separate all or a material portion of the business or assets of Synbiotics or ICG as a result of the Acquisition, (iii) materially limit or restrict Synbiotics's conduct or operation of the business of ICG after the Acquisition Date, or (iv) render Synbiotics or ICG unable to consummate the Acquisition. In the event any such order or injunction shall have been issued, each party agrees to use its reasonable efforts to have any such injunction lifted. TREATMENT OF WARRANTS All the ICG Warrants will be assumed by Synbiotics and will become exercisable for shares of Synbiotics Common Stock as of the Acquisition Date, with appropriate adjustments in exercise price and number of underlying shares to reflect the Acquisition's effective valuation ratio. Synbiotics is registering the issuance of the shares of Synbiotics Common Stock to be issued upon exercise of the ICG Warrants (the "Warrant Shares") under the Act. An ICG Warrant shall become exercisable for a number of Warrant Shares equal to the number of shares of ICG Common Stock for which the Warrant was exercisable, times the total number of Acquisition 29 Shares, divided by the total number of outstanding shares of ICG Common Stock on the Acquisition Date. The exercise price of the ICG Warrant shall be unchanged in the aggregate, and per Warrant Share shall be the exercise price per share of ICG Common Stock, times the total number of outstanding shares of ICG Common Stock on the Acquisition Date, divided by the total number of Acquisition shares. For example, assuming a $3.50 Average Closing Sales Price (for 1,400,000 Acquisition Shares) and 3,000,000 shares of ICG Common Stock outstanding on the Acquisition Date, an ICG Warrant to purchase 1,000 shares of ICG Common Stock at $1.25 per share shall become exercisable for 467 Warrant Shares at $2.68 per Warrant Share. TREATMENT OF STOCK OPTIONS All the ICG Options will be assumed by Synbiotics and will become exercisable for shares of Synbiotics Common Stock as of the Acquisition Date, with appropriate adjustments in exercise price and number of underlying shares to reflect the Acquisition's effective valuation ratio. Synbiotics will cause the shares of Synbiotics Common Stock to be issued upon exercise of the ICG Options (the "Option Shares") to be registered under the Act on Form S-8 at or promptly after the Acquisition Date. An ICG Option shall become exercisable for a number of Option Shares equal to the number of shares of ICG Common Stock for which the Option was exercisable, times the total number of Acquisition Shares, divided by the total number of outstanding shares of ICG Common Stock on the Acquisition Date. The exercise price of the ICG Option shall be unchanged in the aggregate, and per Option Share shall be the exercise price per share of ICG Common Stock, times the total number of outstanding shares of ICG Common Stock on the Acquisition Date, divided by the total number of Acquisition shares. For example, assuming a $3.50 Average Closing Sales Price (for 1,400,000 Acquisition Shares) and 3,000,000 shares of ICG Common Stock on the Acquisition Date, an ICG Option to purchase 1,000 shares of ICG Common Stock at $7.00 per share shall become exercisable for 467 Option Shares at $15.00 per Option Share. EXPENSES Each party will bear its own costs and expenses in connection with this Purchase Agreement and the transactions contemplated thereby. Synbiotics and ICG will bear the printing expenses of the Form S-4 and the Proxy Statement pro rata based upon the size of their respective shareholder mailings. ICG shall pay all applicable recording or filing fees or sales, use, excise, transfer, documentary and any other similar taxes arising out of the Acquisition. ACQUISITION PROPOSALS The Purchase Agreement provides that neither ICG nor any of its representatives on its behalf, shall (i) directly or indirectly, through any other party initiate, encourage or engage in any negotiations with or provide any information to any other person, firm or corporation with respect to an acquisition transaction involving ICG or the business of ICG, (ii) directly or indirectly, through any other party solicit any proposal relating to the acquisition of, or other major transaction involving, the business of ICG. If ICG or any such representatives receives any inquiries from any other party relating to the proposed disposition of the business of ICG or the assets to be acquired in the Acquisition, ICG will (i) promptly advise such party that ICG is not entitled to enter into any discussions or negotiations and (ii) notify Synbiotics in writing of such inquiry. STANDSTILL PROVISION Pursuant to the Purchase Agreement, S.R. One agrees during the time from the date of the Purchase Agreement until the fifth anniversary of the S.R. One Closing not to, without express written consent of the Board of Directors of Synbiotics, acquire any equity securities of Synbiotics except (i) its pro rata distribution of the Shares upon liquidation of ICG, (ii) the shares of common stock of Synbiotics purchased pursuant to this Agreement, (iii) upon exercise of any Warrants held by S.R. One or (iv) issuances of any securities upon stock splits or stock dividends with respect to any equity securities of Synbiotics. 30 CONDUCT OF BUSINESS PENDING ACQUISITION ICG has agreed that, during the period from the date of the signing of the Purchase Agreement and the Acquisition Date, it shall carry on and use its best efforts to preserve the business of ICG, maintain all equipment and machinery in good working order, discharge and maintain current obligations with respect to any employee withholding taxes, comply with the Securities Act and Exchange Act, preserve inventories of necessary supplies at proper levels, keep available the services of present officers and key employees and preserve relationships with customers, suppliers and others having dealings with ICG. ICG has agreed, except as expressly permitted in the Purchase Agreement, not to (i) enter into agreements or contracts of employment or terminate the employment of any engineering or technical personnel or other key employees except for cause; (ii) alter any employee or personnel benefits; (iii) dispose of any assets to be acquired in the Acquisition (other than in the ordinary course and subject to the obligation to maintain proper inventory levels) or acquire or lease any assets in excess of $10,000 individually, or $20,000 in the aggregate; (iv) make any capital improvements, additions or expenditures; (v) incur any liabilities or obligations (other than in the ordinary course of business) except for ICG's currently contemplated convertible note financing of up to $750,000; (vi) declare any distribution or dividends of any kind, or (vii) repurchase or otherwise acquire any shares of its capital stock. In addition, ICG agreed to advise Synbiotics of any material operating decisions. In addition, certain holders of private ICG warrants may exercise their warrants to provide additional financing to ICG. ICG also agreed to assist Synbiotics in determining which contracts are material to the operations of the business and to assist Synbiotics in establishing separate agreements with the other parties to such contracts. Synbiotics and ICG have also agreed to give each other reasonable access to their respective books and records. Each company has agreed to give the other notice of specified material events and to use reasonable efforts to consult with each other before making public announcements. Both ICG and Synbiotics have agreed to use their best efforts to effectuate their respective transactions contemplated by the Purchase Agreement and to fulfill and cause to be fulfilled the conditions to the closing under the Purchase Agreement. NOTIFICATION OF NONCOMPLIANCE Each of Synbiotics, ICG and S.R. One have agreed not to take any action that would breach or cause to be inaccurate any of the representations and warranties set forth in the Purchase Agreement, and each shall notify the other parties after becoming aware of any occurrence of or the pending or threatened occurrence of any event that would cause or constitute such a breach or inaccuracy. In addition, each party shall notify the other parties of any failure of such party to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied under the Purchase Agreement. BEST EFFORTS Synbiotics, ICG and S.R. One have agreed to use their best efforts to effectuate the terms of the Purchase Agreement. The parties will also use reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all other things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by the Purchase Agreement. MEETINGS OF STOCKHOLDERS In the Purchase Agreement, ICG agreed to use its best efforts to solicit from stockholders of ICG proxies in favor of the Purchase Agreement. Likewise, Synbiotics agreed to use its best efforts to solicit from shareholders of Synbiotics proxies in favor of the Purchase Agreement. 31 ROSINACK EMPLOYMENT AGREEMENT Pursuant to the Purchase Agreement, upon the Acquisition Date Paul A. Rosinack, now the Chief Executive Officer and President of ICG, will become Vice President and General Manager, Animal Health of Synbiotics at an annual salary of $160,000. In addition, he will receive stock options to purchase 25,000 shares of Synbiotics Common Stock and an interest-free loan of up to $50,000 to cover relocation expenses. The loan will be forgiven over time if Mr. Rosinack continues as a Synbiotics employee. USE OF NAME In the Purchase Agreement, ICG has agreed to change its corporate name after the Acquisition Date and to thereafter refrain from any use of the words "International Canine Genetics." ICG LIQUIDATION The Purchase Agreement provides that ICG may choose to liquidate and dissolve and distribute to its stockholders the shares of Common Stock of Synbiotics acquired pursuant to the Purchase Agreement; provided, however, that ICG shall not do so at such time or in such a way as to render the purchase and sale of the assets a tax-free reorganization within the meaning of Section 368(a)(1)(C) of the Internal Revenue Code. 32 PRO FORMA CONDENSED FINANCIAL STATEMENTS The following unaudited pro forma condensed balance sheet as of June 30, 1996 and the unaudited proforma condensed statements of operations for the year ended December 31, 1995 and the six months ended June 30, 1996 give effect to the proposed Acquisition as of June 30, 1996 for the condensed balance sheet and as of January 1, 1995 for the condensed statements of operations. The pro forma condensed financial statements are based on historical financial statements of Synbiotics and ICG, giving effect to the proposed Acquisition applying the purchase method of accounting and the assumptions and adjustments as discussed in the accompanying notes to the pro forma condensed financial statements. The unaudited pro forma condensed financial statements do not include any consolidation savings which Synbiotics may expect to achieve from Synbiotics' acquisition of substantially all of the assets and certain liabilities of ICG as any such savings are not estimable at this time. These pro forma condensed financial statements have been prepared by the management of Synbiotics Corporation based upon the audited statement of operations of Synbiotics Corporation for the year ended December 31, 1995, the unaudited condensed balance sheet as of June 30, 1996 and the related unaudited condensed statement of operations for the six months then ended of Synbiotics, the audited balance sheet of ICG as of June 30, 1996 and the unaudited condensed statements of operations for the year ended December 31, 1995 and the six months ended June 30, 1996 of ICG. The unaudited pro forma condensed financial statements should be read in conjunction with the historical financial statements and notes thereto and narrative sections included elsewhere herein. The pro forma condensed financial statements are not necessarily indicative of what actual results of operations would have been for the periods had the transaction occurred on the dates indicated and do not purport to indicate future financial position nor the results of future operations. 33 SYNBIOTICS CORPORATION PRO FORMA CONDENSED BALANCE SHEET (UNAUDITED)
June 30, 1996 ------------------------------------------------------------------- International Synbiotics Canine Pro Forma Pro Forma Corporation Genetics, Inc. Adjustments Combined ------------- --------------- ----------------- ------------- ASSETS Current assets: Cash and equivalents.................. $ 2,970,000 $ 26,000 $ 1,000,000 (1) $ 3,996,000 Securities available for sale......... 3,087,000 -- -- 3,087,000 Accounts receivable................... 2,124,000 94,000 -- 2,218,000 Inventories........................... 4,824,000 92,000 -- 4,916,000 Other current assets.................. 565,000 50,000 -- 615,000 ------------ ------------ ------------- ------------ Total current assets................ 13,570,000 262,000 1,000,000 14,832,000 Property and equipment, net............ 715,000 236,000 -- 951,000 Other assets........................... 1,778,000 175,000 4,651,000 (2) 6,604,000 ------------ ------------ ------------- ------------ $ 16,063,000 $ 673,000 $ 5,651,000 $ 22,387,000 ============ ============ ============= ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses....................... $ 1,590,000 $ 418,000 $ (135,000)(3) $ 1,873,000 Capital lease obligations............. 51,000 51,000 Other current liabilities............. 671,000 629,000 (629,000)(3) 671,000 ------------ ------------ ------------- ------------ Total current liabilities 2,261,000 1,098,000 (764,000) 2,595,000 ------------ ------------ ------------- ------------ Other liabilities...................... -- 620,000 (530,000)(3) 90,000 ------------ ------------ ------------- ------------ Shareholders' equity: Common stock.......................... 29,801,000 11,544,000 1,000,000 (1) 35,701,000 (11,544,000)(3) 4,900,000 (4) Accumulated deficit................... (15,999,000) (12,589,000) 12,589,000 (3) (15,999,000) ------------ ------------ ------------- ------------ Total shareholders' equity.......... 13,802,000 (1,045,000) 6,945,000 19,702,000 ------------ ------------ ------------- ------------ $ 16,063,000 $ 673,000 $ 5,651,000 $ 22,387,000 ============ ============ ============= ============
See accompanying notes to pro forma condensed financial statements. 34 SYNBIOTICS CORPORATION PRO FORMA CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
Year ended December 31, 1995 -------------------------------------------------------------------- International Synbiotics Canine Pro Forma Pro Forma Corporation Genetics, Inc. Adjustments Combined ------------- --------------- ------------------ ------------- Revenues: Product sales......................... $13,676,000 $ 751,000 $ (2,000)(5) $14,425,000 Service revenues...................... -- 815,000 (11,000)(5) 804,000 License fees and other................ 396,000 13,000 (13,000)(5) 396,000 Interest.............................. 46,000 16,000 -- 62,000 ----------- ----------- ------------- ----------- 14,118,000 1,595,000 (26,000) 15,687,000 ----------- ----------- ------------- ----------- Cost and expenses: Cost of sales......................... 8,009,000 859,000 (7,000)(5) 8,861,000 Research and development.............. 906,000 549,000 1,455,000 Selling and marketing................. 4,147,000 1,316,000 5,463,000 General and administrative............ 1,486,000 707,000 310,000 (6) 2,503,000 (34,000)(7) ----------- ----------- ------------- ----------- 14,548,000 3,431,000 (269,000) 18,282,000 ----------- ----------- ------------- ----------- Loss before gain on disposition of investment in affiliated company..... (430,000) (1,836,000) (295,000) (2,595,000) Gain on disposition of investment in affiliate............................ 931,000 -- -- 931,000 ----------- ----------- ------------- ----------- Net income (loss)...................... $ 501,000 $(1,836,000) $ (295,000) $(1,664,000) =========== =========== ============= =========== Net income (loss) per share............ $ .09 $ n/a $ n/a $ (.22) =========== =========== ============= =========== Weighted average shares $ 5,832,000 n/a $ 1,662,000 (9) $ 7,494,000 outstanding.......................... =========== =========== ============= ===========
See accompanying notes to pro forma condensed financial statements. 35 SYNBIOTICS CORPORATION PRO FORMA CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
Six Months Ended June 30, 1996 ----------------------------------------------------------------- International Synbiotics Canine Pro Forma Pro Forma Corporation Genetics, Inc. Adjustments Combined ------------ --------------- ----------------- ------------ Revenues: Product sales......................... $10,851,000 $ 438,000 $ -- $11,289,000 Service revenues...................... -- 456,000 (1,000)(5) 455,000 License fees and other................ 230,000 -- -- 230,000 Interest.............................. 54,000 5,000 -- 59,000 ----------- ---------- ------------- ----------- 11,135,000 899,000 (1,000) 12,033,000 ----------- ---------- ------------- ----------- Cost and expenses: Cost of sales......................... 5,334,000 464,000 (1,000)(5) 5,797,000 Research and development.............. 461,000 282,000 -- 743,000 Selling and marketing................. 2,358,000 498,000 -- 2,856,000 General and administrative............ 854,000 340,000 155,000 (6) 1,310,000 (39,000)(7) ----------- ---------- ------------- ----------- 9,007,000 1,584,000 (115,000) 10,706,000 ----------- ---------- ------------- ----------- Income (loss) before gain on sale of securities available for sale........ 2,128,000 (685,000) (116,000) 1,327,000 Gain on sale of securities available for sale............................. 1,159,000 -- -- 1,159,000 ----------- ---------- ------------- ----------- Income (loss) before income taxes...... 3,287,000 (685,000) (116,000) 2,486,000 Provision for income taxes............. 118,000 -- (28,000)(8) 90,000 ----------- ---------- ------------- ----------- Net income (loss)...................... $ 3,169,000 $ (685,000) $ (88,000) $ 2,396,000 =========== ========== ============= =========== Net income (loss) per share............ $ .53 $ n/a $ n/a $ .31 =========== ========== ============= =========== Weighted average shares outstanding.... 5,968,000 n/a 1,686,000 (9) 7,654,000 =========== ========== ============= ===========
See accompanying notes to pro forma condensed financial statements. 36 SYNBIOTICS CORPORATION NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (1) Adjustment to record the sale of 286,000 shares of Synbiotics Corporation common stock, at $3.50 per share, to S.R. One, the major shareholder of International Canine Genetics, Inc., as a condition of the acquisition agreement. (2) Adjustment to record the fair value of patents, licenses, customer lists and other intangible assets to be acquired from International Canine Genetics, Inc., as well as the purchase price in excess of the fair values assigned to the assets acquired and liabilities assumed from International Canine Genetics, Inc. (3) Adjustment to eliminate the assets, liabilities and shareholders' equity of International Canine Genetics, Inc. not acquired or assumed by Synbiotics Corporation. (4) Adjustment to record the issuance of 1,400,000 shares of Synbiotics Corporation common stock, at $3.50 per share, for certain of the assets and assumption of certain of the liabilities of International Canine Genetics, Inc. As described elsewhere herein, the actual number of shares to be issued will vary depending on the average closing sales price of the Synbiotics shares. (5) Adjustment to eliminate product revenues and service revenues, and their associated costs, related to certain discontinued products and services of International Canine Genetics, Inc. (6) Adjustment to record amortization of the fair value of intangibles acquired from International Canine Genetics, Inc. based on a 15 year amortization period. (7) Adjustment to eliminate interest expense related to certain International Canine Genetics, Inc. debt obligations not assumed by Synbiotics Corporation. (8) Adjustment to record reduced income tax provision due to pre-tax loss sustained by International Canine Genetics, Inc. (9) Adjustment to reflect increase in weighted average shares outstanding due to the issuance of Synbiotics Corporation common stock (Notes (1) and (4)). 37 ELECTION OF SYNBIOTICS DIRECTORS (PROPOSAL FOR THE SYNBIOTICS MEETING) Five directors are to be elected at the Annual Meeting to serve until the next Annual Meeting and until their respective successors are elected or appointed. Unless authority to vote for one or more nominees is withheld, it is intended that the proxyholders will vote for the election of the nominees named below. In the event any of them shall become unable or unwilling to accept nomination or election, the shares represented by the enclosed proxy will be voted for the election of such other person as the Synbiotics Board of Directors may recommend in his place. The following information is furnished regarding the nominees of Synbiotics.
Name; Positions; Business Experience During the Director Past Five Years; Directorships in Reporting Companies Since Age - ----------------------------------------------------------------------------- -------- ---- Kenneth M. Cohen............................................................. 1996 41 Chief Executive Officer of the Company since May 1996; Executive Vice President and Chief Operating Officer of Canji, Inc. from March 1995 to February 1996; Vice President of Argus Pharmaceuticals, Inc. from May 1990 to March 1995. James C. DeCesare............................................................ 1993 65 President and Chief Operating Officer of Boehringer Ingelheim Animal Health from 1986 to 1992 when he retired; currently a consultant to the animal health and pharmaceutical industries. M. Blake Ingle, Ph.D......................................................... 1994 54 President and Chief Executive Officer of Canji, Inc. March 1993 to February 1996; Acting President of Telios Pharmaceuticals, Inc. December 1994 to June 1995; President and Chief Executive Officer of IMCERA Group, Inc. (now known as Mallinckrodt Group Inc.) from 1991 to 1993; President and Chief Operating Officer of IMCERA Group, Inc. (now known as Mallinckrodt Group Inc.) from 1990 to 1991; Director of Corvas International, Inc. Donald E. Phillips........................................................... 1987 63 Chairman of the Board of Directors of the Company since August 1994; Vice Chairman of the Board of Directors of the Company from 1993 to August 1994; a consultant to IMCERA Group, Inc. (now known as Mallinckrodt Group Inc.) from 1988 to 1990, when he retired; Director of Potash Corporation of Saskatchewan (Canada).
In addition, pursuant to the Purchase Agreement, on the Acquisition Date, Brenda D. Gavin, DVM, will be appointed as a Synbiotics director. Dr. Gavin is 48 years old, and has been a Vice President of S.R. One since 1989. Prior to that, she served as Director of Business Development of SmithKline Beecham Animal Health Products from 1986 to 1989. She also serves as a director of INHALE Therapeutic Systems and N.P.S. Pharmaceuticals. Dr. Gavin has advised Synbiotics that, in view of her connection with S.R. One and ICG, she would, following her election as a Synbiotics director, resign from the Synbiotics Board of Directors if the Acquisition is not promptly completed. 38 In addition, the following persons currently directors of Synbiotics will not be standing for reelection: Patrick Owen Burns....................................................... 1988 59 Vice President of R&D Funding Corp, an affiliate of Prudential Securities Inc., and Senior Vice President of Prudential Securities Inc. since 1986; Director of Ecogen, Inc., Creative BioMolecules, Inc. and Texas Biotechnology Corporation. Robert J. Kunze.......................................................... 1995 61 General Partner, H&Q Life Science Ventures, a San Francisco based investment banking and venture capital firm, since 1987; Director of Intelligent Surgical Lasers, Inc. and Abaxis, Inc.
The Board of Directors of Synbiotics held a total of ten meetings during the fiscal year ended December 31, 1995. Except for Mr. Kunze, each director attended more than seventy-five percent (75%) of the meetings of the Board of Directors (and the Board committees of which he was a member) held during the time he was a member of the Board. Synbiotics currently has Compensation and Audit Committees of the Board of Directors. Synbiotics does not have a Nominating Committee of the Board of Directors. The current membership of each committee is as follows: COMPENSATION COMMITTEE AUDIT COMMITTEE James C. DeCesare Patrick Owen Burns, Chairman M. Blake Ingle, Ph.D., Chairman Robert J. Kunze Donald E. Phillips Donald E. Phillips The function of the Compensation Committee is to review the Synbiotics compensation policies. The Audit Committee oversees the Synbiotics accounting and financial reporting policies, reviews with the independent accountants the accounting principles and practices followed, reviews the annual audit and financial results and makes recommendations to the Board regarding any of the preceding. The Audit Committee met three times and the Compensation Committee met once during the fiscal year ended December 31, 1995. Dr. Ingle became an executive officer of Telios Pharmaceuticals, Inc. in December 1994, shortly after that company's primary product failed a clinical trial. In January 1995, Telios filed a voluntary bankruptcy petition. Telios subsequently emerged from bankruptcy via the sale of the company to Integra Life Sciences. Synbiotics believes these facts do not impugn Dr. Ingle's ability or integrity in any way. For their services as directors, each of the outside directors of Synbiotics received fees of $1,000, plus $500 for travel, for each Board of Directors meeting attended, except for Mr. Burns. Fees payable to Mr. Burns are paid instead to R&D Funding Corp. Outside directors do not receive any fees for committee meetings attended as committee members. Employee directors do not receive any fees for attendance at meetings of the Board of Directors or committee meetings. In addition, Mr. Phillips was paid fees of $24,996 during the fiscal year ended December 31, 1995 pursuant to a consulting agreement with Synbiotics. On July 12, 1995, pursuant to the Automatic Grant Program under the 1995 Stock Option/Stock Issuance Plan (the "1995 Plan"), Mr. Burns, Mr. DeCesare, Dr. Ingle and Mr. Phillips were each granted an option to purchase 7,000 shares of Common Stock at $2.75 per share. The options, which expire on July 12, 2005, vest ratably over a one-year period following the grant date. On November 2, 1995, pursuant to the Automatic Grant Program under the 1995 Plan, Mr. Kunze was granted an option to purchase 7,000 shares of Common Stock at $3.25 per share. The option, which expires on November 2, 2005, vests ratably over a one-year period following the grant date. RECOMMENDATION OF THE BOARD OF DIRECTORS The Board of Directors recommends a vote FOR the nominees listed herein. 39 AMENDMENT OF SYNBIOTICS RESTATED ARTICLES OF INCORPORATION (PROPOSAL FOR THE SYNBIOTICS MEETING) Article Fourth of Synbiotics' Restated Articles of Incorporation currently authorizes 24,800,000 shares of Common Stock and 200,000 shares of Series B Common Stock. No Series B Common Stock is outstanding; all 2,000 outstanding shares were automatically converted into an equal number of shares of Common Stock, pursuant to the Articles of Incorporation, on March 31, 1994 when in the 12 months ended on that day Synbiotics achieved revenues of over $10,000,000. Synbiotics believes it would be infeasible to issue any more shares of Series B Common Stock because they would immediately and automatically be converted into Common Stock. In any event, Synbiotics has no intention or desire to issue any more shares of Series B Common Stock. Synbiotics wishes to eliminate the Series B Common Stock authorization from the Restated Articles of Incorporation in order to simplify the Restated Articles of Incorporation and Synbiotics's (authorized) capital structure. The California Secretary of State has advised Synbiotics that such elimination requires shareholder approval. Synbiotics proposes to amend Article Fourth to read in full as follows: FOURTH: The total number of shares which the corporation is authorized to issue is 24,800,000 shares of Common Stock. RECOMMENDATION OF THE BOARD OF DIRECTORS The Board of Directors recommends a vote FOR the approval of the Amendment of Article Fourth of the Restated Articles of Incorporation. Approval will require the affirmative vote of a majority of Synbiotics outstanding shares. Abstentions and broker non-votes will have the same effect as votes against approval of the amendment. 40 BUSINESS (SYNBIOTICS) GENERAL Founded in 1982, Synbiotics has evolved from a research and development company into a developer, manufacturer and marketer of diagnostic products and vaccines for use in the animal health care field. Synbiotics has substantially increased its revenue base through the introduction of new products and increasing sales of existing products. Synbiotics currently markets twenty diagnostic test kits and devices for detection of infectious and other diseases in animals, one veterinary immunotherapeutic product and ten vaccines. BUSINESS STRATEGY Synbiotics' near term strategy is to (i) offer complete veterinary patient management for companion animals by broadening its product offerings; (ii) innovate technologically while avoiding excess research risk by seeking technologies that can be readily developed into products; and (iii) acquire, license and collaborate to expand product offerings. MARKET AND PRODUCT OVERVIEW Synbiotics sells its products both in the United States and in foreign countries. The total number of family owned dogs and cats is estimated to exceed 100 million in the United States alone. Synbiotics believes that the market for sales of diagnostic, therapeutic and vaccine products to United States veterinarians for dogs and cats was approximately $160,000,000 in 1995. Synbiotics believes that its current and intended future products will offer veterinarians an opportunity to improve the quality and expand the scope of veterinary health care services. In March 1995, Synbiotics introduced ICT GOLD(TM), the first third- generation diagnostic test format to be used in the animal health market. This format is more convenient, easier to use and faster than the predominantly used animal health diagnostic formats, while providing the same degree of accuracy. The first test kit, ICT GOLD(TM) HW, which tests for canine heartworm, provides Synbiotics with an opportunity to increase its modest penetration of the $16.5 million U.S. in-clinic stat canine heartworm market. Synbiotics' second ICT GOLD(TM) product, utilizing the ICT GOLD(TM) format for feline leukemia, was introduced in April 1996. Synbiotics Products Marketed as of December 31, 1995: - -----------------------------------------------------
DIAGNOSTICS: - ------------ ASSURE(R)/CH - Heartworm antigen test kit (canine and feline) ASSURE(R)/FeLV - Feline leukemia virus antigen test kit ASSURE(R)/Parvo - Canine parvo virus test kit CRF(R) - Canine rheumatoid factor test kit DiroCHEK(R) - Heartworm antigen test kit (canine and feline) D-TEC(R) BRUCELLA A. - Brucella abortus antibody test kit (bovine and bison) D-TEC(R) CB - Canine brucellosis antibody test kit EstruCHEK(R) - Progesterone test kit (bovine, canine and equine) FUNGASSAY(R) - Dermatophyte test medium ICT GOLD(TM) HW - Canine heartworm antigen test kit ICT GOLD(TM) FeLV - Feline leukemia virus antigen test kit LAB-EZ(TM)EIA - Equine infectious anemia test kit LEUKASSAY(R) B - Bovine leukemia virus antigen test kit LymeCHEK(TM) - Canine borrelia burgdorferi antibody test kit MIP(R) COLOR-CHEK - Pregnant mare gonadotropin test kit OVASSAY(R) Plus - Fecal diagnostic system TUBERCULIN(TM) OT - Mammalian intradermic skin test TUBERCULIN(TM)PPD - Bovine intradermic skin test UNI-TEC(R) CHW - Heartworm antibody test kit (canine and feline)
41 UNI-TEC(R) FeLV - Feline leukemia virus antigen test kit ViraCHEK(R)/FeLV - Feline leukemia virus antigen test kit ViraCHEK(R)/FIV - Feline immunodeficiency virus antigen test kit (not marketed in the United States) BIOLOGICALS: - ------------ CL/MAb 231 - Canine lymphoma monoclonal antibody 231 therapeutic VacSYN(TM)FeLV - Feline leukemia virus (killed) vaccine PANACINE(R) RC - Feline rhinotracheitis (MLV), calicivirus (MLV), panleukopenia (MLV) vaccine PANACINE(R)-5 - Feline rhinotracheitis (MLV), calicivirus (MLV), panleukopenia (MLV), chlamydia (MLV), leukemia (killed) vaccine PANAVAC(R) RC - Feline rhinotracheitis (MLV), calicivirus (MLV), panleukopenia (killed) vaccine SENTRYRAB-1(TM) - Rabies (killed) vaccine (canine and feline) SENTRYPAR(R) - Canine parvovirus (MLV) vaccine SENTRYPAR(R) DHP - Canine distemper (MLV), hepatitis (MLV), parainfluenza (MLV), parvovirus (MLV) vaccine SENTRYPAR(R) DHP/L - Canine distemper (MLV), hepatitis (MLV), parvovirus (MLV), lepto (killed) vaccine SENTRYVAC(TM) DHP - Canine distemper (MLV), hepatitis (MLV), parainfluenza (MLV) vaccine SENTRYVAC(TM) DHP/L - Canine distemper (MLV), hepatitis (MLV), parainfluenza (MLV), lepto (killed) vaccine
Currently, Synbiotics most commercially successful products are its canine heartworm diagnostic products. See "Legal Proceedings" below. This has caused some seasonality in Synbiotics business, with sales highest in the December to April time period as distributors purchase these products to sell to veterinarians for the heartworm season. MARKETING Synbiotics markets its products to veterinarians, primarily through independent distributors. Synbiotics' United States distributors have approximately 90 outlets and a total sales force of approximately 600 field sales representatives and approximately 200 telemarketing sales representatives. This allows Synbiotics to focus its major emphasis on developing and manufacturing products. However, this strategy results in a large percentage of sales being to only a few customers. During the year ended December 31, 1995, sales to two distributors totalled 44% of Synbiotics gross revenues. While Synbiotics currently does not maintain a direct marketing sales force, its internal marketing staff and regional field representatives service the external sales network by training distributor sales representatives, responding to customer technical inquiries, advertising and promoting Synbiotics products through journals, magazines and direct mail, and organizing training workshops and symposia presentations at trade and professional association meetings. Synbiotics has established its own telemarketing operation to sell its products to domestic market segments not reached by its marketing partners and to gather critical field marketing data. Synbiotics markets its products outside of the U.S. through distributors and on an OEM basis. Synbiotics is increasing its penetration in international markets, primarily focusing on the European and Pacific Rim marketplaces. In January 1996, Synbiotics signed an exclusive distribution agreement with Daiichi Pharmaceutical Co., Ltd. for the distribution of Synbiotics vaccine and diagnostic products in Japan. This arrangement is not expected to generate significant revenues until 1998. PATENTS AND TRADE SECRETS Synbiotics believes that its proprietary technology is an important competitive factor in its business, and that protection of its intellectual property rights is a high priority. Despite the existence of patent litigation in 42 the monoclonal antibody industry, not involving Synbiotics, Synbiotics believes that the basic hybridoma (the cell that produces the monoclonal antibody) technology is in the public domain and is therefore not patentable. The complex biological and chemical process, however, is subject to numerous improvements, variations and applications of hybridoma technology which may prove to be patentable. Considering the difficulty of enforcing any patent rights to such improvements, and the rapid advancements in the field, Synbiotics generally has sought and will continue to seek to protect its interests by treating its particular variations in the production of monoclonal antibodies as trade secrets. Synbiotics also has pursued and intends to continue aggressively to pursue protection for new products, new methodological concepts, and compositions of matter through the use of patents and trademarks where obtainable. At present, Synbiotics has been granted nine U.S. patents. GOVERNMENT REGULATION Most diagnostic test kits for animal health applications require approval by the United States Department of Agriculture ("USDA"). In addition, Synbiotics manufactures and sells one product which does not require USDA licensing but has been registered with the Center for Veterinary Medicine of the FDA. Synbiotics' manufacturing facility has been registered with the FDA and is licensed by the USDA. Synbiotics adheres to Good Manufacturing Practices (GMP) standards. In addition to the foregoing, Synbiotics operations may be subject to future legislation and/or rules issued by domestic or foreign governmental agencies with regulatory authority relating to Synbiotics business. Synbiotics has no reason to believe that any such future legislation and/or rules would be materially adverse to its business. COMPETITION Competition in the animal health care industry is intense. Many competitors, such as Pfizer Animal Health, Mallinckrodt Veterinary and IDEXX Laboratories, have substantially greater financial, manufacturing, marketing and product research resources than Synbiotics. Large companies in particular have extensive expertise in conducting pre-clinical and clinical testing of new products and in obtaining the necessary regulatory approvals to market products. Competition is based on test sensitivity, accuracy and speed; product price; and similar factors. IDEXX Laboratories requires its distributors not to carry the products of competitors such as Synbiotics. Synbiotics believes that it is the second-leading competitor in the dog and cat veterinary diagnostic market. RESEARCH AND DEVELOPMENT Synbiotics spent approximately $906,000 and $833,000 on research and development activities during the year ended December 31, 1995 and the nine months ended December 31, 1994, respectively. During the year ended December 31, 1995 and the nine months ended December 31, 1994, Synbiotics contracted for research and development activities with outside parties relating to certain companion animal diagnostic products which utilize licensed technology. EMPLOYEES As of December 31, 1995, Synbiotics had a total of 60 employees, 57 of whom were full-time. RAW MATERIALS The manufacturing of diagnostics, therapeutics and vaccines requires raw materials which are, and have been, readily available from several sources. Certain of Synbiotics products are manufactured by third parties under the terms of distribution and/or manufacturing agreements. In the event that these third parties are unable to supply Synbiotics with sufficient finished products, Synbiotics has the right, under certain circumstances, under the agreements to use alternate manufacturing sources. 43 OTHER Synbiotics also founded two biotechnology companies, UniSyn Technologies, Inc. (of which Synbiotics is now a less than 5% shareholder) and ImmunoPharmaceutics, Inc. (which was acquired by Texas Biotechnology Corporation during 1994). ImmunoPharmaceutics, Inc. ("IPI") engaged in human drug discovery utilizing proprietary rational drug design technology. On July 25, 1994, IPI, of which Synbiotics was a 41% shareholder, was acquired by Texas Biotechnology Corporation ("TBC") in a triangular merger transaction whereby unregistered shares of TBC common stock were issued in exchange for all of the outstanding stock of IPI. In 1996, Synbiotics sold all its TBC shares on the open market. PROPERTIES Synbiotics leases two buildings in San Diego, California. The buildings contain approximately 49,000 square feet of space, and house Synbiotics corporate and sales headquarters, executive offices, research and development laboratories and manufacturing facilities. Synbiotics subleases approximately 19,000 square feet of this space to ImmunoPharmaceutics, Inc. Management believes that the remaining 30,000 square feet are adequate for Synbiotics current level of operations. Synbiotics also leases a telemarketing facility in Kansas City, Missouri. LEGAL PROCEEDINGS The Jewish Hospital of St. Louis (the "Hospital") is the owner of a patent which it believes covers Synbiotics canine heartworm diagnostic products. Synbiotics is also the owner of several patents which cover its canine diagnostic products. The Hospital has notified Synbiotics that it believes Synbiotics canine heartworm diagnostic products infringe the Hospital's patent, and has offered to license their patent to Synbiotics. Synbiotics believes that it does not infringe the Hospital's patent. The Hospital is currently suing IDEXX Laboratories, Inc., Synbiotics primary competitor for canine heartworm diagnostics, for patent infringement under the Hospital's patent; IDEXX's defense involves an assertion that the patent is invalid. If the Hospital sues Synbiotics and if the Hospital is successful, Synbiotics could be precluded from selling canine heartworm diagnostic products or be required to pay damages or make additional royalty payments with respect to such sales. Synbiotics' business and results of operations could be materially adversely affected. 44 MARKET PRICE OF SYNBIOTICS COMMON STOCK Synbiotics' Common Stock is traded on the Nasdaq National Market under the symbol SBIO. Price ranges reported are the high and low trade price information as reported by the Nasdaq National Market. No cash dividends have ever been paid, and Synbiotics does not currently anticipate paying cash dividends in the foreseeable future. As of September 6, 1996, there were approximately 574 shareholders of record of Synbiotics Common Stock.
Period Synbiotics Common Stock - ---------------------------------------- ----------------------- High Low ---------- ---------- Year Ended December 31, 1994 1st Quarter............................ $5.13 $3.13 2nd Quarter............................ 4.50 3.25 3rd Quarter............................ 3.63 2.38 4th Quarter............................ 2.75 1.63 Year Ended December 31, 1995 1st Quarter............................ $3.13 $1.50 2nd Quarter............................ 3.25 2.38 3rd Quarter............................ 5.25 2.50 4th Quarter............................ 4.13 1.88 Year Ending December 31, 1996 1st Quarter............................ $3.13 $2.25 2nd Quarter............................ 5.50 2.38 3rd Quarter (through August 1, 1996)... 4.50 3.63
45 SYNBIOTICS MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS RESULTS OF OPERATIONS Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995 ------------------------------------------------------------------------- Total revenue for the second quarter of 1996 increased by $1,287,000 or 33% over the quarter ended June 30, 1995, and increased for the six months ended June 30, 1996 by $2,333,000 or 27% over the six months ended June 30, 1995. The increases are primarily due to an increase in product sales of $1,290,000 or 34% during the second quarter of 1996, and an increase in product sales of $2,214,000 or 26% during the six months ended June 30, 1996, respectively. The increase in product sales during the second quarter of 1996 comprises an increase in diagnostic sales of $1,183,000 or 53% and a $107,000 or 7% increase in the sales of vaccines. The increased diagnostic sales are primarily due to increased average selling prices and the introduction of Assure(R)/Parvo, for the detection of canine parvovirus, and ICT GOLD(TM) FeLV, Synbiotics' new feline leukemia diagnostic. The increased average selling prices of Synbiotics' existing diagnostic products resulted from a general price increase during the second quarter of 1996, as well as the non-recurrence of promotional pricing which was in effect during the second quarter of 1995. Vaccine sales increased due to sales through new distribution channels, offset by decreased international and domestic shipments of bulk feline leukemia vaccine. The six months ended June 30, 1996 saw an increase in diagnostic sales of $1,463,000 or 26% and a $751,000 or 26% increase in vaccine sales, both explained by the respective factors discussed above. Also, in 1996 Synbiotics was able to market its ICT GOLD(TM) HW canine heartworm diagnostic for the full six months (the product was introduced in March 1995). The cost of sales as a percentage of product revenue decreased to 50% during the second quarter of 1996 as compared to 60% for the quarter ended June 30, 1995. The decrease is due to the increase in average selling prices discussed above, as well as decreased domestic shipments of bulk feline leukemia vaccine to Rhone Merieux, Inc. (located in Athens, Georgia) during the second quarter of 1996. Synbiotics has contracted to sell bulk vaccine to Rhone Merieux, Inc. at cost because Synbiotics receives a royalty on Rhone Merieux, Inc.'s resulting product sales in the United States. By contrast, Synbiotics' international sales of bulk feline leukemia vaccine to Rhone-Merieux of France are at a profit, not at cost. Cost of sales as a percentage of product revenue would have been 47% and 55% during the quarters ended June 30, 1996 and 1995, respectively, if the zero margin bulk sales were not taken into consideration. The cost of sales as a percentage of product revenue decreased to 49% for the six months ended June 30, 1996 as compared to 52% for the six months ended June 30, 1995. The increase is primarily due to factors similar to those discussed in the quarterly comparison. Research and development expenses during the second quarter of 1996 increased by $27,000 or 12% over the quarter ended June 30, 1995, and increased during the six months ended June 30, 1996 by $43,000 or 10% over the six months ended June 30, 1995. The increases are primarily due to amortization and consulting expenses related to certain technologies licensed from third parties in March 1996. Selling and marketing expenses during the second quarter of 1996 increased by $148,000 or 15% over the quarter ended June 30, 1995, and remained relatively unchanged during the six months ended June 30, 1996 as compared to the six months ended June 30, 1995. The increase during the second quarter is due primarily to advertising and sales promotion expenses related to the launch of Synbiotics' new diagnostic products, Assure(R)/Parvo and ICT GOLD(TM) FeLV, as well as continuing promotional expenses related to Synbiotics' existing products. General and administrative expenses during the second quarter of 1996 increased by $108,000 or 30% over the quarter ended June 30, 1995, and increased during the six months ended June 30, 1996 by $142,000 or 20% over the six months ended June 30, 1995. The increases are due to the addition of a new Chief Executive Officer in May 1996 and an increase in certain patent-related legal expenses. 46 Synbiotics' business is seasonal, and is concentrated within the canine heartworm selling season, which falls mainly in the quarters ending March 31 and June 30 of each year. Sales and results from operations in the quarters ending September 30 and December 31 of each year are expected to be less favorable than in the heartworm selling season. Year Ended December 31,1995 Compared to (Twelve-Month) Year Ended December -------------------------------------------------------------------------- 31, 1994 -------- Total revenue for the year ended December 31, 1995 increased $2,011,000 or 17% over the year ended December 31, 1994. The increase comprises a $1,958,000 or 17% increase in product sales and an increase in interest, license fees and other revenue of $53,000 or 14%. The increase in product sales was due primarily to ICT GOLD(TM) HW, Synbiotics new canine heartworm diagnostic, which was introduced in March 1995 and generated $2,355,000 of sales during 1995 despite not becoming available until midway into the 1995 heartworm selling season. These sales were partly offset by declines in Synbiotics other canine heartworm diagnostic products, which were caused (for microwell tests) by competition from a major competitor's improved product and (for stat tests) by customer shifts to ICT GOLD(TM) HW. Synbiotics has developed an improved DiroCHEK(R) canine heartworm diagnostic, with greater ease-of-use to match the competitor's microwell product modification. Intending to regain unit sales and price points in this important product line, Synbiotics introduced its improved microwell product (called DiroCHEK(R) TF) in January 1996. In addition, in 1995 there was an increase in domestic shipments of bulk feline leukemia vaccine to Rhone Merieux, Inc. (located in Athens, Georgia) of $425,000. License fees and other revenue increased $97,000 or 33% during the year ended December 31, 1995 due to increased royalties earned on certain of Synbiotics products which are licensed to Rhone Merieux, Inc. The cost of sales as a percentage of product revenue increased to 59% during the year ended December 31, 1995 as compared to 56% for the year ended December 31, 1994. The increase is due primarily to increased unapplied manufacturing overhead, resulting from a larger percentage of product sales during 1995 being generated from products which are manufactured for Synbiotics by third parties. Synbiotics' manufacturing costs are predominantly fixed costs. Among Synbiotics major products, DiroCHEK(R) canine heartworm diagnostic products are manufactured at Company facilities, whereas ICT GOLD(TM) HW and all vaccines are manufactured by third parties. In addition to affecting gross margins, this shift in product mix renders Synbiotics relatively more dependent on the third-party manufacturers. The cost of sales percentage was also negatively impacted by the increased domestic shipments of bulk feline leukemia vaccine to Rhone Merieux, Inc. during 1995. Synbiotics has contracted to sell bulk vaccine to Rhone Merieux, Inc. at cost because Synbiotics receives a royalty on Rhone Merieux, Inc.'s resulting product sales in the United States. By contrast, Synbiotics international sales of bulk feline leukemia vaccine to Rhone-Merieux of France are at a profit, not at cost. Cost of sales as a percentage of product revenue would have been 53% and 51% during the years ended December 31, 1995 and 1994, respectively, if the zero margin bulk sales were not taken into consideration. Finally, the 1995 cost of sales percentage also increased as a result of reduced average selling prices due to increased competition (as to DiroCHEK(R)) and promotional programs accounted for as reductions in revenue; the cost of sales percentage suffers when more units of product must be manufactured and sold to achieve the same revenue. All of these factors outweighed the economies of scale associated with Synbiotics increased 1995 product revenues. In fact, revenues from products manufactured at Synbiotics facilities actually decreased slightly in 1995. Research and development expenses decreased $185,000 or 17% from the year ended December 31, 1994. The decrease is due primarily to a decrease in contracted research and development resulting from the completion of the development of Synbiotics ICT GOLD(TM) HW canine heartworm diagnostic test which was introduced in March 1995. This factor was partly offset by additional research programs with outside research 47 and development contractors. In 1996 Synbiotics intends to introduce several interesting new products, including DiroCHEK(R) TF. Selling and marketing expenses decreased $609,000 or 13% from the year ended December 31, 1994 due primarily to the non-recurrence of significant 1994 advertising and special sales promotion expenses related to the launch of Synbiotics new vaccine product line. General and administrative expenses decreased $929,000 or 39% from the year ended December 31, 1994. The decrease is due to decreased legal expenses as a result of the settlement of major litigation in December 1994. On June 30, 1995, Synbiotics received 573,000 shares of Texas Biotechnology Corporation ("TBC") common stock resulting from the satisfaction of a certain contingency on May 31, 1995 related to the acquisition of ImmunoPharmaceutics, Inc. ("IPI") by TBC in July 1994. Synbiotics had been a major shareholder of IPI, and had previously recognized a $2,036,000 gain on the transaction for financial reporting purposes. In the second quarter of 1995, Synbiotics recognized an additional gain for financial reporting purposes in the amount of $931,000. Synbiotics may receive an additional 409,000 shares of TBC common stock pending the outcome of certain remaining contingencies. Synbiotics will recognize additional income when, and if, these contingencies are satisfied. Nine Months Ended December 31, 1994 Compared to Nine Months Ended December -------------------------------------------------------------------------- 31, 1993 -------- Total revenue for the nine months ended December 31, 1994 decreased $2,525,000 or 28% from the nine months ended December 31, 1993. The decrease comprises a $2,425,000 or 28% decrease in product sales and a decrease in interest, license fees and other revenue of $100,000 or 24%. (The comparison in this section is of the two respective nine-month periods because in 1994 Synbiotics changed its fiscal year-end from March 31 to December 31.) The decrease in product sales was primarily the result of timing of shipments to distributors. The timing of shipments to distributors is dependent upon, among other things, distributor inventory levels, anticipated seasonal inventory requirements and the timing of both Synbiotics and its competitors' promotional programs. In the quarter ended March 31, 1993 Synbiotics manufacturing facility was on back order for several products (particularly canine heartworm diagnostics) which resulted in those products being shipped in the quarter ended June 30, 1993, whereas there was no back order situation in the quarter ended March 31, 1994 and no corresponding benefit to the quarter ended June 30, 1994. Also, Synbiotics strove to make all possible shipments before the end of the March 31, 1994 fiscal year, even if doing so reduced reportable sales for the quarter ended June 30, 1994. Therefore, the period-to-period comparison favors the nine months ended December 31, 1993 over the nine months ended December 31, 1994. In addition, Synbiotics believes that the December 1994 introduction by a competitor of a revised canine heartworm diagnostic kit caused distributors to wait until January 1995 to purchase Synbiotics heartworm diagnostic products, which they would ordinarily have purchased in December 1994, in order to evaluate the new kit and evaluate Synbiotics' response. Also, international shipments of bulk feline leukemia vaccine to Rhone- Merieux, which bottles and markets Synbiotics feline leukemia vaccine under its own brand name in certain parts of Europe, decreased by $850,000 from the nine months ended December 31, 1993. Rhone-Merieux had made unusually large purchases in 1993 in anticipation of launching its product in the United Kingdom, and that launch later was delayed. Synbiotics' sales of its own feline leukemia virus products declined in the 1994 period, primarily because of product maturation and because Synbiotics was preliminarily enjoined in 1993 from selling a feline immunodeficiency virus diagnostic which had been sold in combination with the feline leukemia virus diagnostic. That injunction has now become permanent. As a partial counterpart to these decreases, there was an increase in domestic shipments of bulk feline leukemia vaccine to Rhone Merieux, Inc. (located in Athens, Georgia) of $454,000. 48 The decrease in license fees and other revenue of $53,000 or 18% during the nine months ended December 31, 1994 is primarily due to the receipt in the 1993 time period of a final license fee payment related to the Japanese distribution agreement with Kyoritsu Shoji Co., Ltd., which was terminated in January 1994. This factor was partially offset by an increase in royalties earned on certain of Synbiotics products which were cross-licensed to Rhone Merieux, Inc. in fiscal 1993. Interest income decreased $47,000 or 39% from the nine months ended December 31, 1993 due to less cash being available for investment as Synbiotics made cash withdrawals to meet its operating cash flow requirements. Cost of sales as a percentage of product revenue increased to 62% during the nine months ending December 31, 1994 as compared to 45% for the nine months ended December 31, 1993. The increase is primarily due to the decrease in product sales, as Synbiotics manufacturing costs are predominantly fixed costs. The increase is also due to the increase in domestic shipments of bulk feline leukemia vaccine to Rhone Merieux, Inc. (located in Athens, Georgia) during the nine months ended December 31, 1994. Synbiotics has contracted to sell bulk vaccine to Rhone Merieux, Inc. at cost because Synbiotics receives a royalty on Rhone Merieux, Inc.'s resulting product sales in the United States. By contrast, Synbiotics international sales of bulk feline leukemia vaccine to Rhone-Merieux of France are at a profit, not at cost. Cost of sales as a percentage of product revenue would have been 54% and 43% during the nine months ended December 31, 1994 and 1993, respectively, if the zero margin bulk sales were not taken into consideration. Research and development expenses increased $471,000 or 130% over the nine months ended December 31, 1993. The increase is due primarily to the continuing outsourced development of certain companion animal diagnostics utilizing immunochromatographic technology ("ICT") licensed from Binax, Inc. ("Binax"), which began in the quarter ended December 31, 1993, the addition of a research and development manager during the quarter ended December 31, 1993 and increased overhead related to moving the research and development group into larger laboratory facilities. Selling and marketing expenses increased $463,000 or 16% over the nine months ended December 31, 1993 due primarily to sales promotional programs. Marketing competition from large competitors in the biologicals area was particularly heavy in 1994, and Synbiotics was forced to incur substantial expenses to try to respond. Despite its response, Synbiotics experienced disappointing sales of biologicals in the nine-month 1994 period. General and administrative expenses decreased $344,000 or 17% from the nine months ended December 31, 1993. The decrease is due primarily to a decrease in legal expenses. Legal expenses were unusually high in both the 1994 and 1993 periods due to patent litigation brought by IDEXX Laboratories, Inc., Synbiotics primary competitor, which was settled in December 1994. On July 25, 1994, IPI, of which Synbiotics was a 41% shareholder, was acquired by TBC in a triangular merger transaction whereby unregistered shares of TBC common stock were issued in exchange for all of the outstanding stock of IPI. Synbiotics received approximately 655,000 shares of TBC common stock. As a result of the merger transaction, Synbiotics recognized during the nine months ended December 31, 1994 a gain for financial reporting purposes of approximately $2,036,000. FINANCIAL CONDITION - ------------------- Liquidity and Capital Resources ------------------------------- Cash provided by operations during the year ended December 31, 1995 was $229,000 as compared to cash used by operations during the (twelve-month) year ended December 31, 1994 of $2,000,000. The increase in cash is directly related to the increase in revenues and decreased legal fees due to the settlement of patent litigation in December 1994, and the resultant reduced net operating loss during the year ended December 31, 1995. These factors were partly offset by Synbiotics' decision to purchase in late 1995 substantial amounts of 49 ICT GOLD(TM) HW inventory from Binax in advance of 1996 orders; as a result, Synbiotics had relatively higher inventory and relatively lower cash at December 31, 1995. As of December 31, 1995, Synbiotics held 7% of TBC's common stock. TBC filed a Registration Statement on Form S-3, effective December 6, 1995, relating to the shares issued to the former IPI shareholders. On February 27, 1996 and February 28, 1996, Synbiotics sold a total of 614,000 shares of TBC common stock on the American Stock Exchange at an average selling price of $3.573 per share. As a result of the sale of the shares, Synbiotics recognized a gain of $385,000 during the first quarter of 1996. As a result of the sale of the shares, Synbiotics' ownership of TBC was reduced to approximately 3%. During the period April 25, 1996 to May 2, 1996, Synbiotics sold its remaining 614,000 shares of TBC common stock on the American Stock Exchange at an average selling price of $4.205 per share. As a result of the transactions, Synbiotics recognized a gain of $774,000 during the second quarter of 1996. The net proceeds received from the sales, which totalled $4,727,000, will be used primarily for working capital requirements and to fund business opportunities such as acquisitions. Management believes that the Synbiotics' present capital resources, which included working capital of $11,309,000 at June 30, 1996, are sufficient to meet its current working capital needs and also the working capital needs associated with the Acquisition. ICG has had operating losses to date and Synbiotics expects that business's losses to continue through at least 1997. Capital Expenditures -------------------- Capital expenditures for the year ended December 31, 1995 were not significant. During the nine months ended December 31, 1994 capital expenditures totalled $424,000, of which $242,000 was related to building improvements in Synbiotics manufacturing facility for biological production laboratories. Synbiotics has no material commitments for capital expenditures in 1996. 50 EXECUTIVE OFFICERS AND CERTAIN OTHER SIGNIFICANT EMPLOYEES OF SYNBIOTICS The executive officers and key employees of Synbiotics as of August 1, 1996 are as follows:
Name, Age, and Business Experience Position During the Past Five Years - ----------------------------- -------------------------------------- EXECUTIVE OFFICERS Chief Executive Officer - Kenneth M. Cohen (41) since May 1996 Formerly, Executive Vice President and Chief Operating Officer of Canji, Inc. March 1995 -February 1996; Vice President of Argus Pharmaceuticals, Inc. May 1990 - March 1995 Vice President-Finance, Michael K. Green (40) Chief Financial Officer and Secretary - since May 1991
SIGNIFICANT EMPLOYEES Name, Age, and Business Experience Position During the Past Five Years - ----------------------------- -------------------------------------- Corporate Controller and Chief Keith A. Butler (34) Accounting Officer - since March 1991 Director of Research and Development - John A. Cutting (57) since August 1995 Formerly, Senior Manager of Research and Development for Synbiotics November 1993 -August 1995; Director of Research of AVID Therapeutics, Inc., 1992 - November 1993; Senior Scientist, Virology of Solvay Animal Health, 1985 - 1992 Director of Operations - Clifford Frank (46) since September 1992 Formerly, Manager of Manufacturing for Synbiotics 1991 - 1992; President of Akorn Pharmaceuticals and President of Walnut Pharmaceuticals, a division of Akorn Pharmaceuticals, 1990 - 1991 Manager - Business Development and Gregory A. Soulds (49) International Marketing - since Formerly, Vice President - Marketing 1992 (with Synbiotics since 1983) and Sales for Synbiotics 1989 - 1992
51 EXECUTIVE COMPENSATION AND OTHER EMPLOYMENT MATTERS OF SYNBIOTICS Summary of Cash and Certain Other Compensation The following table provides certain summary information concerning the compensation earned by Synbiotics' Chief Executive Officer and each of the other four most highly compensated executive officers of Synbiotics ("Named Executive Officers") for services rendered in all capacities to Synbiotics for fiscal years ended December 31, 1995, 1994 and 1993: SUMMARY COMPENSATION TABLE
Long-Term Compensation Annual Compensation Awards(3) ------------------------------------------------------ Securities Other Annual Underlying All Other Compensation Options/ Compensation Name and Principal Position Year Salary($)/(1)/ Bonus($) ($)/(2)/ SARs(#) ($) /(2)/ - --------------------------- -------------- -------------- -------- ------------ ----------- ----------- Robert L. Widerkehr........... 1995 $179,375 - $2,188/(3)/ 30,000 $ 3,587 President and Chief 1994/(4)/ $131,250 - $8,750/(3)/ 22,000 $ 2,625 Executive Officer 1993 $135,000 $19,280 $8,750/(3)/ 78,000 $ 2,700 Michael K. Green.............. 1995 $101,853 - - 25,000 $ 2,213 Vice President 1994/(4)/ $ 73,805 - - 15,000 $ 1,476 1993 $ 93,721 $10,677 - - $ 1,874
_____________________ (1) Includes amounts deferred under the 401(k) Compensation Deferral Savings Plan pursuant to Section 401(k) of the Internal Revenue Code of 1986, as amended. (2) Consists of matching contributions made by Synbiotics to Mr. Widerkehr's 401(k) account and Mr. Green's 401(k) account. (3) Forgiveness of a loan made to Mr. Widerkehr to defray relocation expenses. The loan was fully forgiven as of December 31, 1995. (4) Information is for the nine month fiscal year ended December 31, 1994. 52 Stock Options and Stock Appreciation Rights The following table contains information concerning the grant of stock options and tandem limited stock appreciation rights ("SARs") under Synbiotics' 1995 Stock Option/Stock Issuance Plan to the named executive officers during the year ended December 31, 1995. OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential Realizable Value At Assumed Annual Individual Grants Rates of Stock ----------------- Price Appreciation for Option Term Number of % of Total ----------------- Securities Options/SARs Underlying Granted to Exercise or 5% 10% Options/SARs Employees in Base Price Expiration ------ ------ Granted(#)(1)(2) Fiscal Year ($/Sh) (3) Date (S)(4) ($)(4) ------------ ------------ ------------ ---------- ------ ------ Robert L. Widerkehr... 30,000 18.02% $2.63 04/27/05 Michael K. Green...... 25,000 15.02% $2.63 04/27/05
________________ (1) The options become exercisable ratably over a two-year period following the date of grant. The grant date for the options listed in the above table is April 27, 1995. The option has a maximum term of 10 years, subject to earlier termination in the event of optionee's cessation of service with Synbiotics. Option/SAR Exercises and Holdings The following table provides information, with respect to the named executive officers, concerning the exercise of options and/or SARs during the last fiscal year and unexercised options and SARs held as of the end of the fiscal year: AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
Number of Securities Underlying Unexercised Options/SARs at Value of Unexercised In-the-Money December 31, 1995 Options/SARs at December 31, 1995 Shares -------------------------------------- -------------------------------------- Acquired on Value Name Exercise(#) Realized ($) Exercisable (#) Unexercisable (#)(1) Exercisable($)(2) Unexercisable($)(2) - ---------------------- ------------ ------------ --------------- -------------------- ----------------- ------------------- Robert L. Widerkehr... 214,500 65,500 $ - $ - Michael K. Green...... 25,937 24,063 $ - $ -
_______________ (1) Value is defined as market price of the Synbiotics' Common Stock at fiscal year end less exercise price. The closing sale price of the Synbiotics' Common Stock at December 31, 1995 was $2.38. 53 EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS Synbiotics entered into an Employment Agreement dated May 7, 1996 with Kenneth M. Cohen, its Chief Executive Officer and President. The Employment Agreement provided for salary at an initial rate of $225,000 per annum, options to purchase 225,000 shares of Synbiotics Common Stock (at $3.875 per share), and a direct grant of 10,000 shares of unregistered Synbiotics common stock. In addition, he will be eligible for a cash bonus of up to 30% of his annual salary. If Mr. Cohen is terminated without cause, he will receive six months' salary at his then base salary rate (provided, that if termination without cause occurs before May 15, 1997, he will also receive salary at $225,000 per annum through May 14, 1997). In connection with the retirement of Robert L. Widerkehr, Synbiotics entered into a General Release and Severance Agreement dated July 31, 1996 with Mr. Widerkehr. Mr. Widerkehr was Synbiotics' Chief Executive Officer until May 1996 and its President until July 31, 1996. Under the Severance Agreement and General Release, Mr. Widerkehr gave Synbiotics a general release and in return (i) vesting of all his stock options was accelerated, (ii) his stock options will remain exercisable until July 31, 1999, (iii) he will receive, under Synbiotics' 1996 management cash bonus program, $42,875 times the percentage of their maximum bonus which Synbiotics' other managers receive under such plan for 1996, (iv) he will receive an additional $30,000 and (v) he will receive an additional $5,104.17 each month for 36 months beginning August 1996. On June 27, 1996, the Synbiotics Board of Directors adopted an executive protection plan pursuant to which, if any of Messrs. Cohen, Green, Cutting or Frank were terminated in connection with an acquisition of Synbiotics, they would receive severance pay equal to six months of salary. In addition, their unvested stock options would fully vest. In the case of Mr. Cohen, since his Employment Agreement already called for six months' severance, he would receive twelve months' severance in such a situation. 54 SECURITY OWNERSHIP OF CERTAIN SYNBIOTICS BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth the beneficial ownership of Synbiotics' Common Stock as of August 1, 1996, of each of the Synbiotics' directors, director nominees, 5% shareholders and the Named Executive Officers, and of the directors and executive officers of Synbiotics as a group, both before and after the Asset Purchase. Except as noted, each person has sole investment and voting power over the shares shown. Percentages are calculated in accordance with the method set forth in the Securities and Exchange Commission's rules.
PERCENT AMOUNT AND OF CLASS NATURE OF PERCENT (PRO FORMA BENEFICIAL OF CLASS FOR ASSET NAME AND ADDRESS OF BENEFICIAL OWNER OWNER (ACTUAL) PURCHASE) - ------------------------------------------------------------- ---------- --------- ----------- Patrick Owen Burns/(1) (3)/.................................. 503,503 8.4% 6.4% c/o R&D Funding Corp 1 Seaport Plaza 16th Floor New York, NY 10292 Kenneth M. Cohen/(3)/........................................ 10,000 * * c/o Synbiotics Corporation 11011 Via Frontera San Diego, CA 92127 James C. DeCesare/(3)/....................................... 26,000 * * 5260 S. Landings Drive, #200 Ft. Myers, FL 33919 Brenda D. Gavin, DVM/(6)/.................................... -0- * 23.3% c/o S.R. One, Limited Bay Colony Executive Park Suite 315 565 East Swedesford Road Wayne, PA 19087 Michael K. Green/(3)/........................................ 35,937 * * c/o Synbiotics Corporation 11011 Via Frontera San Diego, CA 92127 M. Blake Ingle, Ph.D./(3)/................................... 12,000 * * Plaza Del Mar 300-6 12526 High Bluff Drive San Diego, CA 92130 Robert J. Kunze/(2)(3)/...................................... 494,291 8.3% 6.3% c/o H&Q Life Science Ventures One Bush Street San Francisco, CA 94104 Donald E. Phillips/(3)/...................................... 40,500 * * 372 Fannin Landing Circle Brandon, MS 39042 Robert L. Widerkehr/(3)/..................................... 282,000 4.7% 3.6% 17523 Corte Lomas Verdes Poway, CA 92064 Daniel F. Cain............................................... 350,000 5.9% 4.5% 1719 Centennial Road Fort Collins, CO 80525
55
PERCENT AMOUNT AND OF CLASS NATURE OF PERCENT (PRO FORMA BENEFICIAL OF CLASS FOR ASSET NAME AND ADDRESS OF BENEFICIAL OWNER OWNER (ACTUAL) PURCHASE) - ------------------------------------------------------------- ---------- --------- ----------- Gruber & McBaine Capital Management/(4)/..................... 586,300 9.8% 7.5% c/o John P. Broadhurst, Esq. Shartsis, Friese & Ginsburg One Maritime Plaza 18th Floor San Francisco, CA 94111 H&Q Life Science Ventures.................................... 489,041 8.2% 6.2% One Bush Street San Francisco, CA 94104 International Canine Genetics, Inc./(6)/..................... -0- -0- 17.8% 271 Great Valley Parkway Malvern, PA 19355 Mallinckrodt Group Inc....................................... 458,806 7.7% 5.8% 7733 Forsyth Boulevard St. Louis, MO 63105 Edward T. Maggio, Ph.D./(5)/................................. 461,999 7.7% 5.9% c/o Structural Bioinformatics, Inc. 11011 Via Frontera San Diego, CA 92127 PruTech Research and Development Partnership II.............. 458,003 7.7% 5.8% 3945 Freedom Circle Suite 800 Santa Clara, CA 95054 S.R. One, Limited/(6)/....................................... -0- -0- 23.3% Bay Colony Executive Bank Suite 315 565 East Swedesford Road Wayne, PA 19087 All executive officers and directors as a group/(1)(2)(3)/ 1,122,231 18.8% 37.6% (7 persons; 8 persons for pro forma purposes)
- --------------------------- * Less than one percent. (1) Includes 458,003 shares of Common Stock held by PruTech Research and Development Partnership II, which is a public research and development partnership sponsored by R&D Funding Corp. Mr. Burns is a Vice President of R&D Funding Corp, and disclaims any beneficial ownership of these shares. (2) Includes 489,041 shares of Common Stock held by H&Q Life Science Ventures, a California limited partnership. Mr. Kunze is a general partner of H&Q Life Science Ventures. (3) Includes options to purchase shares of Common Stock, which are exercisable on or before September 29, 1996, as follows: Mr. Burns - 45,500 shares; Mr. DeCesare - 21,000 shares; Mr. Green - 35,937 shares; Dr. Ingle - 12,000 shares; Mr. Kunze - 5,250; Mr. Phillips - 40,500 shares; Mr. Widerkehr - 280,000 shares. 56 (4) Owned by a group of six persons who granted their respective powers of attorney to Gruber & McBaine Capital Management ("GMCM"), a California corporation, to handle any and all necessary filings in connection with these securities. The direct ownership of these shares is as follows: GMCM - 29,500 shares; Jon D. Gruber ("Gruber") - 68,000 shares; J. Patterson McBaine ("McBaine") - 55,400 shares; Lagunitas Partners ("Lagunitas") - 235,800; GMJ Investments, LP ("GMJ") - 6,500 shares; Proactive Partners, a California Limited Partnership ("Proactive") - 191,100 shares. Gruber and McBaine are the sole directors and sole executive officers of GMCM. GMCM, Gruber and McBaine are the general partners of Lagunitas and GMJ. Gruber and McBaine are general partners in the entity which is the general partner of Proactive. Gruber and McBaine disclaim beneficial ownership of the shares held by GMCM, Lagunitas, GMJ and Proactive except to the extent of their respective pecuniary interests. GMCM disclaims beneficial ownership of the shares held by Gruber, McBaine, Lagunitas and GMJ except to the extent of its pecuniary interest. (5) Includes options to purchase 6,999 shares of Common Stock, which are exercisable on or before September 29, 1996, held by Dr. Maggio. (6) Assuming that the Average Closing Sales Price will be $3.50 per share, International Canine Genetics, Inc. will own 1,400,000 shares of Common Stock of Synbiotics directly; S.R. One, Limited will own 285,714 shares of Common Stock of Synbiotics directly and 1,400,000 beneficially, as the majority stockholder of ICG, and will own warrants to purchase 145,785 shares of Common Stock of Synbiotics; Dr. Gavin will own 1,685,714 shares of Common Stock of Synbiotics beneficially, as Vice President of S.R. One. Dr. Gavin disclaims beneficial ownership of such shares. 57 COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT Section 16(a) of the Securities Exchange Act of 1934 requires the Synbiotics' officers and directors, and persons who own more than 10% of a registered class of Synbiotics' equity securities, to file reports of ownership and changes in ownership with the SEC. Officers, directors and greater than 10% shareholders are required by SEC regulation to furnish Synbiotics with copies of all Section 16(a) forms they file. Based solely on review of the copies of such forms furnished to Synbiotics, or written representations that no Forms 5 were required, ICG believes that, during the fiscal year ended December 31, 1995, all Section 16(a) filing requirements applicable to its officers, directors and greater than 10% beneficial owners were complied with, with the following exception: On November 2, 1995 Mr. Kunze became a director of Synbiotics, at which time a Form 3 should have been filed. However, due to an oversight by Synbiotics, the Form 3 was not filed until March 22, 1996. SHAREHOLDER PROPOSALS FOR 1997 SYNBIOTICS PROXY STATEMENT Under the present rules of the Commission, the deadline for shareholders to submit proposals to be considered for inclusion in Synbiotics' Proxy Statement for next year's Annual Meeting of Shareholders is expected to be March 15, 1997. Such proposals may be included in next year's Proxy Statement if they comply with certain rules and regulations promulgated by the Commission. SYNBIOTICS FORM 10-KSB SYNBIOTICS WILL MAIL WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF THE ANNUAL REPORT ON FORM 10-KSB, INCLUDING THE FINANCIAL STATEMENTS, SCHEDULES AND LIST OF EXHIBITS. REQUESTS SHOULD BE SENT TO SYNBIOTICS CORPORATION, 1011 VIA FRONTERA, SAN DIEGO, CALIFORNIA 92127, ATTENTION MICHAEL K. GREEN. 58 BUSINESS (ICG) GENERAL ICG is engaged in the business of developing, manufacturing and marketing products and services that serve the needs of veterinary specialty markets for companion animals. Currently, ICG is focused on developing new technology into high value-added products and services for breeders and owners of purebred dogs and their veterinarians. ICG currently sells its products and services in four specialized markets: canine reproduction, genetic disorders, nutritional supplements and grooming products. U.S. Government statistics state that approximately 36 million households in the United States own 52.3 million dogs. According to the American Kennel Club, there are 22 million purebred dogs in the U.S. Of the total 2.5 million U.S. annual dog breedings, ICG estimates that one million breedings of purebred dogs occur in the United States annually. Each year approximately 750,000 purebred dog litters are born (whelped) producing approximately 3,450,000 purebred puppies. This one million purebred dog breeding estimate includes show dogs, sporting dogs, and special situation dogs (i.e. Seeing Eye, MWD, etc.). The international market for ICG's products and services is comparable in size to that of the United States. Europe, Japan, Canada, Australia and New Zealand represent the vast majority of potential revenues. The objective of most breeders of purebred dogs is to improve the breed with each litter. Substantial time and attention is devoted to selecting the correct breeding partner in order to avoid genetic disorders and other undesirable traits. Frequent breeders, those involved with show or field trial competition, study pedigrees and performance records of dogs to determine the optimal breeding partner. Often the best stud dog for a bitch lives some distance away and breeding requires traveling a substantial distance or shipping the dog. Most breedings are conducted by natural methods. The generally accepted protocol requires the owners of female dogs to drive or ship their dogs to the stud owner's kennel for one to three services over several days. If the owner of a female dog wishes to breed it to a stud dog outside the immediate area, the cost, time, stress and risk to the dog of injury or death increases dramatically. International breedings are exceedingly rare due to these risk factors, the significant expense of such breedings and quarantine requirements. Even so, many breeders report that up to half of their breedings are conducted over a long distance where a dog is shipped by air or driven many hours. Other breeders, in order to avoid the inconvenience and risks associated with long distance breedings, opt to breed their bitches to a stud dog that is locally available. The locally available stud dog may be closely related to the bitch, increasing the likelihood of promoting undesirable genetic traits due to inbreeding. Breeders are further limited by the lack of veterinary assistance and support in the area of canine reproduction. Prior to the availability of ICG's products and services, many veterinarians were unable to offer basic reproductive diagnostic services such as ovulation timing and pregnancy testing because diagnostic products were not available and because most veterinary schools offer little or no training regarding canine reproduction. The Veterinary Economics and Veterinary Medicine July 1995 data base stated that 38,230 veterinarians specialized in small animal practice at 20,803 clinic/hospital locations throughout the U.S. ICG currently sells its products and services to 4,500 veterinary clinics/hospitals in the U.S. (approximately 22%). ICG's objective is to increase market penetration through expanded product distribution and new product introduction. ICG has begun to address the genetic disorder market with the introduction of the PennHIP/(R)/ diagnostic service. More than 300 genetic defects have been identified in dogs. Despite more than a quarter century of international efforts at eradication, Canine Hip Dysplasia ("CHD") is the most common, heritable orthopedic problem occurring in dogs. A degenerative joint disease, CHD is painful and can be extremely debilitating. Though it affects virtually all breeds of dogs, it is especially a problem in large and giant breeds, such as Golden Retrievers, Labrador Retrievers, German Shepherds and St. Bernards. In the United States alone, dogs affected number in the millions. In the area of nutritional supplements, ICG has developed and is marketing two life cycle nutritional supplements which address the nutritional requirements of dogs during gestation and lactation and various stages 59 of life and activity levels. ICG entered the grooming products market through its agreement with the W. R. Van Wyck Group, Limited for the exclusive marketing and distribution rights for the Duurstede/(R)/ line of premium coat and skin care products. EXISTING PRODUCTS AND SERVICES Canine Reproduction ------------------- OVULATION TIMING DIAGNOSTIC PRODUCTS. ICG's ovulation timing products assist breeders in more accurately determining when the female dog is fertile. Improper timing is a primary cause of missed breedings, a problem that can cut conception rates in half. A female dog comes into heat once every six to eight months with the heat cycle lasting between 15 and 30 days. The fertile period during each heat cycle lasts only two to three days and cannot be accurately determined without hormone testing. Missed breedings require a six to eight month waiting period prior to the next attempt and, therefore, can create a major problem in a breeding program. The effective breeding life of most female dogs is only about four to six years, or eight to twelve heat cycles. In June of 1989, ICG introduced its first ovulation timing diagnostic test for veterinarian use, ICAGEN(TM)Target, which was co-developed and is manufactured by an unaffiliated company. In June 1992, ICG introduced an internally developed ovulation timing test, Status-Pro(TM), which is superior to the original test. Status-Pro(TM) is manufactured by ICG at its Malvern facility. Because demand exists from customers unwilling to change practices which have worked in the past, ICG continues to sell ICAGEN(TM) Target although it believes Status-Pro(TM) to be simpler to use. Each product is sold in a kit which provides enough tests to time two heat cycles. In April 1994, ICG introduced a canine LH/Progesterone testing service to provide veterinarians with quantitative test results for breedings using frozen semen or chilled semen of poor quality. In February 1995, ICG introduced Status-LH(TM), the first in- clinic diagnostic test to measure canine luteinizing hormone ("LH") for timing ovulation. Developed and manufactured by ICG, the product enables veterinarians to rapidly and accurately identify the actual hormonal event that triggers ovulation in the dog with a simple one-step test procedure. This high degree of precision in ovulation timing is useful in all breedings, but is especially beneficial for artificial inseminations using chilled or frozen semen. Although the initial market for these products and services has been breeders with bitches which have had difficulty conceiving, breeders are beginning to use these products and services routinely. The current products require breeders to make several trips to their veterinarians for testing until the fertility peak has been determined. Nevertheless, these products and services have been well received by dog breeders despite the cost and inconvenience involved in visiting veterinarians. Status-Pro(TM), Status-LH(TM) and ICAGEN(TM)Target are sold directly by ICG and have been well received by veterinarians who are now able to offer an additional service to dog breeders. On October 19, 1995, ICG introduced OPTIMATE(TM), the first at-home canine ovulation confirmation test available to dog breeders. OPTIMATE(TM)is an easy to use, urine based test that allows dog breeders to confirm, at home, that ovulation has occurred and that it is appropriate to proceed with their planned natural breeding. Additionally, ICG believes that OPTIMATE(TM) will become an important preliminary diagnostic tool to enable breeders to identify dogs experiencing abnormal ovulation and encourage breeders to seek veterinary help to isolate the underlying causes. The target market for OPTIMATE(TM)is the estimated 850,000 U.S. purebred dog breedings that occur every year without the benefit of technology or the involvement of a veterinarian. OPTIMATE(TM) is available directly from ICG, through veterinarians, and from a select number of dog show product distributors throughout the United States. International product introduction is scheduled to begin during the second quarter of 1996. With the release of OPTIMATE(TM), ICG believes that it provides dog breeders and their veterinarians the most comprehensive system of canine ovulation timing products in the world. 60 PREGNANCY TESTING. ICG introduced what it believes to be the first canine pregnancy testing service in the United States, the ICAGEN(TM) Pregnancy Test, in July 1990. ICG's current pregnancy testing service is based upon technology licensed to ICG. The license agreement provides ICG with the exclusive right to use the pregnancy test in the United States for a period of five years beginning July 13, 1990 and provides for an automatic five year renewal of the license. Kits are sold to veterinarians who collect and ship a blood sample to ICG for testing. The ICAGEN(TM) Pregnancy Test is 95% accurate and can detect pregnancy during a window of 28 to 37 days after breeding (total gestation is 63 to 65 days). The initial market for ICG's existing pregnancy testing service has been serious breeders who use this service to confirm the results of a palpation examination or in lieu of an expensive ultrasound procedure. On November 6, 1995, ICG concluded an agreement with the Cornell Research Foundation, the University of Medicine and Dentistry of New Jersey-New Jersey Medical School and New York University for the exclusive rights to a U.S. patent entitled "Relaxin Testing for Early Detection of Pregnancy in Dogs." In addition, ICG entered into a Sponsored Research Agreement with each of the universities for the co-development of a canine pregnancy test kit based on the underlying technology covered by the patent. ICG believes that there are currently no inexpensive and reliable methods available commercially for early detection of canine pregnancy for the estimated one million purebred dog breedings in the U.S. as well as the millions of other dog owners. In addition, a test to rule out pregnancy in dogs as a pre-surgical screen is of high interest to veterinarians. ICG's goal is to develop and validate a simple qualitative test for use in the veterinary clinic that can reliably determine the success or failure of a planned breeding, artificial insemination or the inadvertent exposure of valuable females to unwanted males. This in-clinic product can also be used as a pre-surgical screening test. Market introduction is targeted for the first fiscal quarter of 1997. A second product, an at-home pregnancy test is planned for introduction approximately one year following the in-clinic test to compliment ICG's other over the counter diagnostic product, OPTIMATE(TM), and to address the large portion of the market that breeds their dogs without the involvement of a veterinarian. In addition, there is evidence that Relaxin may be an early indicator of feline pregnancy, a test which could provide a logical expansion of activities into the broader companion animal market. ARTIFICIAL INSEMINATION PRODUCTS AND SERVICES. ICG's artificial insemination products and services, introduced in fiscal 1989, include semen freezing and chilling systems which incorporate proprietary buffers designed specifically for the dog. Buffers are chemical solutions added to semen which minimize damage to sperm cell function during freezing, chilling and transportation. These buffers are sold in kits for overnight shipping of semen together with a variety of other supplies necessary for artificial insemination. These products enable breeders to conduct long distance and international breedings using chilled or frozen semen and artificial insemination thereby eliminating the constraints of time, distance, shipping stress and risk to the animals. Frozen semen can be shipped to most countries for breeding thereby making stud dogs around the world available. Frozen semen also permits breedings for years after the dog's natural life span. ICG's Fresh Express(R) system for chilled semen shipping allows breeders to ship semen overnight between veterinarians to conduct long distance breedings without shipping dogs. The kit includes all of the supplies and instructional materials necessary to collect and ship the semen and to document the breeding. Kits for semen shipping are sold to the 894 veterinarians participating, under contract, in ICG's veterinarian referral network ("ICG Network Veterinarians"), as well as other veterinarians who then provide the total service for the breeder. The total service includes the collection of semen from the stud, shipment of the semen using the Fresh Express(R) kit to the bitch's veterinarian, artificial insemination of the bitch by the bitch's veterinarian and the completion by both veterinarians of the documentation contained in the Fresh Express(R) kit necessary to register the puppies as purebred with the American Kennel Club or other pedigree registering organization. ICG also offers semen freezing services, breeding supplies and instructional materials to breeders directly and through freezing centers and ICG Network Veterinarians. Freezing services are performed at ICG's Malvern facility and through 43 freezing centers located in North America, seven freezing centers located in Australia and 61 New Zealand, and one center in the United Kingdom. In addition, ICG has assisted the Seeing Eye, Moorestown, NJ and the Military Working Dog Program, Lackland AFB, TX establish semen freezing centers for their special breeding requirements. Freezing centers are independently owned and operated by veterinarians trained by ICG. Pursuant to contractual arrangements with ICG, these freezing centers offer semen freezing services using ICG's proprietary technology and products. In addition to training, the veterinarians operating freezing centers receive technical and marketing support, and purchase the equipment and supplies necessary to operate the freezing center from ICG. Veterinarians operating freezing centers freeze semen as part of the services offered in their practices. Several times each year the collected frozen semen is shipped to ICG for long term storage at its Malvern facility. Each year thereafter, ICG bills the stud owner for storage of the semen. At present, ICG has frozen semen stored for over 2,700 dogs. ICG's long-term semen storage facilities located in the United States meet the requirements of the American Kennel Club including those relating to the maintenance of appropriate security and records systems necessary to verify pedigree. ANCILLARY PRODUCTS. ICG sells various breeding-related products such as training videos, educational literature and seminars, laboratory supplies and record keeping systems. Canine Genetic Disorders ------------------------ CANINE HIP DYSPLASIA DIAGNOSIS. CHD is the most common, heritable orthopedic problem occurring in dogs. It affects virtually all breeds of dogs but it is especially a problem in large and giant breeds. Dogs affected number in the millions in the United States alone. A degenerative joint disease, CHD is painful and can be extremely debilitating. In December 1993, ICG concluded an agreement with the University of Pennsylvania for the exclusive worldwide rights to commercialize the PennHIP(R) technology, a new scientific method for the early diagnosis and screening of Canine Hip Dysplasia. The technology is being marketed under the University of Pennsylvania registered trademark PennHIP(R) for which ICG also obtained an exclusive worldwide license. The PennHIP(R) method for evaluating dogs for CHD was developed during eleven years of intensive research involving biomechanics, clinical medicine, radiology, population genetics and associated statistical analysis by Dr. Gail K. Smith at the University of Pennsylvania. On January 9, 1996, a U.S. patent was issued for the PennHIP(R) method and other key aspects of the technology. Based on scientific data, ICG believes that the PennHIP(R) method surpasses other diagnostic methods in the ability to accurately predict susceptibility to developing CHD. The method can be performed on dogs as young as sixteen weeks of age compared with two years using the standard technique. The ability to receive an early estimate of a dog's hip integrity is important whether the dog is intended for breeding, working or a family pet. The reliability of the data generated by PennHIP(R) will allow breeders to confidently identify the tightest hip members of their breeding stock and accurately assess the progress they are making with their breeding program as they strive to reduce the amount of hip laxity in their dogs. Veterinarians wishing to become members and participate in ICG's PennHIP(R) Referral Network of trained and certified veterinarians attend a program taught by Dr. Gail Smith. During this program, veterinarians are instructed on the basis of the technology and proper positioning of the dog during X-ray. After training, veterinarians are required to submit test radiographs to ICG for interpretation. If the radiograph's quality is acceptable, the veterinarian is then certified. The cost of certification is included in the training seminar fee. Only certified veterinarians can submit radiographs to ICG for interpretation with results reported back to the veterinarian and dog owner. ICG began offering PennHIP(R) training seminars to veterinarians in the U.S. in June 1994. Since that time, 763 veterinarians have been trained in U.S. seminars. Of the total veterinarians trained, 487 have been certified by ICG and are offering PennHIP(R) to their clients. Certified veterinarians have the option to join the PennHIP(R) Referral Network by contractually agreeing to receive referrals from ICG. As of June 30, 1996, 424 certified veterinarians have joined the PennHIP(R) Referral Network. 62 CHD is a worldwide problem. Interest in PennHIP(R) is as high in the major international dog markets (i.e. Europe, Japan, Canada, Australia) as it is in the United States. Since June of 1994, 38 international veterinarians from Canada, Australia, Spain, France, Denmark, the Netherlands and Japan have attended training seminars in the United States. On March 5, 1996, the Japan Kennel Club ("JKC") agreed to adopt PennHIP(R) as the method of CHD evaluation for the JKC HIP Registry. The JKC, the largest dog registry in Japan, has approximately 150,000 members with over 350,000 dogs registered. As part of the JKC HIP Registry, only dogs tested by the PennHIP(R) method will be registered in the JKC studbook. PennHIP(R) results will also be recorded in each dog's certified pedigree and published in the JKC magazine along with the PennHIP(R) requirements of breeding and registering puppies. Under the agreement, ICG will provide the training and certification of Japanese veterinarians, the for-fee measurement of PennHIP(R) radiographs and the program database management. A total of seventy-one veterinarians, university professors and JKC representatives attended the first two training sessions in Tokyo and Kyoto the week of March 25, 1996. Two additional training sessions are being scheduled for the Fall of 1996. In order to expedite the receipt of films from Japan and other international markets, streamline the measurement of all films and maximize the overall profitability of PennHIP(R), ICG has begun a project to automate the PennHIP(R) process. Phase one of the project was completed in July 1996. Longer term, it is expected that automation will enable ICG to process the projected increase in PennHIP(R) films with existing manpower resources. ICG has also been informed by the American Kennel Club ("AKC") that it is developing an "Information and Health Database" for its members and that PennHIP(R) test results will be included. While the AKC breeding requirements will not be as stringent as those of the JKC, inclusion in this program represents an endorsement by the primary dog registry in the U.S. that PennHIP(R) is an effective genetic screening tool. Canine Nutrition ---------------- NUTRITIONAL SUPPLEMENTs. ICG has developed and is marketing two life cycle nutritional supplements, ICG Stress Formula(TM) and ICG Coat & Skin Formula(TM). These products are marketed to dog owners who recognize the increased nutritional requirements and the stress to the bitch related to breeding, gestation and lactation and the importance of maintaining the general health of their dogs which is reflected in the condition of a dog's coat and skin. ICG's nutritional supplement products are manufactured to ICG's specifications by an unaffiliated company under the supervision of the consultant with whom ICG has contracted for the development of nutritional supplements. Grooming Products ----------------- GROOMING PRODUCTS. In September 1994, ICG concluded an agreement with the W. R. Van Wyck Group, Limited of Canada for the exclusive marketing and distribution rights to the Duurstede(R) line of premium coat and skin care products for dogs in the United States and selected international markets. Developed in research facilities in Europe and Canada, the Duurstede(R) line of products offers a comprehensive, easy to use system that addresses the needs of all coat types. MARKETING AND SALES ICG markets directly to breeders in North America through mailings, advertisements in trade magazines and by participating in major dog shows. Currently, ICG's database contains over 85,000 breeders. The ICG "typical breeder client" is a dog enthusiast spending an average of one-half of his or her weekends each year involved in some activity with his or her dogs. A favorite activity of ICG clients is participating in AKC sanctioned dog shows or field trials of which over 13,000 are held each year in the U.S. In order to provide easy access to ICG's nutritional supplements, grooming products, consumer breeding 63 products and prepare for the market introduction of OPTIMATE(TM), ICG entered into distribution agreements with six regional dog show distribution companies in 1995. Breeding supplies and instructional materials are also offered directly to breeders through a toll free number. The toll free number is staffed by a veterinarian and trained technicians and provides ICG with an opportunity to build an awareness of its products and services directly with breeders. ICG generally receives over 3,000 toll free telephone calls per month requesting technical, product and service information and to place orders. To improve timely response and follow-up, ICG has organized a sales/telemarketing group which routinely contacts potential customers to sell ICG's products or make veterinary referrals. Network Veterinarians are also contacted by the sales/telemarketing group to market ICG's products and perform selected market research. The major part of ICG's marketing strategy is designed to increase the involvement of veterinarians in the dog breeding process. ICG instituted training programs in fiscal 1990 to develop a network of qualified veterinarians to deliver its Canine Reproduction products and services and in June 1994 to develop a PennHIP(R) Referral Network. As of March 1996, there were 880 veterinarians in ICG's Reproduction Network and 402 veterinarians in its PennHIP(R) Referral Network. Through its direct breeder marketing activities, ICG is able to provide client referrals to Network Veterinarians thereby enabling them to increase revenues by attracting new breeder clients and by offering new services to existing clients. Network Veterinarians receive a product purchase discount and an opportunity to resell selected Company products. Additionally, ICG provides extensive marketing support and training to Network Veterinarians. ICG maintains a veterinary services staff to answer technical inquiries and a customer support staff to market its products and perform general customer service. ICG believes that Western Europe, Japan, Canada, Australia and New Zealand offer a significant opportunity for its products and services since the problems confronted by breeders of purebred dogs are similar to those found in the United States. ICG has established freezing centers in Canada, Australia, New Zealand and the United Kingdom and has entered into distribution agreements for its diagnostic products with companies in Australia, Canada, Italy and Finland. Under the agreements, the distributors are able to purchase diagnostic and other products at specified discounts from retail prices subject to minimum order requirements. All sales are denominated in U.S. dollars. The distributors have undertaken to promote sales of ICG's products through various advertising and promotional programs. MANUFACTURING AND OPERATIONS ICG currently manufactures its Status-Pro(TM), Status-LH(TM) and OPTIMATE(TM) products for ovulation timing at its Malvern facility. By manufacturing these products, ICG believes it maintains greater control of quality and is better able to limit outside access to its proprietary technology. ICG also assembles the kits for Fresh Express(R) and packages ancillary products at its Malvern facility. ICG's ICAGEN(TM) Target test for ovulation timing is manufactured by an unaffiliated company which co-developed that product. The nutritional supplement products are manufactured by an unaffiliated manufacturer to ICG's specifications under the direct supervision of a consultant to ICG. ICG's proprietary buffers used in its Fresh Express(R) kit and frozen semen operations are manufactured by an independent contractor. ICG relies on single sources of supply for certain of the key components of products it manufactures. However, it believes that alternative sources for these components are available and it generally maintains an adequate inventory to avoid temporary product flow interruptions. In addition, although ICG does not have supply contracts with suppliers of its diagnostic and nutritional supplement products, ICG believes that other contract manufacturers are available in the event a manufacturer is unable or unwilling to supply products to it. ICG may be subject to product liability claims based upon product failure or improper use of products by customers. ICG maintains product liability insurance of $1,000,000 per occurrence, subject to an annual 64 aggregate limit of $1,000,000. Based upon its experience and industry practice, ICG believes that its insurance coverage is adequate for its present operations. COMPETITION ICG believes that its products and services are targeted at emerging markets in which there is only fragmented competition. The primary competition for its artificial insemination products and services is, and is projected to remain, natural breeding. Regional competition exists in the area of artificial insemination from a number of small businesses including veterinarian sole practitioners who offer semen freezing services through their practices. ICG is not aware of any national or international companies marketing artificial insemination products or services in competition with ICG. Several companies market nutritional supplements which compete with those of ICG. Also, various companies and research and academic institutions are working in the areas of canine genetic research and fertility management. To date, this research has not resulted in products or services which compete with those offered or under development by ICG. Although, as described above, ICG's competition to date has been limited, primarily because it is creating a new market, ICG believes that competition will increase as the market for its products and services expands. The Orthopedic Foundation for Animals ("OFA"), a non-profit foundation, does present established competition for ICG's PennHIP(R) product. The OFA has been providing a diagnostic service for Canine Hip Dysplasia in the U.S. for over twenty years. However, ICG believes the PennHIP(R) diagnostic service, which is a quantitative test, is superior to the OFA's qualitative diagnostic testing service. ICG believes it can successfully compete with the OFA for the U.S. Canine Hip Dysplasia testing market. PATENTS, TRADEMARKS AND LICENSES ICG has been issued two patents from the U.S. Patent and Trademark Office relating to certain aspects of its canine pregnancy and ovulation timing testing. ICG has chosen not to obtain patent protection in foreign countries and has foregone the option to do so. ICG has elected to maintain its formulas for semen freezing and chilling medias (buffers) and nutritional supplements as trade secrets, and has not sought patent protection for those technologies. ICG has registered two trademarks with the United States Patent and Trademark Office. ICG currently uses seven trademarks in connection with its products and intends to file applications to register these marks with the PTO. ICG has obtained the rights to several trademarks through various license and distribution agreements. ICG also holds the exclusive licenses to several proprietary products. ICG has registered its Fresh Express(R) trademark with the United States Patent and Trademark Office. ICG currently uses ICG(TM), ICAGEN(TM), Status- Pro(TM), Status-LH(TM), OPTIMATE(TM), ICG Stress Formula(TM), and ICG Coat & Skin Formula(TM) as trademarks in connection with its products and intends to file applications to register these marks with the USPTO. ICG has obtained the rights to the registered trademark PennHIP(R) via its license from the University of Pennsylvania and the use of the trademark Duurstede(R) through its distribution agreement with the W. R. Van Wyck Group, Limited. ICG intends to apply to register additional federal trademarks and service marks with the USPTO when and as ICG management deems necessary or appropriate. ICG holds the exclusive licenses to several proprietary products, including a license for proprietary technology used in the pregnancy testing service provided by it. The license agreement provides ICG with the right to use the pregnancy test in the United States for a period of five years beginning July 13, 1990 and provides for an automatic five year renewal of the license. In December 1993, ICG entered into a license agreement with the University of Pennsylvania for the exclusive worldwide rights to commercialize a new technology for the diagnosis of Canine Hip Dysplasia and an exclusive worldwide license to use the University of Pennsylvania registered trademark PennHIP(R). The license agreement is for a term of seventeen years based on the issuance of a U.S. patent for the PennHIP(R) method on January 9, 1996. In addition, as part of this transaction, ICG entered into an agreement with Ortho/Analytic, Inc. for the purchase, on an exclusive basis, of devices used to position the dog during x-ray and which are provided to the veterinarian as part of the training fee. The agreement is for a term of seventeen years. 65 In November 1995, ICG entered into a license agreement with the Cornell Research Foundation, the University of Medicine and Dentistry of New Jersey-New Jersey Medical School and New York University for the exclusive rights to the U.S. patent entitled "Relaxin Testing for Early Detection of Pregnancy in Dogs". The license agreement is for a term of 13 years. GOVERNMENT REGULATION ICG's semen freezing products, diagnostic ovulation timing products and pregnancy testing services for dogs fall within the definition of devices as that term is defined in the FFDCA and, therefore, may be subject to regulation by the FDA. While no formal pre-approval process is required for ICG's products at this time, such products must adhere to certain labeling, use and effectiveness requirements. ICG believes that it is in material compliance with these requirements. The FFDCA also regulates pet foods, which include ICG's nutritional supplements, by requiring certain information to be included on pet food labels. States also often impose labeling requirements on pet food manufacturers which exceed the federal requirements and require such information as minimum protein and fat content and maximum fiber content. ICG's nutritional supplements, which contain nutrients for the promotion of good health in dogs during pregnancy or for the maintenance of a healthy coat and skin in dogs, are subject to such regulations. ICG believes that it is in compliance with federal, state and local regulations applicable to its products and services. EMPLOYEES As of June 30, 1996, ICG had a total of 17 full-time employees, each of whom has entered into a confidentiality and non-competition agreement with ICG. Of the 17 employees, four provide veterinary services, four are devoted to administrative and financial activities, five are involved in sales, marketing and order processing, three are engaged in research, development and manufacturing activities and one employee handles shipping, receiving and warehousing. ICG considers its employee relations to be satisfactory. PROPERTIES (ICG) Since April 1989, ICG's executive, marketing, research and development, manufacturing and distribution operations have been located in an office/industrial park in Malvern, Pennsylvania. In May 1993, ICG entered into a five year lease agreement which expanded its facility from 4,725 square feet to 9,240 square feet. Approximately 25% of ICG's current facilities are devoted to each of its four principal operations: 1. Research, Development and Manufacturing, 2. Veterinary Services and Clinical Operations, 3. Sales, Marketing, Finance and Administration, and 4. Shipping, Receiving and Warehousing. LEGAL PROCEEDINGS (ICG) ICG is not a party to any legal proceedings. 66 MARKET PRICE OF ICG COMMON STOCK; DIVIDENDS ICG's Common Stock and warrants to acquire Common Stock were moved from the NASDAQ Small Cap Market to the OTC Bulletin Board on January 13, 1995. The inability to maintain a minimum $1.00 per share bid price was the reason cited by NASDAQ for this action. ICG actively pursued an appeal of this decision. However, the decision to delist the Common Stock was upheld in May 1995. The following table sets forth for the quarters indicated, the high and low closing bid prices of the Common Stock and the Warrants as reported by the National Quotation Service. Prices represent quotations between dealers without adjustments for retail markups, markdowns or commissions and may not represent actual transactions.
Bid Price --------------------------- Common Stock Warrants ------------- ----------- High Low High Low ------ ---- ---- ---- Fiscal year ended June 30, 1996 First Quarter 1/2 3/16 3/64 1/64 Second Quarter 9/16 5/16 1/64 1/64 Third Quarter 5/16 5/16 1/64 1/64 Fourth Quarter 1 3/16 5/16 5/64 1/64 High Low High Low ------ ---- ---- ---- Fiscal year ended June 30, 1995 7/8 1/2 1/8 1/8 First Quarter 23/32 5/8 1/8 1/8 Second Quarter 5/8 1/4 1/8 1/8 Third Quarter 5/16 1/4 1/32 1/32 Fourth Quarter
As of September 4, there were approximately 425 holders of ICG's Common Stock and 375 holders of the Warrants. ICG has not paid dividends in cash or stock on its Common Stock since inception. ICG does not anticipate paying dividends in the foreseeable future and any cash otherwise available for such dividends will be reinvested in its business. The payment of cash dividends will depend on the ICG's earnings, if any, its capital requirements and other factors considered relevant by the Board of Directors. 67 ICG MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The selected financial data set forth on the next page should be read in conjunction with the audited financial statements and related notes appearing elsewhere herein and the discussion of Results of Operations and Liquidity and Capital Resources below. GENERAL Since its formation in 1986, ICG has devoted substantially all of its resources to research and development programs and to the marketing of products and services developed by ICG or licensed from third parties. ICG has been unprofitable since its inception and expects to incur additional losses as it expands the marketing of existing products and services and continues to invest in research and development programs. ICG's net revenues consist primarily of sales of its breeding, diagnostic, nutritional supplement and coat and skin care products and revenues from its PennHIP(R), ovulation timing, pregnancy and paternity testing services. Gross profit consists of net revenues reduced by the related cost of revenues which represents ICG's cost of purchasing, providing or manufacturing diagnostic and breeding products and services, nutritional supplement and coat and skin care products, and the cost of providing hip dysplasia, ovulation timing, pregnancy and paternity testing services to customers. RESULTS OF OPERATIONS FISCAL YEARS ENDING JUNE 30, 1996 AND 1995 Net Revenues Net revenues for the fiscal year ended June 30, 1996 were $1,651,000, an increase of $149,000 or 10% compared to the $1,502,000 reported for the fiscal year ended June 30, 1995. The overall year-to-year increase resulted primarily from the growth in sales of ICG's diagnostic products, breeding services and coat and skin care products. Diagnostic revenues increased 16% to $495,000 in fiscal 1996 from $426,000 in fiscal 1995. During fiscal 1996, sales of ICG's Status Pro and Target ovulation timing test increased 5% to $384,000 in fiscal 1996 from $366,000 in fiscal 1995. In October 1995, ICG introduced to the market Optimate, ICG's at- home ovulation confirmation test sold to dog breeders. This product contributed $45,000 to overall diagnostic revenues in fiscal 1996. Status-LH, ICG's diagnostic test to measure canine luteinizing hormone (LH), which was introduced in February 1995, contributed $49,000 to fiscal 1996 revenues compared to $21,000 in fiscal 1995. Revenues from ICG's LH/Progesterone testing service declined from $17,000 in fiscal 1995 to $4,000 in fiscal 1996 as veterinarians are now using the diagnostic kit in lieu of the testing service. ICG has discontinued the testing service. Revenues from ICG's pregnancy testing and paternity testing services declined from $19,000 and $4,000, respectively, in fiscal 1995 to $10,000 and $2,000 in fiscal 1996. Revenues from ICG's hip dysplasia service remained at $278,000 in both fiscal 1996 and 1995. Revenues from the training of new veterinarians in the PennHIP technology declined from $231,000 in fiscal 1995 to $197,000 in fiscal 1996. The decline was due to lower than planned attendance at the U.S. training programs compared to fiscal 1995. In March 1996, the Japan Kennel Club (JKC) agreed to include PennHIP in the JKC HIP Registry and ICG conducted the first international training seminars for veterinarians in Tokyo and Kyoto. These seminars contributed $45,000 to total training revenues. To date, ICG has trained 810 veterinarians in the PennHIP technology of which 487 have been certified by ICG and are making PennHIP available to their clients. During fiscal 1996, ICG generated $81,000 in revenues from the evaluation of PennHIP radiographs compared to $47,000 in fiscal 1995. 68 Total breeding services, which consist of frozen and chilled semen revenues, were $662,000 in fiscal 1996, an increase of 10% compared to the $601,000 recorded in fiscal 1995. Overall frozen semen revenues increased 15% to $521,000 in fiscal 1996 from $454,000 in fiscal 1995. Contributing to the increase in overall frozen semen revenues was a 35% increase in semen storage revenues from $103,000 in fiscal 1995 to $140,000 in fiscal 1996. This increase was due to the general increase in semen collection and freezing activity combined with a price increase implemented in February 1996. Revenues from semen collection and freezing activities grew, but at a slower rate, to $324,000 in fiscal 1996 from $319,000 in fiscal 1995. During fiscal 1996, ICG generated $57,000 from training and equipping new veterinary practices in the semen collection and freezing technology. ICG's network of independently owned and operated veterinary practices trained in semen collection stands at 51 centers worldwide compared to 44 centers at June 30, 1995. Overall chilled semen revenues declined 4% to $141,000 in fiscal 1996 from $147,000 in fiscal 1995. Sales of kits to perform chilled semen breedings declined marginally to $98,000 in fiscal 1996 from $101,000 in fiscal 1995. Contributing to the decline in overall chilled semen revenues was a 39% reduction in revenues from the sale of chilled semen training materials as the growth of the membership in ICG's reproductive network has slowed. Partially offsetting these declines was a 12% increase in veterinary reproductive fees, generated at ICG's Malvern, PA facility, from $28,000 in fiscal 1995 to $32,000 in fiscal 1996. Revenues from grooming products, for which ICG has exclusive marketing and distribution rights from the W. R. Van Wyck Group, Limited in Canada, increased from $26,000 in fiscal 1995 to $43,000 in fiscal 1996. ICG sells these products directly to consumers and through a network of 6 distributors who make these products available at dog shows in 27 states. During fiscal 1996, nutritional supplement revenues declined 13% to $79,000 from $91,000 in fiscal 1995 as ICG did not actively advertise or promote these products during fiscal 1996. During fiscal 1996, revenues from ancillary products and services increased 33% to $77,000 in fiscal 1996 from $58,000 in fiscal 1995. Also, during fiscal 1996, ICG completed all aspects of the Military Working Dog contract and generated revenue of $32,000 compared to $35,000 in fiscal 1995. Gross Profit ICG's gross profit for the twelve months ended June 30, 1996 was $762,000, an increase of 11% compared to the $688,000 recorded for the twelve months ended June 30, 1995. ICG's gross profit margin increased to 46.1% of net revenues in fiscal 1996 from 45.8% in fiscal 1995. The improvement in the gross profit margin was due to favorable product mix. In fiscal 1996, ICG's diagnostic products, PennHIP radiographs and semen storage fees, which have higher gross margins than ICG's other products and services, were 43% of ICG's total revenues compared to 38% of total revenues in fiscal 1995. Operating Expenses Research and development expenses increased 1% from $549,000 in fiscal 1995 to $555,000 in fiscal 1996. The cost incurred for the development of an in- clinic pregnancy test were partially offset by expense control measures implemented by ICG in December, 1995, which included a reduction in the number of employees and development cost incurred in fiscal 1995 for the Status-LH test kit. Selling, general and administrative expenses declined 7% to $1,479,000 in fiscal 1996 from $1,588,000 in fiscal 1995. Increased consulting fees and travel expenses related to the development of the Japanese market for PennHIP were more than offset by expense control measures implemented by ICG in December 1995, which included a reduction in the number of employees. Advertising and promotional expenses declined 1% to $279,000 in fiscal 1996 from $282,000 in fiscal 1995. Significant expenses associated with the launch of Optimate were more than offset by expense control measures implemented by ICG in December 1995. 69 Loss from Operations ICG's loss from operations declined 10% to $1,550,000 in fiscal 1996 from $1,731,000 in fiscal 1995. The decrease in the loss from operations resulted from increased revenues and resulting gross profit and a decline in operating expenses. Interest Expense and Other Income, Net Interest expense increased $22,000 to $74,000 in fiscal 1996 from $52,000 in fiscal 1995. The increase in interest expense was due entirely to the interest incurred on the S. R. One, Limited bridge loan of $500,000 which was borrowed in December 1995 to continue to fund operations. Other income, net, declined to $13,000 in fiscal 1996 from $43,000 in fiscal 1995. The decline was due to lower interest income resulting from declining cash balances and gain on the sale of an asset in fiscal 1995. Net Loss Per Share of Common Stock The net loss per share of Common Stock in fiscal 1996 was $0.60 compared to a net loss per share of Common Stock of $0.96 in fiscal 1995. The decline in the loss per share was due to a reduction in the net loss, accounting for $0.07 of the reduction, and the increase in the number of shares of common stock outstanding, which accounted for $0.29 of the reduction. FISCAL YEARS ENDING JUNE 30, 1995 AND 1994 Net Revenues Net revenues for the fiscal year ended June 30, 1995 were $1,502,000, an increase of $387,000 or 35% compared to the fiscal year ended June 30, 1994. The overall year-to- year increase resulted primarily from growth in sales of ICG's PennHIP(R) hip dysplasia diagnostic service, breeding services, diagnostic products and services and coat and skin care products. Revenues from ICG's hip dysplasia service increased from $47,000 in fiscal 1994 to $278,000 in fiscal 1995. PennHIP(R) was the fastest growing component of revenue and accounted for 60% of ICG's overall year-to-year sales increase. PennHIP(R) revenues are derived from fees from training veterinarians in the PennHIP(R) technology and from radiographs submitted to ICG for evaluation. During the fiscal year ended June 30, 1995, ICG trained 321 veterinarians in PennHIP(R) which generated $231,000 in revenues compared to $40,000 in fiscal 1994. Also during the fiscal year ended June 30, 1995 ICG certified 252 trained veterinarians enabling them to submit radiographs to ICG for evaluation. Radiograph revenues in fiscal 1995 amounted to $47,000 compared to $7,000 in fiscal 1994. Diagnostic revenues increased 21% to $426,000 in fiscal 1995 from $352,000 in fiscal 1994. During fiscal 1995, sales of ICG's Status-Pro and Target ovulation timing tests increased 14% to $366,000 from $321,000 in fiscal 1994 due to increased market demand. In February 1995, ICG introduced Status-LH(TM), its new in-clinic diagnostic test to measure LH for ovulation timing. This new product generated $21,000 in revenues during fiscal 1995. Revenues from ICG's LH/Progesterone in-laboratory testing service, which was introduced in April 1994, increased to $17,000 in fiscal 1995 from $4,000 in fiscal 1994. Revenues from this testing service began, as expected, to slow in the fourth quarter of fiscal 1995 following the market launch of the Status-LH(TM) test kit. Revenues from ICG's pregnancy testing service remained flat at $19,000 in both fiscal 1995 and 1994 and revenues from paternity testing declined from $7,000 in fiscal 1994 to $4,000 in fiscal 1995. Total breeding services, which consist of frozen and chilled semen revenues, were $601,000 in fiscal 1995, an increase of $60,000 or 11% compared to the $541,000 recorded in fiscal 1994. Overall frozen semen revenues increased 17% to $454,000 in fiscal 1995 from $387,000 in fiscal 1994. Contributing to the increase in overall frozen semen revenues was an 82% increase in semen storage revenues to $103,000 in the 1995 period from 70 $57,000 in the 1994 period. This increase was due to the general increase in semen collection and freezing activity combined with a price increase implemented in August 1994. Revenues from semen collection and freezing activities grew, but at a slower rate, to $319,000 in fiscal 1995 from $307,000 in fiscal 1994. During fiscal 1995, ICG trained and equipped five additional veterinary practices in the semen collection and freezing technology which generated $32,000 in revenues compared to $23,000 in fiscal 1994. ICG's network of independently owned veterinary practices trained in semen collections and freezing technology stands at 44 centers worldwide compared to 40 at June 30, 1994. Overall chilled semen revenues declined 4% to $147,000 in fiscal 1995 from $154,000 in fiscal 1994. Revenues from sales of kits used to perform chilled semen breedings increased only 2% from $100,000 in fiscal 1994 to $101,000 in fiscal 1995. Management believes the slow rate of growth was due to the severe weather conditions during the 1994 period, which had the effect of increasing revenues at a faster than normal rate in fiscal 1994. Completely offsetting the growth in chilled semen kits was a 29% decrease in revenues from the sale of chilled semen training materials. Management expected this decline as growth of the membership in ICG's reproductive network has slowed. In September 1994, ICG concluded an agreement with the W.R. Van Wyck Group Limited in Canada for the exclusive marketing and distribution rights, in the United States and selected international markets, for the Duurstede line of premium grooming products for dogs. ICG sells these products directly to consumers and through a network of six distributors who make the Duurstede products available at dog shows in 27 states. During fiscal 1995, Duurstede products contributed $26,000 to ICG's total revenue. During fiscal 1995, nutritional supplements declined 13% to $91,000 from $105,000 in fiscal 1994. ICG believes the decline in nutritional supplement revenues is due to the deferred production of its newsletter to breeders and owners of purebred dogs. The newsletter, which has been the primary means of advertising support for the nutritional products, was deferred while ICG evaluated alternate means of advertising and/or distribution. During fiscal 1995, revenues from ancillary products amounted to $58,000, an increase of 10% compared to the $53,000 reported in fiscal 1994. Also during fiscal 1995, ICG completed Phase 2 of the Military Working Dog Contract which generated $35,000 compared with $29,000 in fiscal 1994 associated with the completion of Phase 1. Gross Profit ICG's gross profit for the twelve months ended June 30, 1995 was $688,000, an increase of 47% compared to the $469,000 recorded for the twelve months ended June 30, 1994. Gross profit margin increased to 45.8% of net revenues in fiscal 1995 from 42.1% of net revenues in fiscal 1994. The growth in gross profit and the improvement in the gross profit margin was due to the overall 35% increase in revenues and favorable product mix. In fiscal 1995, ICG's PennHIP(R) and diagnostic revenues, which have higher gross profit margins than ICG's other products, were 47% of ICG's total revenues compared to 35% of total fiscal 1994 revenues. Operating Expenses Research and development expenditures increased 44% from $381,000 in fiscal 1994 to $549,000 in fiscal 1995. The increase resulted from the full year impact of a scientist hired in fiscal 1994, development expenses associated with Status-LH(TM) which was introduced to the market in February 1995 and expenses associated with new diagnostic test kits scheduled for market introduction in fiscal 1996 and beyond. Selling, general and administrative expenses grew 2% to $1,588,000 in fiscal 1995 from $1,558,000 in fiscal 1994. The full year salary impact in fiscal 1995 of hires made in fiscal 1994 and the expenses associated with the market introduction and ongoing support of the PennHIP(R) technology were partially offset by relocation expenses incurred during fiscal 1994, in connection with the employment of a department head, which were not incurred in the 1995 fiscal year. Advertising and promotion expenses, which consist of the costs incurred in developing and placing advertisements, direct mail and attendance at dog shows and veterinary meetings and conferences, decreased 19% to $282,000 in fiscal 1995 from $348,000 in fiscal 1994. The primary reason for the year-to-year decline was ICG's 71 decision to defer the quarterly newsletter to breeders and owners of purebred dogs. In fiscal 1995, ICG prepared and mailed two newsletters compared to four newsletters in fiscal 1994. Losses from Operations ICG's loss from operations declined 5% to $1,731,000 in fiscal 1995 from $1,818,000 in fiscal 1994. The decrease in the loss from operations resulted from revenues and the resulting gross profit increasing at a faster rate than operating expenses. Interest Expense ICG's interest expense increased from $28,000 in fiscal 1994 to $52,000 in fiscal 1995. The increase in interest expense was due primarily to the full year impact of equipment purchased in fiscal 1994 under non-cancelable lease agreements which have been classified and accounted for as capital leases. Other income was $43,000 in fiscal 1995 compared to $79,000 in fiscal 1994. The decrease in other income was due to the reduced amount of cash available to ICG to invest which was partially offset by a $18,000 gain on the sale of a fully depreciated asset. Net Loss As a result of the foregoing, ICG incurred a net loss of $1,740,000 in fiscal 1995 compared to a net loss of $1,766,000 in fiscal 1994. Net loss per share of Common Stock was $.96 in each of fiscal 1995 and 1994. Despite a 2% reduction in the net loss from $1,766,000 in fiscal 1994 to $1,740,000 in fiscal 1995, the net loss per share remained constant due to the reduction in the number of shares of Common Stock outstanding. The net loss per share of Common Stock is computed using the weighted average number of shares of Common Stock outstanding during the period. In both calculations, the effect of stock options and warrants are excluded from the computation as their effect is anti-dilutive. However, Common Stock options issued during the 12 month period prior to the initial public offering at prices below the public offering price of $7.00 per share have been included in the 1994 calculation as if they were outstanding for the period presented (using the treasury share method). LIQUIDITY AND CAPITAL RESOURCES Cash flow from operations has been negative each year since inception as research and development, selling, general and administrative and advertising and promotional expenses have exceeded revenues from ICG's products and services. For the year ended June 30, 1996, the cash flow deficiency from operations was $1,380,000 compared to a cash flow deficiency of $1,650,000 for the year ended June 30, 1995. The impact of a $130,000 reduction in the net loss was increased by significantly higher accounts payable and accrued expense levels. ICG purchased approximately $3,000 in office and product manufacturing equipment in fiscal 1996. During the 1995 and 1994 fiscal years, ICG's purchases of equipment were $34,000 and $28,000 respectively. ICG expects to continue to invest in equipment based on its need for enhanced capabilities to support research, product development, manufacturing, warehousing and product distribution and to accommodate increased sales. On August 17, 1995, S. R. One, Limited invested an additional $850,000 less expenses of $50,000 associated with the investment and converted $400,000 of demand notes plus accrued interest of $10,144 into 1,008,155 shares of Common Stock at a price of $1.25 per share. On December 22, 1995, S. R. One, Limited advanced to ICG $500,000 under the terms of a demand note bearing interest at the prime rate plus two points. On October 19, 1995, ICG signed an agreement with the Cornell Research Foundation, the University of Medicine and Dentistry of New Jersey and New York University for the exclusive rights to the U.S. patent entitled "Relaxin Testing for Early Detection of Pregnancy in Dogs." Payments associated with this agreement 72 and legal fees incurred with this transaction amounted to $41,000. In addition, ICG has entered into a Sponsored Research Agreement with each university for the co-development of a canine pregnancy test kit based on the underlying technology covered by the patent. At June 30, 1996, ICG had a net working capital deficit of $836,000 and for the 1996 fiscal year operated at a deficit of $1,380,000. ICG has suffered losses from operations since inception which causes substantial doubt about its ability to continue as a going concern. ICG will require funds in addition to those currently available to continue its sales, marketing and product development activities for the next twelve months. ICG continues to explore financing options; however, no assurances can be given that such funds will be available on terms which are satisfactory to ICG or its stockholders. 73 DIRECTORS AND EXECUTIVE OFFICERS OF ICG Paul A. Rosinack is the only current director or executive officer of ICG who will serve as a director or executive officer of Synbiotics after the Acquisition. MR. PAUL A. ROSINACK, 49, has served as the President, Chief Executive Officer and a Director of ICG since December 1992. Mr. Rosinack joined ICG in December 1991. He was appointed a Director in August 1992 and President and Chief Executive Officer in December 1992. From December 1991 to December 1992, he served as ICG's Chief Operating Officer and directed all marketing and veterinary services activities. From June 1990 to December 1991 Mr. Rosinack was an independent consultant to biotechnology companies. Mr. Rosinack has over twenty years of diversified management experience in marketing, finance, product development and manufacturing with biotechnology and diagnostic product companies. Most recently, he was Chief Executive Officer and Director from March 1989 to June 1990 of Leeco Diagnostics, Inc., a company which researches, develops, manufactures and markets in-vitro immunodiagnostic test kits and reagents. Prior to Leeco, from November 1983 to March 1989 he served as President and Chief Executive Officer and as a Director of Cytotech, Inc., a biotechnology company engaged in the development, manufacturing and marketing of autoimmune disease in-vitro diagnostic kits and reagents. While at Cytotech, Mr. Rosinack served as a Director of the San Diego Venture Group. From May 1980 to February 1983, Mr. Rosinack served as the Vice President, Sales and Marketing for Hybritech, Inc., a company which develops and markets in-vitro diagnostic products. Mr. Rosinack received a BA from Otterbein College. Mr. Rosinack will serve as Vice President and General Manager, Animal Health of Synbiotics after the Acquisition. 74 EXECUTIVE COMPENSATION AND CERTAIN OTHER EMPLOYMENT MATTERS OF ICG Summary Compensation Table The following table sets forth certain information concerning the compensation paid during the fiscal years ended June 30, 1996, 1995, and 1994 to ICG's Chief Executive Officer who will continue to serve as an executive officer of Synbiotics after the Acquisition.
Name and Principal Fiscal Other Annual Restricted LTIP All Other Position Year Salary Bonus Compensation Stock Awards Options(#) Payouts Compensation - --------------------- ------ ------- ----- ------------- ------------ ---------- ------- ------------ Paul A. Rosinack 1996 145,042 None (1) None 30,000 None None President & 1995 146,200 None (1) None None None None CEO 1994 136,000 None (1) None 45,000 None None - ---------------------------
/(1)/ Amount does not exceed the lesser of $50,000 or 10% of total salary and bonus. 1996 Fiscal Year-End Option Values The following table provides information relating to the number and value of employee options held by ICG's Chief Executive Officer at the end of the 1996 fiscal year. The Chief Executive Officer did not exercise any options during the 1996 fiscal year. None of the options were in-the-money at fiscal year-end.
Number of Unexercised Options at Fiscal Year-End(#) Name -------------------------- ---------------- Exercisable Unexercisable ========================== Paul A. Rosinack...... 64,583 43,750
Pursuant to the Purchase Agreement, upon the Acquisition Date Paul A. Rosinack, now the Chief Executive Officer and President of ICG, will become Vice President and General Manager, Animal Health of Synbiotics at an annual salary of $160,000. In addition, he will receive stock options to purchase 25,000 shares of Synbiotics Common Stock and an interest-free loan of up to $50,000 to cover relocation expenses. The loan will be forgiven over time if Mr. Rosinack continues as a Synbiotics employee. 75 SECURITY OWNERSHIP OF CERTAIN ICG BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information, according to information supplied to ICG regarding the number and percentage of shares of ICG's Common Stock beneficially owned on August 1, 1996: (i) by each person who is the beneficial owner of more than 5% of the Common Stock; (ii) by each director (who is a nominee or continuing director); (iii) by each executive officer named in the Summary Compensation Table and (iv) by all directors and executive officers of ICG as a group.
Percentage Name of Amount and Nature of Shares Beneficial Owner of Beneficial Ownership(1) Outstanding(1) - ------------------------------------------ ----------------------------- ---------------- S. R. One, Limited 2,283,941 (2) 73.3 Bay Colony Executive Park Suite 315 565 East Swedesford Road Wayne, PA 19087 Michael Cuneo 11,957 (3) * c/o Howard Larson & Co. Two Penn Center Plaza Suite 140 Philadelphia, PA 19102 Paul A. Rosinack 66,583 (4) 2.3 271 Great Valley Parkway Malvern, PA 19355 Peter A. Sears 2,283,941 (5) 73.3 S. R. One, Limited Bay Colony Executive Park Suite 315 565 East Swedesford Road Wayne, PA 19087 R. Grady Rankin 148,142 (6) (7) 5.2 c/o State Capital Resource Center, Inc. 4010 Barrett Drive, Suite 205 Raleigh, NC 27609 Donald Lein, DVM, PhD 14,986 (8) * Cornell University Veterinary School Diagnostic Laboratories NY State College of Veterinary Medicine Ithaca, NY 14851-0786 Stephen Hartogensis 22,693 (9) * 1070 Broadmoor Road Bryn Mawr, PA 19010 All directors and officers 2,571,781 (10) 79.0 as a group (seven persons)
76 - ----------------------------------- * Denotes less than 1% (1) Except as indicated in the footnotes to this table, the stockholders named in this table have sole voting and investment power with respect to all shares of Common Stock owned based upon information provided to ICG by such stockholders. Includes shares issuable upon exercise of options and warrants exercisable within 60 days of August 1, 1996. (2) S.R. One, Limited ("S.R. One") is a wholly-owned subsidiary of SmithKline Beecham Corporation, a publicly-owned health care company. Peter A. Sears, the President of S.R. One, is a member of the Board of Directors of ICG. See "Purchase Agreement--S.R. One Closing" for information regarding S.R. One's agreement to invest in Synbiotics pursuant to the terms of the Purchase Agreement. Includes warrants to purchase 296,070 shares of Common Stock. (3) Includes 9,600 shares issuable upon exercise of options and 2,236 issuable upon exercise of warrants. (4) Includes 64,583 shares issuable upon the exercise of options. (5) Represents shares beneficially owned by S.R. One, of which Mr. Sears is President. Mr. Sears disclaims beneficial ownership as to such shares. (6) Includes 16,667 shares owned by Mr. Rankin's wife. Mr. Rankin disclaims beneficial ownership as to such shares. (7) Includes 12,600 shares issuable upon the exercise of options held by Mr. Rankin and 6,375 shares issuable upon the exercise of options held by Mr. Rankin's wife. Mr. Rankin disclaims beneficial ownership of the 6,375 shares. (8) Includes 12,600 shares issuable upon the exercise of options and 2,236 shares issuable upon exercise of warrants. (9) Includes 13,457 shares issuable upon the exercise of options and 2,236 shares issuable upon exercise of warrants. (10) Includes 435,372 shares issuable upon the exercise of options and warrants and the shares referenced in footnote 6 above. 77 CERTAIN TRANSACTIONS OF ICG During the fourth quarter of fiscal 1995, S.R. One, a principal stockholder of ICG, advanced $400,000 to ICG under various demand notes bearing interest at an annual rate of 11%. On August 17, 1995, S.R. One invested an additional $850,000 less expenses of $50,000 associated with the investment and converted the principal balances of the demand notes plus accrued interest into 1,008,115 shares of Common Stock at a price of $1.25 per share. Peter A. Sears, the Chairman of the Board of Directors of ICG, is the president of S.R. One. On December 22, 1995, ICG borrowed $500,000 from S.R. One pursuant to a demand note bearing interest at price plus two points. COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT Section 16(a) of the Securities Exchange Act of 1934 requires the ICG's officers and directors, and persons who own more than 10% of a registered class of ICG's equity securities, to file reports of ownership and changes in ownership with the SEC. Officers, directors and greater than 10% shareholders are required by SEC regulation to furnish ICG with copies of all Section 16(a) forms they file. Based solely on review of the copies of such forms furnished to ICG, or written representations that no Forms 5 were required, ICG believes that, during the fiscal year ended June 30, 1996, all Section 16(a) filing requirements applicable to its officers, directors and greater than 10% beneficial owners were complied with by such persons or entities. STOCKHOLDER PROPOSALS FOR ICG 1997 PROXY STATEMENT In the event that the sale of ICG's assets to Synbiotics is not consummated as contemplated in this Joint Proxy Statement, any properly submitted proposal which a stockholder intends to present at the 1997 Annual Meeting of Stockholders must be received by ICG by June 29, 1997 if it is to be included in ICG's proxy statement and form of proxy relating to the next Annual Meeting. 78 DESCRIPTION OF SYNBIOTICS CAPITAL STOCK The authorized capital stock of Synbiotics consists of 24,800,000 shares of Common Stock, no par value per share, and 200,000 shares of Series B Common Stock, no par value per share. COMMON STOCK The holders of Synbiotics Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of the shareholders. Holders of Synbiotics Common Stock are entitled to receive ratably such dividends as may be declared by the Board of Directors of Synbiotics out of funds legally available. In the event of liquidation, dissolution or winding up of Synbiotics, holders of Synbiotics Common Stock are entitled to share ratably in all assets remaining after payment of liabilities, such that the holders of Common Stock shall be entitled to receive, prior and in preference to any distribution to the holders of Series B Common Stock the greater of (a) ten dollars for each share of Common Stock then held by them or (b) an amount for each share of Common Stock then held by them equal to ten times the amount which, after such distribution, would remain available for distribution to holders of Series B Common Stock for each share of Series B common Stock then held by them. If the assets available for distribution among the holders of the stock are insufficient to permit the payment to the holders of Common Stock of the indicated preferential amount, then the entire amount of assets available for distribution to the holders of the stock shall be distributed among the holders of Common Stock ratably. Holders of Synbiotics Common Stock have no preemptive rights. There are no redemption or sinking fund provisions applicable to the Synbiotics Common Stock. All outstanding shares of Synbiotics Common Stock are fully paid and nonassessable. If the Charter Amendment is approved by the shareholders of Synbiotics, Synbiotics' Restated Articles will contain no provision relating to dividends or to the liquidation, dissolution or winding up of Synbiotics, whether voluntary or involuntary. SERIES B COMMON STOCK The holders of Synbiotics Series B Common Stock are entitled to one-tenth vote for each share held of record on all matters submitted to a vote of the shareholders. No dividends may be declared or paid with respect to any share of Series B Common Stock. In the event of liquidation, dissolution or winding up of Synbiotics, holders of Synbiotics Series B Common Stock are entitled to share ratably in all assets remaining after payment of liabilities and a certain liquidation preference to the holders of Common Stock, such that the largest amount that the holders of Series B Common Stock, as a class, shall be entitled to receive is one-eleventh of any distribution of assets. Holders of Synbiotics Series B Common Stock have no preemptive rights. There are no redemption or sinking fund provisions applicable to the Synbiotics Series B Common Stock. There are no outstanding shares of Synbiotics Series B Common Stock. At September 6, 1996, there were 5,999,956 shares of Synbiotics Common Stock outstanding and held of record by approximately 574 shareholders. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for Synbiotics' Common Stock is Chase Mellon Shareholder Services (effective September 3, 1996). 79 COMPARISON OF RIGHTS OF HOLDERS OF SYNBIOTICS AND ICG COMMON STOCK Upon distribution of the Acquisition Shares to the stockholders of ICG, which is a corporation organized under Delaware law, the ICG stockholders will become shareholders of Synbiotics, a corporation governed by the laws of California, as well as by the Restated Articles and Bylaws of Synbiotics. There are substantial similarities between California and Delaware law, as well as between the corporation charters and Bylaws of Synbiotics and ICG; however, a number of differences do exist. The following is a summary of those differences that might significantly affect the rights of ICG stockholders. Stockholder Approval of Acquisitions, Reorganizations and Certain Business -------------------------------------------------------------------------- Combinations. Both the California Law and the Delaware General Corporation Law - ------------ (the "Delaware Law") generally require that a majority of the stockholders of both the acquiring and target corporations approve statutory mergers. The Delaware Law does not require a stockholder vote of the surviving corporation in a merger (unless the corporation provides otherwise in its certificate of incorporation) if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger is an identical outstanding or treasury share after the merger and (iii) the number of shares to be issued by the surviving corporation in the merger does not exceed 20% of the shares outstanding immediately prior to the merger. The California Law contains a similar exception to its voting requirements for reorganizations of corporations whose shareholders immediately prior to the reorganization, or the corporation itself, or both, will, immediately after the reorganization, own equity securities constituting more than five-sixths of the voting power of the surviving or acquiring corporation or its parent entity. Both the California Law and the Delaware Law also require that a sale of all or substantially all of the assets of a corporation be approved by a majority of the voting shares of the corporation transferring such assets. The Delaware Law generally does not require class voting, except in certain transactions involving an amendment to the certificate of incorporation which adversely affects a specific class of shares. In contrast, with certain exceptions, the California Law requires that mergers, reorganizations, certain sales of assets and similar transactions be approved by a majority vote of each class of shares outstanding, subject to certain exceptions. Therefore, should Synbiotics authorize and issue shares of a new class of capital stock, the holders thereof would generally vote as a separate class. As a result, the holders of Common Stock, if in the minority, would be unable to control the outcome of a vote, and, if in the majority, would be able to control the outcome of such a vote. Section 1203 of the California Law also provides that, except in certain circumstances, when a tender offer or a proposal for a reorganization or for a sale of assets is made by an interested party (generally a controlling or managing party of the target corporation), an affirmative opinion in writing as to the fairness of the consideration to be paid to the shareholders must be delivered to shareholders. This fairness opinion requirement does not apply to a corporation which does not have shares held of record by a least 100 persons, or to a transaction which has been qualified under California state securities laws. Furthermore, if a tender of shares or vote is sought pursuant to an interested party's proposal and a later proposal is made by another party at least ten days prior to the date of acceptance of the interested party proposal, the shareholder must be informed of the later offer and be afforded a reasonable opportunity to withdraw any vote, consent or proxy, or to withdraw any tendered shares. The California Law also requires that holders of nonredeemable common stock receive nonredeemable common stock in a merger of the corporation with the holder of more than 50% but less than 90% of such common stock or its affiliate unless all of the holders of such common stock consent to the transaction. This provision of the California Law may have the effect of making a "cash-out" merger by a majority shareholder more difficult to accomplish. Although the Delaware Law does not parallel the California Law in this respect, under some circumstances, Section 203 of the Delaware Law ("Section 203") does provide similar protection against coercive two-tiered bids for a corporation in which the stockholders are not treated equally. Section 203 only applies 80 to Delaware corporations which have a class of voting stock that is listed on a national securities exchange, are quoted on an interdealer quotation system or are held of record by more than 2,000 stockholders. A Delaware corporation may elect not to be governed by Section 203 by a provision in its original certificate of incorporation or an amendment thereto or to the bylaws, which amendment must be approved by majority stockholder vote and may not be further amended by the board of directors. Section 203 prohibits a Delaware corporation from engaging in a "business combination" with an "interested stockholder" for three years following the date that such person becomes an interested stockholder. With certain exceptions, an interested stockholder is a person or group who or which owns 15% or more of the corporation's outstanding voting stock (including any rights to acquire stock pursuant to an option, warrant, agreement, arrangement or understanding, or upon the exercise of conversion or exchange rights, and stock with respect to which the person has voting rights only), or is an affiliate or associate of the corporation and was the owner of 15% or more of such voting stock at any time within the previous three years. For purposes of Section 203, the term "business combination" is defined broadly to include mergers with or caused by the interested stockholder, sales or other dispositions to the interested stockholder (except proportionately with the corporation's other stockholders) of assets of the corporation or a subsidiary equal to 10% or more of the aggregate market value of the corporation's consolidated assets or its outstanding stock; the issuance or transfer by the corporation or a subsidiary of stock of the corporation or such subsidiary to the interested stockholder (except for transfers in a conversion or exchange or a pro rata distribution or certain other transactions, none of which increase the interested stockholder's proportionate ownership of any class or series of the corporation's or such subsidiary's stock); or receipt by the interested stockholder (except proportionately as a stockholder), directly or indirectly, of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation or a subsidiary. The three-year moratorium imposed on business combinations by Section 203 does not apply if: (i) prior to the date on which such stockholder becomes an interested stockholder the board of directors approves either the business combination or the transaction which resulted in the person becoming an interested stockholder; (ii) the interested stockholder owns 85% of the corporation's voting stock upon consummation of the transaction which made him an interested stockholder (excluding from the 85% calculation shares owned by directors who are also officers of the target corporation and shares held by employee stock plans which do not permit employees to decide confidentially whether to accept a tender or exchange offer); or (iii) on or after the date such person becomes an interested stockholder, the board approves the business combination and it is also approved at a stockholder meeting by 66-2/3% of the voting stock not owned by the interested stockholder. Section 203 has been challenged in lawsuits arising out of ongoing takeover disputes, and it is not yet clear whether and to what extent its constitutionality will be upheld by the courts. Although the United States District Court for the District of Delaware has consistently upheld the constitutionality of Section 203, the Delaware Supreme Court has not yet considered the issue. Section 203 has the effect of limiting the ability of a potential acquiror to make a two-tiered bid for a corporation in which all stockholders would not be treated equally. Section 203 should also discourage certain potential acquirors unwilling to comply with its provisions. Rights Upon Liquidation. ICG's Restated Certificate of Incorporation (the ----------------------- "Restated Certificate") permits the Board of Directors to fix by resolution any provisions relating to the rights, preferences and privileges of its preferred stock upon any liquidation, dissolution or winding up of ICG. Synbiotics's Restated Articles state that in the event of liquidation, dissolution or winding up of Synbiotics, holders of Synbiotics Common Stock are entitled to share ratably in all assets remaining after payment of liabilities, such that the holders of Common Stock shall be entitled to receive, prior and in preference to any distribution to the holders of Series B Common Stock the greater of (a) ten dollars for each share of Common Stock then held by them or (b) an amount for each share of Common Stock then held by them equal to ten times the amount which, after such distribution, would remain available for distribution to holders of Series B Common Stock for each share of Series B common Stock then held by them. If the assets available for distribution among the holders of the stock are insufficient to permit the payment to the holders 81 of Common Stock of the indicated preferential amount, then the entire amount of assets available for distribution to the holders of the stock shall be distributed among the holders of Common Stock ratably. However, if the Charter Amendment is approved by the shareholders of Synbiotics, Synbiotics' Restated Articles will contain no provision relating to the liquidation, dissolution or winding up of Synbiotics, whether voluntary or involuntary. Cumulative Voting. Both the California Law and Synbiotics's Bylaws provide ----------------- for cumulative voting of shares by any shareholder in any election of directors provided that (i) the name of the candidate for whom the shareholder wishes to cumulate votes has been placed in nomination prior to commencement of the voting and (ii) the shareholder has given notice prior to commencement of the voting of his, her or its intent to cumulate votes. If any shareholder has given the notice set forth in clause (ii) above, all shareholders are entitled to cumulate votes. Under the Delaware Law, cumulative voting in the election of directors is not mandatory, and ICG's Bylaws do not provide for cumulative voting. Classified Board of Directors. A classified board is one in which a ----------------------------- certain number, but not all, of the directors are elected on a rotating basis each year. ICG's Restated Certificate and Bylaws do not provide for a classified Board of Directors. Likewise, Synbiotics' Restated Articles and Bylaws do not provide for a classified Board of Directors. Size of the Board of Directors. The Bylaws of ICG provide for a Board of ------------------------------- Directors of from three to 12 members, with the number of directors currently set at six. This fixed number may be changed within the stated range by the ICG Board of Directors or a vote of a majority of the outstanding shares of ICG stock entitled to vote. The Bylaws of Synbiotics provide for a Synbiotics Board of Directors of from five to nine members, with the exact number currently set at six members. The indefinite number of directors may be changed, or a definite number may be fixed without provision for an indefinite number, by the vote of the holders of a majority of the outstanding Synbiotics shares entitled to vote, provided, however, that an amendment reducing the fixed number or the minimum number of directors to a number less than five cannot be adopted if the votes cast against its adoption are equal to more than 16-2/3% of the outstanding shares entitled to vote thereon. Removal of Directors. Section 141(k) of the Delaware Law provides that (i) -------------------- in the case of a Delaware corporation having cumulative voting, if less than the entire board is to be removed, a director may not be removed without cause unless the number of shares voted against such removal would not be sufficient to elect the director under cumulative voting and, in the case where the holders of a class or series are entitled to elect one or more directors, any director so elected may not be removed without cause unless the number of shares voted against such removal (based on the vote of the holders of the outstanding shares of that class or series) would not be sufficient to elect the director under cumulative voting and (ii) a director of a corporation with a classified board of directors may be removed only for cause, unless the certificate of incorporation otherwise provides. ICG does not have cumulative voting and does not have a classified board of directors, therefore Section 141(k) of the Delaware Law does not restrict the ability of ICG's stockholders to remove directors. Any individual ICG director may be removed from office at any time with or without cause, by the affirmative vote of a majority of shares entitled to vote at an election of directors. Section 303 and 304 of the California Law provide that (i) directors may be removed by the remainder of the board, without cause, upon approval by the holders of a majority of the outstanding shares of common stock entitled to vote (subject to certain limitations which prevent any such removal where the removal is opposed by a number of votes sufficient to elect a director, if the corporation's board were elected by a cumulative vote) and (ii) directors may be removed for fraudulent or dishonest acts or gross abuses of authority or discretion following a suit brought by shareholders holding at least 10% of the outstanding shares of any class of capital stock. In addition, Section 302 of the California Law permits a corporation's board to remove directors declared of unsound mind by a court or convicted of a felony. 82 Filling Vacancies on the Board of Directors. ICG's Restated Certificate ------------------------------------------- and Bylaws provide that any vacancy on the ICG Board of Directors that results from an increase in the number of directors and any other vacancy on the ICG Board of Directors may be filled by a majority of the directors then in office (even though less than a quorum) or by a sole remaining director. If, at the time of filling any vacancy or newly created directorship, the directors then in office shall constitute less than a majority of the Board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholder's holding at least 10% of the total number of shares of the time outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. Synbiotics's Bylaws provide that any vacancy on the Synbiotics Board of Directors other than one created by removal of a director may be filled by a majority of the remaining directors even if less than a quorum, or by a sole remaining director. In addition, California Law provides that a vacancy created by the removal of a director by a shareholder vote or by a court order may be filled only (i) by a vote of the holders of a majority of shares entitled to vote at a duly called shareholder meeting or (ii) by the unanimous written consent of all outstanding shares entitled to vote thereon, unless the Bylaws of Articles of Incorporation of such corporation provide otherwise. Each director so elected shall hold office until the next annual meeting of the shareholders and until a successor has been elected and qualified. Any vacancies on the Board of Directors (other than those created by removal) not filled by the directors may be filled by written consent of the holders of a majority of the outstanding shares entitled to vote thereon. Amendments to Charter Documents. Pursuant to the Delaware Law and ICG's ------------------------------- Restated Certificate, the Restated Certificate may be amended with the approval of the ICG Board of Directors and upon adoption thereof by the affirmative vote of a majority of the votes cast by the holders of ICG capital stock entitled to vote thereon; however, any amendment to Article V, VII, XI, XII, XIII or XIV of the Restated Certificate requires the affirmative vote of at least 66-2/3% of the holders of all the outstanding shares entitled to vote thereon. In contrast, neither Synbiotics' Restated Articles nor Bylaws contain any provisions relating to amendments to the Articles of Incorporation of Synbiotics. However, under the California Law, Synbiotics' Restated Articles may be amended with the approval of the Synbiotics Board of Directors and, in certain instances, the approval of the holders of a majority (or, in certain instances, a super majority) of the outstanding Synbiotics shares entitled to vote. Amendments to Bylaws. Under the Delaware Law, bylaws may be amended or -------------------- repealed or new bylaws adopted by action of the stockholders entitled to vote thereon; provided, however, that any corporation may, in its certificate of incorporation, confer the power to adopt, amend or repeal bylaws upon its Board of Directors; provided that no amendment or supplement to the bylaws adopted by the Board of Directors may vary or conflict with any amendment or supplement adopted by the stockholders. The Restated Certificate confers upon the Board of Directors and stockholders of ICG the right to alter or repeal any bylaw at any regular meeting of the stockholders or of the Board of Directors or at any special meeting of the stockholders or of the Board of Directors if notice of such alteration or repeal be contained in the notice of such special meeting. Synbiotics's Bylaws may be amended or repealed or new bylaws may be adopted by either the Synbiotics Board of Directors or by the holders of Synbiotics Common Stock entitled to exercise a majority of the voting power; provided that (i) if the Articles of Incorporation of Synbiotics set forth the number of authorized directors, then the authorized number of directors may be changed only by an amendment of the Articles of Incorporation, and (ii) the authority of the Synbiotics Board of Directors to amend or repeal bylaws or adopt new bylaws is subject to the authority of the Synbiotics shareholders. Power to Call Special Shareholders' Meetings; Shareholder Action by Written --------------------------------------------------------------------------- Consent; Requiring Shareholder Notice of New Business at Synbiotics Meeting. - ---------------------------------------------------------------------------- Pursuant to ICG's Bylaws, special meetings of ICG's stockholders may be called at any time by the ICG President or Chairman of the Board and will be called by the President or Secretary at the request in writing of a majority of the Board of Directors or stockholders owning at least 10% of the capital stock of ICG issued and outstanding and entitled to vote. ICG's Bylaws permit the stockholders to act by the written consent of the outstanding shares having not less than the minimal 83 number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. ICG's Bylaws do not require the stockholders of ICG to provide prior written notice to ICG in order to submit new matters at the stockholders' annual meeting or at a special meeting. Similarly, pursuant to Synbiotics' Bylaws, special meetings of Synbiotics' shareholders may be called at any time by the Board of Directors, the chairman of the Board, the President, a Vice President, the Secretary or by one or more shareholders holding not less than 10% of the voting power of the corporation. Synbiotics's Bylaws permit the Synbiotics shareholders to act by the written consent of the outstanding shares having not less than the minimal number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted, provided that in acting to elect a director, other than to fill a vacancy on the Board of Directors, Synbiotics' Bylaws require shareholders to fill such vacancy by the unanimous written consent of holders of the shares entitled to vote for the election of directors. Synbiotics' Bylaws do not require its shareholders to provide prior written notice to Synbiotics in order to submit new matters at the shareholders' annual meeting. Loans to Officers and Employees. Under the Delaware Law, a corporation may ------------------------------- make loans to, guarantee the obligations of or otherwise assist its officers or other employees and those of its subsidiaries (including directors who are also officers of employees) when such action, in the judgment of the directors, may reasonably be expected to benefit the corporation. Under the California Law, Synbiotics may, upon approval of the Board of Directors alone, make loans of money or property to, or guarantee the obligations of, any officer of Synbiotics or its parent or subsidiary, whether or not a director, or adopt an employee benefit plan or plans authorizing such loans or guaranties provided that (i) the Board of Directors determines that such a loan or guaranty or plan may reasonably be expected to benefit Synbiotics, (ii) Synbiotics has outstanding shares held of record by 100 or more persons (as determined in Section 605 of the California Law) on the date of approval by the Board of Directors, and (iii) the approval of the Board of Directors is a vote sufficient without counting the vote of any interested director or directors. Indemnification and Limitation of Liability. There are certain differences ------------------------------------------- between the California Law and the Delaware Law respecting indemnification and limitation of liability. The laws of both states permit corporations to adopt a provision in their articles of incorporation eliminating the liability of a director to the corporation or its shareholders for monetary damages for breach of the director's fiduciary duty of care. ICG's Restated Certificate eliminates the liability of directors for monetary damages to the corporation to the fullest extent permitted by the Delaware Law. The Delaware Law does not permit the elimination of monetary liability where such liability is based on: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends or unlawful stock repurchases or redemptions; or (iv) transactions from which the director received an improper personal benefit. Such limitations of liability provision also may not limit a director's liability for violation of, or otherwise relieve ICG or its directors from the necessity of complying with federal or state securities laws, or affect the availability of nonmonetary remedies such as injunctive relief or rescission. Synbiotics' Restated Articles eliminate the liability of directors for monetary damages to the corporation to the fullest extent currently permissible under the California Law. The California Law does not permit the elimination of monetary liability where such liability is based on: (i) intentional misconduct or knowing and culpable violation of law; (ii) acts or omissions that a director believes to be contrary to the best interests of the corporation or its shareholders, or that involve the absence of good faith on the part of the director; (iii) receipt of an improper personal benefit; (iv) acts or omissions that show reckless disregard for the director's duty to the corporation or its shareholders, where the director in the ordinary course of performing a director's duties should be aware of a risk of serious injury to the corporation or its shareholders; (v) acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director's duty to the corporation and 84 its shareholders; (vi) interested transactions between the corporation and a director in which a director has a material financial interest; and (vii) liability for improper distributions, loans or guarantees. The Bylaws of ICG provide for indemnification of its officers and directors to the fullest extent permitted by the Delaware Law. The Delaware Law generally permits indemnification of expenses incurred in the defense or settlement of a derivative or third-party action, provided there is a determination by a disinterested quorum of the directors, by independent legal counsel or by a majority vote of a quorum of the stockholders that the person seeking indemnification acted in good faith and in a manner reasonably believed to be in or (in contrast to the California Law) not opposed to the best interests of the corporation. Without court approval, however, no indemnification may be made in respect of any derivative action in which such person is adjudged liable for negligence or misconduct in the performance of his duty to the corporation. The Delaware Law requires indemnification of expenses when the individual being indemnified has successfully defended the action on the merits or otherwise. Likewise, the Restated Articles of Synbiotics provide for indemnification of its officers and directors to the fullest extent permitted by the California Law. The California Law permits indemnification of expenses incurred in derivative or third-party actions, except that with respect to derivative actions (i) no indemnification may be made without court approval when a person is adjudged liable to the corporation in the performance of that person's duty to the corporation and its shareholders, unless a court determines such person is entitled to indemnity for expenses, and then such indemnification may be made only to the extent that such court shall determine, and (ii) no indemnification may be made without court approval in respect of amounts paid or expenses incurred in settling or otherwise disposing of a threatened or pending action or amounts incurred in defending a pending action which is settled or otherwise disposed of without court approval. Indemnification is permitted by the California Law only for acts taken in good faith and believed to be in the best interests of the corporation and its shareholders, as determined by a majority vote of a disinterested quorum of the directors, independent legal counsel (if a quorum of independent directors is not obtainable), a majority vote of a quorum of the shareholders (excluding shares owned by the indemnified party) or the court handling the action. The California Law requires indemnification when the individual has successfully defended the action on the merits (as opposed to Delaware law which requires indemnification relating to a successful defense on the merits or otherwise). The Delaware Law provides that the indemnification provided by statute shall not be deemed exclusive of any other rights under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise. Both the California Law and the Restated Articles of Synbiotics provide for indemnification of agents (as defined in Section 317 of the California Law) through bylaws, agreements with agents, vote of shareholders or disinterested directors or otherwise in excess of that specifically authorized by Section 317 of the California Law, subject to certain limits set forth in Section 204 of the California Law. Synbiotics has entered into indemnification agreements with its officers and directors. Inspection of Stockholder List. Both the California Law and the Delaware ------------------------------ Law allow any stockholder to inspect the stockholder list for a purpose reasonably related to such person's interest as a stockholder. The California Law provides, in addition, for an absolute right to inspect and copy the corporation's shareholder list by persons holding an aggregate of 5% or more of a corporation's voting shares or shareholders holding an aggregate of 1% or more of such shares who have filed a Schedule 14B with the Securities and Exchange Commission relating to the election of directors. The Delaware Law does not provide for any such absolute right of inspection, and no such right is granted under the Restated Certificate or Bylaws of ICG, except with respect to the right of stockholders to examine a complete list of the stockholders entitled to vote at a meeting of stockholders, for any purpose germane to the meeting, for a period of at least 10 days prior to the meeting. Lack of access to stockholder records, even though unrelated to the stockholder's interest as a stockholder, could result in impairment of the 85 stockholder's ability to coordinate opposition to management proposals, including proposals with respect to a change in control of the corporation. INDEPENDENT ACCOUNTANTS Price Waterhouse LLP serves as Synbiotics' independent accountants. Representatives of Price Waterhouse LLP are expected to be present at the Synbiotics Meeting, will be given the opportunity to make a statement, if they desire to do so, and will be available to respond to appropriate questions. Coopers & Lybrand L.L.P. serves as ICG's independent accountants. Representatives of Coopers & Lybrand L.L.P. are expected to be present at the ICG Meeting, will be given the opportunity to make a statement, if they desire to do so, and will be available to respond to appropriate questions. LEGAL MATTERS Certain legal matters with respect to the legality of the issuance of the shares of Synbiotics Common Stock offered hereby will be passed upon for Synbiotics by Brobeck, Phleger & Harrison LLP, San Diego, California. McCausland, Keen & Buckman, Radnor, Pennsylvania, is acting as counsel for ICG in connection with certain legal matters relating to the Acquisition and the transactions contemplated thereby. EXPERTS The financial statements as of December 31, 1995 and 1994 and for the year ended December 31, 1995, the nine months ended December 31, 1994 and the year ended March 31, 1994 included in this Prospectus have been so included in reliance on the report of Price Waterhouse LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. The balance sheets as of June 30, 1995 and June 30, 1996 and the statements of operations, stockholders' equity (deficit) and cash flows for each of the three years in the period ended June 30, 1996 of International Canine Genetics, Inc. included in this Registration Statement, have been included herein in reliance upon the report of Coopers & Lybrand L.L.P., independent accountants, given on the authority of that firm as experts in auditing and accounting. 86 OTHER MATTERS Synbiotics. Price Waterhouse LLP has served as the independent accountants ---------- of Synbiotics for a number of years. Although management anticipates that this relationship will continue to be maintained during fiscal 1996, it is not proposed that any formal action be taken at the Synbiotics Meeting with respect to the continued engagement of Price Waterhouse LLP. The Synbiotics Board of Directors knows of no other business which will be presented at the Synbiotics Meeting. If any other business is properly brought before the Synbiotics Meeting, it is intended that proxies in the enclosed form will be voted in respect thereof in accordance with the judgments of the persons voting the proxies. WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE SYNBIOTICS MEETING, YOU ARE URGED TO COMPLETE, SIGN AND RETURN YOUR PROXY PROMPTLY. ICG. The ICG Board of Directors knows of no other business which will be presented at the ICG Meeting. If any other business is properly brought before the ICG Meeting, it is intended that proxies in the enclosed form will be voted in respect thereof in accordance with the judgments of the persons voting the proxies. WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE ICG MEETING, YOU ARE URGED TO COMPLETE, SIGN AND RETURN YOUR PROXY PROMPTLY. BY ORDER OF THE SYNBIOTICS BOARD OF DIRECTORS _____________ __, 1996 Michael K. Green, Secretary San Diego, California BY ORDER OF THE ICG BOARD OF DIRECTORS _____________ __, 1996 John R. Bauer, Secretary Malvern, Pennsylvania 87 INDEX TO FINANCIAL STATEMENTS SYNBIOTICS FINANCIAL STATEMENTS
Condensed Balance Sheet as of June 30, 1996 (unaudited).............. F-2 Condensed Statement of Operations for the six months ended June 30, 1996 (unaudited)............................................ F-3 Condensed Statement of Cash Flows for the six months ended June 30, 1996 (unaudited)............................................ F-4 Notes to Financial Statements for the six months ended June 30, 1996 (unaudited)............................................ F-5 Report of Independent Accountants.................................... F-6 Balance Sheet as of December 31, 1995 and 1994....................... F-7 Statement of Operations for the year ended December 31, 1995, the nine months ended December 31, 1994 and the year ended March 31, 1994 F-8 Statement of Cash Flows for the year ended December 31, 1995, the nine months ended December 31, 1994 and the year ended March 31, 1994....................................................... F-9 Statement of Shareholders' Equity for the year ended December 31, 1995, the nine months ended December 31, 1994 and the year ended March 31, 1994....................................................... F-10 Notes to Financial Statements for the year ended December 31, 1995, the nine months ended December 31, 1994 and the year ended March 31, 1994.................................... F-11 ICG FINANCIAL STATEMENTS Report of Independent Accountants.................................... F-20 Balance Sheet as of June 30, 1995 and 1996........................... F-21 Statement of Operations for the years ended June 30, 1994, 1995 and 1996......................................... F-22 Statement of Cash Flows for the years ended June 30, 1994, 1995 and 1996......................................... F-23 Statements of Stockholders' Equity (Deficit) for each of the three years in the period ended June 30, 1996.............................. F-24 Notes to Financial Statements for the years ended June 30, 1994, 1995 and 1996................................... F-25
F-1 SYNBIOTICS CORPORATION CONDENSED BALANCE SHEET (Unaudited)
JUNE 30, DECEMBER 31, 1996 1995 ------------- ------------- ASSETS Current assets: Cash and equivalents........................................... $ 2,970,000 $ 1,017,000 Securities available for sale.................................. 3,087,000 Accounts receivable............................................ 2,124,000 1,430,000 Inventories.................................................... 4,824,000 3,439,000 Other current assets........................................... 565,000 578,000 ------------ ------------ Total current assets........................................ 13,570,000 6,464,000 Property and equipment, net...................................... 715,000 879,000 Securities available for sale.................................... -- 2,533,000 Other assets..................................................... 1,778,000 1,582,000 ------------ ------------ $ 16,063,000 $ 11,458,000 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses.......................... $ 1,590,000 $ 1,613,000 Other current liabilities...................................... 671,000 697,000 ------------ ------------ Total current liabilities................................... 2,261,000 2,310,000 ------------ ------------ Shareholders' equity: Common stock, no par value, 24,800,000 shares authorized, 6,000,000 and 5,816,000 shares issued and outstanding at June 30, 1996 and December 31, 1995......................... 29,801,000 29,351,000 Unrealized holding losses from securities available for sale... (1,035,000) Accumulated deficit............................................ (15,999,000) (19,168,000) ------------ ------------ Total shareholders' equity.................................. 13,802,000 9,148,000 ------------ ------------ $ 16,063,000 $ 11,458,000 ============ ============
See accompanying notes to condensed financial statements. F-2 SYNBIOTICS CORPORATION CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, -------------------------- 1996 1995 ------------ ----------- Revenues: Product sales............................................. $10,851,000 $8,637,000 License fees and other.................................... 230,000 148,000 Interest.................................................. 54,000 17,000 ----------- ---------- 11,135,000 8,802,000 ----------- ---------- Costs and expenses: Cost of sales............................................. 5,334,000 4,487,000 Research and development.................................. 461,000 418,000 Selling and marketing..................................... 2,358,000 2,360,000 General and administrative................................ 854,000 712,000 ----------- ---------- 9,007,000 7,977,000 ----------- ---------- Income before gain on sale of securities available for sale and gain on disposition of investment in affiliated company.......................... 2,128,000 825,000 Gain on sale of securities available for sale............... 1,159,000 Gain on disposition of investment in affiliate.............. -- 931,000 ----------- ---------- Income before income taxes.................................. 3,287,000 1,756,000 Provision for income taxes.................................. 118,000 22,000 ----------- ---------- Net income.................................................. $ 3,169,000 $1,734,000 =========== ========== Net income per share........................................ $ .53 $ .30 =========== ========== Weighted average shares outstanding......................... 5,968,000 5,805,000 =========== ========== Net income per share was computed based upon the weighted average number of shares outstanding, including common stock equivalents.
See accompanying notes to condensed financial statements. F-3 SYNBIOTICS CORPORATION CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, --------------------------- 1996 1995 ------------ ------------ Cash flows from operating activities: Net income............................................ $ 3,169,000 $1,734,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization....................... 417,000 507,000 Gain on sale of securities available for sale....... (1,159,000) Gain on disposition of investment in affiliate...... (931,000) Changes in assets and liabilities: Accounts receivable........................... (694,000) (385,000) Inventories................................... (1,385,000) 111,000 Other assets.................................. -- 35,000 Accounts payable and accrued expenses......... (23,000) (144,000) Other liabilities............................. (26,000) 2,000 ----------- ---------- Net cash provided by operating activities................ 299,000 929,000 ----------- ---------- Cash flows from investing activities: Acquisition of property and equipment................. (37,000) (75,000) Investment in securities available for sale........... (3,087,000) -- Proceeds from sale of securities available for sale... 4,727,000 -- ----------- ---------- Net cash provided by (used for) investing activities..... 1,603,000 (75,000) ----------- ---------- Cash flows from financing activities: Proceeds from issuance of common stock, net........... 51,000 (10,000) ----------- ---------- Net cash provided by (used for) financing activities..... 51,000 (10,000) ----------- ---------- Net increase in cash and equivalents..................... 1,953,000 844,000 Cash and equivalents -- beginning of year................ 1,017,000 447,000 ----------- ---------- Cash and equivalents -- end of period.................... $ 2,970,000 $1,291,000 =========== ==========
See accompanying notes to condensed financial statements. F-4 NOTES TO FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) 1. SIGNIFICANT ACCOUNTING POLICIES The accompanying balance sheet as of June 30, 1996 and the statements of operations and of cash flows for the six month periods ended June 30, 1996 and 1995 have been prepared by Synbiotics Corporations (the Company) and have not been audited. These financial statements, in the opinion of management, include all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the financial position, results of operations and cash flows for all periods presented. The financial statements should be read in conjunction with the financial statements and the notes thereto as of and for the year ended December 31, 1995, included elsewhere herein. Interim operating results are not necessarily indicative of operating results for the full year. 2. SECURITIES AVAILABLE FOR SALE Included in current assets are securities for sale which consist primarily of short-term commercial paper. 3. INVENTORIES Inventories consist of the following:
June 30, December 31, 1996 1995 ----------- ------------ Raw materials $ 911,000 $ 665,000 Work in progress 636,000 633,000 Finished goods 3,277,000 2,141,000 ---------- ---------- $4,824,000 $3,439,000 ========== ==========
F-5 REPORT OF INDEPENDENT ACCOUNTANTS --------------------------------- To the Board of Directors and Shareholders of Synbiotics Corporation In our opinion, the accompanying balance sheet and the related statements of operations, of cash flows and of shareholders' equity present fairly, in all material respects, the financial position of Synbiotics Corporation at December 31, 1995 and 1994, and the results of its operations and its cash flows for the year ended December 31, 1995, the nine months ended December 31, 1994 and the year ended March 31, 1994, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts of disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP San Diego, California February 15, 1996 F-6 SYNBIOTICS CORPORATION BALANCE SHEET
December 31, ----------------------------- 1995 1994 ------------- ------------- ASSETS Current assets: Cash and equivalents............................................. $ 1,017,000 $ 447,000 Accounts receivable (net of allowance for doubtful accounts of $51,000 and $82,000 at December 31, 1995 and 1994)............ 1,430,000 1,444,000 Inventories...................................................... 3,439,000 2,763,000 Securities available for sale.................................... --- 502,000 Other current assets............................................. 578,000 963,000 ------------ ------------ Total current assets............................................. 6,464,000 6,119,000 Property and equipment, net........................................ 879,000 1,329,000 Securities available for sale...................................... 2,533,000 942,000 Other assets....................................................... 1,582,000 1,921,000 ------------ ------------ $ 11,458,000 $ 10,311,000 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses............................ $ 1,613,000 $ 1,662,000 Other current liabilities........................................ 697,000 695,000 ------------ ------------ Total current liabilities........................................ 2,310,000 2,357,000 ------------ ------------ Commitments (Note 9) Shareholders' equity: Common stock, no par value, 24,800,000 shares authorized, 5,816,000 and 5,803,000 shares issued and outstanding at December 31, 1995 and 1994.................................... 29,351,000 29,318,000 Unrealized holding losses from securities available for sale..... (1,035,000) (1,695,000) Accumulated deficit.............................................. (19,168,000) (19,669,000) ------------ ------------ Total shareholders' equity....................................... 9,148,000 7,954,000 ------------ ------------ $ 11,458,000 $ 10,311,000 ============ ============
See accompanying notes to financial statements. F-7 SYNBIOTICS CORPORATION STATEMENT OF OPERATIONS
NINE MONTHS YEAR ENDED ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, MARCH 31, 1995 1994 1994 ------------- ------------- ------------ Revenues: Products....................................... $13,676,000 $ 6,233,000 $14,144,000 Interest....................................... 46,000 75,000 137,000 License fees and others........................ 396,000 234,000 352,000 ----------- ----------- ----------- 14,118,000 6,542,000 14,633,000 ----------- ----------- ----------- Cost and expenses: Cost of products............................... 8,009,000 3,835,000 6,700,000 Research and development....................... 906,000 833,000 611,000 Selling and marketing.......................... 4,147,000 3,338,000 4,264,000 General and administrative..................... 1,486,000 1,630,000 2,701,000 ----------- ----------- ----------- 14,548,000 9,636,000 14,276,000 ----------- ----------- ----------- (Loss) income before gain on disposition of investment in affiliate........................ (430,000) (3,094,000) 357,000 Gain on disposition of investment in affiliate... 931,000 2,036,000 -- ----------- ----------- ----------- Net income (loss)................................ $ 501,000 $(1,058,000) $ 357,000 =========== =========== =========== Net income (loss) per share...................... $ .09 $ (.18) $ .06 =========== =========== =========== Weighted average shares outstanding.............. 5,832,000 5,803,000 5,859,000 =========== =========== ===========
See accompanying notes to financial statements. F-8 SYNBIOTICS CORPORATION STATEMENT OF CASH FLOWS
NINE MONTHS YEAR ENDED ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, MARCH 31, 1995 1994 1994 ------------- ------------- ------------ Cash flows from operating activities: Net income (loss)...................................... $ 501,000 $(1,058,000) $ 357,000 Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: Depreciation and amortization....................... 1,028,000 677,000 1,003,000 Gain on disposition of investment in affiliate...... (931,000) (2,036,000) Changes in assets and liabilities: Accounts receivable.............................. 14,000 1,691,000 (1,297,000) Receivables from affiliates...................... 88,000 (58,000) Inventories...................................... (676,000) (615,000) (504,000) Other assets..................................... 334,000 (472,000) (172,000) Accounts payable and accrued expenses............ (43,000) (379,000) 878,000 Other liabilities................................ 2,000 (8,000) 40,000 ---------- ----------- ----------- Net cash provided by (used for) operating activities..... 229,000 (2,112,000) 247,000 ---------- ----------- ----------- Cash flows from investing activities: Acquisition of property and equipment.................. (189,000) (424,000) (295,000) Investment in securities available for sale............ 502,000 (502,000) Loans to affiliate..................................... (150,000) (1,200,000) Payment received on loans to affiliate................. 600,000 ---------- ----------- ----------- Net cash provided by (used for) investing activities..... 313,000 (1,076,000) (895,000) ---------- ----------- ----------- Cash flows from financing activities: Principal payments of long-term debt................... (3,000) Proceeds from issuance of common stock, net............ 28,000 634,000 ---------- ----------- ----------- Net cash provided by financing activities................ 28,000 631,000 ---------- ----------- ----------- Net increase (decrease) in cash.......................... 570,000 (3,188,000) (17,000) Cash and equivalents -- beginning........................ 447,000 3,635,000 3,652,000 ---------- ----------- ----------- Cash and equivalents -- ending........................... $1,017,000 $ 447,000 $ 3,635,000 ========== =========== ===========
See accompanying notes to financial statements. F-9 SYNBIOTICS CORPORATION Statement of Shareholders' Equity
Unrealized Holding Losses from Common Stock Series B Common Stock Securities ------------------------ ----------------------- Available Accumulated Shares Amount Shares Amount for Sale Deficit Total --------- ------------ -------- ------------ -------------- ------------- -------------- Balance at March 31, 1993.... 5,248,000 $28,671,000 2,000 $ 1,000 -- $(18,968,000) $ 9,704,000 Issuance of subscribed 530,000 -- -- -- -- -- -- common stock................ Collection of receivable for subscribed common stock.... -- 570,000 -- -- -- -- -- Issuance of common stock pursuant 23,000 73,000 -- -- -- -- -- to exercise of stock options................... Cancellation of stock options -- 2,000 -- -- -- -- 2,000 Conversion of Series B common stock 2,000 1,000 (2,000) (1,000) -- -- -- to common stock............ Net income for the year...... -- -- -- -- -- 357,000 357,000 --------- ----------- ------- ----------- ------------- ------------ ----------- Balance at March 31, 1994.... 5,803,000 29,317,000 -- -- -- (18,611,000) 10,706,000 Cancellation of stock options -- 1,000 -- -- -- -- 1,000 Unrealized holding losses from -- -- -- -- $(1,695,000) -- -- securities available for sale...................... Net loss for the period...... -- -- -- -- -- (1,058,000) (1,058,000) --------- ----------- ------- ----------- ------------- ------------ ----------- Balance at December 31, 1994. 5,803,000 29,318,000 -- -- (1,695,000) (19,669,000) 7,954,000 Issuance of common stock pursuant to 13,000 33,000 -- -- -- -- -- exercise of stock options.. Unrealized holding gains from securities available for -- -- -- -- 660,000 -- -- sale...................... Net income for the year...... -- -- -- -- -- 501,000 501,000 --------- ----------- ------- ----------- ------------- ------------ ----------- Balance at December 31, 1995. 5,816,000 $29,351,000 -- $ -- $(1,035,000) $(19,168,000) $ 9,148,000 ========= =========== ======= =========== ============= ============ ===========
See accompanying notes to financial statements. F-10 SYNBIOTICS CORPORATION NOTES TO FINANCIAL STATEMENTS THE COMPANY Synbiotics Corporation (the "Company"), incorporated in 1982, is an animal health business which develops, manufactures and markets biological products and monoclonal antibody based diagnostic products for use in the animal health care field. The Company's principal markets are veterinarians and veterinary clinical laboratories in the United States and Europe. The Company's products are sold primarily to wholesale distributors. INVENTORIES Inventories are stated at the lower of cost or market; cost is determined using the first-in, first-out method. PROPERTY AND EQUIPMENT Property and equipment, including leasehold improvements, are recorded at cost. Maintenance costs are charged to operations as incurred. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of five to eight years or the lease terms, if shorter. CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES Effective April 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115") on a prospective basis. In accordance with SFAS 115, the Company determines the appropriate classification of its U.S. Government and equity securities at the time of acquisition and reevaluates such designation as of each balance sheet date. The Company has recorded these investments at fair market value as it has designated them as "available for sale". Unrealized holding losses on these investments, which are classified as a separate component of shareholders' equity, totalled $1,035,000 and $1,695,000 at December 31, 1995 and 1994, respectively. PATENTS AND LICENSES Patent and license costs are amortized ratably over the life of the respective patent or license. INVESTMENTS IN FORMER AFFILIATES UniSyn Technologies, Inc. ("UniSyn"), of which the Company was a 23% shareholder at March 31, 1994, provides research, pilot and production scale bioreactors and disposables, and contract production, for the manufacture and purification of mammalian cell-derived products. In June 1994, the Company entered into a bridge loan agreement whereby $150,000 was loaned to UniSyn. In December 1994, UniSyn issued additional shares of voting stock through a private placement offering, which reduced the Company's effective ownership to 6%. In connection with this private placement, the Company converted into common stock all of its shares of convertible preferred stock, and exchanged the $150,000 note receivable into convertible preferred stock. The conversion of the note receivable is considered to be a non-cash investing activity for the purposes of the statement of cash flows. As a result of the change in effective ownership, the Company began utilizing the cost method to account for its investment in UniSyn, which is included in other assets at December 31, 1995 and 1994. ImmunoPharmaceutics, Inc. ("IPI"), of which the Company was a 41% shareholder at March 31, 1994, is engaged in human drug discovery utilizing proprietary rational drug design technology. In July 1994, IPI was acquired by Texas Biotechnology Corporation (Note 3). F-11 SYNBIOTICS CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) REVENUE RECOGNITION Revenue from products is recognized when the products are shipped. ADVERTISING COSTS The Company recognizes the production costs of advertising at the time such charges are incurred. Advertising expense totalled $629,000, $393,000 and $706,000 during the year ended December 31, 1995, the nine months ended December 31, 1994 and the year ended March 31, 1994, respectively. STOCK-BASED COMPENSATION In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation", which is effective for years beginning after December 15, 1995. SFAS 123 defines a fair value based method of accounting for an employee stock option or similar equity instrument and encourages all entities to adopt that method of accounting for all of their employee stock compensation plans. However, it also allows an entity to continue to measure compensation cost for those plans using the intrinsic value based method of accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" and including pro forma disclosures of net income and earnings per share as if the fair value method had been applied. The Company has elected to continue to measure its stock-based compensation in accordance with APB 25 and, accordingly, does not expect the adoption of SFAS 123 to have a significant effect on its financial position or results of operations. INCOME TAXES The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. NET INCOME (LOSS) PER SHARE Computations of net income (loss) per share are based on the weighted average number of common shares outstanding during each year. Shares issuable upon the exercise of outstanding stock options have not been considered in the computations for the nine months ended December 31, 1994 because their effect is anti-dilutive. STATEMENT OF CASH FLOWS For purposes of this statement, cash includes cash investments which are highly liquid and, generally, have an original maturity of three months or less. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-12 SYNBIOTICS CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. CHANGE IN FISCAL YEAR During 1994, the Company changed its fiscal year from March 31 to December 31. Accordingly, the Company's transition period, which ended on December 31, 1994, includes the nine months from April 1 to December 31, 1994. The Company's full fiscal year ending March 31, 1994 includes twelve months. The following unaudited results of operations for the year ending December 31, 1994 and the nine months ending December 31, 1993 include all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for that period.
NINE MONTHS YEAR ENDED ENDED DECEMBER 31, DECEMBER 31, 1994 1993 ---------------- ------------- (unaudited) (unaudited) Revenues: Products $ 11,718,000 $ 8,658,000 Interest 90,000 122,000 License fees and other 299,000 287,000 ---------------- ------------- 12,107,000 9,067,000 ---------------- ------------- Cost and expenses: Cost of products 6,519,000 3,918,000 Research and development 1,091,000 362,000 Selling and marketing 4,756,000 2,875,000 General and administrative 2,415,000 1,974,000 ---------------- ------------- 14,781,000 9,129,000 ---------------- ------------- Loss before gain on disposition of investment in affiliate (2,674,000) (62,000) Gain on disposition of investment in affiliate 2,036,000 -- ---------------- ------------- Net loss $ (638,000) $ (62,000) ================ ============= Net loss per share $ (.11) $ (.01) ================ =============
3. DISPOSITION OF INVESTMENT IN AFFILIATED COMPANY In February 1994, the Company entered into a bridge loan agreement whereby $600,000 was loaned to IPI. The note was due on March 31, 1994, bore interest at the rate of prime plus 1% and was secured by substantially all of the assets of IPI. On July 25, 1994, IPI, of which the Company was a 41% shareholder, was acquired by Texas Biotechnology Corporation ("TBC") in a triangular merger transaction whereby unregistered shares of TBC common stock were issued in exchange for all of the outstanding stock of IPI. The Company's TBC shares were registered effective December 6, 1995. The carrying value of the Company's investment in IPI had previously been reduced to zero due to the application of the equity method of accounting for the investment in IPI. In conjunction with the acquisition by TBC, the Company exchanged its $600,000 note receivable from IPI into voting stock of IPI, which is considered to be a non-cash investing activity for purposes of the statement of cash flows. As a result of the transaction, the Company received approximately 655,000 shares of TBC common stock. The Company valued its investment in TBC, which is accounted for utilizing the cost method, at $4.025 per share, and, as a result, recognized a gain for financial reporting purposes of approximately $2,036,000. F-13 SYNBIOTICS CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) On June 30, 1995, the Company received an additional 573,000 shares of TBC common stock resulting from the satisfaction of a certain contingency on May 31, 1995 related to the acquisition of IPI by TBC. Accordingly, the Company recognized a gain for financial reporting purposes in the amount of $931,000, based on the closing price of TBC common stock on May 31, 1995 of $1.625 per share as reported on the American Stock Exchange. The Company may receive an additional 409,000 shares of TBC common stock (the "Contingent Shares") pending the outcome of certain remaining contingencies. No amounts have been recorded related to the Contingent Shares, and no amounts will be recorded until such time as the contingencies are satisfied. 4. PRODUCT AGREEMENTS In December 1992, the Company entered into an agreement with SmithKline Beecham Animal Health, a division of SmithKline Beecham Corporation, whereby the Company acquired certain distribution, manufacturing and licensing rights to ten companion animal biological products in exchange for $1,000,000. As of December 31, 1995, $453,000 had been paid, and the remaining $547,000, which is included in other liabilities, will be paid based on sales of the acquired products. Any remaining balance, plus interest in the amount of $150,000, shall be due and payable in October 1996. Sales of the related products, which commenced in November 1993, totalled $757,000, $258,000 and $618,000 during the year ended December 31, 1995, the nine months ended December 31, 1994 and the year ended March 31, 1994, respectively. 5. COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
December 31, --------------------------------- 1995 1994 ----------------- ------------- Inventories: Raw materials $ 665,000 $ 576,000 Work in process 633,000 756,000 Finished goods 2,141,000 1,431,000 ----------------- ------------- $ 3,439,000 $ 2,763,000 ================= =============
F-14 SYNBIOTICS CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, ----------------------------------- 1995 1994 ---------------- --------------- Property and equipment: Laboratory equipment $ 2,098,000 $ 1,968,000 Leasehold improvements 1,826,000 1,826,000 Office equipment 468,000 529,000 ---------------- --------------- 4,392,000 4,323,000 Less accumulated depreciation and amortization (3,513,000) (2,994,000) ---------------- --------------- $ 879,000 $ 1,329,000 ================ ===============
Depreciation expense was $639,000, $381,000 and $426,000 during the year ended December 31, 1995, the nine months ended December 31, 1994 and the year ended March 31, 1994, respectively.
DECEMBER 31, ------------------------------------ 1995 1994 ----------- -------------- Other assets: Patents $ 79,000 $ 142,000 Licenses 1,556,000 1,825,000 Other 525,000 917,000 ----------- -------------- 2,160,000 2,884,000 Less current portion (578,000) (963,000) ----------- -------------- $1,582,000 $ 1,921,000 =========== ==============
Accumulated amortization of patents and licenses was $1,406,000 and $1,016,000 at December 31, 1995 and 1994, respectively.
DECEMBER 31, ---------------------------------- 1995 1994 ---------------- -------------- Accounts payable and accrued liabilities: Accounts payable $ 1,101,000 $ 1,235,000 Accrued vacation 125,000 109,000 Accrued compensation 72,000 78,000 Other 315,000 240,000 ---------------- -------------- $ 1,613,000 $ 1,662,000 ================ ==============
F-15 SYNBIOTICS CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) 6. RELATED PARTY TRANSACTIONS The Company charged its former affiliates, UniSyn and IPI, and currently charges IPI, now a wholly-owned subsidiary of TBC (Note 3), for shared costs including, but not limited to, rent, utilities and property taxes. In addition, the Company charged IPI for employee benefits, insurance and certain administrative services during the nine months ended December 31, 1994 and the year ended March 31, 1994. Such charges to UniSyn, which terminated in June 1993, totalled $51,000 during the year ended March 31, 1994. IPI was charged $357,000, $388,000 and $624,000 during the year ended December 31, 1995, the nine months ended December 31, 1994 and the year ended March 31, 1994, respectively. In June 1991, the Company entered into a three year agreement with IPI whereby IPI provided certain raw materials and/or services to the Company. The agreement called for guaranteed quarterly payments of $50,000, totalling $200,000 per year. Raw materials received by the Company were not significant during the year ended March 31, 1994. During the nine months ended December 31, 1994 and the year ended March 31, 1994, the Company charged $33,000 and $200,000, respectively, to income relating to the agreement. The agreement was terminated in May 1994. 7. SHAREHOLDERS' EQUITY SERIES B COMMON STOCK In March 1994, all outstanding shares of Series B common stock were converted into shares of common stock. STOCK OPTION PLANS The Company had adopted a series of non-qualified and incentive stock option plans (the "Predecessor Plans"). In April 1995, the Company adopted the 1995 Stock Option/Stock Issuance Plan (the "1995 Plan") whereby an aggregate of 1,300,000 shares of the Company's common stock, inclusive of all optioned shares that were exercisable and/or issuable under the Predecessor Plans, were reserved for issuance. No further option grants may be made under the Predecessor Plans. The 1995 Plan is administered by the Board of Directors and provides that exercise prices shall not be less than 85 percent (non-qualified options) and 100 percent (incentive options) of the fair market value of the shares at the date of grant. Options will generally vest at the rate of 1/16th of the granted shares in each continuous quarter of employment and have an exercise period not more than ten years from date of grant. At December 31, 1995 options to purchase 620,000 shares are exercisable and 383,000 shares are available for future grant under the 1995 Plan. F-16 SYNBIOTICS CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) The following is a summary of the stock option plans' activity:
Shares of Common Stock Option Prices Underlying Per Share Options -------------- ------------- March 31, 1993 $2.45-$9.25 519,000 Options granted $3.25-$4.88 92,000 Options canceled $2.55-$5.50 (20,000) Options exercised $2.45-$3.72 (23,000) March 31, 1994 $2.45-$9.25 ------------- 568,000 Options granted $2.38-$3.88 193,000 Options canceled $2.45-$7.87 (45,000) December 31, 1994 $2.45-$9.25 ------------- 716,000 Options granted $1.63-$3.25 209,000 Options canceled $2.45-$6.59 (13,000) Options exercised $2.00-$3.72 (13,000) December 31, 1995 $1.63-$9.25 ------------- 899,000 =============
8. INCOME TAXES The Company did not record a provision for Federal income taxes during the year ended December 31, 1995 and the nine months ended December 31, 1994 due to net operating losses for tax purposes. The Company did not record a provision for Federal income taxes during the year ended March 31, 1994 due to the utilization of net operating loss carryforwards. The provisions for state income taxes were $2,000 during the year ended December 31, 1995, the nine months ended December 31, 1994 and the year ended March 31, 1994, and represent minimum franchise taxes and are included in general and administrative expenses. F-17 SYNBIOTICS CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) Deferred tax assets comprise the following:
December 31, ------------------------------------- 1995 1994 ------------------ --------------- Federal: Net operating loss carryforwards $ 5,626,000 $ 5,487,000 Equity in losses of investees 714,000 1,031,000 Investment tax, research and development and alternative minimum tax credit carryforwards 859,000 848,000 ------------------ --------------- 7,199,000 7,366,000 Less valuation allowance (7,199,000) (7,366,000) ------------------ --------------- $ -- $ -- ================== =============== State: Net operating loss carryforwards $ 634,000 $ 721,000 Equity in losses of investees 195,000 282,000 Investment tax and research and development credit carryforwards 216,000 215,000 ------------------ --------------- 1,045,000 1,218,000 Less valuation allowance (1,045,000) (1,218,000) ------------------ --------------- $ -- $ -- ================== ===============
A reconciliation of the provision for income taxes to the amount computed by applying the statutory federal income tax rate to income before income taxes follows:
NINE MONTHS YEAR ENDED ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, MARCH 31, 1995 1994 1994 ------------- ------------ ------------- Amounts computed at statutory Federal rate $ 170,000 $ (360,000) $ 121,000 State income taxes, net of Federal benefit 31,000 (98,000) 33,000 (Deductions) income for financial reporting purposes for which there is no current tax (benefit) provision (201,000) 458,000 -- Utilization of Federal net operating loss carryforwards (121,000) Utilization of state net operating loss carryforwards (33,000) State minimum franchise tax 2,000 2,000 2,000 ------------- ------------ ------------- $ 2,000 $ 2,000 $ 2,000 ============= ============ =============
F-18 SYNBIOTICS CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) The net changes in the valuation allowances for the year ended December 31, 1995 for Federal and state deferred tax assets were a decrease of $167,000 and $173,000 for Federal and state tax purposes, respectively, and are due to the net operating loss incurred during the year ended December 31, 1995, offset by the realization of a portion of the equity in losses of IPI due to the acquisition by TBC (Note 3). In addition, the valuation allowance for state deferred tax assets was further reduced due to the expiration of a portion of the state net operating loss carryforwards. The net changes in the valuation allowances for the nine months ended December 31, 1994 for Federal and state deferred tax assets were an increase of $167,000 and a decrease of $64,000 for Federal and state tax purposes, respectively. The changes are due to the net operating loss incurred during the nine months ended December 31, 1994, offset by the realization of a portion of the equity in losses of IPI due to the acquisition by TBC (Note 3). The Company has available Federal net operating loss carryforwards at December 31, 1995 of approximately $16,548,000, which expire between 2001 and 2010. Available state net operating loss carryforwards at December 31, 1995 total approximately $6,816,000, which expire between 1996 and 2000. If certain substantial changes in the Company's ownership should occur, there would be an annual limitation on the amount of carryforwards which can be utilized. Unused investment tax and research and development credits at December 31, 1995 aggregate approximately $1,075,000 and expire between 1998 and 2006. 9. COMMITMENTS The Company leases office, laboratory and manufacturing facilities and equipment under operating leases. The facilities leases provide for escalating rental payments. Future minimum rentals under noncancelable operating leases as of December 31, 1995 are $435,000, all of which are due in 1996. Total rent expense under noncancelable operating leases was $377,000, $282,000 and $351,000 during the year ended December 31, 1995, the nine months ended December 31, 1994 and the year ended March 31, 1994, respectively. 10. SIGNIFICANT CUSTOMERS The Company had sales to two customers totalling 44% of gross revenues during the year ended December 31, 1995. During the nine months ended December 31, 1994, sales to two customers totalled 35% of gross revenues. Sales totalling 40% of gross revenues during the year ended March 31, 1994 were made to two customers. Sales to foreign customers totalled 12%, 13%, 15% of product revenues during the year ended December 31, 1995, the nine months ended December 31, 1994 and the year ended March 31, 1994, respectively. The Company grants credit to all of its customers, substantially all of whom are in the animal health products industry. F-19 REPORT OF INDEPENDENT ACCOUNTANTS --------------------------------- To the Board of Directors and Stockholders of International Canine Genetics, Inc. We have audited the accompanying balance sheets of International Canine Genetics, Inc. as of June 30, 1996 and 1995, and the related statements of operations, stockholders equity (deficit) and cash flows for each of the three years in the period ended June 30, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of International Canine Genetics, Inc. as of June 30, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 1996 in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to this matter are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. 2400 Eleven Penn Center Philadelphia, Pennsylvania August 7, 1996 F-20 INTERNATIONAL CANINE GENETICS, INC. BALANCE SHEETS
June 30, June 30, 1995 1996 ------------- ------------- ASSETS Current assets: Cash and cash equivalents $ 247,559 $ 26,104 Accounts receivable, less allowance for doubtful accounts of $47,792 and $47,226 at June 30, 1995 and June 30, 1996, respectively 97,018 93,986 Inventories 64,864 92,357 Prepaid expenses 17,768 37,342 Other current assets 18,167 12,316 ------------ ------------- Total current assets 445,376 262,105 Property and equipment, net 236,156 235,841 Intangible assets, net 65,882 96,961 Security deposits 36,209 48,664 Other assets 21,838 29,920 ------------- ------------- Total assets $ 805,461 $ 673,491 ============= ============= LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Notes payable $ 400,000 $ 500,000 Notes payable-funding agreements 107,162 128,955 Capital leases-current portion 44,877 50,843 Accounts payable 165,087 283,536 Accrued expenses 89,940 135,106 ------------- ------------- Total current liabilities 807,066 1,098,440 ------------- ------------- Notes payable-funding agreements 362,769 327,886 Capital leases-long term 102,747 89,891 Notes payable-shareholder 8,880 9,471 Deferred compensation 168,851 193,068 ------------- ------------- Total liabilities 1,450,313 1,718,756 ------------- ------------- Stockholders' deficit: Common stock, par value $.00006, authorized 10,000,000 shares, 109 169 issued 1,835,000 and 2,843,115 shares at June 30, 1995 and June 30, 1996, respectively Additional paid-in capital 10,341,478 11,551,560 Treasury stock, at cost, 23,960 shares (8,439) (8,439) Accumulated deficit (10,978,000) (12,588,555) ------------- ------------- Total stockholders' deficit (644,852) (1,045,265) ------------- ------------- Total liabilities and stockholders' deficit $ 805,461 $ 673,491 ============= =============
See accompanying notes to financial statements F-21 INTERNATIONAL CANINE GENETICS, INC. Statements of Operations
YEARS ENDED JUNE 30, 1994 1995 1996 ------------ ------------ ------------ Net revenues $ 1,114,676 $ 1,501,864 $ 1,651,220 Cost of revenues 645,516 814,038 889,240 ------------ ------------ ------------ Gross profit 469,160 687,826 761,980 ------------ ------------ ------------ Operating expenses: Research and development expenditures 380,893 548,852 554,807 Selling, general and administrative 1,557,658 1,587,902 1,478,634 Advertising and promotional expense 348,318 282,254 278,764 ------------ ------------ ------------ 2,286,869 2,419,008 2,312,205 ------------ ------------ ------------ Loss from operations (1,817,709) (1,731,182) (1,550,225) Interest expense (27,562) (52,023) (73,808) Other income, net 78,788 43,044 13,478 ------------ ------------ ------------ Net loss $(1,766,483) $(1,740,161) $(1,610,555) ============ ============ ============ Net loss per share of common stock $ (0.96) $ (0.96) $ (0.60) ============ ============ ============ Shares of common stock outstanding (weighted average) 1,844,974 1,811,040 2,689,343 ============ ============ ============
See accompanying notes to financial statements F-22 INTERNATIONAL CANINE GENETICS, INC. STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1994 1995 1996 ------------ ------------ ------------ Cash flow from operating activities: Net loss ($1,766,483) ($1,740,161) ($1,610,555) ------------ ------------ ------------ Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 40,169 47,096 50,818 Deferred compensation 48,440 48,448 24,217 Provision for uncollectible accounts 13,615 5,039 --- Gain on sale of property and equipment 851 (17,500) --- Change in operating assets and liabilities: (Increase) decrease in accounts receivable (23,137) (26,300) 3,032 Increase in prepaid expenses (4,317) (2,131) (19,574) Increase in inventories (30,273) (4,398) (27,493) Decrease in other current assets --- --- 5,851 Increase in accounts payable 48,589 44,412 118,449 Increase (decrease) in accrued expenses 16,390 (30,494) 55,308 Increase in accrued interest payable-note payable-shareholder 591 591 591 Increase in accrued interest payable-funding agreements 16,570 25,378 21,495 ------------ ------------ ------------ Total adjustments 127,488 90,141 232,691 ------------ ------------ ------------ Net cash used in operating activities (1,638,995) (1,650,020) (1,377,861) ------------ ------------ ------------ Cash flow from investing activities: Capital expenditures (27,772) (33,810) (2,644) Purchase of technology license and trademark (76,381) --- (40,938) Proceeds from notes receivable --- 811 --- Proceeds from sale of property and equipment --- 1,750 --- ------------ ------------ ------------ Net cash (used in) investing activities (104,513) (31,249) (43,582) ------------ ------------ ------------ Cash flow from financing activities: Net proceeds from issuance of common stock --- --- 800,000 Borrowings under note payable --- 400,000 500,000 Payments under notes payable-funding agreements (30,665) (15,209) (34,585) Payments under notes payable-shareholder (591) (295) --- (Increase) decrease in security deposits and other assets (23,477) 4,492 (20,537) Payment of obligations under capital leases (21,217) (35,833) (44,890) ------------ ------------ ------------ Net cash (used in) provided by financing activities (75,950) 353,155 1,199,988 ------------ ------------ ------------ Net decrease in cash and cash equivalents (1,819,098) (1,328,114) (221,455) Cash and cash equivalents at beginning of period 3,394,771 1,575,673 247,559 ------------ ------------ ------------ Cash and cash equivalents at end of period $ 1,575,673 $ 247,559 $ 26,104 ============ ============ ============ Supplemental cash flow disclosures: Cash used in operating activities include: Cash paid for interest $ 47,743 $ 36,682 $ 52,820 Noncash investing and financing activities: Sale of asset in exchange for note -- $ 17,500 -- Conversion of note payable and accrued interest into common stock -- -- $ 410,142 Capital lease obligation -- -- $ 38,000
F-23 STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Common Additional Treasury Total Stock Paid In Stock Accumulated Stockholders Shares Total Capital Shares Total Deficit Equity Deficit ------ ----- ---------- -------- -------- ------------ ---------------- Balances at June 30, 1993 1,835,000 $109 $10,341,478 23,960 $(8,439) $ (7,471,356) $ 2,861,792 Net Loss --- --- --- --- --- (1,766,483) (1,766,483) - ----------------------------------------------------------------------------------------------------------------------------------- Balances at June 30, 1994 1,835,000 109 10,341,478 23,960 (8,439) (9,237,839) 1,095,309 Net Loss --- --- --- --- --- (1,740,161) (1,740,161) - ----------------------------------------------------------------------------------------------------------------------------------- Balances at June 30, 1995 1,835,000 109 10,341,478 23,960 (8,439) (10,978,000) (644,852) Net proceeds from issuance of common 680,000 41 799,959 --- --- --- 800,000 stock Conversion of bridge notes and accrued 328,115 19 410,123 --- --- --- 410,142 interest Net Loss -- -- -- --- --- (1,610,555) (1,610,555) - ----------------------------------------------------------------------------------------------------------------------------------- Balances at June 30, 1996 2,843,115 $169 $11,551,560 23,960 $(8,439) $(12,588,555) $ (1,045,265) ===================================================================================================================================
F-24 INTERNATIONAL CANINE GENETICS, INC. NOTES TO FINANCIAL STATEMENTS NOTE 1. BACKGROUND OF THE COMPANY: International Canine Genetics, Inc. (the Company) was formed on July 14, 1986. The Company is primarily engaged in the business of developing, manufacturing and marketing products and services which address the needs of owners and breeders of purebred dogs and the veterinarians providing services to them. The Company currently markets artificial insemination products and services and in-clinic ovulation and laboratory timing diagnostic tests, pregnancy and DNA paternity testing services, which collectively comprise the majority of the Company's sales, the PennHIP/(R)/ diagnostic technology for the early detection of Canine Hip Dysplasia to breeders and owners of purebred dogs and their veterinarians, nutritional supplements and grooming products. All product and service revenues are shipped from or performed at the Company's Malvern, PA facility and sold to end users and distributors throughout the world, with the vast majority of the sales made throughout the United States. NOTE 2. LIQUIDITY: The Company has incurred losses from operations since inception as it has been developing its products and marketing channels and has a net capital deficiency which raises substantial doubt about the entity's ability to continue as a going concern. The Company's ability to support its operations with product sales is dependent on the Company's ability to raise additional funds to finance further product development and marketing as well as the successful completion of such activities. Management believes that the Company will be able to attract new sources of funds to enable the Company to continue the development and marketing of its products and services until completion of the acquisition by and integration into Synbiotics Corporation (see Note 4). However, no assurance can be given that such funds will be available or that the funds will be available on terms which are satisfactory or advantageous to the Company or its shareholders. NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Cash Equivalents: For purposes of the statement of cash flows, the Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Inventories: Inventories are stated at the lower of cost (first in, first out method) or market. Property and Equipment: Property and equipment are stated at cost. Equipment acquired under capital leases is stated at the lesser of the present value of the minimum lease payments or the fair value of the equipment at the inception of the lease. Depreciation and amortization, which includes the amortization of assets recorded under capital leases, are computed using both the straight line and accelerated methods over the estimated useful lives of the related assets ranging from three to ten years. Leasehold improvements are amortized over the lives of the respective leases or the lives of the improvements, whichever is shorter. Technology and Trademark License: Purchased technology and licenses are capitalized at cost and are amortized on a straight-line basis over the remaining life of the license agreement and the patent (10 and 15 years, respectively). Research and Development: Research and development costs are expensed in the period incurred. Advertising and Promotional: F-25 INTERNATIONAL CANINE GENETICS NOTES TO FINANCIAL STATEMENTS (CONTINUED) Advertising and promotional costs are expensed in the period incurred. Income Taxes: The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Concentrations of Credit Risk: Financial instruments which potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents, which are maintained in a high quality credit institution, and accounts receivable. The Company markets its products and services primarily to two specific classes of customers, namely dog breeders and veterinarians, which may subject the Company to credit risk. Such risk is mitigated, however, because the Company's markets are geographically dispersed. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. Fair Value of Financial Instruments The carrying value of the Company's short-term financial instruments, such as receivables and payables, approximate their fair values, based on the short- term maturities of these instruments. As of June 30, 1996, the fair value of the Company's demand notes payable, notes payable funding agreements and capital lease obligations, using rates currently available to the Company for such financial instruments with similar terms and remaining maturities, approximate their carrying amounts. Net Loss Per Share of Common Stock and Pro Forma Net Loss Per Share of Common Stock: The net loss per share of Common Stock is computed using the weighted average number of shares of Common Stock outstanding during the period. The effect of stock options and warrants are excluded from the computation as their effect is anti-dilutive, except that, pursuant to Securities and Exchange Commission staff accounting bulletins, Common Stock options issued during the 12 month period prior to the initial public offering at prices below the public offering price of $7.00 per unit have been included in the 1994 computation as if they were outstanding for the period presented (using the treasury stock method). Stock-Based Compensation In October, 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation", which is effective for years beginning after December 15, 1995. SFAS 123 defines a fair value based method of accounting for an employee stock option or similar equity instrument and encourages all entities to adopt that method of accounting for all of their employee stock compensation plans. However, it also allows an entity to continue to measure compensation cost for those plans using the intrinsic value based method of accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" and including pro forma disclosures of net income and earnings per share as if the fair value method had been applied. The Company has elected to continue to measure its stock-based compensation in accordance with APB 25 and, accordingly, does not expect the adoption of SFAS 123 to have a significant effect on its financial position or results of operations. Use of Estimates INTERNATIONAL CANINE GENETICS NOTES TO FINANCIAL STATEMENTS (CONTINUED) The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 4. ACQUISITION: On July 23, 1996, the Company entered into a definitive purchase agreement for Synbiotics Corporation to acquire substantially all of the assets and certain liabilities of the Company. All of the assets and certain liabilities of the Company will be acquired by Synbiotics in exchange for the issuance of 1,400,000 shares of registered Synbiotics Common Stock, a transaction valued at between $3,500,000 and $4,900,000. The number of shares is subject to adjustment if the market price per share of Synbiotics' stock is above $3.50 per share or below $2.50 per share at the closing. A portion of the 1,400,000 shares of Synbiotics Common Stock will be used to satisfy the Company's debt and the balance will be distributed to the holders of Common Stock. All of the Company's outstanding warrants and stock options will similarly be assumed by Synbiotics and will be exercisable for shares of Synbiotics Common Stock. Additionally, S. R. One, Limited, the Company's largest stockholder, will purchase $1,000,000 of newly issued restricted shares of Synbiotics Common Stock at the closing. The transaction is subject to certain regulatory review and Board of Directors and shareholder approval of both companies. The transaction is expected to close in October, 1996. NOTE 5. INVENTORIES: At June 30, 1995 and 1996, inventories were as follows:
1995 1996 ------- ------- Components $34,747 $61,345 Finished Goods 30,117 31,012 ------- ------- $64,864 $92,357 ======= =======
NOTE 6. TECHNOLOGY AND TRADEMARK LICENSE: On December 21, 1993, the Company finalized an agreement with the University of Pennsylvania for the exclusive worldwide rights to commercialize a new proprietary technology for the diagnosis of Canine Hip Dysplasia. Under the agreement, the Company also obtained the exclusive worldwide rights to use the University of Pennsylvania trademark PennHIP/(R)/. At June 30, 1996, the Company has capitalized costs and accumulated amortization of $76,381 and $18,405, respectively, related to the licensing and transfer to the Company of this technology and trademark. On November 6, 1995, the Company concluded an agreement with the Cornell Research Foundation, the University of Medicine and Dentistry of New Jersey-New Jersey Medical School and New York University for the exclusive rights to a U.S. patent entitled "Relaxin Testing for Early Detection of Pregnancy in Dogs." At June 30, 1996, the Company has capitalized costs and accumulated amortization of $40,938 and $1,952, respectively, related to the licensing and transfer to the Company of this technology. NOTE 7. PROPERTY AND EQUIPMENT: At June 30, property and equipment were as follows:
1995 1996 --------- --------
F-27 INTERNATIONAL CANINE GENETICS NOTES TO FINANCIAL STATEMENTS (CONTINUED) Lab equipment.................................... $214,045 $214,045 Marketing equipment.............................. 44,740 44,740 Furniture and fixtures........................... 197,991 238,634 Warehouse equipment.............................. 16,218 16,218 Leasehold improvements........................... 8,464 8,464 -------- -------- 481,458 522,101 Less accumulated depreciation and amortization... $245,302 $286,260 -------- -------- $236,156 $235,841 ======== ========
At June 30, 1996, assets recorded under capital leases and related accumulated amortization are $204,674 and $49,377, respectively. NOTE 8. NOTES PAYABLE: During fiscal 1995, the Company borrowed $400,000 from S. R. One, Limited, a majority stockholder, under the terms of two demand note agreements bearing interest at the prime rate plus two points. On August 17, 1995, S. R. One, Limited invested cash of $850,000 and converted the $400,000 of demand notes and accrued interest of $10,144 into 1,008,115 newly issued shares of common stock at $1.25 per share. On December 22, 1995, the Company borrowed $500,000 from S. R. One, Limited under the terms of a demand note agreement bearing interest at the prime rate plus two points. NOTE 9. NOTES PAYABLE - FUNDING AGREEMENTS: During fiscal years 1988 through 1991, the Company received $145,090 and $51,578 under three separate funding agreements (the "first and second" and "third" agreements, respectively) from the Ben Franklin Technology Center of Southeastern Pennsylvania (BFTC). Under the first and second agreements, the Company is required to repay three times the disbursed funds in quarterly installments of 1% of total Company revenues. The full amount of the obligation under the first and second agreements, $435,270, has been accrued by charges to interest expense during fiscal years 1988 through 1991. Under the third agreement, the Company is required to repay up to a maximum of three times the disbursed funds in quarterly installments of 3% of total Company revenues subject to annual dollar caps as set forth below. Year Ending September 30, Annual Dollar Cap ------------ ----------------- 1996 .................. 37,136 1997 .................. 46,422 Under the third agreement, the Company is accruing interest using the effective interest method over the anticipated repayment period. Interest expense related to the agreement amounted to $16,570, $24,768 and $21,060 for the years ended June 30, 1994, 1995 and 1996, respectively, and is included in the statement of operations. On February 27, 1995, the Company entered into a supplemental agreement with BFTC to temporarily modify the repayment requirements until the Company has obtained additional funding. Under the terms of this supplemental agreement, the Company's quarterly repayments under the first, second and third agreements are not to exceed $3,000. The unpaid balance accrues interest at the prime rate. All amounts in arrears, including F-28 INTERNATIONAL CANINE GENETICS NOTES TO FINANCIAL STATEMENTS (CONTINUED) accrued interest, under this agreement are payable within seven days following completion of the Company obtaining additional funding as defined by the supplemental agreement. At June 30, 1995, the unpaid balance under this agreement was $30,557 and accrued interest amounted to $610. Interest expense on the supplemental agreement incurred in fiscal 1996 was $435. The amounts outstanding under these agreements, including accrued interest, are as follow:
June 30, ----------------------- 1995 1996 --------- --------- First and Second Agreements.......... $ 435,270 $ 435,270 Third Agreement...................... 120,525 141,585 Interest on Supplemental Agreement... 610 1,045 Less payments........................ (86,474) (121,059) --------- --------- 469,931 456,841 Less current portion................. (107,162) (128,955) --------- --------- $ 362,769 $ 327,886 ========= =========
NOTE 10. STOCK OPTION PLAN The Company maintains a stock option plan whereby employees, consultants and advisors may be granted incentive stock options ("ISO") or non-qualified stock options to purchase up to 275,000 shares of the Company's Common Stock. The ISO option exercise price is determined by the Compensation and Stock Option Committee subject to a minimum exercise price equal to the fair market value of the Company's Common Stock on the date of the grant. The exercise price of non- qualified options is determined by the Compensation and Stock Option Committee. The options vest over a four year period and expire 10 years from the date of grant. F-29 INTERNATIONAL CANINE GENETICS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) A summary of stock option activity is as follows:
Number of Option Price Shares per Share --------- ------------- Outstanding as of June 30, 1993 42,042 $ 1.35 Granted 82,332 $ 7.00 Granted 99,250 $ 2.00 Exercised - - Canceled - - --------- ------------- Outstanding as of June 30, 1994 223,624 $ 1.35-$7.00 Granted - - Exercised - - Canceled 5,510 $ 2.00-$7.00 --------- ------------- Outstanding as of June 30, 1995 218,114 $1.35 - $7.00 ======= ============= Granted 152,950 $ 1.25 Exercised -- -- Canceled 11,465 $ 1.25-$7.00 Outstanding as of June 30, 1996 359,599 $ 1.25-$7.00 ======= =============
At June 30, 1996, options for 218,218 shares were exercisable and 130,401 shares were available for future grants under the plan. During the twelve months ended June 30, 1995 and 1996, the Company recognized $48,448 and $24,217, respectively, as compensation expense in connection with options granted prior to the Company's initial public offering. NOTE 11. STOCK WARRANTS: In January, 1993, in accordance with a Recapitalization Agreement, 62,075 shares of Preferred-B warrants were exchanged for 10,346 common stock warrants exercisable at $8.40 per share over five years, and 300,000 common share warrants were exchanged for 50,000 common stock warrants exercisable at $8.40 per share over five years. In March 1993, 715,000 warrants ("Public Warrants") to purchase common stock were issued as part of the Company's initial public offering. In this offering, the Company sold 715,000 Units, each consisting of one share of common stock and one common stock warrant. The warrants are exercisable over a five year period at an initial exercise price of $10.00 per warrant. However, as the Company did not generate revenues of $7 million during the fiscal year ended June 30, 1995, the exercise price was reduced to $5.00 per warrant in accordance with the terms of the offering document. F-30 INTERNATIONAL CANINE GENETICS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) In addition, the underwriter of the Company's initial public offering received, as part of its compensation, warrants ("Underwriters' Warrants") to purchase 71,500 Units (each unit consisting of one share of common stock and one redeemable common stock warrant.). The Underwriters' Warrants are exercisable over five years at a price of $8.40 per warrant. The common stock warrants contained in the Unit warrant have the same terms and characteristics as the public warrants issued as part of the initial public offering. The terms of the Public Warrant and Underwriters' Warrant agreements provide the holders of the warrants with anti-dilution protection if the Company issues common stock or equivalents, including stock options, at a price below the original exercise prices per warrant of $10.00 and $8.40, respectively. During the year ended June 30, 1994, the Company issued stock options under its 1992 Stock Option Plan at $7.00 per share and $2.00 per share (see Note 10). As a result, the Public Warrants have an adjusted exercise price of $9.66 per warrant and may be redeemed for 740,166 shares of common stock. The Underwriters' Warrant have an adjusted exercise price of $1.76 and can be redeemed for 341,250 shares of Common Stock and 341,250 redeemable warrants. The redeemable warrants have an adjusted exercise price of $9.66 and can be redeemed for 353,538 shares of Common Stock. On August 16, 1995, the Board of Directors approved modifications to the 715,000 Public Warrants. The exercise price of the Public Warrants was reduced from $5.00 per warrant to $1.25 per warrant and the term of each Public Warrant was extended from March 24, 1988 to March 24, 2000. In addition, in order to simplify the Company's capital structure and eliminate certain onerous anti-dilution provisions which have had and would have an adverse impact on the shareholders, the holders of 60,346 warrants to purchase common stock at an exercise price of $8.40 per warrant agreed to exchange their warrants for 245,692 warrants to purchase common stock with the same terms and conditions as the Public Warrants. Also, the underwriter of the Company's initial public offering agreed to exchange 71,500 unit warrants (each unit consisting of one share of common stock and one redeemable common stock warrant) for 71,500 warrants to purchase Common Stock on the same terms and conditions as the Public Warrants. Warrants outstanding as of June 30, 1996 total 1,032,192 (exercisable for 1,067,525 shares of Common Stock) at an exercise price of $1.25 per share. NOTE 12. COMMITMENTS AND CONTINGENCIES: The Company leases equipment and office, research, manufacturing/warehouse space under various non-cancelable leases with third parties. The leases range from three to five years and require the Company to pay all insurance, taxes and operating expenses. The Company entered into a 5-year lease agreement and expanded its Malvern, PA facility from 4,725 square feet to 9,240 square feet. Payments under this lease commenced on September 20, 1993, upon substantial completion of improvements to the facility. For the years ended June 30, 1994 and 1995, the Company acquired office, product development, manufacturing and warehouse equipment under non-cancelable capital lease agreements. F-31 INTERNATIONAL CANINE GENETICS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) Future minimum obligations under non-cancelable lease agreements at June 30, 1996 are as follows:
Capital Operating For years ending June 30, Leases Leases - ---------------------------------------- --------- -------- 1997 $ 63,163 $121,201 1998 44,498 119,104 1999 11,497 39,440 -------- -------- Total Minimum Payments 119,158 $279,745 ======== Less amount representing interest 16,424 -------- Present value of net minimum lease payments under capital leases $102,734(1) =======
- ------------------------ (1) Does not include a $38,000 capital lease obligation. Rent expense under operating leases for the years ended June 30, 1994, 1995 and 1996 is $83,504, $115,319 and $159,825 respectively. At June 30, 1995, the Company has a letter of credit outstanding in the amount of $19,800 which guarantees a telephone equipment lease. The contract amount of the letter of credit was for approximately 40% of the fair value of the lease at its inception and decreases annually over the life of the lease. NOTE 13. INCOME TAXES: Effective July 1, 1993, the Company adopted the provisions of Statement of Financial Accounting standards No. 109, "Accounting for Income Taxes" (SFAS 109). There was no cumulative effect of the accounting change and prior periods have not be restated. At June 30, 1995 and 1996, the Company had a deferred tax asset comprised of the following:
1995 1996 ---------- ---------- Net operating loss carryforwards $3,917,000 $4,418,000 Receivables 31,000 19,000 Inventory 4,000 4,000 ---------- ---------- Deferred tax asset $3,952,000 $4,441,000 ========== ==========
The Company has recorded a valuation allowance for the full amount of the deferred tax asset at June 30, 1995 and 1996, since the likelihood of the realization of the tax benefits cannot be established. At June 30, 1996, the Company had net operating loss carryforwards for federal income tax purposes of approximately $11.7 million, which expire in varying amounts through 2011. F-32 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. (a) Section 317 of the California General Corporation Law provides for the indemnification of officers and directors of Synbiotics against expenses, judgments, fines and amounts paid in settlement under certain conditions and subject to certain limitations. (b) Article VIII, Section 4 of the Bylaws of Synbiotics provides that the Company shall have the power to indemnify any person who is or was a director, officer, employee or agent of the Company or any person who is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, subject to certain limitations. The rights to indemnity thereunder continue as to a person who has ceased to be director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of the person. In addition, expenses incurred by a director, officer, employee or agent in defending a civil or criminal action, suit or proceeding by reason of the fact that he or she is or was a director, officer, employee or agent of the Company (or was serving at the Synbiotics' request as a director, officer, employee or agent of another corporation) may be paid by the Company in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Company. (c) Article Seventh of the Synbiotics' Articles of Incorporation provides that liability of the directors of the Company for monetary damages shall be eliminated to the fullest extent permissible under California Law. Article Eighth of the Company's Articles of Incorporation further provides that the Company is authorized to indemnify agents (as defined in Section 317 of the California Law) in excess of the indemnification otherwise permitted by Section 317, subject to the limits set forth in Section 204 of the California Law. (d) Pursuant to authorization provided under the Articles of Incorporation, the Company has entered into indemnification agreements with its directors and officers. Generally, the indemnification agreements attempt to provide the maximum protection permitted by California Law as it may be amended from time to time. Moreover, the indemnification agreements provide for certain additional indemnification. the indemnification agreements provided for the Company to advance to the individual any and all reasonable expenses (including legal fees and expenses) incurred in investigating or defending an action, suit or proceeding. In order to receive an advance of expenses, the individual must undertake to repay such advance upon a determination that he or she is not entitled to indemnification. Synbiotics' Bylaws contain a provision of similar effect relating to advancement of expenses to a director or officer, subject to an undertaking to repay if it is ultimately determined that indemnification is unavailable. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. ------------------------------------------ (a) Exhibit Index ------------- Exhibits marked with an asterisk have not been included with this Form S-4 Registration Statement, but instead have been incorporated by reference to other documents filed by Synbiotics with the Securities and Exchange Commission. Synbiotics will furnish a copy of any one or more of these exhibits to a shareholder who so requests upon receipt of payment for the cost of duplicating and mailing the requested items. II-I
Exhibit Title Method of Filing - --------- ----- ---------------- 2.1* Plan and Agreement of Merger of Texas Incorporated herein by reference to Biotechnology Corporation, TBC Acquisition Exhibit 2.1 to the Registrant's Current Company No. 1 and ImmunoPharmaceutics, Report on Form 8-K, as amended, dated Inc. dated as of June 17, 1994. July 25, 1994. 2.2 Purchase Agreement dated July 23, 1996 by Filed herewith. and among Synbiotics, ICG and S.R. One. 3.1* Articles of Incorporation, as amended. Incorporated by reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-KSB for its fiscal year ended December 31, 1995. 3.2* Bylaws, as amended. Incorporated herein by reference to Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 1995. 5.1 Opinion of Brobeck, Phleger & Harrison Filed herewith. LLP with respect to the Common Stock being registered. 10.1* Lease of Premises by Registrant located at Incorporated herein by reference to 11011 Via Frontera, San Diego, California, Exhibit 10.1 to the Registrant's Annual dated November 28, 1989. Report on Form 10-K for its fiscal year ended March 31, 1991. 10.4*+ 1983 Stock Option Plan. Incorporated herein by reference to the Registrant's Registration Statement on Form S-18, Registration No. 2-83602, dated August 25, 1983. 10.2 Employment Agreement between the Filed herewith. Registrant and Kenneth M. Cohen dated May 7, 1996. 10.3 General Release and Severance Agreement Filed herewith. between the Registrant and Robert L. Widerkehr dated July 31, 1996. 10.4.1*+ First Amendment to 1983 Stock Option Incorporated herein by reference to Plan. Exhibit 10.4.1 to the Registrant's Annual Report on Form 10-K for its fiscal year ended March 31, 1988. 10.5*+ 1984 Stock Option Plan. Incorporated herein by reference to Exhibit 10.5 to the Registrant's Registration Statement on Form S-1, Registration No. 33-5292, dated July 16, 1986. 10.5.1*+ First and Second Amendments to 1984 Stock Incorporated herein by reference to Option Plan. Exhibit 10.5.1 to the Registrant's Annual Report on Form 10-K for its fiscal year ended March 31, 1988.
II-2
Exhibit Title Method of Filing - ------- ----- ---------------- 10.6*+ 1986 Stock Option Plan. Incorporated herein by reference to Exhibit 10.6 to the Registrant's Registration Statement on Form S-1, Registration No. 33-5292, dated July 16, 1986. 10.6.1*+ First Amendment to 1986 Stock Option Incorporated herein by reference to Plan. Exhibit 10.6.1 to the Registrant's Annual Report on form 10-K for its fiscal year ended March 31, 1988. 10.21* Distribution Agreement between Vedco, Inc. Incorporated herein by reference to and the Registrant, dated October 15, 1986. Exhibit 10.21 to the Registrant's Registration Statement on Form S-1, Registration No. 33-5292, dated July 16, 1986. 10.26*+ 1987 Stock Option Plan. Incorporated herein by reference to Exhibit 28 to the Registrant's Registration Statement on Form S-8, Registration No. 33-15712, dated July 9, 1987. 10.26.1*+ First Amendment to 1987 Stock Option Incorporated herein by reference to Plan. Exhibit 10.26.1 to the Registrant's Annual Report on Form 10-K for its fiscal year ended March 31, 1988. 10.33* Lease of Premises (expansion) by the Incorporated herein by reference to Registrant located at 16410 Via Esprillo, San Exhibit 10.33 to the Registrant's Annual Diego, California, dated February 25, 1988. Report on Form 10-K for its fiscal year ended March 31, 1988. 10.33.1* First Amendment to Lease of Premises by Incorporated herein by reference to the Registrant located at 16410 Via Esprillo, Exhibit 10.33.1 to the Registrant's Annual San Diego, California, dated August 9, 1988. Report on Form 10-K for its fiscal year ended March 31, 1989. 10.36* Marketing Agreement between the Incorporated herein by reference to Registrant and Bio-Trends International, Exhibit 10.36 to the Registrant's Annual Inc., dated May 10, 1989. Report on form 10-K for its fiscal year ended March 31, 1989. 10.36.1* Distribution Agreement between the Incorporated herein by reference to Registrant and Bio-Trends International, Exhibit 10.36.1 to the Registrant's Annual Inc., dated February 7, 1990. Report on Form 10-K for its fiscal year ended March 31, 1990. 10.39* Distribution Agreement between the Incorporated herein by reference to Registrant and Bio-Trends International, Exhibit 10.39 to the Registrant's Annual Inc., dated August 1, 1990. Report on Form 10-K for its fiscal year ended March 31, 1991.
II-3
Exhibit Title Method of Filing - ------- ----- ---------------- 10.40* Framework Agreement between Pitman- Incorporated herein by reference to Moore, Inc. and the Registrant, dated June Exhibit 7.01 to the Registrant's Current 26, 1992. Report on Form 8-K dated July 13, 1992, as amended Form 8 on November 4, 1992 and December 10, 1992. 10.41* Agreement between the Registrant and Incorporated herein by reference to Rhone Merieux, dated July 9, 1992. Exhibit 7.01 to the Registrant's current Report on Form 8-K dated July 23, 1992. 10.43*+ 1991 Stock Option Plan, as amended. Incorporated herein by reference to Exhibit 4.1 to the Registrant's Registration Statement on Form S-8 , Registration No. 33-55992, dated December 21, 1992. 10.44* Purchase Agreement between SmithKline Incorporated herein by reference to Beecham Animal Health and the Registrant, Exhibit 7.01 to the Registrant's Current dated December 10, 1992. Report on Form 8-K dated December 30, 1992. 10.46* Agreement Regarding Licensing, Incorporated herein by reference to Development, Marketing and Manufacturing Exhibit 10.46 to the Registrant's Quarterly between the Registrant and Binax, Inc., Report on Form 10-QSB for the quarter dated as of June 30, 1993. ended December 31, 1993. 10.47* Amendment No. One to Agreement Incorporated herein by reference to Regarding Licensing, Development, Exhibit 10.47 to the Registrant's Quarterly Marketing and Manufacturing between the Report on Form 10-QSB for the quarter Registrant and Binax, Inc., dated December ended December 31, 1993. 9, 1993. 10.48* Amendment No. Two to Agreement Incorporated herein by reference to Regarding Licensing, Development, Exhibit 10.48 to the Registrant's Annual Marketing and Manufacturing between the Report on Form 10-KSB for its fiscal year Registrant and Binax, Inc., dated as of July ended December 31, 1995. 27, 1994. 10.50*+ 1995 Stock Option/Stock Issuance Plan, as Incorporated herein by reference to amended. Exhibit 10.50 to the Registrant's Quarterly Report on Form 10-QSB for the quarterly period ended September 30, 1995. 10.51*+ Form of Notice of Grant/Stock Option Incorporated herein by reference to Agreement, as used under the 1995 Stock Exhibit 99.2 to the Registrant's Option/Stock Issuance Plan. Registration Statement on Form S-8, Registration No. 33-61103, dated July 17, 1995.
II-4
Exhibit Title Method of Filing - --------- ----- ---------------- 10.52 Contract Manufacturing Agreement, dated Certain confidential portions of this as of March 31, 1995. exhibit have been omitted by means of blacking out the text (the "Mark"). This exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 24b-2 under the Securities Exchange Act of 1934, as amended. 11.1* Computation of Earnings Per Share. Incorporated herein by reference to Exhibit 11.1 to the Registrant's Annual Report on Form 10-KSB for its fiscal year ended December 31, 1995 and to Exhibit 11.1 to the Registrant's Report on Form 10-QSB for the quarter ended June 30, 1996. 23.1 Consent of Price Waterhouse LLP. Filed herewith. 23.2 Consent of Coopers & Lybrand L.L.P. Filed herewith. 24.1 Power of Attorney. Filed herewith.
* Incorporated by reference. + Management contract or compensatory plan or arrangement. ITEM 22. UNDERTAKINGS. (a) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (b) The undersigned Registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this Registration Statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (c) The Registrant undertakes that every prospectus: (i) that is filed pursuant to paragraph (c) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Act and is used II-5 in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the Registration Statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (d) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This means information contained in documents filed subsequent to the effective date of the Registration Statement through the date of responding to the request. (e) The undersigned Registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-6 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Diego, County of San Diego, State of California, on August 16, 1996. SYNBIOTICS CORPORATION By: Kenneth M. Cohen President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kenneth M. Cohen and Michael K. Green, or either of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement and any registration statement related to this Registration Statement and filed pursuant to Rule 462 under the Securities Act of 1933, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date - ---------------------- ------------------------------ ---------------- /s/ KENNETH M. COHEN Chief Executive Officer August 16, 1996 - ---------------------- (Principal Executive Officer) Kenneth M. Cohen /s/ MICHAEL K. GREEN Vice President-Finance and August 16, 1996 - ---------------------- Chief Financial Officer Michael K. Green (Principal Financial Officer) /s/ KEITH A. BUTLER - ---------------------- Corporate Controller and August 16, 1996 Keith A. Butler Chief Accounting Officer /s/ DONALD E. PHILLIPS Chairman of the Board August 16, 1996 - ---------------------- Donald E. Phillips /s/ PATRICK OWEN BURNS Director August 16, 1996 - ---------------------- Patrick Owen Burns /s/ JAMES C. DECESARE Director August 16, 1996 - ---------------------- James C. DeCesare /s/ M. BLAKE INGLE Director August 16, 1996 - ---------------------- M. Blake Ingle /s/ ROBERT J. KUNZE Director August 16, 1996 - ---------------------- Robert J. Kunze
II-7 EX-2.2 2 PURCHASE AGREEMENT EXHIBIT 2.2 ----------- PURCHASE AGREEMENT by and among Synbiotics Corporation, a California corporation, International Canine Genetics, Inc., a Delaware corporation, and S.R. One, Limited, a Pennsylvania business trust Dated as of July __, 1996 TABLE OF CONTENTS -----------------
Page ----- ARTICLE I. PURCHASE AND SALE OF STOCK............................ 1 Section 1.1 Sale and Issuance of Common Stock................... 1 Section 1.2 Closing............................................. 2 Section 1.3 Restrictions on Resale.............................. 2 ARTICLE II. PURCHASE AND SALE OF ASSETS........................... 2 Section 2.1 Description of Assets to be Acquired................ 2 Section 2.2 Excluded Assets..................................... 4 Section 2.3 Non-Assignment of Certain Assets.................... 4 Section 2.4 Instruments of Transfer............................. 4 ARTICLE III. LIABILITIES OF ICG.................................... 5 Section 3.1 Assumption of Liabilities........................... 5 Section 3.2 Liabilities Not Assumed............................. 5 ARTICLE IV. PURCHASE PRICE FOR ASSETS............................. 6 Section 4.1 Consideration....................................... 6 Section 4.2 Payment of Purchase Price........................... 6 Section 4.3 Allocation of Purchase Price........................ 6 Section 4.4 Registration Statement on Form S-4.................. 6 Section 4.5 Restrictions on Resale.............................. 7 Section 4.6 Asset and Assumed Liabilities Schedules............. 7 ARTICLE V. REPRESENTATIONS AND WARRANTIES OF SBIO.................. 7 Section 5.1 Organization; Good Standing; Power.................. 7 Section 5.2 Authorization....................................... 8 Section 5.3 Compliance With Other Instruments................... 8 Section 5.4 Litigation.......................................... 8 Section 5.5 Valid Issuance of Shares of Common Stock of SBIO.... 8 Section 5.6 Consents............................................ 9 Section 5.7 Broker Fees......................................... 9 Section 5.8 SEC Filings......................................... 9 Section 5.9 Proxy Statement..................................... 10 Section 5.10 Capitalization of SBIO............................. 11 Section 5.11 Complete Disclosure................................ 11 Section 5.12 Absence of Material Adverse Change................. 11 Section 5.13 Form S-4........................................... 11 Section 5.14 No Reliance on Forecasts........................... 11
(i) ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF ICG......................... 12 Section 6.1 Organization; Good Standing; Power......................... 12 Section 6.2 Authorization.............................................. 12 Section 6.3 SEC Filings; Financial Statements.......................... 13 Section 6.4 Proxy Statement............................................ 13 Section 6.5 Absence of Certain Changes and Events...................... 14 Section 6.6 Form S-4................................................... 15 Section 6.7 Conduct of Business........................................ 15 Section 6.8 Undisclosed Liabilities.................................... 15 Section 6.9 Inventory.................................................. 16 Section 6.10 Accounts and Notes Receivable............................. 16 Section 6.11 Properties................................................ 16 Section 6.12 Taxes..................................................... 17 Section 6.13 Compliance with Laws...................................... 18 Section 6.14 Consents.................................................. 18 Section 6.15 Products.................................................. 18 Section 6.16 Proprietary Rights........................................ 19 Section 6.17 Restrictive Documents or Orders........................... 21 Section 6.18 Contracts and Commitments................................. 21 Section 6.19 Assets.................................................... 21 Section 6.20 Insurance................................................. 22 Section 6.21 Product Warranties and Product Liability.................. 22 Section 6.22 Litigation................................................ 22 Section 6.23 No Conflict or Default.................................... 22 Section 6.24 Labor Relations........................................... 23 Section 6.25 Employee Benefit Plans.................................... 23 Section 6.26 Brokers' and Finders' Fees/Contractual Limitations........ 24 Section 6.27 Interested Party Relationships............................ 24 Section 6.28 Environmental Matters..................................... 24 Section 6.29 Certain Payments.......................................... 25 Section 6.30 Books and Records......................................... 25 Section 6.31 Customers and Suppliers................................... 25 Section 6.32 Complete Disclosure....................................... 26 Section 6.33 No Reliance on Forecasts.................................. 26 ARTICLE VII. REPRESENTATIONS AND WARRANTIES OF S.R. ONE................... 26 Section 7.1 Authorization............................................. 26 Section 7.2 Consents.................................................. 26 Section 7.3 Purchase Entirely for Own Account......................... 27 Section 7.4 Disclosure of Information................................. 27 Section 7.5 Investment Experience..................................... 27 Section 7.6 Accredited Investor....................................... 27 Section 7.7 Restricted Securities..................................... 27 Section 7.8 Broker Fees................................................ 27 Section 7.9 No Contrary Knowledge...................................... 28 Section 7.10 No Reliance on Forecasts.................................. 28
ARTICLE VIII. CORPORATE SECURITIES LAWS .................................. 28 Section 8.1 California Commissioner of Corporations.................... 28 ARTICLE IX. COVENANTS..................................................... 28 Section 9.1 Standstill Provision....................................... 28 Section 9.2 Maintenance of Business.................................... 29 Section 9.3 Access to ICG Information.................................. 29 Section 9.4 Access to SBIO Information................................. 30 Section 9.5 Meetings of Stockholders................................... 30 Section 9.6 Breach of Representations and Warranties................... 31 Section 9.7 Best Efforts............................................... 31 Section 9.8 Tax Returns................................................ 31 Section 9.9 Employment Offers.......................................... 31 Section 9.10 COBRA..................................................... 32 Section 9.11 Other Discussions......................................... 32 Section 9.12 Mail and Receivables Payments............................. 32 Section 9.13 Notification of Noncompliance............................. 32 Section 9.14 Further Action............................................ 32 Section 9.15 Covenants Against Disclosure.............................. 33 Section 9.16 Bulk Transfer Law......................................... 33 Section 9.17 Registered Options........................................ 33 Section 9.18 Change and Use of Name.................................... 33 Section 9.19 Cooperation by ICG........................................ 33 Section 9.20 Liquidation and Distribution of Shares.................... 33 Section 9.21 Resale of the Shares by ICG............................... 34 ARTICLE X. CLOSINGS....................................................... 34 Section 10.1 Time of Closing........................................... 34 Section 10.2 Closing of the Sale and Issuance of Common Stock to S.R. One.................................. 34 Section 10.3 Closing of the Sale of Assets............................. 34 ARTICLE XI. CONDITIONS PRECEDENT TO OBLIGATIONS (S.R. ONE CLOSING)........ 35 Section 11.1 Conditions to Obligations of S.R. One..................... 35 (a) Representations and Warranties Correct.......................... 35 (b) Covenants....................................................... 36 (c) Opinion of SBIO's Counsel....................................... 36 (d) Substantive Deliverables........................................ 36 Section 11.2 Conditions to Obligations of SBIO......................... 36 (a) Representations and Warranties Correct.......................... 36 (b) Covenants....................................................... 36 (c) No Law Prohibiting or Restricting Sale.......................... 36 (d) Substantive Deliverables........................................ 36
ARTICLE XII. CONDITIONS PRECEDENT TO OBLIGATIONS (ICG CLOSING)...................................................... 36 Section 12.1 Conditions to Obligations of SBIO.............................. 36 (a) Representations and Warranties................................ 36 (b) Performance of Agreement...................................... 37 (c) Absence of Governmental or Other Objection.................... 37 (d) Certificate of President...................................... 37 (e) Evidence of Title............................................. 37 (f) Board and Stockholder Approval................................ 37 (g) Legal Opinion................................................. 37 (h) SEC Registration.............................................. 37 (i) Licenses...................................................... 37 (j) Due Diligence Investigation................................... 37 (k) Approval of Documentation..................................... 37 Section 12.2 Conditions to Obligations of ICG............................... 38 (a) Representations and Warranties................................ 38 (b) Performance of Agreement...................................... 38 (c) Absence of Governmental or Other Objection.................... 38 (e) Legal Opinion................................................. 38 (g) Nasdaq National Market Listing................................ 38 (h) SEC Registration.............................................. 38 (i) Appointment of Director....................................... 38 (j) Substantive Deliverables...................................... 39 ARTICLE XIII. ICG'S HOLD-HARMLESS............................................ 39 Section 13.1 Excluded Liabilities........................................... 39 ARTICLE XIV. INDEMNIFICATION................................................. 39 Section 14.1 Survival of Representations, Warranties, Covenants and Agreements......................................................... 39 Section 14.2 Indemnification.............................................. 40 Section 14.3 Procedure for Indemnification with Respect to Third-Party Claims............................................................. 41 Section 14.4 Procedure For Indemnification with Respect to Non-Third Party Claims....................................................... 42 Section 14.5 Limitations on Indemnification Amount........................ 43 ARTICLE XV. TERMINATION AND ABANDONMENT..................................... 43 Section 15.1 Termination.................................................. 43 Section 15.2 Procedure and Consequences of Termination.................... 44 ARTICLE XVI. MISCELLANEOUS PROVISIONS........................................ 45 Section 16.1 Notice....................................................... 45 Section 16.2 Entire Agreement............................................. 45 Section 16.3 Binding Effect; Assignment................................... 45 Section 16.4 Expenses of Transaction; Taxes............................... 45
(iv) Section 16.5 Waiver; Consent.............................................. 46 Section 16.6 Third-Party Beneficiaries.................................... 46 Section 16.7 Counterparts................................................. 46 Section 16.8 Severability................................................. 46 Section 16.9 Governing Law................................................ 46 Section 16.10 Attorneys' Fees............................................. 46 Section 16.11 Cooperation and Records Retention........................... 47
EXHIBITS 10.2 Investor's Rights Agreement 10.3(a)(i) Bill of Sale for the Assets 10.3(a)(v) Affidavit of Foreign Status [11.3(B)(II) PENNSYLVANIA EXEMPTION CERTIFICATE] 11.1 Opinion of Brobeck, Phleger & Harrison LLP 12.1 Opinion of McCausland, Keen & Buckman 12.2 Opinion of Brobeck, Phleger & Harrison LLP 14.4 Special Arbitration Procedures SCHEDULES 2.1(a) List of Equipment 2.1(b) List of Inventory 2.1(c) List of Contracts 2.1(d) List of Real Property 2.1(e) List of Proprietary Rights 2.1(k) List of Leasehold Interests 2.1(l) List of Insurance Policies 2.2 List of Excluded Assets 3.1(a) List of Assumed Liabilities 3.1(c) List of Outstanding Options and Warrants (v) CONFIDENTIAL DRAFT DATED JULY __, 1996 PURCHASE AGREEMENT ------------------ THIS AGREEMENT is dated as of July __, 1996 by and among Synbiotics Corporation, a California corporation ("SBIO"), S.R. One, Limited, a Pennsylvania business trust ("S.R. One"), and International Canine Genetics, Inc., a Delaware corporation ("ICG"). WHEREAS, S.R. One desires to acquire from SBIO and SBIO desires to sell to S.R. One, Common Stock of SBIO; WHEREAS, ICG is engaged in, among other things, the business of manufacturing and marketing canine reproduction diagnostic products and services, a diagnostic test for canine hip dysplasia, nutritional supplements and a line of coat and skin care products to breeders and owners of purebred dogs and their veterinarians (the "Business"); WHEREAS, ICG and SBIO have executed a letter of intent dated May 14, 1996 regarding the acquisition by SBIO of the assets of the Business and now desire to enter into a definitive agreement; WHEREAS, SBIO desires to acquire from ICG and ICG desires to transfer to SBIO, the assets, properties, and rights of ICG related to or associated with, directly or indirectly, the Business, except as provided in Section 2.2 below, upon the terms and conditions of this Agreement; and WHEREAS, SBIO and ICG intend such sale of assets not to be a reorganization within the meaning of Section 368(a)(1)(C) of the Internal Revenue Code; NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, the parties hereby agree as follows: ARTICLE I. PURCHASE AND SALE OF STOCK -------------------------- Section 1.1 Sale and Issuance of Common Stock. Upon the terms and subject ----------- --------------------------------- to the conditions set forth in this Agreement, S.R. One agrees to purchase at the S.R. One Closing, which shall occur one hour before the Time of Closing (as defined in Section 10.1) and SBIO agrees to sell and issue to S.R. One at the S.R. One Closing, the number of shares of SBIO Common Stock (not registered under the Securities Act of 1933, as amended (the "Securities Act")) equal to $1,000,000 divided by the Average Closing Sales Price (as defined in Section 4.2) for an aggregate purchase price of $1,000,000. Section 1.2 Closing. At the S.R. One Closing, SBIO shall deliver to S.R. ----------- ------- One a certificate representing the Common Stock which S.R. One is purchasing (the "Unregistered Securities") against delivery to SBIO by S.R. One of a cashier's check in the amount of $1,000,000 payable to SBIO's order. Section 1.3 Restrictions on Resale. The Unregistered Securities will be ----------- ---------------------- subject to the following restrictions against transfer by S.R. One: (a) any restrictions imposed by applicable federal and state securities laws; and (b) the volume limitations on resale as set forth in now-current Rule 144 of the Securities Act until the second anniversary of the S.R. One Closing. Certificates representing the Unregistered Securities will bear legends describing the applicable restrictions on transferability referred to in this Section 1.3, as follows: "These securities have not been registered under the Securities Act of 1933. They may not be sold, offered for sale, pledged or hypothecated in the absence of a registration statement in effect with respect to the securities under such Act or an opinion of counsel (or other evidence) satisfactory to Synbiotics Corporation that such registration is not required or unless sold pursuant to Rule 144 of such Act." "The securities represented by this certificate are subject to the terms and conditions of a Purchase Agreement, dated as of July __, 1996, which includes certain restrictions on the sale of the securities. Copies of the agreement may be obtained upon written request to the Secretary of Synbiotics Corporation." ARTICLE II. PURCHASE AND SALE OF ASSETS --------------------------- Section 2.1 Description of Assets to be Acquired. Upon the terms and ----------- ------------------------------------ subject to the conditions set forth in this Agreement, ICG agrees to, at the Time of Closing, convey, sell, transfer, assign, and deliver to SBIO, and SBIO shall purchase from ICG, all right, title, and interest of ICG at the Time of Closing in and to the assets, properties, and rights of the Business of every kind, nature, and description, personal and real, tangible and intangible, known or unknown, wherever located, including, without limiting the generality of the foregoing (but excluding the "Excluded Assets," as such term is defined in Section 2.2 below): (a) All interests in machinery, equipment, instruments, computer hardware and software, tooling, furniture, fixtures, motor vehicles, supplies, repair and maintenance parts, 2 and other fixed assets, together with manufacturer or vendor warranties associated therewith, including, without limitation, those interests listed on Schedule 2.1(a) hereto; (b) All inventories of raw materials (together with any manufacturer or vendor warranties associated therewith), work-in-process, finished goods and supplies, packaging materials and business supplies, including, without limitation, those listed on Schedule 2.1(b) hereto (collectively, the "Inventory"); (c) All claims and rights under all agreements, contracts, licenses, leases, franchises, instruments, documents, purchase and sale orders and other executory commitments, and all permits, consents, and certificates of any regulatory, administrative or other governmental agency or body, including, without limitation, those listed on Schedule 2.1(c) hereto (collectively, the "Contracts"); (d) All interests in the real property listed on Schedule 2.1(d) hereto, and all buildings, facilities, and other improvements located thereon (including construction in progress), together with all related rights, easements and uses which benefit or burden any such property; (e) All right, title and interest to trademarks, trademark rights, service marks, service mark rights, copyrights, trade names, trade name rights, fictitious business names, works of authorship, inventions, industrial models, industrial designs, utility models and certificates of invention, designs, emblems and logos, data, ideas, protocols, plans, trade secrets, formulae, processes, know-how, manufacturing know-how, technical information, patents, patent applications, mask work registrations, inventions, franchises, franchise rights, customer and supplier lists together with the goodwill associated therewith and other proprietary rights (collectively, the "Proprietary Rights"), including without limitation those listed on Schedule 2.1(e) hereto; (f) All accounts receivable and notes receivable of ICG as of the Time of Closing (collectively, the "Accounts"); (g) All original books and records or duplicates thereof of all account, general ledgers, sales invoices, purchase orders, accounts payable and payroll records, tax returns and supporting schedules, drawings, files, papers, electronic storage media, laboratory notebooks, and all other records (the "Records"); (h) All rights under express or implied warranties from suppliers of ICG; (i) All of ICG's causes of action, judgments, and claims or demands of whatever kind or description arising out of or relating to the Business, including deferred income taxes, and tax refunds or credits; (j) All goodwill of the Business; (k) All leasehold interests of ICG listed on Schedule 2.1(k) hereto; 3 (l) All insurance policies of ICG other than the officers and directors liability insurance policy of ICG, together with all proceeds thereof and rights thereunder, including those policies listed on Schedule 2.1(l) hereto; and (m) The current assets ICG as of the Time of Closing in the categories that appear on the most recent balance sheet of ICG in form and substance substantively similar to the balance sheet of ICG set forth in the most recent Annual Report on Form 10-K, including, without limitation, all cash, lease and rent deposits, prepaid expenses, prepaid taxes, bank accounts and all other current assets of ICG. The assets, properties, and rights to be conveyed, sold, transferred, assigned, and delivered to SBIO pursuant to this Section 2.1 are sometimes hereinafter collectively referred to as the "Assets." Section 2.2 Excluded Assets. Notwithstanding the provisions of Section 2.1 ----------- --------------- hereof, the assets to be transferred to SBIO pursuant to this Agreement shall not include those assets specifically listed on Schedule 2.2 (collectively, the "Excluded Assets"). Section 2.3 Non-Assignment of Certain Assets. Notwithstanding anything to ----------- -------------------------------- the contrary in this Agreement, to the extent that the assignment hereunder of any of the Assets shall require the consent of any other party (or in the event that any of the same shall be nonassignable), neither this Agreement nor any action taken pursuant to its provisions shall constitute an assignment or an agreement to assign if such assignment or attempted assignment would constitute a breach thereof or result in the loss or diminution thereof; provided, however, that in each such case, ICG shall use its best efforts to obtain the consent of such other party to an assignment to SBIO. If such consent is not obtained by the Time of Closing, ICG shall cooperate with SBIO in any arrangement designed for SBIO to perform ICG's obligations with respect to such Asset after the Time of Closing and for SBIO to receive the benefits under any such Asset after the Time of Closing, which arrangements may include enforcement, for the account and benefit of SBIO, of any and all rights of ICG against any other person arising out of the breach or cancellation by such other person or otherwise, all of such actions of ICG to be at the direction and expense of ICG. ICG shall reimburse or pay SBIO for all actual costs and expenses, including amounts owed as a result of increased obligations under such instruments, resulting from an inability of SBIO to receive the benefits of such assignment. Section 2.4 Instruments of Transfer. The sale, assignment, transfer, ----------- ----------------------- conveyance and delivery of the Assets shall be made by such bills of sale and other instruments of assignment, transfer and conveyance as SBIO shall reasonably request. 4 ARTICLE III. LIABILITIES OF ICG ------------------ Section 3.1 Assumption of Liabilities. ----------- ------------------------- (a) SBIO hereby agrees to assume, satisfy or perform those liabilities and obligations of ICG specifically identified in Schedule 3.1, and those written contractual commitments arising after the Time of Closing (but not based on events prior to the Time of Closing) as specifically set forth in the written contracts specifically listed in Schedule 2.1(c) attached hereto and also specifically marked therein with an asterisk (collectively, the "Assumed Liabilities"). (b) The parties agree that Schedule 3.1 shall be prepared by SBIO and ICG by the Time of Closing and shall only contain a list of liabilities not to exceed the sum of Time of Closing cash, accounts receivable and inventory plus $____________ less Time of Closing accounts payable (excluding all accounting and legal fees, all costs related to the transactions contemplated by this Agreement, insurance and payroll related items and accrued royalties where the related receivable has been collected). The liabilities actually to be included on Schedule 3.1 shall include first all accounts payable not within the parenthetical clause in the preceding sentence, and only thereafter (and only to the extent the overall assumption limit amount is not exceeded) accounts payable which are within the parenthetical clause in the preceding sentence. (c) SBIO shall, effective as of the Time of Closing, assume those unexpired and unexercised options to purchase shares of ICG under ICG's 1992 Stock Option Plan listed on Schedule 3.1(c) (the "Options"). SBIO shall, effective as of the Time of Closing, assume the outstanding warrants to purchase Common Stock of ICG listed on Schedule 3.1(c) (the "Warrants"). The effect of such assumption shall be that the Options and Warrants shall be exercisable for SBIO Common Stock (with the number of shares and the exercise price per share adjusted for the deemed Time-of-Closing acquisition ratio), if the holder delivers the cash exercise price and other exercise deliverables to SBIO before expiration or termination of the Option or Warrant. SBIO acknowledges that each holder of the Options and the Warrants shall be a third party beneficiary of this Agreement in connection with the assumption of such Options and Warrants by SBIO. Section 3.2 Liabilities Not Assumed. Other than the Assumed Liabilities, ----------- ----------------------- SBIO shall not assume, nor shall SBIO or any affiliate, or any officer, director, employee, stockholder or agent of SBIO, be deemed to have assumed or guaranteed, any liabilities, obligations, litigation, disputes, debts, payables, counterclaims, rights of set-off or return, or commitments or claims, whether such liabilities are contingent or otherwise, or direct or indirect, of ICG in existence on or prior to or after the Time of Closing or otherwise 5 or based on any events, facts or circumstances in existence prior to or in connection with or after the sale of the Assets or in connection with or arising from any activities of ICG or any services provided by or goods or assets sold by or products delivered to ICG (collectively, the "Excluded Liabilities"), except for obligations of S.R. One expressly created in this Agreement. ARTICLE IV. PURCHASE PRICE FOR ASSETS ------------------------- Section 4.1 Consideration. Upon the terms and subject to the conditions ----------- ------------- contained in this Agreement, in consideration for the Assets and in full payment therefor, SBIO will pay the purchase price set forth in Section 4.2 to ICG. Section 4.2 Payment of Purchase Price. The purchase price ("Purchase ----------- ------------------------- Price") to be paid by SBIO to ICG shall consist of shares of common stock of SBIO (the "Common Stock") to be issued directly from SBIO to ICG (collectively, the "Shares"), the number of which shall be 1,400,000, provided that the average closing sales price of the Common Stock of SBIO as quoted on the Nasdaq National Market for the five (5) trading days ending one (1) business day prior to the date of the Time of Closing (the "Average Closing Sales Price") is not greater than $3.50 per share or less than $2.50 per share. If the Average Closing Sales Price is greater than $3.50 per share, ICG shall receive a number of shares of SBIO Common Stock equal to 1,400,000 multiplied by a fraction, the numerator of which shall be $3.50 and the denominator of which shall be the Average Closing Sales Price. If the Average Closing Sales Price is less than $2.50 per share, ICG shall receive a number of shares of SBIO Common Stock equal to 1,400,000 multiplied by a fraction, the numerator of which shall be $2.50 and the denominator of which shall be the Average Closing Sales Price. In addition, as part of the Purchase Price, SBIO shall assume the Options and the Warrants as set forth in Section 3.1(c). Section 4.3 Allocation of Purchase Price. The Purchase Price shall be ----------- ---------------------------- allocated in the manner to be agreed upon in good faith by the parties within thirty (30) days after the Time of Closing, and to prepare all financial reports, and SBIO and ICG agree to file all income and other tax returns and information reports, in a manner consistent with such allocation. Section 4.4 Registration Statement on Form S-4. The Shares to be issued ----------- ---------------------------------- hereunder and the shares of Common Stock of SBIO to be issued upon exercise of the Warrants (the "Warrant Shares") shall be issued pursuant to registration of the Shares and the Warrant Shares under the Securities Act pursuant to a Registration Statement on Form S-4 (as amended, the "Form S-4") with the Securities and Exchange Commission (the "SEC") (the "Registered Offering"). Section 4.5 Restrictions on Resale. The Shares and the Warrant Shares will ----------- ---------------------- be subject to the following restrictions against transfer by ICG and any persons receiving them upon liquidation of ICG: 6 (a) any restrictions imposed by applicable federal and state securities laws; and (b) with respect to the Shares to be distributed to each and any forty percent or greater stockholder of ICG, the volume limitations on resale as set forth in the now-current Rule 144 and Rule 145 of the Securities Act until the second anniversary of the Time of Closing. Certificates representing the Shares and the Warrant Shares will, while beneficially owned by ICG or persons who at the Time of Closing were affiliates of ICG, bear legends describing the applicable restrictions on transferability referred to in this Section 4.5, including the following legend: "The securities represented by this certificate are subject to the terms and conditions of a Purchase Agreement, dated as of July __, 1996, which includes certain restrictions on the sale of the securities. Copies of the agreement may be obtained upon written request to the Secretary of Synbiotics Corporation." Section 4.6 Asset and Assumed Liabilities Schedules. Except as set forth in ----------- --------------------------------------- this Section 4.6, all schedules required by the terms of this Agreement shall be provided to SBIO, in form and substance satisfactory to SBIO, on each of the date of this Agreement and the Time of Closing. Schedule 2.2 shall be provided to SBIO on the date of this Agreement and the parties agree that ICG shall not be entitled to exclude any additional assets from sale to SBIO or increase the value of any Excluded Assets set forth on such Schedule after the date of this Agreement, without SBIO's written consent. Except as set forth on Schedule 2.2, all such schedules shall accurately reflect the value of those assets and liabilities as of such dates. ARTICLE V. REPRESENTATIONS AND WARRANTIES OF SBIO -------------------------------------- Except as set forth in identical letters specifically referring to this Article V dated as of the date of this Agreement (the "Synbiotics Disclosure Letter") delivered by Synbiotics to ICG and S.R. One, which disclosures shall be deemed to modify the representations and warranties hereunder, SBIO hereby represents to ICG and S.R. One that: Section 5.1 Organization; Good Standing; Power. SBIO is a corporation duly ----------- ---------------------------------- organized, validly existing, and in good standing under the laws of the State of California and has the corporate power and authority to own, lease and operate its properties and to carry on its business as the same is now being conducted. SBIO is qualified as a foreign corporation and is in good standing in such other jurisdictions in which the conduct of its business or its ownership or leasing of its property requires such qualification. SBIO does not own, directly or indirectly, any equity or other ownership interest in or control any corporation, partnership, joint venture or other entity. 7 Section 5.2 Authorization. SBIO has full corporate power and authority to ----------- ------------- enter into this Agreement, to perform its obligations hereunder, and to consummate the transactions contemplated hereby, including the execution and delivery of this Agreement and other documents delivered in accordance with Section 10.2(a) and Section 10.3(b) hereunder. SBIO has taken all necessary and appropriate corporate action with respect to the execution and delivery of this Agreement, and this Agreement constitutes a valid and binding obligation of SBIO, enforceable in accordance with its terms. No other corporate proceedings on the part of SBIO are necessary to authorize this Agreement or to consummate the transactions contemplated hereby (except that, with respect to the sale of Assets, the approval and adoption of this Agreement by the holders of a majority of the outstanding shares of SBIO's capital stock may be required, depending on the number of Shares to be issued). This Agreement constitutes a valid and binding obligation of SBIO, enforceable in accordance with its terms. Section 5.3 Compliance With Other Instruments. The execution and delivery ----------- --------------------------------- of this Agreement, the consummation of the transactions contemplated hereby and the compliance with the terms hereof by it will not violate any statute, regulation, or ordinance of any governmental authority, or conflict with or result in the breach of any term, condition, or provision of its Articles of Incorporation or Bylaws, as presently in effect, or of any agreement, deed, contract, mortgage, indenture, writ, order, decree, legal obligation, or instrument to which it is a party, or constitute a default (or an event which, with the lapse of time or the giving of notice, or both, would constitute a default) thereunder. Section 5.4 Litigation. There is no claim, investigation, litigation, ----------- ---------- action, suit or proceeding, administrative or judicial, pending or, to SBIO's knowledge, threatened against it, or any of its officers or directors, at law or in equity, before any federal, state, local or foreign court, or regulatory agency, or other governmental authority, including, without limitation, any unfair labor practice or grievance proceedings or otherwise. SBIO has not received any complaints from any of its customers or suppliers within the last twelve months, which will, individually or in the aggregate, have any non- trivial adverse effect on the business, prospects, operations, employee relations, rights or condition of SBIO. Section 5.5 Valid Issuance of Shares of Common Stock of SBIO. The ----------- ------------------------------------------------ Unregistered Securities and the Shares of SBIO Common Stock, when issued, sold and delivered to S.R. One and ICG, respectively, in accordance with the terms hereof for the consideration described herein, will be duly authorized and validly issued, fully paid and nonassessable and will be issued in compliance with all applicable federal and state securities laws. The assumption by SBIO of the Warrants pursuant to Section 3.1(c) of this Agreement will be duly authorized and the Warrant Shares that will be issuable upon exercise of the Warrants, pursuant to the adjusted terms of such Warrants, will be duly authorized and validly issued, fully paid and nonassessable, and the Warrant Shares will be issued in compliance with all applicable federal and state securities laws. The assumption by SBIO of the Options pursuant to Section 3.1(c) of this Agreement will be duly authorized and the shares that will be issuable upon exercise of such options, pursuant to the adjusted terms of such Options, will be duly authorized and validly issued, fully paid and nonassessable and will be issued in compliance with all applicable federal and state securities laws. A sufficient number of 8 shares have been reserved to provide for the issuance of the shares issuable upon exercise of the Warrants and the Options to be issued upon the assumption of the Warrants and the Options. Section 5.6 Consents. The execution and delivery of this Agreement by SBIO ----------- -------- do not, and the performance of this Agreement by SBIO shall not, require any consent, approval, authorization or permit of, or filing with or notification to, any governmental or regulatory authority, domestic or foreign, or any other third party, including licensors and lenders, except for applicable requirements, if any, of the Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and state securities laws ("Blue Sky Laws"). Section 5.7 Broker Fees. It is not obligated to pay any fees or expenses of ----------- ----------- any broker or finder in connection with the origin, negotiation or execution of this Agreement or in connection with any of the transactions contemplated hereby. SBIO shall indemnify and hold harmless the other parties from and against any and all claims, liabilities, or obligations with respect to brokerage or finders' fees or commissions or consulting fees in connection with the transactions contemplated by this Agreement, asserted by any person on the basis of any statement or representation alleged to have been made by such indemnifying party. Neither SBIO, nor any officer, director, employee, agent or representative of SBIO (collectively "SBIO's Representatives") are or have been subject to any agreement, letter of intent, or understanding of any kind which prohibits, limits, or restricts SBIO or SBIO's Representatives from negotiating, entering into and consummating this Agreement and the transactions contemplated hereby. Section 5.8 SEC Filings. ----------- ----------- (a) SBIO has filed all forms, reports and documents required to be filed with the SEC since its initial public offering and has provided to S.R. One and to ICG (i) its Annual Report on Form 10-KSB for the fiscal year ended December 31, 1995, (ii) its Quarterly Report on Form 10-QSB for the quarter ended March 31, 1996, and (iii) all proxy statements relating to SBIO's meetings of shareholders (whether annual or special) held in the three years prior to the date of this Agreement, (iv) all other reports or registration statements filed by SBIO with the SEC in the three years prior to the date of this Agreement, and (v) all amendments and supplements and restatements to all such reports and registration statements filed by SBIO with the SEC in the three years prior to the date of this Agreement, (collectively, the "SBIO SEC Reports"). The SBIO SEC Reports (i) were prepared in accordance with the requirements of the Exchange Act, and (ii) did not at the time they were filed contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (b) Each of the financial statements (including, in each case, any related notes thereto) contained in SBIO's SEC Reports was prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods involved and each fairly presented the financial position of SBIO as at the respective dates thereof and the results of its operations and cash flows for the periods indicated, except that the 9 unaudited interim financial statements were or are subject to normal and recurring year-end adjustments which were not or are not expected to be material in amount. SBIO's revenue recognition policies with respect to financial statements contained in SBIO's SEC Reports have been made in accordance with generally accepted accounting principles. SBIO maintains a standard system of accounting in accordance with generally accepted accounting principles. All of SBIO's general ledgers, books and records are located at SBIO's principal place of business. To SBIO's knowledge, SBIO's financial reserves are adequate to cover claims already incurred. (c) SBIO has heretofore furnished to S.R. One and ICG a complete and correct copy of any amendments, supplements or modifications and restatements which have not yet been filed with the SEC but which are required to be filed by SBIO with the SEC pursuant to the Securities Act or the Exchange Act. Section 5.9 Proxy Statement. The information supplied by SBIO in writing ----------- --------------- for inclusion in the combined proxy statement to be sent to each of the stockholders of ICG and SBIO in connection with the meeting of ICG's stockholders (the "ICG Stockholders Meeting") and the meeting of the SBIO's shareholders (the "SBIO Shareholders Meeting") to consider and approve the sale of the Assets (such proxy statements as amended or supplemented is referred to herein as the "Proxy Statement"), shall not, on the date the Proxy Statement is first mailed to shareholders, at the time of the SBIO Shareholders Meeting, and at the Time of Closing, contain any statement which, at such time and in light of the circumstances under which it shall be made, is false or misleading with respect to any material fact, or shall omit to state any material fact necessary in order to make the statements made therein not false or misleading, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for the SBIO Shareholders Meeting which has become false or misleading. If at any time prior to the Time of Closing, any event relating to SBIO or any of its affiliates, officers or directors is discovered by SBIO which should be set forth in a supplement to the Proxy Statement, SBIO shall promptly inform ICG in writing. The Proxy Statement shall comply in all material respects as to form and substance with the requirements of the Securities Act and Exchange Act and the rules and regulations thereunder. It is understood that SBIO's shareholders will not in fact vote on the acquisition of the Assets unless such vote is legally required. Section 5.10 Capitalization of SBIO. The authorized capital of SBIO ------------ ---------------------- consists of 24,800,000 shares of Common Stock, of which ______________ shares are issued and outstanding, and 200,000 shares of Series B Common Stock, none of which are outstanding. Options to purchase ______________ shares of Common Stock are outstanding. Except as set forth herein, SBIO has not reserved any shares of capital stock for issuance and there are no outstanding options, restricted stock awards, warrants, calls, commitments or rights of any character to purchase or otherwise to acquire from SBIO shares of capital stock of any class, and there are no outstanding securities of SBIO that are convertible into shares of capital stock of SBIO of any class and no options, warrants or rights to purchase from SBIO any of such convertible securities. 10 Section 5.11 Complete Disclosure. The copies of all instruments, ------------ ------------------- agreements, other documents and written information delivered by SBIO to ICG or its counsel are and will be complete and correct in all material respects as of the date of delivery thereof. No representation or warranty made by SBIO in this Agreement, and no exhibit, schedule, statement, certificate or other writing furnished by SBIO to ICG pursuant to this Agreement or in connection with the transactions contemplated hereby, contains or will contain any untrue statement of material fact or omits or will omit to state a material fact necessary to make the statements contained herein or therein not misleading. There is no presently existing event, fact or condition that adversely affects SBIO's financial condition or prospects, or that could reasonably be expected to do so, which has not been set forth in this Agreement or the exhibits hereto or otherwise disclosed by SBIO to ICG in writing at the Time of Closing. Section 5.12 Absence of Material Adverse Change. Since March 31, 1996, ------------ ---------------------------------- there has been no event, circumstance or change which would constitute a material adverse change in the business of SBIO, including, without limitation, the termination or material reduction in the amount of business between SBIO and any of its three largest suppliers and three largest customers, where such termination or reduction would have a material adverse effect on SBIO. Section 5.13 Form S-4. The information supplied by SBIO for inclusion in ------------ -------- the Form S-4 to be filed with the SEC in connection with the Registered Offering shall not, on the date the Form S-4 is filed with the SEC and at the Time of Closing, contain any statement which, at such time and in light of the circumstances under which it shall be made, is false or misleading with respect to any material fact, or shall omit to state any material fact necessary in order to make the statements made therein not false or misleading. If at any time prior to the Time of Closing, any event relating to SBIO or any of its affiliates, officers or directors is discovered by SBIO which should be set forth in an amendment to the Form S-4, SBIO shall promptly inform ICG in writing. The Form S-4 shall comply in all material respects as to form and substance with the requirements of the Securities Act and the rules and regulations thereunder. Section 5.14 No Reliance on Forecasts. In the negotiation and consideration ------------ ------------------------ of the transactions contemplated by this Agreement, SBIO and its Board of Directors have not relied upon any information or documents concerning ICG and its business or financial results except: (i) information and documents that are publicly available, (ii) representations and warranties made by ICG in this Agreement and (iii) disclosure of interim financial results made pursuant to this Agreement. In the course of negotiations, SBIO and ICG exchanged information regarding hypothetical situations, based on various assumptions, of the results of operations of the combined companies and possible market prices for SBIO's common stock. SBIO does not make any representation or warranty regarding any such hypothetical situations provided by it, including those that may contain forecasts or projections of its future operating results, and SBIO disclaims reliance on any such hypothetical situations provided by ICG or third parties. 11 ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF ICG ------------------------------------- Except as set forth in identical letters specifically referring to this Article VI dated as of the date of this Agreement (the "ICG Disclosure Letter") delivered by ICG to SBIO and Brobeck, Phleger & Harrison LLP, which disclosures shall be deemed to modify the representations and warranties hereunder, ICG hereby represents and warrants to SBIO that: Section 6.1 Organization; Good Standing; Power. ICG is a corporation duly ----------- ---------------------------------- organized, validly existing and in good standing under the laws of the State of Delaware, and has the corporate power and authority to own, lease and operate its properties and to carry on its business as the same is now being conducted. ICG is qualified as a foreign corpor ation and is in good standing in such other jurisdictions in which the conduct of its business or its ownership or leasing of its property requires such qualification. ICG does not own, directly or indirectly, any equity or other ownership interest in or control any corporation, partnership, joint venture or other entity. Section 6.2 Authorization. ICG has full power and authority to enter into ----------- ------------- this Agreement, to perform its obligations hereunder, and to consummate the transactions contemplated hereby, including, without limitation, the execution and delivery of this Agreement, general conveyances, bills of sale, assignments, and other documents and instruments evidencing the conveyance of the Assets or delivered in accordance with Section 10.3(a) hereunder (the "ICG Closing Documents"). ICG has taken all necessary and appropriate corporate action with respect to the execution and delivery of this Agreement and the ICG Closing Documents. No other corporate proceedings on the part of ICG are necessary to authorize this Agreement or to consummate the transactions contemplated hereby (other than, with respect to the sale of Assets, the approval and adoption of this Agreement by the holders of a majority of the outstanding shares of ICG's capital stock in accordance with Delaware law and ICG's charter documents). This Agreement constitutes a valid and binding obligation of ICG, enforceable in accordance with its terms. Section 6.3 SEC Filings; Financial Statements. ----------- --------------------------------- (a) ICG has filed all forms, reports and documents required to be filed with the SEC since its initial public offering and has provided to SBIO: (i) its Annual Report on Form 10-KSB for the fiscal year ended June 30, 1995, (ii) its Quarterly Reports on Form 10-QSB for the periods ended September 30, 1995, December 31, 1995 and March 31, 1996, (iii) all proxy statements relating to ICG's meetings of stockholders (whether annual or special) held since its initial public offering, (iv) all other reports or registration statements filed by ICG with the SEC since its initial public offering, and (v) all amendments, supplements and restatements to all such reports and registration statements filed by ICG with the SEC (collectively, the "ICG SEC Reports"). ICG SEC Reports (and any related, supplement or amended ICG SEC Report): (i) were prepared in accordance with the requirements of the Securities Act or the Exchange Act, as the case may be, and (ii) did not at the time they 12 were filed (or if amended, superseded or restated by a filing prior to the date of this Agreement, then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, not misleading. (b) Each of the financial statements (including, in each case, any related notes thereto) contained in ICG's SEC Reports was prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods involved and each fairly presented the financial position of ICG as at the respective dates thereof and the results of its operations and cash flows for the periods indicated, except that the unaudited interim financial statements were or are subject to normal and recurring year-end adjustments which were not or are not expected to be material in amount. ICG's revenue recognition policies with respect to financial statements contained in ICG's SEC Reports have been made in accordance with generally accepted accounting principles. ICG maintains a standard system of accounting in accordance with generally accepted accounting principles. All of ICG's general ledgers, books and records are located at ICG's principal place of business. To ICG's knowledge, ICG's financial reserves are adequate to cover claims already incurred. (c) ICG has heretofore furnished to SBIO a complete and correct copy of any amendments, supplements or modifications and restatements which have not yet been filed with the SEC but which are required to be filed by ICG with the SEC pursuant to the Securities Act or the Exchange Act. Section 6.4 Proxy Statement. The information supplied by ICG for inclusion ----------- --------------- in the Proxy Statement shall not, on the date the Proxy Statement is first mailed to stockholders, at the time of the ICG Stockholders Meeting and at the Time of Closing, contain any statement which, at such time and in light of the circumstances under which it shall be made, is false or misleading with respect to any material fact, or shall omit to state any material fact necessary in order to make the statements made therein, not false or misleading; or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for ICG's Stockholders' Meeting which has become false or misleading. If at any time prior to the Time of Closing, any event relating to ICG or any of its affiliates, officers or directors should be discovered by ICG which should be set forth in a supplement to the Proxy Statement, ICG shall promptly inform SBIO in writing. The Proxy Statement shall comply in all material respects as to form and substance with the requirements of the Securities Act and Exchange Act and the rules and regulations thereunder. Section 6.5 Absence of Certain Changes and Events. Since March 31, 1996, ----------- ------------------------------------- there has not been: (a) Any adverse change in the financial condition, results of operation, assets, liabilities, business, or prospects of ICG or any occurrence, circumstance, or combination thereof which, to ICG's knowledge, reasonably could be expected to result in any such adverse change; 13 (b) Any event, including, without limitation, shortage of materials or supplies, fire, explosion, accident, requisition or taking of property by any governmental agency, flood, drought, earthquake, or other natural event, riot, act of God or a public enemy, or damage, destruction, or other casualty, whether covered by insurance or not, which has had an adverse effect on ICG or the Assets or any such event which, to ICG's knowledge, reasonably could be expected to have such an effect on ICG or the Assets; (c) Any material transaction relating to or involving ICG (other than the transactions contemplated herein) which was entered into or carried out by ICG other than in the ordinary and usual course of business; (d) Any change made by ICG in its method of operating the Business or its accounting practices relating thereto; (e) Any mortgage, pledge, lien, security interest, hypothecation, charge, or other encumbrance imposed or agreed to be imposed on or with respect to the Assets other than liens arising with respect to taxes not yet due and payable, and such liens and encumbrances, if any, which arise in the ordinary course of business and are not material in nature or amount either individually or in the aggregate, and which do not detract from the value of the Assets or impair the operations conducted thereon or any discharge or satisfaction thereof; (f) Any sale, lease, or disposition of, or any agreement to sell, lease, or dispose of any of the Assets, other than sales, leases, or dispositions in the usual and ordinary course of business and consistent with prior practice; (g) Any modification, waiver, change, amendment, release, rescission, accord and satisfaction, or termination of, or with respect to, any term, condition, or provision of any contract, agreement, license, or other instrument to which ICG is a party and relating to or affecting the Business or the Assets, other than any satisfaction by performance in accordance with the terms thereof in the usual and ordinary course of business and consistent with prior practice; (h) Any labor disputes or disturbances materially affecting in an adverse manner the Business or financial condition of ICG, including, without limitation, the filing of any petition or charge of unfair labor practices with the National Labor Relations Board; (i) Any notice (written or unwritten) from any significant employee (as that term is used in Item 401 of Regulation S-K, promulgated under the Securities Act) of ICG that such employee has terminated, or intends to terminate, such employee's employment with ICG; (j) Any adverse change in relationships or conditions with vendors or customers that may have an adverse effect on ICG, the Business or the Assets; (k) Any waivers of any rights of substantial value by ICG; 14 (l) Any other event or condition of any character which adversely affects, or, to ICG's knowledge, may reasonably be expected to so affect, the Assets or the results of operations or financial condition of ICG; or (m) Any purchase or lease of or any agreements to purchase or lease capital assets by ICG in excess of $10,000 individually, or in excess of $20,000 in the aggregate. Section 6.6 Form S-4. The information supplied by ICG in writing for ----------- -------- inclusion in the Form S-4 to be filed by SBIO with the SEC in connection with the Registered Offering shall not, on the date the Form S-4 is filed with the SEC and at the Time of Closing, contain any statement which, at such time is false or misleading with respect to any material fact, or shall omit to state any material fact necessary in order to make the statements made therein not false or misleading. If at any time prior to the Time of Closing, any event relating to ICG or any of its affiliates, officers or directors which should be set forth in an amendment to the Form S-4, ICG shall promptly inform SBIO in writing. Section 6.7 Conduct of Business. At all times since March 31, 1996, ICG has ----------- ------------------- conducted the Business diligently in the ordinary course thereof and used reasonable commercial efforts to preserve intact the organization of the Business and the goodwill of its customers, suppliers, and others having business relations with it consistent with past practice. Section 6.8 Undisclosed Liabilities. There are no debts, liabilities or ----------- ----------------------- obligations with respect to ICG or to which the Assets are subject, liquidated, unliquidated, accrued, absolute, contingent, or otherwise, GAAP or non-GAAP, that are not reflected in the financial statements and the notes thereto contained in ICG's SEC Reports. ICG has not guaranteed the repayment of any obligations of any third party, including affiliates and affiliated entities or persons. SBIO shall only be obligated to retire the Assumed Liabilities. Section 6.9 Inventory. All Inventory of ICG and all items to be delivered ----------- --------- to ICG for Inventory after the Time of Closing that are subject to purchase commitments outstanding at the Time of Closing, consist of items that are or upon delivery will be good and merchantable and of a quality and quantity presently usable and saleable in the ordinary course of business. The Inventory is not stated on the financial statements contained in ICG's SEC Reports in an amount greater than the estimated net realizable value thereof. Section 6.10 Accounts and Notes Receivable. All Accounts reflected on the ------------ ----------------------------- financial statements contained in ICG's SEC Reports are (i) valid, genuine and existing, (ii) subject, to ICG's knowledge, to no defenses, setoffs or counterclaims, (iii) current (not more than ninety (90) days past due) and collectible in the ordinary course of business, and (iv) will be paid in full, net of reserves, in the ordinary course of business, less any applicable trade discounts. No person has any lien on such Accounts or any part thereof except liens imposed by operation of law or liens incurred in the ordinary course of business; no agreement for deduction, free goods, discount or other deferred price or quantity adjustment has been made with respect to any of such Accounts; and, to ICG's knowledge, no customer of ICG with an Account balance is involved in voluntary or involuntary bankruptcy 15 proceedings or is otherwise insolvent or has notified ICG (or, to the knowledge of employees in ICG's financial department, orally) that such customer will not pay its Account. Section 6.11 Properties. ICG has good and valid title to all property and ------------ ---------- Assets, tangible and intangible, purported to be owned by it, including the property and Assets reflected on the financial statements contained in ICG's SEC Reports. All such property and Assets purported to be owned by ICG are free and clear of all mortgages, liens, charges, security interests or other encumbrances of any nature whatsoever except as reflected in the financial statements contained in ICG's SEC Reports and except for liens for current taxes not delinquent, liens imposed by operation of law and liens incurred in the ordinary course of business. All property and Assets, including machinery and equipment, owned, leased or otherwise used by ICG are in good operating condition and repair, reasonable wear and tear excepted, and are suitable and adequate for use in the ordinary course of business and conform in all material respects to all applicable laws. All leases are binding, valid and enforceable in accordance with their terms subject to the effect, if any, of (i) applicable bankruptcy and other similar laws affecting the rights of creditors generally, and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies, and, to ICG's knowledge, there are no current defaults or events which have occurred with which the giving of notice or lapse of time or both would constitute a material default under any lease. After the Time of Closing, SBIO will be entitled to the continued use and possession of the property leased by it, for the terms specified in such leases and for the purposes for which such property is used. There is no pending or threatened condemnation or similar proceeding affecting any of the real property owned or leased by ICG. Section 6.12 Taxes. ------------ ----- (a) All Taxes (as hereinafter defined) due or payable by ICG, and all interest and penalties thereon, whether disputed or not, other than Taxes which are not yet due and payable, have been paid in full. All Tax returns, statements, reports, forms and other documents required to be filed in connection therewith have been accurately prepared and duly and timely filed (and no extension of any filing date applicable thereto has been requested or granted) and were correct and complete in all respects. All deposits required by law to be made by ICG with respect to employees' withholding taxes have been duly made. ICG is not delinquent in the payment of any Tax, assessment or governmental charge or deposit, and ICG does not have any Tax deficiency or claim currently pending, outstanding or asserted against it, and, to ICG's knowledge, there is no basis for any such Tax deficiency or claim. There is no audit currently pending regarding any Taxes and ICG has not extended the period in which any Tax could be assessed or collected. (b) No tax is required to be withheld pursuant to Section 1445 of the Internal Revenue Code of 1986, as amended (the "Code") as a result of the transfers contemplated by this Agreement, and ICG is not a person other than a United States person within the meaning of the Code. No recording or filing fees or sales, use, transfer or documentary taxes are payable by SBIO in connection with, or as a result of, the transactions provided 16 for by this Agreement under the laws of the State of Pennsylvania or any political subdivision thereof. (c) There are no liens for Taxes upon the Assets except liens for current Taxes not yet due. The unpaid Taxes of ICG do not exceed the reserve for Taxes established on the books and records of ICG. To ICG's knowledge, no governmental entity (a "Taxing Authority") responsible for the imposition of any Tax (domestic or foreign), has asserted jurisdiction to impose any Taxes upon ICG. (d) The net operating losses of ICG are not subject to any limitation on their use other than such limitation as may arise as a result of the transactions contemplated by this Agreement. (e) There is no contract, agreement, plan or arrangement, including but not limited to the provisions of this Agreement, covering any employee or independent contractor or former employee or independent contractor of ICG that, individually or collectively, could give rise to the payment by ICG of any amount that would not be deductible pursuant to Section 280G or Section 162 of the Code. None of the assets (including the Assets) of ICG (i) is property that is required to be treated as owned by any other person pursuant to the so-called "safe harbor lease" provisions of former Section 168(f)(8) of the Code, (ii) directly or indirectly secures any debt the interest on which is tax exempt under Section 103(a) of the Code or (iii) is "tax exempt use property" within the meaning of Section 168(h) of the Code. The transactions contemplated herein are not subject to the tax withholding provisions of Code Section 3406, or of Subchapter A of Chapter 3 of the Code or of any other provision of law in any jurisdiction. ICG is not and has never been a member of a group permitted or required to file consolidated Tax returns and is not party to any agreement relating to the payment or sharing of liability for Taxes. ICG has not filed a consent under Section 341(f) of the Code. (f) For purposes of this Agreement, "Tax" (and, with correlative meaning, "Taxes" and "Taxable") means (i) any net income, alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, environmental or windfall profit tax, custom, duty or other tax, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or any penalty, addition to tax or additional amount imposed by any Taxing Authority responsible for the imposition of any such tax (domestic or foreign), (ii) any liability for the payment of any amounts of the type described in (i) as a result of being a member of an affiliated, consolidated, combined or unitary group for any Taxable period and (iii) any liability for the payment of any amounts of the type described in (i) or (ii) as a result of any express or implied obligation to indemnify any other person. Section 6.13 Compliance with Laws. ICG has complied and is in compliance, ------------ -------------------- in all material respects, with all applicable foreign, federal, state, and local laws, statutes, licensing requirements, rules, and regulations, and judicial or administrative decisions applicable to the Business. ICG has been granted all licenses, permits (temporary and otherwise), 17 authorizations, and approvals from foreign, federal, state, and local government regulatory bodies necessary to carry on the Business as currently conducted, all of which are currently valid and in full force and effect. All such licenses, permits, authorizations, and approvals shall be transferred to SBIO effective as of the Time of Closing, and shall be valid and in full force and effect to the same extent as if ICG were continuing operation of the Business. To the best of ICG's knowledge, there is no order issued, investigation, or proceeding pending or threatened, or notice served with respect to any violation of any law, ordinance, order, writ, decree, rule, or regulation issued by any federal, state, local, or foreign court or governmental agency or instrumentality applicable to the Business. Section 6.14 Consents. The execution and delivery of this Agreement by ICG ------------ -------- do not, and the performance of this Agreement by ICG shall not, require any consent, approval, authorization or permit of, or filing with or notification to, any governmental or regulatory authority, domestic or foreign, or any other third party, including licensors and lenders, except for applicable requirements, if any, of the Securities Act, the Exchange Act, Blue Sky Laws, bulk sales laws and the notification requirements of the HSR Act. Section 6.15 Products. There are no known defects in the design or ------------ -------- technology embodied in any product which ICG currently markets, has marketed in the past that impair or are likely to impair the stated use of the product or, in connection with such stated use, is reasonably likely to injure any consumer of the product or third party, except that warranty claims may arise in the normal course of business, for products shipped prior to the Time of Closing, in an aggregate amount of no more than the warranty reserves established on the most recent balance sheet of ICG. Section 6.16 Proprietary Rights. ------------ ------------------ (a) Schedule 2.1(e) sets forth all of the items within the categories which define Proprietary Rights (i) which are used in the business of ICG, (ii) which are owned by ICG, or (iii) to which ICG otherwise has rights to license or use. Any of the Proprietary Rights the transfer of which require the execution and filing with an appropriate governmental agency have been so indicated on Schedule 2.1(e). (b) Schedule 2.1(e) sets forth a true and complete list of all contracts, licenses and other agreements to which ICG is a party, which affect any item of ICG Proprietary Rights and which are material to the business of ICG as conducted. Schedule 2.1(e) specifically designates all such contracts, licenses or other agreements (i) pursuant to which ICG is a licensor or licensee of Proprietary Rights, (ii) under which ICG has granted or been granted exclusive rights, and (iii) under which ICG is obligated to pay in excess of (or under which the consideration is reasonably expected to exceed) $25,000 in any one year period. (c) (i) ICG either owns or has the exclusive right to use, sell, license and dispose of, to bring actions for the infringement of and otherwise exercise all Proprietary Rights, including Proprietary Rights which comprise trade secret rights, to the extent permitted by law (hereinafter, "Trade Secrets"), free and clear of all encumbrances. 18 (ii) ICG has the non-exclusive right to use, sell, license and dispose of all Proprietary Rights listed (on Schedule 2.1(e)) as exceptions to the previous paragraph. (iii) ICG has taken all reasonable actions and made all applicable applications and filings pursuant to applicable laws to perfect or protect its interests in all Proprietary Rights, except where the failure to take such actions or make such applications or filings would not have a material adverse effect on ICG's business or materially interfere with the use or enforcement of such Proprietary Rights in the ordinary course of its business. (iv) The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not (A) breach, violate or conflict with any instrument or agreement governing any Proprietary Right, (B) cause the forfeiture or termination or give rise to a right of forfeiture or termination of any Proprietary Right, or (C) in any way impair the right of SBIO to use, sell, license or dispose of or to bring any action for the infringement of, any Proprietary Right or any products or technology designed, developed, manufactured, sold or serviced by the Business (collectively, "Products"). (v) To ICG's knowledge, the manufacture, marketing, license, sale or use of any Products anywhere in the world does not or would not (A) violate any license or agreement with any third party, (B) infringe on any non-patent Proprietary Right of any third party or (C) infringe any third party patent rights. ICG has not, and to its knowledge, no employees have, in the course of their work for ICG, misappropriated any third party trade secrets. There is no claim or litigation pending or, to ICG's knowledge, threatened, contesting the validity, ownership or right to use, sell, license or dispose of any Proprietary Right or claiming that ICG or any of its employees has misappropriated any third party trade secrets, nor, to ICG's knowledge, is there any basis for any such claim. (vi) ICG is not aware of any third party infringing on any Proprietary Right where such infringement could materially limit the protection afforded by the Proprietary Rights to the use, sale, license, sublicense or disposition of the Products or prevent the future enforcement of such Proprietary Right. (vii) ICG has taken all reasonable steps (including, without limitation, entering into appropriate confidentiality, nondisclosure and noncompetition agreements, the forms of which have been delivered to SBIO or its counsel, with all officers, directors, subcontractors, employees, licensees and entities that serve ICG) to safeguard and maintain the secrecy and confidentiality of, and the proprietary rights in, all Proprietary Rights. (viii) All Trade Secrets are presently and as of the Time of Closing will be located at ICG's address as shown in this Agreement and have not been used, divulged or appropriated for the benefit of any person other than ICG or to the detriment of ICG. 19 (d) (i) Each of the licenses and agreements listed or required to be listed in Schedule 2.1(e) is in full force and effect and is a valid and enforceable obligation against ICG (to the extent it is a party thereto), and against the other party thereto in accordance with its terms, subject to the effect, if any of (A) applicable bankruptcy and other similar laws affecting the rights of creditors generally and (B) rules of law governing specific performance, injunctive relief and other equitable remedies. (ii) ICG has in all material respects performed, or is now performing in all material respects, its obligations, and ICG is not in default in any material respect (or would by the lapse of time or the giving of notice or both be in default in any material respect), under any license or agreement listed or required to be listed in Schedule 2.1(e). To ICG's knowledge, no other party to such licenses and agreements is in default in any material respect (or would by the lapse of time or the giving of notice or both, be in default in any material respect) thereunder or has breached in any material respect any terms or provisions thereof. (iii) ICG has not received any notice of any claim by, or dispute or controversy with, any third party with respect to any of the licenses or agreements which is listed or required to be listed in Schedule 2.1(e). ICG has not received written notice or warning or, to the knowledge of ICG's management, oral notice or warning of alleged nonperformance, delay in delivery or other noncompliance by ICG with respect to its obligations under any such licenses or agreements. Section 6.17 Restrictive Documents or Orders. ICG is not a party to or ------------ ------------------------------- bound under any agreement, contract, order, judgment, or decree, or any similar restriction not of general application which materially adversely affects, or reasonably could be expected to materially adversely affect (i) the continued operation by SBIO of the Business after the Time of Closing on substantially the same basis as said business was theretofore operated, or (ii) the consummation of the transactions contemplated by this Agreement. Section 6.18 Contracts and Commitments. ------------ ------------------------- (a) Set forth on Schedule 2.1(c) is a list of all outstanding Contracts, whether or not in writing, to which ICG is a party or to which any of the Assets are subject that may: (i) involve obligations (contingent or otherwise) or unwritten agreements of, or payments to, ICG in excess of $25,000; (ii) involve agreements (written or unwritten) with suppliers and customers of ICG; (iii) involve the license of any Proprietary Rights to or from ICG; (iv) contain provisions restricting and/or affecting the development, manufacture, or distribution of ICG's products or services; (v) relate to any aspect of the Business of ICG in which any other person who was or is an officer, director, or employee of ICG (or any person, firm, partnership, trust, or corporation affiliated with any such persons or any family members of such persons) have a material interest; or (vi) involve agreements (written or unwritten) on which the Business is materially dependent. 20 (b) ICG has performed all of its obligations under the terms of each Contract listed in Schedule 2.1(c) to which it is a party, and is not in default thereunder. No event or omission has occurred which but for the giving of notice or lapse of time or both would constitute a default by any party thereto under any such Contract, where such default by any party (other than ICG) could have an adverse impact on the results of operations or financial condition or prospects of ICG, the Business or the Assets. Each such Contract is valid and binding on all parties thereto and in full force and effect, subject to the effect, if any of (i) applicable bankruptcy and other similar laws affecting the rights of creditors generally and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies. ICG has received no notice of default, cancellation, or termination in connection with any such Contract. Section 6.19 Assets. The Assets include all intellectual property, ------------ ------ inventory and all other property in which ICG has any right, title and interest. The Assets include all the assets (whether or not owned by ICG) necessary to operate the Business in the same manner as the Business was operated by ICG prior to the Time of Closing. The Assets are suitable for the purpose or purposes for which they are being used, are in good operating condition and in reasonable repair, and free from any known defects, except such minor defects as do not interfere with the continued use thereof. Each tangible Asset has been serviced and maintained in accordance with customary industry practices. Subject to normal wear and tear, such plants, facilities, machinery, and equipment whose customary use is the production of products are capable of and are producing sound and merchantable products. Section 6.20 Insurance. Schedule 2.1(l) lists all insurance policies and ------------ --------- fidelity bonds covering the assets, business, equipment, properties, operations, employees, officers and directors of ICG. There is no claim by ICG pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds. All premiums payable under all such policies and bonds have been paid and, to ICG's knowledge, ICG is otherwise in full compliance with the terms of such policies and bonds (or other policies and bonds providing substantially similar insurance coverage). To ICG's knowledge, such policies of insurance and bonds are of the type and in amounts customarily carried by persons conducting businesses similar to those of ICG. ICG does not know of any threatened termination of or material premium increase with respect to, any of such policies. SBIO shall be entitled to the benefit of each such policy upon the consummation of the transactions contemplated hereby. Section 6.21 Product Warranties and Product Liability. ICG has delivered to ------------ ---------------------------------------- SBIO copies of its warranty policies and all outstanding warranties or guarantees relating to any of ICG's products other than warranties or guarantees implied by law. ICG is not aware of any claim asserting (a) any damage, loss or injury caused by any Product, or (b) any breach of any express or implied product warranty or any other similar claim with respect to any Product other than standard warranty obligations (to replace, repair or refund) made by ICG in the ordinary course of business, except for those claims that, if adversely determined against the Business, would not have a material adverse change on the results of operations or financial condition of ICG, the Business or the Assets. 21 Section 6.22 Litigation. There is no claim, investigation, litigation, ------------ ---------- action, suit, or proceeding, administrative or judicial, pending or, to ICG's knowledge, threatened against ICG or any officer or director of ICG, or involving the Assets, at law or in equity, before any federal, state, local, or foreign court, or regulatory agency, or other governmental authority, including, without limitation, any unfair labor practice or grievance proceedings or otherwise. ICG has not received any complaints from any of its customers or suppliers within the last twelve months, which will individually or in the aggregate have any adverse effect on the Business, Assets, prospects, operations, employee relations, rights or condition of ICG. Section 6.23 No Conflict or Default. Neither the execution and delivery of ------------ ---------------------- this Agreement, nor compliance with the terms and provisions hereof and thereof, including without limitation, the consummation of the transactions contemplated hereby, will violate any statute, regulation, or ordinance of any governmental authority, or conflict with or result in the breach of any term, condition, or provision of ICG's Articles of Incorporation or Bylaws, as presently in effect, or of any agreement, deed, contract, mortgage, indenture, writ, order, decree, legal obligation, or instrument to which ICG is a party or by which it or any of the Assets are or may be bound, or constitute a default (or an event which, with the lapse of time or the giving of notice, or both, would constitute a default) thereunder. Section 6.24 Labor Relations. ------------ --------------- (a) With respect to the Business, ICG has not failed to comply in any respect with Title VII of the Civil Rights Act of 1964, as amended, the Fair Labor Standards Act, as amended, the Occupational Safety and Health Act of 1970, as amended, all applicable federal, state, and local laws, rules, and regulations relating to employment, and all applicable laws, rules and regulations governing payment of minimum wages and overtime rates, and the withholding and payment of taxes from compensation of employees. (b) There are no labor controversies pending or threatened between ICG and any of its employees or any labor union or other collective bargaining unit representing any of the employees. (c) ICG has never entered into a collective bargaining agreement or other labor union contract relating to the Business and applicable to the employees. (d) There are no written employment or separation agreements, or oral employment or separation agreements other than those establishing an "at-will" employment relationship between ICG and any of the employees. Section 6.25 Employee Benefit Plans. ------------ ---------------------- (a) The ICG Disclosure Letter lists all employee benefit plans (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) and all bonus, stock option, stock purchase, incentive, deferred compensation, supplemental retirement, severance and other similar fringe or employee benefit plans, programs or 22 arrangements, and any current or former employment or executive compensation or severance agreements, written or otherwise, for the benefit of, or relating to, any employee of ICG, any trade or business (whether or not incorporated) which is a member or which is under common control with ICG (an "ERISA Affiliate") within the meaning of Section 414 of the Code (together, the "Employee Plans"), and a copy of each such Employee Plan has been provided to SBIO. (b) (i) None of the Employee Plans promises or provides retiree medical or other retiree welfare benefits to any person; (ii) there has been no "prohibited transaction," as such term is defined in Section 406 of ERISA and Section 4975 of the Code, with respect to any Employee Plan, which could result in any material liability of ICG; (iii) all Employee Plans are in compliance in all respects with the requirements prescribed by any and all statutes (including ERISA and the Code), orders, or governmental rules and regulations currently in effect with respect thereto (including all applicable requirements for notification to participants or the Department of Labor, Internal Revenue Service or Secretary of the Treasury), and ICG has performed all material obligations required to be performed by it under, is not in any material respect in default under or violation of, and has no knowledge of any default or violation by any other party to, any of the Employee Plans; (iv) each Employee Plan intended to qualify under Section 401(a) of the Code and each trust intended to qualify under Section 501(a) of the Code does so qualify and a favorable determination letter with respect to each such Employee Plan and trust has been received from the Internal Revenue Service (the "IRS"), and nothing has occurred which is reasonably likely to cause the loss of such qualification or exemption; (v) all contributions required to be made to any Employee Plan pursuant to Section 412 of the Code, the terms of the Employee Plan or any collective bargaining agreement, have been made on or before their due dates and a reasonable amount has been accrued for contributions to each Employee Plan for the current plan years; (vi) with respect to each Employee Plan, no "reportable event" within the meaning of Section 4043 of ERISA (excluding any such event for which the thirty (30) day notice requirement has been waived under the regulations to Section 4043 of ERISA) nor any event described in Section 4062, 4063 or 4041 of ERISA has occurred; and (vii) no Employee Plan is covered by, and ICG has not incurred or expects to incur any liability under, Title IV of ERISA or Section 412 of the Code. Section 6.26 Brokers' and Finders' Fees/Contractual Limitations. ICG is not ------------ -------------------------------------------------- obligated to pay any fees or expenses of any broker or finder in connection with the origin, negotiation, or execution of this Agreement or in connection with any transactions contemplated hereby. ICG shall indemnify and hold harmless the other parties from and against any and all claims, liabilities, or obligations with respect to brokerage or finders' fees or commissions or consulting fees in connection with the transactions contemplated by this Agreement, asserted by any person on the basis of any statement or representation alleged to have been made by such indemnifying party. Neither ICG, nor any officer, director, employee, agent or representative of ICG (collectively "ICG Representatives") are or have been subject to any agreement, letter of intent, or understanding of any kind which prohibits, limits, or restricts ICG or the ICG Representatives from negotiating, entering into and consummating this Agreement and the transactions contemplated hereby. 23 Section 6.27 Interested Party Relationships. Neither ICG nor, to ICG's ------------ ------------------------------ knowledge, any officer or director or family member thereof, or any corporation, partnership, or other entity which, directly or indirectly, alone or together with others, controls, is controlled by, or is in common control with any officer and director or family member thereof has any material financial interest, direct or indirect, in any material supplier or customer, any party to any contract which is material to the Business, or any competitor with the Business. Section 6.28 Environmental Matters. ICG (i) has obtained all applicable ------------ --------------------- permits, licenses and other authorizations which are required under foreign, federal, state or local laws relating to pollution or protection of the environment, including laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, or hazardous or toxic materials or wastes into ambient air, surface water, ground water, or land or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants or hazardous or toxic materials or wastes by ICG (or its agents); (ii) is in compliance with all terms and conditions of such required permits, licenses and authorization, and also is, to ICG's knowledge, in compliance with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in such laws or contained in any regulation, code, plan, order, decree, judgment, notice or demand letter issued, entered, promulgated or approved thereunder; (iii) is not aware of nor has received notice of any event, condition, circumstance, activity, practice, incident, action or plan which is reasonably likely to interfere with or prevent continued compliance or which would give rise to any common law or statutory liability, or otherwise form the basis of any claim, action, suit or proceeding, based on or resulting from ICG's (or any of its agents') manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling, or the emission, discharge, or release into the environment, of any pollutant, contaminant, or hazardous or toxic material waste; (iv) has taken all actions necessary under applicable requirements of Federal, state or local laws, rules or regulations to register any products or materials required to be registered by ICG (or any of its agents) thereunder; and (v) is not aware of any contaminated soil or groundwater at any of the properties owned or operated, leased or previously owned or leased by ICG. ICG has disclosed to SBIO in the ICG Disclosure Letter (i) all permits relating to pollution or protection of the environment, including laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, or hazardous or toxic materials or wastes into ambient air, surface water, ground water, or land or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants or hazardous or toxic materials or wastes by ICG (or its agents) it holds as of the date hereof, and (ii) all documents relating to tests previously conducted or to be conducted in the future for potential contamination at any of ICG's facilities, whether owned or leased, including soil and water tests. Section 6.29 Certain Payments. In connection with the Business, ICG has not ------------ ---------------- and no person directly or indirectly on behalf of ICG has made or received any payment that was not legal to make or receive. 24 Section 6.30 Books and Records. The books and records of ICG to which SBIO ------------ ----------------- and its accountants and attorneys have been given access are the true books and records of ICG and truly and fairly reflect the underlying facts and transactions in all material respects. Section 6.31 Customers and Suppliers. ICG is neither aware nor has any ------------ ----------------------- reason to believe that any of ICG's ten largest customers and ten largest suppliers during the twelve months ended June 30, 1996, 1996 (determined on the basis of both revenues and bookings during such period) has terminated, or intends to materially reduce or terminate, the amount of its business with ICG, and ICG has no reason to believe that such termination or alteration would occur as a result of the consummation of this Agreement. Section 6.32 Complete Disclosure. The copies of all instruments, ------------ ------------------- agreements, other documents and written information delivered by ICG to SBIO or its counsel are and will be complete and correct in all material respects as of the date of delivery thereof. No representations or warranties made by ICG in this Agreement, nor any document, written information, statement, financial statement, certificate or exhibit prepared and furnished or to be prepared and furnished by ICG or its representatives to SBIO pursuant hereto or in connection with the transactions contemplated hereby, contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact necessary to make the statements or facts contained herein or therein not misleading. There is no presently existing event, fact or condition that adversely affects the Business, Assets, ICG's financial condition or prospects, or that could reasonably be expected to do so, which has not been set forth in this Agreement or the exhibits hereto or otherwise disclosed by ICG to SBIO in writing at the Time of Closing. Section 6.33 No Reliance on Forecasts. In the negotiation and consideration ------------ ------------------------ of the transactions contemplated by this Agreement, ICG and its Board of Directors have not relied upon any information or documents concerning SBIO and its business or financial results except: (i) information and documents that are publicly available, (ii) representations and warranties made by SBIO in this Agreement and (iii) disclosure of interim financial results made pursuant to this Agreement. In the course of negotiations, SBIO and ICG exchanged information regarding hypothetical situations, based on various assumptions, of the results of operations of the combined companies and possible market prices for SBIO's Common Stock. ICG makes no representation or warranty regarding any such hypothetical situations provided by it, including those that may contain forecasts or projections of its future operating results, and ICG disclaims reliance on any such hypothetical situations provided by SBIO or third parties. ARTICLE VII. REPRESENTATIONS AND WARRANTIES OF S.R. ONE ------------------------------------------ S.R. One hereby represents and warrants to SBIO as follows: 25 Section 7.1 Authorization. S.R. One has full power and authority to enter ----------- ------------- into this Agreement. This Agreement constitutes its valid and legally binding obligation, enforceable in accordance with its terms. Section 7.2 Consents. The execution and delivery of this Agreement by S.R. ----------- -------- One do not, and the performance of this Agreement by S.R. One shall not, require any consent, approval, authorization or permit of, or filing with or notification to, any governmental or regulatory authority, domestic or foreign, or any other third party. Section 7.3 Purchase Entirely for Own Account. The Unregistered Securities ----------- --------------------------------- will be acquired for S.R. One's own account and without a view to the resale or distribution of any part thereof, and S.R. One has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, S.R. One further represents that S.R. One does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to such person or to any third person, with respect to any of the Unregistered Securities. Section 7.4 Disclosure of Information. S.R. One believes it has received all ----------- ------------------------- the information it considers necessary or appropriate for deciding whether to purchase the Unregistered Securities. S.R. One further has had an opportunity to ask questions and receive answers from SBIO regarding the terms and conditions of the offering of the Unregistered Securities. S.R. One has determined that it does not require contractual access rights of the kind set forth in Section 9.4. Section 7.5 Investment Experience. S.R. One is able to fend for itself, can ----------- --------------------- bear the economic risk of its investment and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Unregistered Securities. S.R. One has not been organized for the purpose of acquiring the Unregistered Securities. Section 7.6 Accredited Investor. S.R. One is an "accredited investor" as ----------- ------------------- such term is defined in Rule 501(a) promulgated under the Securities Act. Section 7.7 Restricted Securities. S.R. One understands that the ----------- --------------------- Unregistered Securities it is purchasing are characterized as "restricted securities" under the federal securities laws inasmuch as they are being acquired from SBIO in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Securities Act, only in certain limited circumstances. In this connection, S.R. One represents that it is familiar with SEC Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act. Section 7.8 Broker Fees. It is not obligated to pay any fees or expenses of ----------- ----------- any broker or finder in connection with the origin, negotiation or execution of this Agreement or in connection with any of the transactions contemplated hereby. S.R. One shall indemnify and hold harmless the other parties from and against any and all claims, liabilities, or obligations with respect to brokerage or finders' fees or commissions or consulting fees in connection 26 with the transactions contemplated by this Agreement, asserted by any person on the basis of any statement or representation alleged to have been made by such indemnifying party. Section 7.9 No Contrary Knowledge. To S.R. One's best knowledge, all the ----------- --------------------- representations and warranties of ICG in this Agreement are true, correct and complete. Section 7.10 No Reliance on Forecasts. In the negotiation and consideration ------------ ------------------------ of the transactions contemplated by this Agreement, S.R. One has not relied upon any information or documents concerning SBIO and its business or financial results except: (i) information and documents that are publicly available, (ii) representations and warranties made by SBIO in this Agreement and (iii) disclosure of interim financial results made pursuant to this Agreement. In the course of negotiations, SBIO and ICG and S.R. One exchanged information regarding hypothetical situations, based on various assumptions, of the results of operations of the combined companies and possible market prices for SBIO's Common Stock. S.R. One disclaims reliance on any such hypothetical situations provided by SBIO or third parties. ARTICLE VIII. CORPORATE SECURITIES LAWS ------------------------- Section 8.1 California Commissioner of Corporations. THE SALE OF THE ----------- --------------------------------------- SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. ARTICLE IX. COVENANTS --------- Section 9.1 Standstill Provision. S.R. One (for it and its affiliates) ----------- -------------------- agrees during the time from the date of this Agreement until [the fifth anniversary of the S.R. One Closing] not to, without express prior written consent of the Board of Directors of SBIO, acquire any equity securities of SBIO except (i) its pro rata distribution of the Shares upon liquidation of ICG, (ii) the Common Stock of SBIO purchased pursuant to this Agreement, (iii) upon exercise of any Warrants held by S.R. One or (iv) issuances of any securities upon stock splits or stock dividends with respect to any equity securities of SBIO. 27 Section 9.2 Maintenance of Business. ----------- ----------------------- (a) During the period from the date hereof through the Time of Closing, ICG shall carry on and use its best efforts to preserve the Business, maintain all equipment and machinery in good working order, discharge and maintain current obligations with respect to any employee withholding taxes, comply with the Securities Act and Exchange Act, preserve inventories of necessary supplies at proper levels, keep available the services of present officers and key employees and preserve relationships with customers, suppliers and others having dealings with ICG. ICG shall not, except as expressly permitted herein, (i) enter into agreements or contracts of employment or terminate the employment of any engineering or technical personnel or other key employees except for cause; (ii) alter any employee or personnel benefits; (iii) dispose of any Assets (other than in the ordinary course and subject to the obligation to maintain proper inventory levels) or acquire or newly lease any assets in excess of $10,000 individually, or $20,000 in the aggregate; (iv) make any capital improvements, additions or expenditures; (v) incur any liabilities or obligations (other than in the ordinary course of business), except for ICG's currently contemplated convertible note financing of up to $750,000; (vi) declare any distribution or dividends of any kind, or (vii) repurchase or otherwise acquire any shares of its capital stock. (b) During the period from the date hereof through the Time of Closing, ICG agrees to advise SBIO of any material operating decisions. Notwithstanding the foregoing, ICG acknowledges that such operating decisions shall be made independently and ICG shall be solely responsible for implementation, consequences, and liabilities, if any. (c) ICG will assist SBIO in determining the Contracts that are material to the operations of the Business and assist SBIO in establishing separate agreements with the other parties to such Contracts. Section 9.3 Access to ICG Information. ----------- ------------------------- (a) ICG will give SBIO and its accountants, legal counsel and other representatives full access, during normal business hours and upon reasonable notice, to all of the properties, books, contracts, commitments, and records relating to the Business and the Assets, and ICG will furnish to SBIO, its accountants, legal counsel, and other representatives during such period all such information concerning the Business or the Assets as SBIO may request; provided, that any furnishing of such information pursuant hereto or any investigation by SBIO shall not affect SBIO's right to rely on the representations, warranties, agreements and covenants made by ICG in this Agreement. ICG shall cause ICG's accountants to cooperate with SBIO in auditing the financial statements of ICG's Business, but not limited to, executing any and all representation or other letters or agreements required by SBIO's accountants. ICG shall cause its accountants to consent in writing or agree to consent in writing to the inclusion of ICG's financial statements in SBIO's Report on Form 8-K within the applicable time for filing. ICG shall provide to SBIO's counsel drafts of all written communications with stockholders and the SEC and prospective filings with the SEC for comment prior to their distribution to the SEC and the stockholders. SBIO hereby acknowledges that it has obtained and continues to 28 obtain knowledge of and access to confidential and valuable business information relating to ICG not generally known by or available to the general public and in connection therewith agreed to be bound by the confidentiality agreement dated January 29, 1996 and that such information shall be deemed confidential information. (b) In connection with its ownership and operation of the Business and Assets, ICG has obtained confidential information relating to the trade secrets, business, operations, properties, assets, products, condition (financial and otherwise), liabilities, employee relations, customer, supplier and distributor relations and prospects of the Business and Assets. Following the Time of Closing, ICG shall treat such information as confidential, preserve the confidentiality thereof, not duplicate or use such information, and instruct its employees who have that access to such information, to keep confidential and not to use any such information, unless such information is now, or is hereafter, disclosed by SBIO, in a manner making it available to the general public. ICG shall use the same methods to safeguard such information as it uses to protect its own confidential and proprietary information. Section 9.4 Access to SBIO Information. SBIO will give S.R. One and ICG and ----------- -------------------------- their accountants, legal counsel and other representatives full access, during normal business hours and upon reasonable notice, to all of the properties, books, contracts, commitments, and records relating to the business of SBIO, and SBIO will furnish to S.R. One and ICG, their accountants, legal counsel, and other representatives during such period all such information concerning the business of SBIO as S.R. One and ICG may request; provided, that any furnishing of such information pursuant hereto or any investigation by S.R. One and ICG shall not affect S.R. One's or ICG's right to rely on the representations, warranties, agreements and covenants made by SBIO in this Agreement. SBIO shall cause SBIO's accountants to cooperate with ICG in auditing the financial statements of SBIO's business, but not limited to, executing any and all representation or other letters or agreements required by ICG's accountants. SBIO shall provide to ICG's counsel drafts of all written communications with shareholders and the SEC and prospective filings with the SEC for comment prior to their distribution to the SEC and the shareholders. S.R. One and ICG hereby acknowledge that they have obtained and continue to obtain knowledge of and access to confidential and valuable business information relating to SBIO not generally known by or available to the general public, in connection therewith ICG has agreed to be bound by the confidentiality agreement dated January 29, 1996 and S.R. One has agreed to be bound by the confidentiality agreement dated July __, 1996, and that such information shall be deemed confidential information. Section 9.5 Meetings of Stockholders. ----------- ------------------------ (a) ICG shall promptly after the date hereof take all action necessary in accordance with Delaware Law and its Certificate of Incorporation and Bylaws to convene the ICG Stockholders Meeting as soon as practicable following the effectiveness of the Form S-4. ICG shall not postpone or adjourn (other than for the absence of a quorum) the ICG Stockholders Meeting without the consent of SBIO. ICG shall use its best efforts to solicit from stockholders of ICG proxies in favor of the Agreement and shall take all other action 29 necessary or advisable to secure the vote or consent of stockholders required by Delaware law to effect the transactions contemplated hereby (including, without limitation, changing its name to something altogether dissimilar from "International Canine Genetics, Inc."). (b) Given the possibility that a vote of the shareholders of SBIO to consider and approve the sale of the Assets is required by law, SBIO shall promptly after the date hereof take all action necessary in accordance with California Law and its Articles of Incorporation and Bylaws to convene the SBIO Shareholders Meeting as soon as practicable following the effectiveness of the Form S-4. SBIO shall not postpone or adjourn (other than for the absence of a quorum) the SBIO Shareholders Meeting without the consent of ICG. SBIO shall use its best efforts to solicit from shareholders of SBIO proxies in favor of the Agreement and shall take all other action necessary or advisable to secure the vote or consent of shareholders required by California law to effect the transactions contemplated hereby; provided, however, if SBIO shareholder approval is not required by law or by Nasdaq National Market rules, SBIO need not obtain the shareholder approval. Section 9.6 Breach of Representations and Warranties. Each of SBIO, ICG and ----------- ---------------------------------------- S.R. One shall not take any action that would breach or cause to be inaccurate any of the representations and warranties set forth in Article V, VI or VII, as the case may be. Promptly after becoming aware of the occurrence of or the pending or threatened occurrence of any event that would cause or constitute such a breach or inaccuracy, ICG or S.R. One, as the case may be, shall give detailed written notice thereof to SBIO, or SBIO shall give detailed written notice thereof to ICG or S.R. One, as the case may be, and the party or parties shall use its or their best efforts to prevent or remedy such breach or inaccuracy promptly. Section 9.7 Best Efforts. Each of S.R. One and SBIO shall use its best ----------- ------------ efforts to effectuate their transactions contemplated hereby and to fulfill and cause to be fulfilled the conditions to the S.R. One Closing under this Agreement. Each of ICG and SBIO shall use its best efforts to effectuate their transactions contemplated hereby and to fulfill and cause to be fulfilled the conditions to the ICG Closing under this Agreement. Section 9.8 Tax Returns. ICG shall timely file all tax returns, reports and ----------- ----------- information statements (taking into account valid extensions of time to file) required to be filed by it and shall provide SBIO with a reasonable opportunity to review such documents prior to their filing. Section 9.9 Employment Offers. SBIO may offer employment to those employees ----------- ----------------- of ICG as SBIO, in it sole and absolute discretion, shall select, such offers of employment to be contingent on the ICG Closing. SBIO need not agree to maintain such employment for any particular period of time and, if such offers are accepted, such employees will be employed on an "at will" basis. Notwithstanding the foregoing, SBIO covenants to use its reasonable efforts to negotiate a mutually satisfactory employment agreement with Paul A. Rosinack based on the substantive terms set forth in that certain term sheet between SBIO and Paul A. Rosinack dated July __, 1996, for employment by SBIO as a Vice President and officer of SBIO, such employment to commence after the ICG Closing. 30 Section 9.10 COBRA. ICG shall comply with the health care continuation ------------ ----- coverage requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985 applicable to employees of ICG who are terminated by ICG on or before or after the Time of Closing. SBIO shall provide, without charge, administrative assistance to ICG in connection with ICG's compliance. Section 9.11 Other Discussions ("No-Shop"). From the date hereof until the ------------ ----------------------------- Time of Closing, neither ICG, nor any of its representatives on its behalf, shall (i) directly or indirectly through any other party initiate, encourage or engage in any negotiations with or provide any information to any other person, firm or corporation with respect to an acquisition transaction involving ICG or the Business, (ii) directly or indirectly through any other party solicit any proposal relating to the acquisition of, or other major transaction involving, the Business. If ICG or any such representatives receives any inquiries from another party relating to any proposed disposition of the Business or the Assets following the date hereof, ICG shall promptly (i) advise such party that ICG is not entitled to enter into any such discussions or negotiations and (ii) notify SBIO in writing of such inquiry. Section 9.12 Mail and Receivables Payments. From and after the Time of ------------ ----------------------------- Closing, ICG shall endorse any check or any other evidence of indebtedness or payment received by ICG on account of any Accounts after the Time of Closing to the order of SBIO or take other appropriate actions and shall promptly forward such payment to SBIO no later than five (5) business days after actual receipt by ICG. SBIO and ICG shall each provide to the other all the cooperation which the other may reasonably request in connection with the collection of the Accounts. Section 9.13 Notification of Noncompliance. Until the Time of Closing each ------------ ----------------------------- party shall give prompt detailed notice to the other of (i) the occurrence, or non-occurrence, of any event the occurrence, or non-occurrence, of which causes or would be likely to cause any representation or warranty contained in this Agreement to be untrue or inaccurate and (ii) any failure of S.R. One or SBIO or ICG, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice. Section 9.14 Further Action. Upon the terms and subject to the conditions ------------ -------------- hereto, each of the parties hereto shall use all reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all other things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement, to obtain in a timely manner all necessary waivers, consents and approvals and to effect all necessary registrations and filings, and to otherwise satisfy or cause to be satisfied all conditions precedent to its obligations under this Agreement. Section 9.15 Covenants Against Disclosure. The parties agree to maintain ------------ ---------------------------- the confidentiality of the terms and conditions of this Agreement. No party shall disseminate (except to the parties to this Agreement) any press release or announcement concerning the transactions contemplated by this Agreement or the parties hereto without the prior written 31 consent of S.R. One, ICG and SBIO, unless required by law, statutes, rule or regulation, in which case each such public dissemination should be jointly prepared by S.R. One, ICG and SBIO. Section 9.16 Bulk Transfer Laws. ICG shall comply with any applicable state ------------ ------------------ bulk transfer laws (collectively, the "Bulk Sales Provisions") prior to the Time of Closing and shall provide SBIO with written documentation of such compliance. Section 9.17 Registered Options. SBIO shall cause the Option Shares to be ------------ ------------------ registered under the Securities Act on Form S-8 at or promptly after the Time of Closing. Section 9.18 Change and Use of Name. From and after the Time of Closing, ------------ ---------------------- ICG shall refrain from any use of the words "International Canine Genetics" or any variation thereof in connection with its business or otherwise. Section 9.19 Cooperation by ICG. ICG agrees to use its best efforts after ------------ ------------------ the Time of Closing to provide cooperation between ICG's personnel in ICG's offices and SBIO's personnel to help assure an orderly transition of the sale of Assets and the continuation of the Business associated therewith. SBIO will reimburse ICG for these services at ICG's cost (including fully burdened labor costs, materials and reasonable travel costs). Section 9.20 Liquidation and Distribution of Shares. It is understood that ------------ -------------------------------------- after the Time of Closing, ICG may choose to liquidate and dissolve and distribute the Shares to its stockholders; provided however, that ICG shall not do so at such time or in such a way as to render the purchase and sale of the Assets a reorganization within the meaning of Section 368(a)(1)(C) of the Code. 32 Section 9.21 Resale of the Shares by ICG. SBIO and ICG agree that ICG may ------------ --------------------------- sell up to ____ percent (__%) of the Shares after the Time of Closing and prior to liquidation of ICG, but only to the extent required in order to pay costs incurred in connection with this Agreement. ARTICLE X. CLOSINGS -------- Section 10.1 Time of Closing. The SBIO/ICG transactions contemplated by ------------ --------------- this Agreement shall be completed on [September 30,] 1996 (the "Time of Closing"), unless otherwise agreed to in writing by SBIO and ICG. The S.R. One Closing shall take place one hour prior to the Time of Closing. The S.R. One Closing and the ICG Closing shall take place at the offices of SBIO, 11011 Via Frontera, San Diego, California 92127, or at such other place or date as may be agreed to in writing by SBIO and ICG. The "ICG Closing" shall mean the deliveries to be made by SBIO and ICG at the Time of Closing in accordance with this Agreement. Section 10.2 Closing of the Sale and Issuance of Common Stock to S.R. One. ------------ ------------------------------------------------------------ (a) At the S.R. One Closing, SBIO shall deliver, or cause to be delivered, to S.R. One all duly and properly executed, the following: (i) Stock Certificate for the Unregistered Securities. (ii) The Investor's Rights Agreement, in the form attached hereto as Exhibit 10.2 (the "Investor's Rights Agreement"). (b) At the S.R. One Closing, S.R. One shall deliver, or cause to be delivered, to SBIO, all duly and properly executed, the following: (i) $1,000,000. (ii) The Investor's Rights Agreement. Section 10.3 Closing of the Sale of Assets. ------------ ----------------------------- (a) At the ICG Closing, ICG shall deliver to SBIO, all duly and properly executed, the following: (i) A good and sufficient Bill of Sale for the Assets in the form attached hereto as Exhibit 10.3(a)(i), selling, delivering, transferring, and assigning to SBIO title to all of ICG's right, title, and interest to the Assets, free and clear of all mortgages, pledges, liens, encumbrances, security interests, equities, charges, and restrictions of any nature whatsoever. 33 (ii) Good and sufficient supplementary assignments of all rights, title and interest in the Proprietary Rights in the form satisfactory to SBIO and its counsel. (iii) Valid assignments for all Contracts and other third party or governmental consents necessary in order for SBIO to operate the Business. (iv) Resale certificates for the resale of items of Inventory. (v) An affidavit of ICG, in the form attached hereto as Exhibit 10.3(a)(v), stating, under penalty of perjury, ICG's United States taxpayer identification number and that ICG is not a foreign person, pursuant to Section 1445(b)(2) of the Code. (b) At the ICG Closing, SBIO shall deliver, or cause to be delivered, to ICG, all duly and properly executed, the following: (i) The Shares. [(ii) A PENNSYLVANIA EXEMPTION CERTIFICATE IN THE FORM ATTACHED HERETO AS EXHIBIT 10.3(b)(ii).] (c) At or after the Time of Closing, each of SBIO and ICG shall prepare, execute, and deliver, at the preparer's expense, such further instruments of conveyance, sale, assignment, or transfer, and shall take or cause to be taken such other or further action, as any party shall reasonably request of any other party at any time or from time to time in order to perfect, confirm, or evidence in SBIO title to all or any part of the Assets or to consummate, in any other manner, the terms and provisions of this Agreement. ARTICLE XI. CONDITIONS PRECEDENT TO OBLIGATIONS (S.R. ONE CLOSING) ------------------------------------------------------ Section 11.1 Conditions to Obligations of S.R. One. Each and every ------------ ------------------------------------- obligation of S.R. One to be performed at the S.R. One Closing shall be subject to the satisfaction as of or before one hour prior to the Time of Closing of the following conditions (unless waived in writing by S.R. One): (a) Representations and Warranties Correct. The representations and -------------------------------------- warranties made by SBIO in Article V hereof shall have been in all material respects true and correct when made, and shall be in all material respects true and correct at the S.R. One Closing with the same force and effect as if they had been made on and as of said date. (b) Covenants. All covenants, agreements and conditions contained in this --------- Agreement to be performed by SBIO on or prior to the time of the S.R. One Closing shall have been performed or complied with in all material respects. 34 (c) Opinion of SBIO's Counsel. S.R. One shall have received from Brobeck, ------------------------- Phleger & Harrison LLP, counsel for SBIO, an opinion, dated as of the date of the S.R. One Closing, in substantially the form attached hereto as Exhibit 11.1. (d) Substantive Deliverables. S.R. One shall have received all items ------------------------ specified in Section 10.2(a). Section 11.2 Conditions to Obligations of SBIO. Each and every obligation ------------ --------------------------------- of SBIO to be performed at the S.R. One Closing shall be subject to the satisfaction as of or before one hour prior to the Time of Closing of the following conditions (unless waived in writing by SBIO): (a) Representations and Warranties Correct. The representations and -------------------------------------- warranties made by S.R. One in Article VII hereof shall have been in all material respects true and correct when made, and shall be in all material respects true and correct as of the S.R. One Closing with the same force and effect as if they had been made on and as of said time. (b) Covenants. All covenants, agreements and conditions contained in this --------- Agreement to be performed by S.R. One on or prior to the S.R. One Closing shall have been performed or complied with in all material respects. (c) No Law Prohibiting or Restricting Sale. There shall not be in effect any -------------------------------------- law, rule or regulation prohibiting or restricting the sale, or requiring any consent or approval of any person which shall not have been obtained, to issue the Unregistered Securities to S.R. One. (d) Substantive Deliverables. SBIO shall have received all items specified ------------------------ in Section 10.2(b). ARTICLE XII. CONDITIONS PRECEDENT TO OBLIGATIONS (ICG CLOSING) ------------------------------------------------- Section 12.1 Conditions to Obligations of SBIO. Each and every obligation ------------ --------------------------------- of SBIO to be performed at the ICG Closing shall be subject to the satisfaction as of or before the Time of Closing of the following conditions (unless waived in writing by SBIO): (a) Representations and Warranties. The representations and warranties of ------------------------------ ICG set forth in this Agreement shall have been in all material respects true and correct when made and shall be in all material respects true and correct at and as of the Time of Closing as if such representations and warranties were made as of such date and time. (b) Performance of Agreement. All covenants, conditions, and other ------------------------ obligations set forth in this Agreement which are to be performed or complied with by ICG, including Board of Directors and stockholder approval, shall have been in all material respects performed and complied with at or prior to the Time of Closing. 35 (c) Absence of Governmental or Other Objection. There shall be no pending or ------------------------------------------ threatened lawsuit challenging the transaction by any body or agency of the federal, state, or local government or by any third party, and the consummation of the transaction shall not have been enjoined by a court of competent jurisdiction as of the Time of Closing and any applicable waiting period under any applicable federal law shall have expired. Any and all filings under applicable Bulk Sales Provisions shall have been timely made and have been completed. (d) Certificate of President. ICG shall have delivered to SBIO a certificate ------------------------ executed by its President, dated the date of the ICG Closing, to the effect that the conditions set forth in subsections (a)-(c) of this Section 12.1 have been satisfied. (e) Evidence of Title. ICG shall provide to SBIO's satisfaction at the Time ----------------- of Closing termination statements of security interests from all secured creditors and releases of related liens. (f) Board and Stockholder Approval. The Board of Directors and stockholders ------------------------------ of ICG shall have approved this Agreement. The Board of Directors and, if required by law or the rules and regulations of the Nasdaq National Market, the shareholders of SBIO shall have approved this Agreement. (g) Legal Opinion. SBIO shall have received from McCausland, Keen & Buckman, ------------- counsel to ICG, an opinion, dated the date of the ICG Closing, in substantially the form attached hereto as Exhibit 12.1. (h) SEC Registration. The SEC shall have declared the Form S-4 effective, ---------------- and no stop order shall have been issued with respect to the Form S-4. (i) Licenses. SBIO shall have received all licenses from all appropriate -------- governmental agencies or third parties to operate the Business in the same manner as ICG operated the Business prior to the Time of Closing. (j) Due Diligence Investigation. SBIO shall be satisfied in its sole --------------------------- discretion with the results of its due diligence investigation of ICG. (k) Approval of Documentation. The form and substance of all certificates, ------------------------- instruments, opinions, and other documents delivered or to be delivered to SBIO under this Agreement shall be satisfactory to SBIO and its counsel in all reasonable respects. (l) Substantive Deliverables. SBIO shall have received all items specified ------------------------ in Section 10.3(a). Section 12.2 Conditions to Obligations of ICG. Each and every obligation of ------------ -------------------------------- ICG to be performed at the Time of Closing shall be subject to the satisfaction as of or before such time of the following conditions (unless waived in writing by ICG): 36 (a) Representations and Warranties. The representations and warranties of ------------------------------ SBIO set forth in this Agreement shall have been in all material respects true and correct when made and shall be in all material respects true and correct at and as of the Time of Closing as if such representations and warranties were made as of such date and time. (b) Performance of Agreement. All covenants, conditions, and other ------------------------ obligations set forth in this Agreement which are to be performed or complied with by SBIO shall have been in all material respects performed and complied with at or prior to the Time of Closing. (c) Absence of Governmental or Other Objection. There shall be no pending or ------------------------------------------ threatened lawsuit challenging the transaction by any body or agency of the federal, state, or local government, and the consummation of the transaction shall not have been enjoined by a court of competent jurisdiction as of the Time of Closing. (d) Certificate of President. SBIO shall have delivered to ICG a certificate ------------------------ executed by its President, dated the date of the ICG Closing to the effect that the conditions set forth in subsections (a)-(c) of this Section 12.2 have been satisfied. (e) Legal Opinion. ICG shall have received from Brobeck, Phleger & Harrison ------------- LLP, counsel to SBIO, an opinion, dated the date of the ICG Closing, in substantially the form attached hereto as Exhibit 12.2. (f) Board and Stockholder Approval. The Board of Directors and stockholders ------------------------------ of ICG shall have approved this Agreement. The Board of Directors and, if required by law or the rules and regulations of the Nasdaq National Market, the shareholders of SBIO shall have approved this Agreement. (g) Nasdaq National Market Listing. The Shares issuable to ICG pursuant to ------------------------------ this Agreement shall have been authorized for listing on the Nasdaq National Market, upon official notice of issuance. (h) SEC Registration. The SEC shall have declared the Form S-4 effective, ---------------- and no stop order shall have been issued with respect to the Form S-4. (i) Appointment of Director. A mutually agreeable designee of ICG shall have ----------------------- been appointed to the Board of Directors of SBIO effective as of the Time of Closing. (j) Substantive Deliverables. ICG shall have received all items specified in ------------------------ Section 10.3(b). 37 ARTICLE XIII. ICG'S HOLD-HARMLESS ------------------- Section 13.1 Excluded Liabilities. For the consideration set forth in ------------ -------------------- Article IV herein, ICG waives and releases and agrees to hold harmless SBIO and its successors, officers, directors, affiliates, agents, employees and/or assigns and covenants not to sue or otherwise institute or cause to be instituted or in any way participate in (except at the request of SBIO or as required by legal process) legal or administrative proceedings against SBIO and its successors, officers, directors, affiliates, agents, employees and/or agents with respect to any matter of any kind arising out of, relating to or connected with any Excluded Liabilities. This waiver and release extends to all claims of every nature and kind, known or unknown, suspected or unsuspected, past, present or future, arising from the Excluded Liabilities. ICG acknowledges that any and all rights granted to such ICG under Section 1542 of the California Civil Code or any analogous state law or federal law or regulation are hereby expressly waived. Said Section 1542 of the Civil Code of the State of California reads as follows: "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR." This Section 13.1 shall constitute a complete defense to any claim released herein. ARTICLE XIV. INDEMNIFICATION --------------- Section 14.1 Survival of Representations, Warranties, Covenants and ------------ ------------------------------------------------------ Agreements. - ---------- (a) Notwithstanding any investigation conducted at any time with regard thereto by or on behalf of any party to this Agreement, all representations, warranties, covenants, and agreements of each party in this Agreement shall survive for a period of two years the execution, delivery, and performance of this Agreement. No investigation made by or on behalf of SBIO with respect to ICG or S.R. One, or by or on behalf of ICG or S.R. One with respect to SBIO, shall be deemed to affect SBIO's (or ICG's or S.R. One's, as the case may be) reliance on the representations, warranties, covenants and agreements made by ICG and/or S.R. One (or by SBIO, as the case may be) contained in this Agreement and shall not be a waiver of SBIO's (or ICG's or S.R. One's, as the case may be) rights to indemnity as herein provided for the breach or inaccuracy of or failure to perform or comply with any of ICG's or S.R. One's (or SBIO's, as the case may be) representations, warranties, 38 covenants or agreements under this Agreement. All representations and warranties of each party set forth in this Agreement shall be deemed to have been made again by such party at and as of the S.R. One Closing (as to SBIO and S.R. One) or at and as of the Time of Closing (as to SBIO and ICG). (b) As used in this Article XIV, any reference to a representation, warranty, agreement or covenant contained in any section of this Agreement shall include the schedule and/or disclosure in a Disclosure Letter relating to such section. (c) Nothing in this Agreement shall be construed as limiting in any way the remedies that may be available to a party in the event of fraud relating to the representations, warranties, agreements or covenants made by any other party in this Agreement. Section 14.2 Indemnification. ------------ --------------- (a) Subject to the limitations set forth in the Section 14.5, S.R. One hereby agrees to indemnify, defend and hold harmless SBIO and its affiliates against any and all losses, liabilities, damages, demands, claims, suits, actions, judgments, and causes of action, assessments, costs, and expenses, including, without limitation, interest, penalties, reasonable attorneys' fees, any and all expenses incurred in investigating, preparing, and defending against any litigation, commenced or threatened, and any claim whatsoever, and any and all amounts paid in settlement of any claim or litigation (collectively, "Claims"), asserted against, resulting from, imposed upon, or incurred or suffered by SBIO and its affiliates, directly or indirectly, as a result of or arising from or in connection with any inaccuracy in or breach or nonfulfillment of or noncompliance with any of the representations, warranties, covenants, or agreements made by S.R. One in this Agreement or any facts or circumstances constituting such an inaccuracy, breach, nonfulfillment or noncompliance. (b) Subject to the limitations set forth in the Section 14.5, ICG hereby agrees to indemnify, defend and hold harmless SBIO and its affiliates against any and all Claims, asserted against, resulting from, imposed upon, or incurred or suffered by SBIO and its affiliates, directly or indirectly, as a result of or arising from or in connection with: (i) any inaccuracy in or breach or nonfulfillment of or noncompliance with any of the representations, warranties, covenants or agreements made by ICG in this Agreement or any facts or circumstances constituting such inaccuracy, breach, nonfulfillment or noncompliance; (ii) other than Assumed Liabilities, any liability of ICG imposed upon SBIO as transferee of the Assets, including, without limitation, any liability arising out of any lien or any obligation or claim brought by creditors of ICG or claims based on the premise that the sale of the Assets did not comply with the Bulk Sales Provisions and any liability arising out of obligations to ICG's employees (including, without limitation, any obligations under any employee benefit, profit sharing, or pension or welfare plan) or out of ICG's status as employer of employees; and 39 (iii) any liability imposed on or asserted against SBIO or any of its affiliates for any of the Excluded Liabilities or Excluded Assets. (c) Subject to the limitations set forth in the Section 14.5, SBIO hereby agrees to indemnify, defend and hold harmless S.R. One and ICG and each of their respective affiliates against any and all Claims, asserted against, resulting from, imposed upon, or incurred or suffered by S.R. One and ICG and their respective affiliates, directly or indirectly, as a result of or arising from or in connection with any inaccuracy in or breach or nonfulfillment of or noncompliance with any of the representations, warranties, covenants, or agreements made by SBIO or any facts or circumstances constituting such inaccuracy, breach, nonfulfillment or noncompliance. Section 14.3 Procedure for Indemnification with Respect to Third-Party ------------ --------------------------------------------------------- Claims. - ------ (a) If an indemnified party(ies)(the "Indemnified Party") determines to seek indemnification under this Article XIV with respect to the existence of a Claim resulting from the assertion of liability by third parties (the "Indemnifiable Claim"), the Indemnified Party shall give notice to the indemnifying party(ies) (the "Indemnifying Party") within thirty (30) days of the Indemnified Party becoming aware of any such Indemnifiable Claim or of facts upon which any such Indemnifiable Claim will be based; the notice shall set forth such material information with respect thereto as is then reasonably available to the Indemnified Party. In case any such liability is asserted against the Indemnified Party, and the Indemnified Party notifies the Indemnifying Party thereof, the Indemnifying Party will be entitled, if it so elects by written notice delivered to the Indemnified Party within twenty (20) days after receiving the Indemnified Party's notice, to assume the defense thereof with counsel satisfactory to the Indemnified Party. Notwithstanding the foregoing, (i) the Indemnified Party shall also have the right to employ its own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of the Indemnified Party unless the Indemnified Party shall reasonably determine that there is a conflict of interest between or among the Indemnified Party and/or the Indemnifying Party with respect to such Indemnifiable Claim, in which case the fees and expenses of such counsel will be borne by the Indemnifying Party, (ii) the Indemnified Party shall not have any obligation to give any notice of any assertion of liability by a third party unless such assertion is in writing, and (iii) the rights of the Indemnified Party to be indemnified hereunder in respect of Indemnifiable Claims resulting from the assertion of liability by third parties shall not be adversely affected by its failure to give notice pursuant to the foregoing unless, and, if so, only to the extent that, the Indemnifying Party is materially prejudiced thereby. With respect to any assertion of liability by a third party that results in an Indemnifiable Claim, the parties hereto shall make available to each other all relevant information in their possession material to any such assertion. (b) In the event that the Indemnifying Party, within twenty (20) days after receipt of the aforesaid notice of an Indemnifiable Claim, fails to assume the defense of the Indemnified Party against such Indemnifiable Claim, the Indemnified Party shall have the right to undertake the defense, compromise, or settlement of such action on behalf of and for the account, expense, and risk of the Indemnifying Party. 40 (c) Notwithstanding anything in this Article XIV to the contrary, if there is a reasonable probability that an Indemnifiable Claim may materially adversely affect the Indemnified Party, the Indemnified Party shall have the right to participate in such defense, compromise, or settlement and the Indemnifying Party shall not, without the Indemnified Party's written consent (which consent shall not be unreasonably withheld), settle or compromise any Indemnifiable Claim or consent to entry of any judgment in respect thereof unless such settlement, compromise, or consent includes as an unconditional term thereof the giving by the claimant or the plaintiff to the Indemnified Party a release from all liability in respect of such Indemnifiable Claim. Section 14.4 Procedure For Indemnification with Respect to Non-Third Party ------------ ------------------------------------------------------------- Claims. In the event that the Indemnified Party asserts the existence of a - ------ Claim (but excluding Claims resulting from the assertion of liability by third parties), it shall give written notice to the Indemnifying Party within thirty (30) days of the Indemnified Party becoming aware of any such Claim. Such written notice shall state that it is being given pursuant to this Section 14.4, specify the nature and amount of the Claim asserted and indicate the date on which such assertion shall be deemed accepted and the amount of the Claim deemed a valid claim (such date to be established in accordance with the next sentence). If Indemnifying Party, within thirty (30) days after the mailing of notice by the Indemnified Party, shall not give written notice to the Indemnified Party announcing its intent to contest such assertion of the Indemnified Party, such assertion shall be deemed accepted and the amount of Claim shall be deemed a valid claim. In the event, however, that the Indemnifying Party contests the assertion of a Claim by giving such written notice to the Indemnified Party within said period, then the parties shall act in good faith to reach agreement regarding such Claim. If the parties hereto, acting in good faith, cannot reach agreement with respect to such claim within ten days after such notice, such Claim shall be resolved to the exclusion of a court of law by binding arbitration in San Diego, California, in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect as expressly modified by Exhibit 14.4 attached hereto (but nonetheless the arbitration itself shall not be conducted under the auspices of such Association unless the parties shall expressly so agree). 41 Section 14.5 Limitations on Indemnification Amount. ------------ ------------------------------------- (a) Notwithstanding anything to the contrary contained in this Agreement, (i) neither of S.R. One nor ICG shall be obligated to pay to indemnify, defend or hold harmless SBIO, or its successors and assigns, unless and until the aggregate amount of those Claims that S.R. One and/or ICG otherwise would be obligated to pay pursuant to the provision of this Agreement exceeds $100,000, (ii) the maximum liability of ICG pursuant to this Article XIV for all Claims shall not exceed the purchase price paid to ICG pursuant to this Agreement; provided, however, that neither such limitation shall apply to the provisions of Section 14.2(b)(ii) and (iii) of this Agreement, (iii) the maximum liability of S.R. One pursuant to this Article XIV for all such Claims shall not exceed the purchase price paid to ICG pursuant to this Agreement, and (iv) no Claim which does not (aggregated with all other like Claims) exceed [$2,000] shall be indemnifiable by anyone to any extent. (b) Notwithstanding anything to the contrary contained in this Agreement, SBIO shall not be obligated to pay to indemnify, defend or hold harmless S.R. One or ICG, or their respective successors and assigns, unless and until the aggregate amount of those Claims that SBIO otherwise would be obligated to pay pursuant to the provision of this Agreement exceeds $500,000, and the maximum liability of SBIO pursuant to this Article XIV for all Claims shall not exceed $1,000,000 (as to S.R. One) or the fair market value of the Shares as of the Time of Closing (as to ICG). (c) The minimums stated in this Section are thresholds, not deductibles. For example, if SBIO's Claims against ICG total $101,000, ICG must pay SBIO $101,000. ARTICLE XV. TERMINATION AND ABANDONMENT --------------------------- Section 15.1 Termination. This Agreement may be terminated and the ------------ ----------- transactions herein contemplated may be abandoned at any time notwithstanding any party's Board or stockholder approval, but not later than the S.R. One Closing (as to S.R. One) or the Time of Closing (as to SBIO and ICG): (a) by SBIO, if there has been a material breach by either of S.R. One or ICG of its representations, warranties, covenants or agreements set forth in this Agreement and S.R. One/ICG fails to cure within five (5) business days after notice thereof is given by SBIO (except that no cure period shall be provided for a breach by S.R. One/ICG which by its nature cannot be cured); (b) by S.R. One, if there has been a material breach by SBIO of the representations, warranties, covenants or agreements set forth in this Agreement as to S.R. One and SBIO fails to cure within five (5) business days after notice thereof is given by S.R. One (except that no cure period shall be provided for a breach by SBIO which by its nature cannot be cured); 42 (c) by ICG, if there has been a material breach by SBIO of the representations, warranties, covenants or agreements set forth in this Agreement as to ICG and SBIO fails to cure within five (5) business days after notice thereof is given by ICG (except that no cure period shall be provided for a breach by SBIO which by its nature cannot be cured); (d) by SBIO, if the required approval of the stockholders of ICG contemplated by this Agreement shall not have been obtained within thirty (30) days from the solicitation of such consents or proxies; (e) by ICG, if the approval of this Agreement by the shareholders of SBIO of this Agreement is required and such approval shall not have been obtained within forty-five (45) days from the solicitation of such consents or proxies; (f) by SBIO or ICG, if any permanent injunction or other order of a court or other competent authority preventing the sale of Assets shall have become final and nonappealable; or (g) by SBIO or ICG, if any governmental or administrative agency shall have issued a temporary restraining order, preliminary injunction or permanent injunction or other order preventing the consummation of the sale of Assets or any litigation shall be pending, the ultimate resolution of which is likely to (i) result in the issuance of such an order or injunction, or the imposition against SBIO or ICG, of substantial damages if the sale of Assets is consummated, (ii) prohibit SBIO's ownership or operation of all or a material portion of the business rights of ICG or SBIO taken as a whole, or to compel SBIO or ICG to dispose of or hold separate all or a material portion of the business or assets of SBIO or ICG as a result of the sale of Assets, (iii) materially limit or restrict SBIO's conduct or operation of the Business after the Time of Closing, or (iv) render SBIO or ICG unable to consummate the sale of Assets. In the event any such order or injunction shall have been issued, each party agrees to use its reasonable efforts to have any such injunction lifted. Section 15.2 Procedure and Consequences of Termination. In the event of ------------ ----------------------------------------- termination pursuant to Section 15.1 hereof, written notice thereof shall forthwith be given to the other parties and this Agreement shall terminate and the transactions contemplated hereby shall be abandoned without further action. If this Agreement is terminated as provided herein, neither party hereto shall have any further obligation or liability to the other party except as stated in this Agreement and in the confidentiality agreement dated January 29, 1996 and except for prior breaches. 43 ARTICLE XVI. MISCELLANEOUS PROVISIONS ------------------------ Section 16.1 Notice. All notices and other communications required or ------------ ------ permitted under this Agreement shall be delivered to the parties at the address set forth below their respective signature blocks, or at such other address that they designate by notice to all other parties in accordance with this Section 16.1. Any party delivering notice to ICG shall deliver a copy to: International Canine Genetics, Inc., 271 Great Valley Parkway, Malvern, Pennsylvania 19355 and McCausland, Keen & Buckman, Five Radnor Corporate Center, Suite 500, Radnor, Pennsylvania 19087, Attention: Nancy D. Weisberg, Esq. (with a copy to whichever of SBIO and S.R. One is not the sender of the notice). Any party delivering notice to SBIO shall deliver a copy to: Synbiotics Corporation, 11011 Via Frontera, San Diego, California 92127 and Brobeck, Phleger & Harrison LLP, 550 West "C" Street, Suite 1200, San Diego, California 92101, Attention: Hayden J. Trubitt, Esq. (with a copy to whichever of ICG and S.R. One is not the sender of the notice). Any party delivering notice to S.R. One shall deliver a copy to: 565 E. Swedesford Road, Suite 315, Wayne, Pennsylvania 19087, Attention: Peter Sears, and SmithKline Beecham, One Franklin Plaza, Philadelphia, Pennsylvania 19102, Attention: Donald Parman, Esq. (with a copy to whichever of SBIO and ICG is not the sender of the notice). All notices and communications shall be deemed to have been received: (i) in the case of personal delivery, on the date of such delivery; (ii) in the case of facsimile transmission, on the date on which the sender receives confirmation by facsimile transmission that such notice was received by the addressee, provided that a copy of such transmission is additionally sent by mail as set forth in (iv) below; (iii) in the case of overnight air courier, on the second business day following the day sent, with receipt confirmed by the courier; and (iv) in the case of mailing by first class certified or registered mail, postage prepaid, return receipt requested, on the fifth business day following such mailing. Section 16.2 Entire Agreement. This Agreement, the exhibits and schedules ------------ ---------------- hereto, and the documents referred to herein embody the entire agreement and understanding of the parties hereto with respect to the subject matter hereof, and supersede all prior and contemporaneous agreements and understandings, oral or written, relative to said subject matter. Section 16.3 Binding Effect; Assignment. This Agreement and the various ------------ -------------------------- rights and obligations arising hereunder shall inure to the benefit of and be binding upon S.R. One, ICG, and SBIO and their respective successors and permitted assigns. Neither this Agreement nor any of the rights, interests, or obligations hereunder shall be transferred or assigned (by operation of law or otherwise) by any of the parties hereto without the prior written consent of the other parties then in existence. Section 16.4 Expenses of Transaction; Taxes. Each party shall bear its own ------------ ------------------------------ costs and expenses in connection with this Agreement and the transactions contemplated hereby. SBIO and ICG shall bear the printing expenses of the Form S-4 and the Proxy Statement pro rata based upon the size of their respective shareholder mailings. ICG shall pay all 44 applicable recording or filing fees or sales, use, excise, transfer, documentary and any other similar taxes arising out of the purchase and sale of the Assets, including without limitation any and all such fees and taxes under the laws of the States of California, Delaware and Pennsylvania or any political subdivision thereof. Section 16.5 Waiver; Consent. This Agreement may not be changed, amended, ------------ --------------- terminated, augmented, rescinded, or discharged (other than by performance), in whole or in part, except by a writing executed by the parties hereto, and no waiver of any of the provisions or conditions of this Agreement or any of the rights of a party hereto shall be effective or binding unless such waiver shall be in writing and signed by the party claimed to have given or consented thereto. Except to the extent that a party hereto may have otherwise agreed in writing, no waiver by that party of any condition of this Agreement or breach by the other party of any of its obligations or representations hereunder or thereunder shall be deemed to be a waiver of any other condition or subsequent or prior breach of the same or any other obligation or representation by the other party, nor shall any forbearance by the first party to seek a remedy for any noncompliance or breach by the other party be deemed to be a waiver by the first party of its rights and remedies with respect to such noncompliance or breach. Section 16.6 Third-Party Beneficiaries. Except as otherwise expressly ------------ ------------------------- provided for in this Agreement, nothing herein, expressed or implied, is intended or shall be construed to confer upon or give to any person, firm, corporation, or legal entity, other than the parties hereto, any rights, remedies, or other benefits under or by reason of this Agreement. Section 16.7 Counterparts. This Agreement may be executed simultaneously in ------------ ------------ multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. Section 16.8 Severability. If one or more provisions of this Agreement are ------------ ------------ held to be unenforceable under applicable law, such provision shall be interpreted so as to be enforceable to the maximum extent possible, and the balance of the Agreement shall be enforceable in accordance with its terms. Section 16.9 Governing Law. This Agreement shall in all respects be ------------ ------------- construed in accordance with and governed by the laws of the State of California as applied to agreements entered into among California residents and to be performed entirely within the State of California. Section 16.10 Attorneys' Fees. If any action at law or in equity is ------------- --------------- necessary to enforce or interpret the terms of this Agreement or to protect the rights obtained hereunder the prevailing party shall be entitled to its reasonable attorneys' fees, costs, and disbursements in addition to any other relief to which it may be entitled. Section 16.11 Cooperation and Records Retention. ICG and SBIO shall (i) ------------- --------------------------------- each provide the other with such assistance as may reasonably be requested by them in connection with the preparation of any Tax return, statement, report, form or other 45 document (hereinafter collectively a "Tax Return"), or in connection with any audit or other examination by any taxing authority or any judicial or administrative proceedings relating to liability for Taxes, (ii) each retain and provide the other, with any records or other information which may be relevant to any such Tax Return, audit or examination, proceeding or determination, and (iii) each provide the other with any final determination of any such audit or examination, proceeding or determination that affects any amount required to be shown on any Tax Return of the other for any period. Without limiting the generality of the foregoing, ICG and SBIO shall retain, until the applicable statute of limitations (including any extensions) have expired, copies of all Tax Returns, supporting work schedules and other records or information which may be relevant to such Tax Returns for all tax periods or portions thereof ending before or including the Time of Closing and shall not destroy or otherwise dispose of any such records without first providing the other party with a reasonable opportunity to review and copy the same. SBIO shall keep the original copies of the records at its facilities in California and elsewhere, if applicable, and, at ICG's expense, shall provide copies of the Records to ICG upon ICG's request. [REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 46 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written. S.R. ONE, LIMITED, a Pennsylvania business trust By: ----------------------------------------------------- Title: -------------------------------------------------- SYNBIOTICS CORPORATION, a California corporation By: ----------------------------------------------------- Title: -------------------------------------------------- INTERNATIONAL CANINE GENETICS, INC., a Delaware corporation By: ----------------------------------------------------- Title: -------------------------------------------------- [SIGNATURE PAGE TO PURCHASE AGREEMENT] EXHIBIT 10.2 ------------ SYNBIOTICS CORPORATION INVESTOR'S RIGHTS AGREEMENT September ___, 1996 TABLE OF CONTENTS -----------------
Page ---- 1. Registration Rights..................................................... 1 1.1 Definitions....................................................... 1 1.2 Company Registration.............................................. 2 1.3 Obligations of the Company........................................ 2 1.4 Furnish Information............................................... 4 1.5 Expenses of Company Registration.................................. 4 1.6 Underwriting Requirements......................................... 4 1.7 Delay of Registration............................................. 5 1.8 Indemnification................................................... 5 1.9 "Market Stand-Off" Agreement...................................... 7 1.10 Covenants of the Investors........................................ 7 1.11 Termination of Registration Rights................................ 7 2. Miscellaneous........................................................... 8 2.1 Successors and Assigns............................................ 8 2.2 Governing Law..................................................... 8 2.3 Counterparts...................................................... 8 2.4 Titles and Subtitles.............................................. 8 2.5 Notices........................................................... 8 2.6 Expenses.......................................................... 8 2.7 Amendments and Waivers............................................ 8 2.8 Severability...................................................... 8 2.9 Aggregation of Stock.............................................. 9 2.10 Entire Agreement; Amendment; Waiver............................... 9
(i) INVESTOR'S RIGHTS AGREEMENT --------------------------- THIS INVESTOR'S RIGHTS AGREEMENT is made as of the ______ day of September, 1996, by and between Synbiotics Corporation, a California corporation (the "Company"), and S.R. One, Limited, a Pennsylvania business trust (the "Investor"). RECITALS -------- WHEREAS, the Company and the Investor are parties to the Purchase Agreement dated July __, 1996 (the "Purchase Agreement"); WHEREAS, in order to induce the Company to enter into the Purchase Agreement and to induce the Investor to invest funds in the Company pursuant to the Purchase Agreement, the Investor and the Company hereby agree that this Agreement shall govern the rights of the Investor to cause the Company to register shares of Common Stock owned by the Investors and certain other matters as set forth herein; NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS: 1. Registration Rights. The Company covenants and agrees as follows: ------------------- 1.1 Definitions. For purposes of this Section 1: ----------- (a) The term "Act" means the Securities Act of 1933, as amended. (b) The term "Form S-3" means such form under the Act as in effect on the date hereof or any registration form under the Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC. (c) The term "Holder" means any person owning or having the right to acquire Registrable Securities or any assignee thereof. (d) The term "1934 Act" shall mean the Securities Exchange Act of 1934, as amended. (e) The term "register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Act, and the declaration or ordering of effectiveness of such registration statement or document. (f) The term "Registrable Securities" means (i) the Common Stock issued to the Investor pursuant to the Purchase Agreement, and (ii) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of the shares referenced in (i) above, excluding in all cases, however, any Registrable Securities sold by a person in a transaction in which his rights under this Section 1 are not assigned. (g) The number of shares of "Registrable Securities then outstanding" shall be determined by the number of shares of Common Stock outstanding which are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities which are, Registrable Securities. (h) The term "SEC" shall mean the Securities and Exchange Commission. 1.2 Company Registration. If (but without any obligation to do so) the -------------------- Company proposes to register (including for this purpose a registration effected by the Company for shareholders other than the Holders) any of its stock or other securities under the Act in connection with the public offering of such securities solely for cash (other than a registration relating solely to the sale of securities to participants in a Company stock plan, a registration on any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities or a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities which are also being registered), the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of each Holder given within twenty (20) days after mailing of such notice by the Company in accordance with Section 2.5, the Company shall, subject to the provisions of Section 1.6, cause to be registered under the Act all of the Registrable Securities that each such Holder has requested to be registered. 1.3 Obligations of the Company. Whenever required under this Section 1 -------------------------- to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for a period of up to one hundred twenty (120) days or until the distribution contemplated in the Registration Statement has been completed; provided, however, that (i) such 120-day period shall be extended for a period of time equal to the period the Holder refrains from selling any securities included in such registration at the request of an underwriter of Common Stock (or other securities) of the Company; and (ii) in the case of any registration of Registrable Securities on Form S-3 which are intended to be offered on a continuous or delayed basis, such 120-day period shall be extended, if necessary, to keep the registration statement effective until all such Registrable Securities are sold, provided that Rule 415, or any successor rule under the Act, permits an offering on a continuous or delayed basis, and provided further that applicable rules under the Act governing the obligation to file a post-effective amendment permit, in lieu of filing a post- effective amendment which (I) includes 2 any prospectus required by Section 10(a)(3) of the Act or (II) reflects facts or events representing a material or fundamental change in the information set forth in the registration statement, the incorporation by reference of information required to be included in (I) and (II) above to be contained in periodic reports filed pursuant to Section 13 or 15(d) of the 1934 Act in the registration statement. (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement. (c) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders; provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. (f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (g) Cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed. (h) Provide a transfer agent and registrar for all Registrable Securities registered pursuant hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration. 1.4 Furnish Information. It shall be a condition precedent to the ------------------- obligations of the Company to take any action pursuant to this Section 1 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method 3 of disposition of such securities as shall be required to effect the registration of such Holder's Registrable Securities. 1.5 Expenses of Company Registration. The Company shall bear and pay all -------------------------------- expenses incurred in connection with any registration, filing or qualification of Registrable Securities with respect to the registrations pursuant to Section 1.2 for each Holder, including (without limitation) all registration, filing, and qualification fees, printers and accounting fees relating or apportionable thereto and the fees and disbursements of counsel for the Company in its capacity as counsel to the selling Holders hereunder; if Company counsel does not make itself available for this purpose, the Company will pay the reasonable fees and disbursements of one counsel for the selling Holders selected by them, but excluding underwriting discounts and commissions relating to Registrable Securities. 1.6 Underwriting Requirements. In connection with any offering involving ------------------------- an underwriting of shares of the Company's capital stock, the Company shall not be required under Section 1.2 to include any of the Holders' securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it (or by other persons entitled to select the underwriters), and then only in such quantity as the underwriters determine in their sole discretion will not, jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities, requested by shareholders to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters determine in their sole discretion will not jeopardize the success of the offering (the securities so included to be apportioned pro rata among the selling shareholders according to the total amount of securities entitled to be included therein owned by each selling shareholder or in such other proportions as shall mutually be agreed to by such selling shareholders) but in no event shall (i) the amount of securities of the selling Holders included in the offering be reduced below twenty percent (20%) of the total amount of securities included in such offering. For purposes of the preceding parenthetical concerning apportionment, for any selling shareholder which is a holder of Registrable Securities and which is a partnership or corporation, the partners, retired partners and shareholders of such holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "selling shareholder," and any pro-rata reduction with respect to such "selling shareholder" shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such "selling shareholder," as defined in this sentence. 1.7 Delay of Registration. No Holder shall have any right to obtain or --------------------- seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 1. 4 1.8 Indemnification. In the event any Registrable Securities are --------------- included in a registration statement under this Section 1: (a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, any underwriter (as defined in the Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the 1934 Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Act, or the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Act, the 1934 Act, any state securities law or any rule or regulation promulgated under the Act, or the 1934 Act or any state securities law; and the Company will pay to each such Holder, underwriter or controlling person any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 1.8(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter or controlling person. (b) To the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Act, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, against any losses, claims, damages, or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Act, or the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will pay any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this subsection 1.8(b), in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 1.8(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided, that, in no event 5 shall any indemnity under this subsection 1.8(b) exceed the gross proceeds from the offering received by such Holder. (c) Promptly after receipt by an indemnified party under this Section 1.8 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.8, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.8, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.8. (d) If the indemnification provided for in this Section 1.8 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage, or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. (e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control. (f) The obligations of the Company and Holders under this Section 1.8 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1, and otherwise. 6 1.9 "Market Stand-Off" Agreement. Investor hereby agrees that, during ---------------------------- the period of duration specified by the Company and an underwriter of common stock or other securities of the Company, following the effective date of a registration statement of the Company filed under the Act, it shall not, to the extent requested by the Company and such underwriter, directly or indirectly sell, offer to sell, contract to sell (including, without limitation, any short sale), grant any option to purchase or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any securities of the Company held by it at any time during such period except common stock included in such registration; provided, however, that: (a) all officers and directors of the Company and all other persons with registration rights (whether or not pursuant to this Agreement) enter into similar agreements; and (b) such market stand-off time period shall not exceed 180 days. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of Investor (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period. Notwithstanding the foregoing, the obligations described in this Section 1.9 shall not apply to a registration relating solely to employee benefit plans on Form S-l or Form S-8 or similar forms which may be promulgated in the future, or a registration relating solely to a Commission Rule 145 transaction on Form S-14 or Form S-15 or similar forms which may be promulgated in the future. 1.10 Covenants of the Investors. Investor agrees that the Registrable -------------------------- Securities shall be subject to the volume limitations on resale as set forth in the now-current Rule 144 of the Act until the second anniversary of the date of this Agreement. 1.11 Termination of Registration Rights. No Holder shall be entitled to ---------------------------------- exercise any right provided for in this Section 1 after three (3) years following the date of this Agreement. 2. Miscellaneous. ------------- 2.1 Successors and Assigns. Except as otherwise provided herein, the ---------------------- terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any shares of Registrable Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 7 2.2 Governing Law. This Agreement shall be governed by and construed ------------- under the laws of the State of California as applied to agreements among California residents entered into and to be performed entirely within California. 2.3 Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 2.4 Titles and Subtitles. The titles and subtitles used in this -------------------- Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 2.5 Notices. Unless otherwise provided, any notice required or permitted ------- under this Agreement shall be given in writing and shall be deemed effectively given upon personal delivery to the party to be notified or upon deposit with the United States Post Office, by registered or certified mail, postage prepaid and addressed to the party to be notified at the address indicated for such party on the signature page hereof, or at such other address as such party may designate by ten (10) days' advance written notice to the other parties. 2.6 Expenses. If any action at law or in equity is necessary to enforce -------- or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 2.7 Amendments and Waivers. Any term of this Agreement may be amended ---------------------- and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of a majority of the Registrable Securities then outstanding. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Registrable Securities then outstanding, each future holder of all such Registrable Securities, and the Company. 2.8 Severability. If one or more provisions of this Agreement are held ------------ to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 2.9 Aggregation of Stock. All shares of Registrable Securities held or -------------------- acquired by affiliated entities or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement. 2.10 Entire Agreement; Amendment; Waiver. This Agreement (including the ----------------------------------- Exhibits hereto, if any) constitutes the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. 8 [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 9 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. SYNBIOTICS CORPORATION, a California corporation By: ------------------------------------------------------------- ___________________, President Address: 11011 Via Frontera San Diego, CA 92127 INVESTOR: S.R. ONE, LIMITED, a Pennsylvania business trust By: ------------------------------------------------------------- Address: ------------------------------------------------------------- ----------------------------------------------------------------- [SIGNATURE PAGE TO INVESTOR'S RIGHTS AGREEMENT] 10 EXHIBIT 10.3(a)(i) ------------------ BILL OF SALE ------------ KNOW ALL MEN BY THESE PRESENTS, THAT INTERNATIONAL CANINE GENETICS, INC., a Delaware corporation ("ICG"), hereby grants, conveys, transfers, assigns, sets over and delivers, as of _________________, 1996 (the "Effective Date"), unto SYNBIOTICS CORPORATION, a California corporation ("SBIO"), pursuant to that certain Purchase Agreement among ICG, SBIO and S.R. One, Limited, a Pennsylvania business trust, dated July ___, 1996 (the "Agreement"), all of ICG's right, title and interest in and to all tangible and intangible assets, rights and properties used in connection with the performance and operation of ICG's Business (other than Excluded Assets as set forth in Section [2.2] of the Agreement), wherever located, including without limitation, all of the assets, rights and properties set forth in Section [2.1] of the Agreement (the "Assets"), TO HAVE AND TO HOLD the Assets unto SBIO, its successors and assigns forever. Defined terms not otherwise defined herein shall have the meanings given them in the Agreement. ICG and its successors and SBIO hereby agree to take all actions reasonably necessary to obtain any necessary consent (to the extent not already obtained) for the transfer of the Assets to SBIO and, upon the receipt of such consent, to provide to SBIO the benefits of title to such Assets. All the Assets shall automatically be deemed to have been transferred and assigned to SBIO as of the Time of Closing. Pending such formal transfer and assignment, SBIO shall be entitled to the full economic benefit of ownership of the Assets and shall not be liable for any loss, damage or charge arising out of acts or omissions occurring prior to the Time of Closing with respect to the Assets or the conduct of ICG's Business, except as may be set forth in the Agreement. The obligation of ICG and its successor shall be to take all reasonable action necessary to obtain the consents and to provide to SBIO the benefits of title to all of the Assets referred to above. ICG HEREBY CONSTITUTES and appoints SBIO and SBIO's successors and assigns, the true and lawful attorneys of ICG with full power of substitution, in the name of ICG or otherwise, and on behalf and for the benefit of SBIO, its successors and assigns, to demand and receive from time to time any and all Assets transferred or intended so to be; to give receipts, releases and acquittances for or in respect of the same of any part thereof; and to take any action necessary to effect the transfer to SBIO of full legal title in and beneficial ownership of any Asset hereby transferred and assigned or intended so to be. ICG declares that the foregoing powers are coupled with an interest and shall not be revocable by it in any manner or for any reason. ICG, FOR ITSELF AND ITS SUCCESSORS, AGREES THAT it or such successors shall hereafter cause the execution and delivery of any further assignments, instruments of transfer, bills of sale, powers of attorney or conveyances and perform other acts, as may be necessary or desirable fully to vest in SBIO title to and enjoyment of the Assets assigned and transferred or intended so to be pursuant to the Agreement. IN WITNESS WHEREOF, ICG has caused this Bill of Sale to be executed as of the date first written above. "ICG" INTERNATIONAL CANINE GENETICS, INC., a Delaware corporation By: ---------------------------------------------- Its: --------------------------------------------- [SIGNATURE PAGE TO BILL OF SALE] EXHIBIT 11.1 ------------ _____________, 1996 S.R. One, Limited 565 Swedesford Road, Suite 315 Wayne, PA 19087 Ladies and Gentlemen: We have acted as counsel for Synbiotics Corporation, a California corporation (the "Company"), in connection with the issuance and sale of shares of its Common Stock to you at the S.R. One Closing pursuant to the Purchase Agreement dated July __, 1996 (the "Purchase Agreement") among the Company, International Canine Genetics, Inc, and you. This opinion is being rendered to you pursuant to Section 11.1(c) of the Purchase Agreement in connection with the S.R. One Closing. Capitalized terms not otherwise defined in this opinion have the meaning given them in the Purchase Agreement. In connection with the opinions expressed herein we have made such examination of matters of law and of fact as we considered appropriate or advisable for purposes hereof. As to matters of fact material to the opinions expressed herein, we have relied upon the representations and warranties as to factual matters contained in and made by the Company pursuant to the Purchase Agreement and upon certificates and statements of government officials and of officers of the Company. We have also examined originals or copies of such corporate documents or records of the Company as we have considered appropriate for the opinions expressed herein. We have assumed for the purposes of this opinion that the signatures on documents and instruments examined by us are authentic, that each document is what it purports to be, and that all documents submitted to us as copies conform with the originals, which facts we have not independently verified. In rendering this opinion we have also assumed: (A) that the Purchase Agreement and Investor's Rights Agreement have been duly and validly executed and delivered by you or on your behalf and constitute valid, binding and enforceable obligations upon you; (B) that the representations and warranties made in the Purchase Agreement by you are true and correct; (C) that any wire transfers, drafts or checks tendered by you will be honored; (D) if you are a corporation or other entity, that you have filed any required state franchise, income or similar tax returns and have paid any required state franchise, income or similar taxes; and (E) that there are no extrinsic agreements or understandings among the parties to the Purchase Agreement or the Investor's Rights Agreement that would modify or interpret the terms of the Purchase Agreement or the Investor's Rights Agreement or the respective rights or obligations of the parties thereunder. As used in this opinion, the expression "we are not aware" means as to matters of fact that, based on the actual knowledge of individual attorneys within the firm principally responsible for handling current matters for the Company and after an examination of documents referred to herein and after inquiries of certain officers of the Company, no facts have been disclosed to us that have caused us to conclude that the opinions expressed are factually incorrect; but beyond that we have made no factual investigation for the purposes of rendering this opinion. Specifically, but without limitation, we have made no inquiries of securities holders or employees of the Company, other than such officers. This opinion relates solely to the laws of the State of California and the federal law of the United States, and we express no opinion with respect to the effect or application of any other laws. Special rulings of authorities administering such laws or opinions of other counsel have not been sought or obtained. Based upon our examination of and reliance upon the foregoing and subject to the limitations, exceptions, qualifications and assumptions set forth below and except as set forth in the Purchase Agreement or the Synbiotics Disclosure Letter, we are of the opinion that as of the date hereof: 1. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California, and the Company has the requisite corporate power and authority to own its properties and to conduct its business as presently conducted. 2. The Company has the requisite corporate power and authority to execute, deliver and perform the Purchase Agreement and Investor's Rights Agreement. Each of the foregoing has been duly and validly authorized by the Company, and duly executed and delivered by an authorized officer of the Company and constitutes a legal, valid and binding obligation of the Company, enforceable against the Company according to its terms. 3. The Company's execution, delivery, performance and compliance as to S.R. One with the terms of the Purchase Agreement and Investor's Rights Agreement do not violate any provision of any applicable federal or California law, rule or regulation or any provision of the Company's Restated Articles of Incorporation or Bylaws and do not conflict with or constitute a default under the provisions of any judgment, writ, decree or order specifically identified in the Synbiotics SEC Reports or the material provisions of any material agreement specifically identified in the Synbiotics SEC Reports. 4. All consents, approvals, permits, orders or authorizations of, and all qualifications, registrations, designations, declarations or filings with, any federal or S.R. One, Limited Page 15 , 1996 ---------- California state governmental authority on the part of the Company required in connection with the execution and delivery of the Purchase Agreement and consummation at the S.R. One Closing of the transactions contemplated by the Purchase Agreement to be consummated there have been obtained, and are effective, except the filing required by Section 25102(f) of the California Corporate Securities Law of 1968, and we are not aware of any proceedings, or written threat thereof, that question the validity thereof. 5. We are not aware that there is any action, proceeding or governmental investigation pending, against the Company or any of its officers or directors, or that any of the foregoing has received any written threat thereof, which questions the validity of the Purchase Agreement or the Investor's Rights Agreement, or the right of the Company to enter into such Purchase Agreement or Investor's Rights Agreement. Our opinions expressed above are specifically subject to the following limitations, exceptions, qualifications and assumptions: (A) The effect of bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting the relief of debtors or the rights and remedies of creditors generally, including without limitation the effect of statutory or other law regarding fraudulent conveyances and preferential transfers. (B) We express no opinion as to the Company's compliance or noncompliance with applicable federal or state antifraud or antitrust statutes, laws, rules and regulations. (C) Limitations imposed by state law, federal law or general equitable principles upon the specific enforceability of any of the remedies, covenants or other provisions of any applicable agreement and upon the availability of injunctive relief or other equitable remedies, regardless of whether enforcement of any such agreement is considered a proceeding in equity or at law. (D) The effect of court decisions, invoking statutes or principles of equity, which have held that certain covenants and provisions of agreements are unenforceable where enforcement of such covenants or provisions under the circumstances would violate the enforcing party's implied covenant of good faith and fair dealing, is not reasonably necessary for the protection of the enforcing party, or is not a material breach of a material covenant or provision. (E) We express no opinion concerning the past, present or future fair market value of any securities. (F) The unenforceability under certain circumstances of any provisions prohibiting waivers of any terms of the Purchase Agreement or Investor's Rights Agreement other than in writing, or prohibiting oral modifications thereof or modification by course of dealing. S.R. One, Limited Page 16 , 1996 ---------- (G) The unenforceability under certain circumstances of provisions indemnifying a party against, or requiring contributions toward, that party's liability for its own wrongful or negligent acts, or where indemnification or contribution is contrary to public policy. In this regard, we advise you that in the opinion of the Securities and Exchange Commission indemnification of directors, officers and controlling persons of an issuer against liabilities arising under the Securities Act of 1933, as amended, is against public policy and is therefore unenforceable. (H) The unenforceability under certain circumstances of provisions expressly or by implication waiving broadly or vaguely stated rights, unknown future rights, or defenses to obligations or rights granted by law, when such waivers are against public policy or prohibited by law. (I) The unenforceability under certain circumstances of provisions to the effect that rights or remedies are not exclusive, that rights or remedies may be exercised without notice, that every right or remedy is cumulative and may be exercised in addition to or with any other right or remedy, that election of a particular remedy or remedies does not preclude recourse to one or more remedies, or that failure to exercise or delay in exercising rights or remedies will not operate as a waiver of any such right or remedy. (J) The effect of California law, federal law or equitable principles which limits the amount of attorneys' fees that can be recovered under certain circumstances. This opinion is rendered as of the date first written above solely for your benefit in connection with the Purchase Agreement and may not be delivered to, quoted or relied upon by any person other than you, or for any other purpose, without our prior written consent. Our opinion is expressly limited to the matters set forth above and we render no opinion, whether by implication or otherwise, as to any other matters relating to the Company. We assume no obligation to advise you of facts, circumstances, events or developments which hereafter may be brought to our attention and which may alter, affect or modify the opinions expressed herein. Very truly yours, BROBECK, PHLEGER & HARRISON LLP EXHIBIT 12.1 ------------ [MCCAUSLAND, KEEN & BUCKMAN LETTERHEAD] ______________, 1996 Synbiotics Corporation 11011 Via Frontera San Diego, CA 92127 Ladies and Gentlemen: We have acted as counsel for International Canine Genetics, Inc., a Delaware corporation ("Seller"), in connection with the sale of substantially all of its assets to Synbiotics Corporation, a California corporation ("Buyer"), pursuant to the Purchase Agreement dated as of July __, 1996 among Seller, Buyer and S.R. One, Limited, (the "Agreement"). This opinion is being rendered to you pursuant to Section 12.1(g) of the Agreement. Capitalized terms used herein and not otherwise defined shall have the same meaning given to such terms in the Agreement. In connection with the opinions expressed herein we have made such examination of matters of law and of fact as we considered appropriate or advisable for purposes hereof. As to matters of fact material to the opinions expressed herein, we have relied upon the representations and warranties as to factual matters contained in and made by Seller pursuant to the Agreement and upon certificates and statements of government officials and of officers of Seller. We have also examined originals or copies of such corporate documents or records of Seller as we have considered appropriate for the opinions expressed herein. We have assumed for the purposes of this opinion that the signatures on documents and instruments examined by us are authentic, that each document is what it purports to be, and that all documents submitted to us as copies conform with the originals, which facts we have not independently verified. In making our examination of the documents executed by entities other than Seller, we have assumed that each such other entity had the power to enter into and perform all its obligations thereunder and the due authorization of, and the due execution and delivery of, such documents by each such entity. To the extent that the obligations of Seller may be dependent upon such matters, we assume for purposes of our opinions that: (A) you have complied with any applicable requirement to file returns and pay taxes under the California tax laws; (B) the Agreement has been duly authorized, executed and delivered by and constitutes the legal, valid and binding obligation of all parties thereto other than Seller, enforceable in accordance with its terms; (C) each of the parties thereto has the requisite corporate or other organizational power and authority to perform its obligations under the Agreement; and (D) the Agreement accurately and completely set forth the terms of the transaction intended by the parties to be covered thereby. Except as expressly covered in our opinions, we are not expressing any opinion as to the effect of or compliance with any state or federal laws or regulations applicable to the transactions contemplated by the Agreement because of the nature of the businesses of the parties thereto other than Seller. As used in this opinion, the expression "to our knowledge" with reference to matters of fact means that after an examination of documents in our files and considering the actual knowledge of those attorneys in our firm who have given substantive attention to legal matters for Seller, including information obtained by inquiry to responsible persons at our client concerning factual matters related to the opinions expressed herein, but not including any constructive or imputed notice of any information, we find no reason to conclude that the opinions expressed herein are factually incorrect. Beyond that we have made no independent factual investigation for the purpose of rendering an opinion with respect to such matters. This opinion relates solely to the laws of the State of Delaware, the State of Pennsylvania and applicable Federal laws of the United States, and we express no opinion with respect to the effect or applicability of the laws of other jurisdictions. Based upon and subject to the foregoing, and subject to the further assumptions, limitations, qualifications and exceptions set forth herein, we are of the opinion that: (K) Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware with the corporate power and authority to own its properties and other assets and to carry on its business and to own and lease the properties and assets it now owns or operates. Seller has the corporate power and authority to execute, deliver and carry out the terms of the Agreement. (L) The execution and delivery of the Agreement and the consummation of the transactions contemplated thereby have been duly authorized by the Board of Directors of Seller and by the stockholders of Seller. The Agreement has been duly executed and delivered by Seller and is the legal, valid and binding obligation of Seller, enforceable against Seller in accordance with its terms. (M) No consents, approvals or authorizations of any governmental authority of the State of Delaware, the State of Pennsylvania or the United States are required or necessary on the part of Seller in connection with the execution, delivery and performance at the Time of Closing by Seller of the Agreement, except for (i) such consents, approvals or authorizations which have been obtained or waived prior to the date hereof, (ii) any filings which may be required on the part of Seller in the period following the consummation of the transactions contemplated by the Agreement under the International Synbiotics Corporation , 1996 - ---------- Investment and Trade In Services Act of 1976, and (iii) compliance with the Hart-Scott-Rodino Antitrust Improvements Act of 1976 or the Defense Production Act of 1950, as to which with your consent we express no opinion. The Pennsylvania bulk sales law is not applicable to the transactions contemplated by the Agreement. (N) Neither the execution or delivery by Seller of the Agreement nor the consummation by Seller at the Time of Closing of the transactions contemplated thereby will violate any provision of the Certificate of Incorporation or Bylaws of Seller, or will to our knowledge violate or be in conflict with any judgment, decree, injunction or order specifically identified in the ICG SEC Reports or the schedules to the Agreement, or will to our knowledge violate or conflict with or constitute a material default (or an event which, with notice or lapse of time or both, would constitute a material default) under or result in the termination of, accelerate the performance required by, or, except as provided in the Agreement, result in the creation of any lien, security interest, charge or encumbrance upon any of the assets or properties of Seller under, any term or provision of any material contract specifically identified in the ICG SEC Reports or the schedules to the Agreement. (O) To our knowledge, there are no pending or overtly threatened actions, proceedings, investigations or claims against or affecting Seller before any court, arbitrator or governmental authority which challenge the validity or enforceability of the Agreement. (P) Seller has sold, transferred and conveyed to Buyer all of its right, title and interest in and to the Assets as of the Time of Closing. The foregoing opinions are subject to the following additional limitations, qualifications, assumptions and exceptions: (a) The enforceability of Seller's obligations under the Agreement is subject to the effect of i) bankruptcy, insolvency, reorganization, arrangement, moratorium, fraudulent transfer and other similar laws affecting the rights of creditors generally; and ii) the discretion of any court of competent jurisdiction in awarding equitable remedies, including, without limitation, specific performance or injunctive relief, and the effect of general principles of equity embodied in federal and state statutes and common law. (b) The unenforceability under certain circumstances of provisions indemnifying a party against, or requiring contributions toward, that party's liability for its own wrongful or negligent acts, or where indemnification or contribution is contrary to public policy. In this regard, we advise you that in the opinion of the Securities and Exchange Commission indemnification of directors, officers and controlling persons of an issuer against liabilities arising under the Securities Act of 1933, as amended, is against public policy and is therefore unenforceable. Synbiotics Corporation , 1996 - ---------- (c) Provisions of the Agreement may be unenforceable where (i) the breach of such provisions imposes restrictions or burdens upon Seller, including the acceleration of indebtedness due under debt instruments, and it cannot be demonstrated that the enforcement of such restrictions or burdens is reasonably necessary for the protection of the obligee, (ii) the obligee's enforcement of such provisions under the circumstances would violate the obligee's implied covenant of good faith and fair dealing or (iii) the breach of such provision is not a material breach of a material covenant or provision. (d) Provisions of the Agreement expressly or by implication waiving broadly or vaguely stated rights, unknown future rights, rights or defenses to obligations granted by law, may be unenforceable under certain circumstances where such waivers are against public policy or prohibited by law. (e) Provisions of the Agreement may be unenforceable under certain circumstances where they provide (specifically or in effect) that rights or remedies are not exclusive, that every right or remedy is cumulative and may be exercised in addition to or with any other right or remedy, that election of a particular remedy or remedies does not preclude recourse to one or more other remedies, that any right or remedy may be exercised without notice, or that failure to exercise or delay in exercising rights or remedies will not operate as a waiver of any such right or remedy. (f) The effect of state law, federal law or equitable principles which limits the amount of attorneys' fees that can be recovered under certain circumstances. (g) We express no opinion as to the validity, binding effect or enforceability of any provisions prohibiting waivers of any terms of the Agreement other than in writing, or prohibiting oral modifications thereof or modification by course of dealing. This opinion is rendered as of the date first written above solely for your benefit in connection with the Agreement and may not be delivered to, quoted or relied upon by any person other than you, or for any other purpose, without our prior written consent. Our opinion is expressly limited to the matters set forth above and we render no opinion, whether by implication or otherwise, as to any other matters relating to Seller. We assume no obligation to advise you of facts, circumstances, events or developments which hereafter may be brought to our attention and which may alter, affect or modify the opinions expressed herein. Very truly yours, MCCAUSLAND, KEEN & BUCKMAN EXHIBIT 12.2 ------------ ______________, 1996 International Canine Genetics, Inc. 271 Great Valley Parkway Malvern, PA 19355 Ladies and Gentlemen: We have acted as counsel for Synbiotics Corporation, a California corporation ("Buyer"), in connection with its purchase of substantially all the assets of International Canine Genetics, Inc., a Delaware corporation ("Seller"), pursuant to the Purchase Agreement dated as of July __, 1996 among Seller, S.R. One, Limited, and Buyer (the "Agreement"). This opinion is being rendered to you pursuant to Section 12.2(e) of the Agreement. Capitalized terms used herein and not otherwise defined shall have the same meaning given to such terms in the Agreement. In connection with the opinions expressed herein we have made such examination of matters of law and of fact as we considered appropriate or advisable for purposes hereof. As to matters of fact material to the opinions expressed herein, we have relied upon the representations and warranties as to factual matters contained in and made by Buyer pursuant to the Agreement and upon certificates and statements of government officials and of officers of Buyer. We have also examined originals or copies of such corporate documents or records of Buyer as we have considered appropriate for the opinions expressed herein. We have assumed for the purposes of this opinion that the signatures on documents and instruments examined by us are authentic, that each document is what it purports to be, and that all documents submitted to us as copies conform with the originals, which facts we have not independently verified. In making our examination of the documents executed by entities other than Buyer, we have assumed that each such other entity had the power to enter into and perform all its obligations thereunder and the due authorization of, and the due execution and delivery of, such documents by each such entity. To the extent that the obligations of Buyer may be dependent upon such matters, we assume for purposes of our opinions that: (A) you have complied with any applicable requirement to file returns and pay taxes under the Delaware and Pennsylvania tax laws; (B) the Agreement has been duly authorized, executed and delivered by and constitutes the legal, valid and binding obligation of all parties thereto other than Buyer, enforceable in accordance with its terms; (C) each of the parties thereto has the requisite corporate or other organizational power and authority to perform its obligations under the Agreement; and (D) the Agreement accurately and completely set forth the terms of the transaction intended by the parties to be covered thereby. International Canine Genetics, Inc. Page 2 , 1996 - ---------- Except as expressly covered in our opinions, we are not expressing any opinion as to the effect of or compliance with any state or federal laws or regulations applicable to the transactions contemplated by the Agreement because of the nature of the businesses of the parties thereto other than Buyer. As used in this opinion, the expression "to our knowledge" with reference to matters of fact means that after an examination of documents in our files and considering the actual knowledge of those attorneys in our firm who have given substantive attention to legal matters for Buyer, including information obtained by inquiry to responsible persons at our client concerning factual matters related to the opinions expressed herein, but not including any constructive or imputed notice of any information, we find no reason to conclude that the opinions expressed herein are factually incorrect. Beyond that we have made no independent factual investigation for the purpose of rendering an opinion with respect to such matters. This opinion relates solely to the laws of the State of California and applicable Federal laws of the United States, and we express no opinion with respect to the effect or applicability of the laws of other jurisdictions. Based upon and subject to the foregoing, and subject to the further assumptions, limitations, qualifications and exceptions set forth herein, we are of the opinion that: (Q) Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of California with the corporate power and authority to own its properties and other assets and to carry on its business and to own and lease the properties and assets it now owns or operates. (R) Buyer has the corporate power and authority to execute, deliver and carry out the terms of the Agreement, and has taken all necessary corporate action to authorize the execution and delivery of the Agreement. (S) No consents, approvals or authorizations of any governmental authority of the State of California or the United States are required or necessary on the part of Buyer in connection with the execution, delivery and performance at the Time of Closing by Buyer of the Agreement, except for (i) such consents, approvals or authorizations which have been obtained or waived prior to the date hereof, (ii) any filings which may be required on the part of Buyer in the period following the consummation of the transactions contemplated by the Agreement under the International Investment and Trade In Services Act of 1976, and (iii) compliance with the Hart-Scott-Rodino Antitrust Improvements Act of 1976 or the Defense Production Act of 1950, as to which with your consent we express no opinion. International Canine Genetics, Inc. Page 3 , 1996 - ---------- (T) The Agreement is the legal, valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms. (U) Neither the execution or delivery by Buyer of the Agreement nor the consummation by Buyer at the Time of Closing of the transactions contemplated thereby will violate any provision of the Restated Articles of Incorporation or Bylaws of Buyer, or will to our knowledge violate or be in conflict with any judgment, decree, injunction or order specifically identified in the Synbiotics SEC Reports, or will to our knowledge violate or conflict with or constitute a material default (or an event which, with notice or lapse of time or both, would constitute a material default) under or result in the termination of, accelerate the performance required by, or, except as provided in the Agreement, result in the creation of any lien, security interest, charge or encumbrance upon any of the assets or properties of Buyer under, any term or provision of any material contract specifically identified in the Synbiotics SEC Reports. (V) To our knowledge, there are no pending or overtly threatened actions, proceedings, investigations or claims against or affecting Buyer before any court, arbitrator or governmental authority which challenge the validity or enforceability of the Agreement. The foregoing opinions are subject to the following additional limitations, qualifications, assumptions and exceptions: (a) The enforceability of Buyer's obligations under the Agreement is subject to the effect of i) bankruptcy, insolvency, reorganization, arrangement, moratorium, fraudulent transfer and other similar laws affecting the rights of creditors generally; and ii) the discretion of any court of competent jurisdiction in awarding equitable remedies, including, without limitation, specific performance or injunctive relief, and the effect of general principles of equity embodied in federal and California statutes and common law. (b) The unenforceability under certain circumstances of provisions indemnifying a party against, or requiring contributions toward, that party's liability for its own wrongful or negligent acts, or where indemnification or contribution is contrary to public policy. In this regard, we advise you that in the opinion of the Securities and Exchange Commission indemnification of directors, officers and controlling persons of an issuer against liabilities arising under the Securities Act of 1933, as amended, is against public policy and is therefore unenforceable. (c) Provisions of the Agreement may be unenforceable where (i) the breach of such provisions imposes restrictions or burdens upon Buyer, including the acceleration of indebtedness due under debt instruments, and it cannot be demonstrated that the enforcement of such restrictions or burdens is reasonably necessary for the protection of the obligee, (ii) the obligee's enforcement of such provisions under the circumstances would International Canine Genetics, Inc. Page 4 , 1996 - ---------- violate the obligee's implied covenant of good faith and fair dealing or (iii) the breach of such provision is not a material breach of a material covenant or provision. (d) Provisions of the Agreement expressly or by implication waiving broadly or vaguely stated rights, unknown future rights, rights or defenses to obligations granted by law, may be unenforceable under certain circumstances where such waivers are against public policy or prohibited by law. (e) Provisions of the Agreement may be unenforceable under certain circumstances where they provide (specifically or in effect) that rights or remedies are not exclusive, that every right or remedy is cumulative and may be exercised in addition to or with any other right or remedy, that election of a particular remedy or remedies does not preclude recourse to one or more other remedies, that any right or remedy may be exercised without notice, or that failure to exercise or delay in exercising rights or remedies will not operate as a waiver of any such right or remedy. (f) Our opinions are subject to the effect of California law which provides that a court may refuse to enforce, or may limit the application of, a contract or any clause thereof which the court finds as a matter of law to have been unconscionable at the time it was made or contrary to public policy. (g) We express no opinion as to Buyer's compliance or non-compliance with applicable federal or state antifraud or antitrust statutes, laws, rules and regulations. (h) We express no opinion concerning the past, present or future fair market value of any securities. (i) The effect of California law, federal law or equitable principles which limits the amount of attorneys' fees that can be recovered under certain circumstances. (j) We express no opinion as to the validity, binding effect or enforceability of any provisions prohibiting waivers of any terms of the Agreement other than in writing, or prohibiting oral modifications thereof or modification by course of dealing. This opinion is rendered as of the date first written above solely for your benefit in connection with the Agreement and may not be delivered to, quoted or relied upon by any person other than you, or for any other purpose, without our prior written consent. Our opinion is expressly limited to the matters set forth above and we render no opinion, whether by implication or otherwise, as to any other matters relating to Buyer. We assume International Canine Genetics, Inc. Page 5 , 1996 - ---------- no obligation to advise you of facts, circumstances, events or developments which hereafter may be brought to our attention and which may alter, affect or modify the opinions expressed herein. Very truly yours, BROBECK, PHLEGER & HARRISON LLP EXHIBIT 14.4 ------------ SPECIAL ARBITRATION PROCEDURES ------------------------------ 1. Establishment of Forum. Arbitration shall be initiated by one party ---------------------- sending to the other a Notice of Arbitration, by registered or certified United States mail, which notice must contain a description of the dispute, the amount involved, and the remedy sought. Unless the parties agree on one arbitrator within ten days thereafter, a sole arbitrator shall be designated by the American Arbitration Association. The arbitration shall be held within ninety (90) days after the mailing of the initiating notice, at a date, time and place in San Diego, California determined (subject to this Agreement) by the arbitrator. 2. Pre-Hearing Conference. The arbitrator shall schedule a pre-hearing ---------------------- conference to reach agreement or procedural matters, arrange for the exchange of information, obtain stipulations, and attempt to narrow the issues. 3. Discovery. The parties agree to expedite the arbitration proceedings by --------- eliminating discovery. Instead of discovery, the parties agree to the following exchange of information: (a) Either party can make a written demand for lists of the witnesses to be called or the actual documents to be introduced at the hearing. The demand must be received prior to the pre-hearing conference. (b) The lists and such documents must be served within fifteen (15) days of the demand. (c) Except as expressly provided in this Item 3, no depositions, interrogatories, or document production may be taken for discovery. 4. The Hearing. ----------- (a) The parties must file briefs with the arbitrator at least three (3) days before the hearing, specifying the facts each intends to prove and analyzing the applicable law. (b) The parties have the right to representation by legal counsel throughout the arbitration proceedings. (c) Judicial rules of evidence and procedure relating to the conduct at the hearing, examination of witnesses, and presentation of evidence do not apply. Any relevant evidence, including hearsay, shall be admitted by the arbitrator if it is the sort of evidence on which responsible persons are accustomed to rely on in the conduct of serious affairs, regardless of the admissibility of such evidence in a court of law. 1 (d) Subject to the discretion of the arbitrator, both sides at the hearing may call and examine witnesses for relevant testimony, introduce relevant exhibits or other documents, cross-examine or impeach witnesses who shall have testified orally on any matter relevant to the issues, and otherwise rebut evidence. (e) Any party desiring a stenographic record may secure a court reporter to attend the proceedings. The requesting party must notify the other parties of the arrangements in advance of the hearing and must pay for the cost incurred. (f) Any party may request the oral evidence to be given under oath. 5. The Award. --------- (a) The decision shall be based on the evidence introduced at the hearing, including all logical and reasonable inferences therefrom. The arbitrator may grant any remedy or relief which is just and equitable. The arbitrator shall be empowered to award relief which is legal and/or equitable in nature, as appropriate, and in accordance with any statutory provisions. (b) The award must be made in writing and signed by the arbitrator. It shall contain a concise statement of the reasons in support of the decision. (c) The award must be mailed promptly to the parties, but no later than thirty (30) days from the closing of the hearing. 6. Fees and Expenses. Each party must pay its one-half share of the ----------------- arbitrator's expenses and fees, together with other expenses of the arbitration incurred or approved by the arbitrator. The arbitrator shall have discretion to award, to the party he determines to be the prevailing party, its or his attorney fees, witness fees and other such expenses incurred. 2 SCHEDULE 2.1(a) List of Equipment See Attached as of 4/30/96. 1 SCHEDULE 2.1(b) List of Inventory as of 4/30/96
1. Status Pro Diagnostic $24,591.96 2. Target Diagnostic $ 3,524.40 3. Nutritional Supplements $ 7,517.91 4. PennHIP $27,870.68 5. Status LH Diagnostic $ 4,003.11 6. Grooming Products $10,399.19 7. Optimate Diagnostic $16,134.58 8. All Other $12,622.47 9. Reserve for Inventory $10,660.49 TOTAL $97,003.31
1 SCHEDULE 2.1(c) List of Contracts 1. Consulting Contract with Dr. Laura T. Goldsmith re: Relaxin. 2. Consulting Contract with Dr. Bernard G. Steinetz re: Relaxin. 3. Consulting Contract with Dr. George Lust re: Relaxin. 4. Exclusive License Agreement with the Cornell Research Foundation, Inc. re: Relaxin. 5. Sponsored Research Agreement with The University of Medicine and Dentistry of New Jersey re: Relaxin. 6. Sponsored Research Agreement with Cornell University re: Relaxin. 7. Sponsored Research Agreement with new York University re: Relaxin. 8. Evaluation and Certification Agreement with the Trustees of the University of Pennsylvania re: PennHIP. 9. License Agreement with the Trustees of the University of Pennsylvania re: PennHIP. 10. Consulting Agreement with Dr. Gail Smith re: PennHIP. 11. Consulting Agreement with Ortho/Analytic, Inc. re: PennHIP. 12. Consulting Agreement with Dr. Pamela McKelvie re: PennHIP. 13. Consulting Agreement with Dr. Eldin Leighton re: PennHIP. 14. Consulting Agreement with Thomas P. Gregor re: PennHIP. 15. Consulting Agreement with Veterinary Nutrition Specialist, Inc. re: Nutritional Supplements. 16. Manufacturing and Distribution Agreement with the W. R. Van Wyck Group, Limited re: Grooming Products. 17. Distribution Consulting Agreement with Wolfgang Jackle Associates, Inc. 18. Equipment Operating Lease Agreements (12) with AT&T Capital. 1 19. Equipment Operating Lease Agreement with Sanwa Leasing. 20. Equipment Capital Leases (3) with Advanta Leasing. 21. Equipment Capital Lease with Avco Leasing. 22. Equipment Capital Lease with Copelco. 23. Equipment Capital Leases (2) with Colonial Pacific Leasing. 24. Equipment Capital Lease with G.E. Capital. 25. Equipment Capital Lease with The Manifest Group. 26. License Agreement with Cambridge Veterinary Science re: Pregnancy Testing. 27. Lease Agreement with Morehall Associates, Ltd. for facility located at 271 Great Valley Parkway, Malvern, PA 19355. 28. Capital Lease Agreement with LPI Software Funding Group. $38,000 of advanced payments made under agreement. Equipment and software is expected to be fully operational sometime in September 1996. 29. Verbal contract with Howard Graham, dating to 1987, for preparation of all frozen and chilled semen buffers. 30. Verbal agreement with Country Club Kennels, dating back to 1987, for monthly housing of training beagles. 31. Rental agreement with G E Capital, Modular Space for rental of trailer located at Country Club Kennels and used for training. 32. Equipment operating lease with Easy Lease Company. 2 SCHEDULE 2.1(d) List of Real Property 1. Leased facility at 271 Great Valley Parkway, Malvern, PA 19355. See Schedule 2.1(c), List of Contracts. 1 SCHEDULE 2.1(e) List of Proprietary Rights
1. Fresh Express Registered Trademark 2. Ov-U-Peak Registered Trademark 3. ICG Trademark 4. Status-Pro Trademark 5. ICAGEN Trademark 6. Status-LH Trademark 7. ICG Stress Formula Trademark/Formula Trade Secret 8. ICG Coat & Skin Formula Trademark/Formula Trade Secret 9. ICG Lite Formula Trademark/Formula Trade Secret 10. PennHIP Registered trademark licensed for the University of Pennsylvania 11. Frozen/chilled semen buffers Proprietary of ownership/trade secret 12. Optimate Trademark 13. U.S. Patent # 5,120,660 Method for Canine Fertility Detection 14. U.S. Patent # 5,106,761 Method for determining Molecules in a Liquid Medium 15. U.S. Patent # 5,089,419 Detection of Pregnancy by identification of the C Peptide of Relaxin in the Urine of Animals
16. Exclusive License for the use of U.S. Patent #5,108,897--Relaxin testing for early detection of pregnancy in dogs. 17. Exclusive License for the use of U.S. Patent # 5,482,055--Method for assessing Canine Hip Dysplasia. 18. Customer list as maintained in the Mail Order Manager (M.O.M.) order entry computer system. 19. Vendor/supplier list as contained in the Real World 6.5 Accounting Computer System, Accounts Payable Module. 1 SCHEDULE 2.1(k) List of Leasehold Interests None other than the leasehold improvements listed on List of Equipment (Schedule 2.1(a)). 1 SCHEDULE 2.1(l) List of Insurance Policies 1. Guardian Health/Life Policy -- G160341. 2. Long-Term Disability Policy -- #LTD 097397 -- Reliance Insurance. 3. Package insurance including Property, Electronic Data Processing, General Liability and Product Liability. Federal Insurance Company Policy -- #3532-36-61. 4. Workers Compensation. Federal Insurance Company Policy -- #7163-51-81. 1 SCHEDULE 2.2 Schedule of Excluded Assets 1. Employment Contract with Paul A. Rosinack. 2. Employment Contract with John R. Bauer. 3. Employment Contract with Stephen T. Peterson. 4. Employment Contract with Michael C. Brown. 5. Employment Contract with Melissa Goodman. 6. Directors and Officers Liability Insurance. Zurich Insurance Company Policy -- #DOC-8357613. 1 SCHEDULE 3.1(a) List of Assumed Liabilities [TO BE PREPARED AT THE TIME OF CLOSING] 1 SCHEDULE 3.1(c) List of Outstanding Options and Warrants
EQUIVALENT #OF EXERCISE EXPIRATION COMMON SCHEDULE OF WARRANT HOLDERS WARRANTS PRICE DATE SHARE - --------------------------- ---------- ---------- ---------------- ----------- JANNEY MONTGOMERY SCOTT 20,000 $1.25 MARCH 24, 2000 20,704 GILFORD SECURITIES 48,500 $1.25 MARCH 24, 2000 48,137 PENN JANNEY FUND, INC. 205,000 $1.25 MARCH 24, 2000 212,216 HARRY LEOPOLD 12,416 $1.25 MARCH 24, 2000 12,853 GARY A. FOLD 8,278 $1.25 MARCH 24, 2000 8,567 STEPHEN DE GROAT 25,000 $1.25 MARCH 24, 2000 25,880 PUBLIC WARRANTS 715,000 $1.25 MARCH 24, 2000 740,168
#OF EXERCISE SCHEDULE OF STOCK OPTIONS OPTIONS PRICE - ------------------------- -------- ---------- ISO's 41,667 $1.35 69,200 $7.00 80,950 $2.00 96,850 $1.25 TOTAL ISO'S 288,467 NON-QUALIFIED: 375 $1.35 6,857 $7.00 13,500 $2.00 51,400 TOTAL NON-QUALIFIED 71,132 TOTAL STOCK OPTIONS 359,599
STOCK OPTION SUMMARY TOTAL AT 6/94 - ------------------------- -------------- TOTAL EMPLOYEES 299,932 TOTAL BOARD OF DIRECTORS 48,257 TOTAL CONSULTANTS 22,875 FORFITS (11,465) -------------- TOTAL OPTIONS GRANTED 359,699 OPTIONS AUTHORIZED 490,000 -------------- AVAILABLE FOR ISSUANCE 130,401 ==============
SUMMARY ISO'S NQUAL TOTAL - ------------ -------- -------- -------- Options at 61.35 per share 41,667 375 42,042 Options at $7.00 per share 68,200 5,857 75,057 Options at $2.00 per share 80,950 13,500 94,450 Options at $1.25 per share 98,650 51,400 148,050 -------- -------- -------- TOTAL 289,467 71,132 359,599
1 AS OF MAY 30, 1996 EQUITY ANALYSIS - -----------------------------
$1.25 $1.38 $2.00 $1.25 NQUAL. TOTAL NQUAL. $7.00 TOTAL NQUAL. TOTAL NQUAL. AT AT FOUNDERS AT 3/93 NQUAL. AT 4/94 AT 6/94 AT 6/94 AT 7/95 11/95 11/95 SHARES -------- ------ -------- -------- -------- -------- ------- ------- -------- BOARD OF DIRECTORS - ------------------- S. HARTOGENSIS 857 857 3,000 3,857 9,600 13,457 R.G. RANKIN 112,500 112,500 3,000 115,500 9,600 125,100 M. CUNEO 0 0 0 9,600 9,600 D. LEIN 0 3,000 3,000 9,600 12,600 CONSULTANTS - ------------ N. MOSER 375 375 375 375 G. SMITH 5,000 5,000 5,000 5,000 5,000 15,000 S. GRISEWOOD 2,500 2,500 PORTER, LE AY & ROSE 0 4,500 4,500 4,500 MCKELVIE, PAM 250 250 GREGOR, TOM 250 250 _______ _______ _____ _______ _________ _______ _______ _____ ______ TOTAL 112,500 375 5,857 118,732 13,500 132,232 5,500 45,900 183,632 ======== ======== ====== ======== ======== ======== ======== ======= =======
1 AS OF MAY 30, 1996 EQUITY ANALYSIS - -----------------------------
$1.35 ISO'S $7.00 $2.00 HIRE FOUNDERS AT ISO'S TOTAL ISO'S TOTAL DATE SHARES 3/93 AT 5/83 AT 4/84 AT 6/94 AT 6/94 -------- -------- ------ -------- ---------- -------- -------- EMPLOYEE - --------- RESEARCH & DEVELOPMENT - ---------------------- BROWN, MICHAEL 09/01/91 4,167 9,500 13,667 11,500 25,167 FERRARR, GAIL 10/10/90 1,295 1,295 1,000 2,295 MARCHAK, STAN 06/02/92 325 325 800 925 KWATKOWSKI, MARCIA 02/07/94 0 1,000 1,000 COSTELLO, SNADRA (PART TIM 09/06/93 0 250 250 SALES & MARKETING - ------------------ PETERSON, STEPHEN 01/10/84 7,000 7,000 6,000 13,000 RANKIN, SANDRA 07/14/86 18,687 5,000 21,687 3,600 25,687 LUMSARGIS, KATHY 09/21/94 570 670 675 1,245 WESBERRY, PAMELA 12/16/91 1,335 1,335 675 2,010 MURRAY, CHARLES 01/01/90 1,000 1,000 250 1,250 MORTIZ, DAN 04/01/90 JAMES, LEAH 02/16/95 VETERINARY SERVICES - -------------------- GOODMAN, MELISSA 01/01/88 12,500 10,000 22,500 12,500 35,000 MAYERS, CARLA 03/28/91 0 1,750 1,750 MULLEN, SHERRI 01/01/88 1,760 1,750 250 2,000 O'NEILL SHIRLEE 05/23/88 1,750 1,750 1,000 2,750 PETOR, MICHELE 05/08/94 ADMINISTRATION & FINANCE - ------------------------ BAUER, JOHN 08/16/90 4,167 11,000 15,187 15,500 90,667 TRAVIS, CONCETTA 01/10/81 935 935 800 1,535 HOOVER, DEBORAH 10/01/93 0 350 350 CROSSON, JOYCE 09/08/91 870 870 1,000 1,870 FACCIOLLI, JOE 10/12/94 KELLEY, KEVIN 01/14/91 935 935 250 1,185 ROSINACK, PAUL 12/01/91 33,333 20,000 63,333 25,000 78,333 SPADA, NANCY TRUEX, HOWARD -------- ------ -------- ---------- -------- -------- TOTAL 31,187 42,060 73,858 154,723 84,844 288,963 ======== ====== ======== ========== ======== ======== ____________ 0 3,685 3,685 2,700 8,685 4,800 NET 41,687 69,200 140,034 80,950 220,964 41,488
$1.25 $1.25 $ 1.25 ISO'S ISO'S TOTAL ISO'S TOTAL AT 7/95 AT 11/95 AT 11/95 AT 4/94 AT 4/96 --------- ---------- ---------- --------- ------- EMPLOYEE - --------- RESEARCH & DEVELOPMENT - ---------------------- BROWN, MICHAEL 5,487 4,533 74,021 74,021 FERRARR, GAIL 1,100 6,985 6,985 MARCHAK, STAN 800 3,175 3,175 KWATKOWSKI, MARCIA 1,100 3,100 3,100 COSTELLO, SNADRA (PART TIM 300 800 800 SALES & MARKETING - ------------------ PETERSON, STEPHEN 8,201 6,799 48,000 48,000 RANKIN, SANDRA 3,500 78,161 78,161 LUMSARGIS, KATHY 800 3,960 3,960 WESBERRY, PAMELA 800 6,155 6,155 MURRAY, CHARLES 760 4,260 4,260 MORTIZ, DAN 800 800 800 JAMES, LEAH 250 250 250 VETERINARY SERVICES - -------------------- GOODMAN, MELISSA 5,467 4,533 102,500 102,500 MAYERS, CARLA 3,500 7,000 7,000 MULLEN, SHERRI 750 6,510 6,510 O'NEILL SHIRLEE 750 8,000 8,000 PETOR, MICHELE 750 750 750 ADMINISTRATION & FINANCE - ------------------------ BAUER, JOHN 8,201 6,799 151,521 151,521 TRAVIS, CONCETTA 750 4,955 4,955 HOOVER, DEBORAH 750 1,450 1,450 CROSSON, JOYCE 1,000 5,610 5,610 FACCIOLLI, JOE 250 250 250 KELLEY, KEVIN 350 3,655 3,655 ROSINACK, PAUL 219,999 219,999 SPADA, NANCY 0 1,250 1,250 TRUEX, HOWARD 0 1,250 1,250 --------- ---------- ---------- --------- ------- TOTAL 47,211 23,859 746,705 2,994 749,699 ========= ========== ========== ========= ======= 0 11465 35,020 0 35,020 0 0 52,664 315,134 962,121 2,500 964,621
2 EX-5.1 3 OPINION OF BROBECK, PHLEGER & HARRISON LLP EXHIBIT 5.1 ----------- August 12, 1996 Synbiotics Corporation 11011 Via Frontera San Diego, California 92127 Re: Registration Statement on Form S-4 of Synbiotics Corporation ------------------------------------------------------------ Ladies and Gentlemen: We have acted as counsel to Synbiotics Corporation, a California corporation ("Synbiotics"), in connection with the Registration Statement on Form S-4 filed by Synbiotics with the Securities and Exchange Commission (the "Registration Statement") with respect to the issuance and sale of up to 1,712,142 shares of Common Stock of Synbiotics (the "Shares") proposed to be issued in connection with the acquisition of substantially all the assets of International Canine Genetics, Inc. by Synbiotics (the "Acquisition") pursuant to a Purchase Agreement dated as of July 23, 1996 (the "Purchase Agreement"), as described in the Joint Proxy Statement/Prospectus of Synbiotics which is a part of the Registration Statement. In connection with this opinion, we have examined the Registration Statement and related Joint Proxy Statement/Prospectus, Synbiotics' Restated Articles of Incorporation, as amended through the date hereof, Synbiotics' bylaws, as amended through the date hereof, and the originals, or copies certified to our satisfaction, of such records, documents, certificates, memoranda and other instruments as in our judgment are necessary or appropriate to enable us to render the opinion expressed below (the "Documents"). We are relying (without any independent investigation thereof) upon the truth and accuracy of the statements, covenants, representations and warranties set forth in such Documents. On the basis of the foregoing, and in reliance thereon, we are of the opinion that the Shares have been duly authorized, and if, as and when issued in accordance with the Purchase Agreement and the Registration Statement and Joint Proxy Statement/Prospectus (as amended and supplemented through the date of issuance), will be validly issued, fully paid and nonassessable. We consent to the use of this opinion as an exhibit to the Registration Statement and further consent to all references to us in the Registration Statement, the Joint Proxy Statement/Prospectus constituting a part thereof and any further amendments thereto. Subject to the foregoing sentence, this opinion is given as of the date hereof solely for your benefit and may not be relied upon, circulated, quoted or otherwise referred to for any purpose without our prior written consent. Very truly yours, BROBECK, PHLEGER & HARRISON LLP EX-10.2 4 EMPLOYMENT AGREEMENT EXHIBIT 10.2 ------------ EMPLOYMENT AGREEMENT -------------------- THIS AGREEMENT is made by and between Synbiotics Corporation, a California corporation ("EMPLOYER"), and Kenneth M. Cohen ("EMPLOYEE") as of May 7, 1996. R E C I T A L S: - - - - - - - - WHEREAS, EMPLOYER and EMPLOYEE wish to set forth in this Agreement the terms and conditions under which EMPLOYEE is to be employed by EMPLOYER. NOW, THEREFORE, EMPLOYER and EMPLOYEE, in consideration of the mutual promises set forth herein, agree as follows: ARTICLE 1 --------- TERM OF AGREEMENT ----------------- 1.1 Term. The term of this Agreement shall commence on the date first ---- written above and shall continue until terminated pursuant to Article 6. EMPLOYEE shall serve as a consultant from the date first written above through May 14, 1996, for cash consideration of $1.00. Thereafter he shall serve as an employee on the terms and conditions set forth below. ARTICLE 2 --------- EMPLOYMENT DUTIES ----------------- 2.1 Title/Responsibilities. Beginning May 15, 1996, EMPLOYEE shall serve as ---------------------- an employee of EMPLOYER and hold the position of Chief Executive Officer of EMPLOYER, and shall have the powers and responsibilities consistent with such position. Subject to the ultimate direction and management of EMPLOYER's Board of Directors, EMPLOYEE will have general charge of the management and operations of EMPLOYER. EMPLOYEE shall also perform all duties which from time to time are assigned to him by EMPLOYER's Board of Directors, and shall provide the Board with periodic reports upon request. 2.2 Directorship. EMPLOYEE agrees, if and when elected, to serve (at the ------------ pleasure of EMPLOYER's shareholders) as a Director on EMPLOYER's Board of Directors (and on such Board committees to which he may be appointed) at no additional compensation during the time he is an employee of EMPLOYER. It is understood that EMPLOYEE shall forthwith be elected to fill a newly-created seat on EMPLOYER's Board of Directors and shall, as long as he remains Chief Executive Officer, be included on management's slate of director nominees. 2.3 Full Time Attention. EMPLOYEE shall perform his duties hereunder in a ------------------- diligent and professional manner and devote substantially all of his business time and attention, best efforts, energy and skills to EMPLOYER during the time he is employed hereunder as Chief Executive Officer of EMPLOYER. During the term of this Agreement EMPLOYEE shall not without the express consent of EMPLOYER's Board of Directors serve or act as a shareholder (except passive holdings of less than 1% of the stock), employee, agent, consultant, officer, director, partner, representative or owner of any other business entity, nor (if it would require more than an insubstantial amount of business time or attention) of any non-profit entity. 2.4 Compliance with Rules. EMPLOYEE shall comply with all applicable --------------------- governmental laws, rules and regulations and with all of EMPLOYER's policies, rules and/or regulations applicable to all employees of EMPLOYER. ARTICLE 3 --------- COMPENSATION ------------ 3.1 Base Salary. From and after May 15, 1996, EMPLOYER shall pay semi- ----------- monthly to EMPLOYEE a salary of $225,000 per annum until such time or times as it may discretionarily be raised (but not lowered) upon annual performance/salary review by EMPLOYER's Board of Directors Compensation Committee. 3.2 Additional Compensation (Stock Option). In addition to the salary -------------------------------------- provided in Section 3.1, EMPLOYER hereby grants to EMPLOYEE as additional compensation for EMPLOYEE's services (but not for any capital-raising purposes or in connection with any capital-raising activities): (a) an incentive stock option to purchase 225,000 shares of EMPLOYER Common Stock under EMPLOYER's 1995 Stock Option/Stock Issuance Plan, with an exercise price equal to the Fair Market Value per share of EMPLOYER Common Stock on the date first written above, such option to vest in five equal annual installments; and (b) a direct issuance of 10,000 fully-vested shares of unregistered EMPLOYER Common Stock. 3.3 Bonus. In addition to the salary provided in Section 3.1, EMPLOYEE shall ----- participate in a cash bonus plan giving him the opportunity to receive, in the discretion of EMPLOYER's Board of Directors (upon recommendation of its Compensation Committee), a bonus of up to 30% of annual salary upon achievement of targets established for him by EMPLOYER's Board of Directors (upon recommendation of such Compensation Committee) in its discretion. ARTICLE 4 --------- OTHER BENEFITS -------------- 4.1 Fringe Benefits. EMPLOYEE shall be entitled during the term of his --------------- employment under this Agreement to all other fringe benefits made available from time to time by EMPLOYER to its executives generally and/or its employees generally, including without limitation participation in EMPLOYER's 401(k) plan and group health insurance plan. 4.2 Expenses. EMPLOYER shall reimburse EMPLOYEE, not less often than -------- monthly, for reasonable out-of-pocket business expenses incurred by EMPLOYEE in the course of his duties hereunder, upon submission by EMPLOYEE of appropriate expense account reports and substantiating receipts. 4.3 Vacation. EMPLOYEE shall be entitled to four weeks paid vacation per -------- full year of service, in accordance with and subject to EMPLOYER's vacation accrual plan and policies. EMPLOYEE acknowledges the "cap" on vacation accruals set forth in such plan and policies. 4.4 Executive Protection. By no later than July 1, 1996, EMPLOYER and -------------------- EMPLOYEE shall confer to establish and implement a mutually agreeable program to protect EMPLOYER's executives against the eventuality of EMPLOYER being acquired, including but not limited to cash parachute payments and acceleration of stock option vesting upon takeover. ARTICLE 5 --------- FORMER EMPLOYMENT ----------------- 5.1 No Conflict. EMPLOYEE represents and warrants that the execution and ----------- delivery by him of this Agreement, his employment by EMPLOYER and his performance of duties under this Agreement will not conflict with and will not be constrained by any prior employment or consulting agreement or relationship, or any other contractual obligation. 5.2 No Use of Prior Confidential Information. EMPLOYEE will not ---------------------------------------- intentionally disclose to EMPLOYER or use on its behalf any confidential information belonging to any of his former employers, but during his employment by EMPLOYER he will use in the performance of his duties all information (but only such information) which is generally known and used by persons with training and experience comparable to his own or is common knowledge in the industry or otherwise legally in the public domain. ARTICLE 6 --------- TERMINATION ----------- 6.1 Term. This Agreement (including EMPLOYEE'S employment) shall continue ---- until terminated by either EMPLOYER or EMPLOYEE. Such termination (including termination of EMPLOYEE's employment) shall be effected by written notification and may be effected at any time, with or without cause, for any reason or no reason. 6.2 Severance. If this Agreement and/or EMPLOYEE's employment is terminated --------- for cause, EMPLOYEE shall be entitled to no severance pay. If this Agreement and/or EMPLOYEE's employment is terminated other than for cause, EMPLOYEE shall be entitled to severance pay as follows: if termination after May 14, 1997: six months' salary at EMPLOYEE's then base salary rate; if termination before May 15, 1997: six months' salary at EMPLOYEE's then base salary rate, plus salary at $225,000 per annum through May 14, 1997. "Cause" shall be defined to mean: (a) Death; (b) Voluntary resignation (other than because of a material breach by EMPLOYER of its obligations under this Agreement or reassignment of EMPLOYEE to a location outside San Diego County); (c) EMPLOYEE's repudiation of this Agreement; (d) permanent disability (defined as EMPLOYEE's inability to perform, with or without reasonable accommodation, the essential functions of his position for any 50 business days -- exclusive of vacation days taken -- within any continuous period of 200 days by reason of physical or mental illness or incapacity); (e) EMPLOYEE being formally charged with the commission of a felony, or being convicted of a misdemeanor involving moral turpitude; (f) EMPLOYEE's demonstrable fraud or dishonesty; (g) EMPLOYEE's use of alcohol, drugs or any illegal substance in such a manner as to interfere with the performance of his duties under this Agreement; (h) EMPLOYEE's intentional, reckless or grossly negligent action materially detrimental to the best interest of the EMPLOYER, including any misappropriation or unauthorized use of EMPLOYER's property or improper use or disclosure of confidential information (but excluding any good faith exercise of business judgment); (i) EMPLOYEE's intentional failure to perform material duties under this Agreement if such failure has continued for 15 days after EMPLOYEE has been notified in writing by EMPLOYER of the nature of EMPLOYEE's failure to perform; or (j) EMPLOYEE's chronic absence from work for reasons other than illness or permitted vacation. Termination for cause shall be without prejudice to any other right or remedy to which EMPLOYER may be entitled at law, in equity, or under this Agreement. ARTICLE 7 --------- ARBITRATION ----------- 7.1 Final and Binding Arbitration. Any controversy, claim or dispute between ----------------------------- (a) a party to this Agreement, on the one hand, and (b) the other party to this Agreement and/or such second party's parents, subsidiaries or affiliates and/or any of their directors, officers, employees, agents, successors, assigns, heirs, executors, administrators, or legal representatives, on the other hand, arising out of, in connection with, or in relation to (t) the interpretation, validity, performance or breach of this Agreement, (u) EMPLOYEE's stock options and the underlying shares, (v) EMPLOYEE's employment by EMPLOYER, (w) any termination of such employment, (x) any actions during or with respect to EMPLOYEE's work for EMPLOYER, (y) any claims for breach of contract, tort, or breach of the covenant of good faith and fair dealing, or (z) any claims of discrimination or other claims under any federal, state or local law or regulation now in existence or hereinafter enacted and as amended from time to time concerning in any way the subject of EMPLOYEE's employment with EMPLOYER or its termination, shall, at the request of either party, be resolved to the exclusion of a court of law by binding arbitration in San Diego, California, in accordance with the Employment Dispute Resolution Arbitration Rules of the American Arbitration Association then in effect as expressly modified by Exhibit A hereto (but nonetheless the arbitration itself shall not be conducted under the auspices of such Association unless the parties shall expressly so agree). This paragraph shall not have the effect of diminishing the remedies to which EMPLOYEE may be due under any of such claims, but shall merely affect the forum in which such claims are made. Each of EMPLOYEE and EMPLOYER understands and agrees that the arbitration shall be instead of any civil litigation and that the arbitrator's decision shall be final and binding to the fullest extent permitted by law and enforceable by any court having jurisdiction thereof. The only claims not covered by this Section --- 7.1 are claims for benefits under the workers' compensation laws or claims for unemployment insurance benefits, which will be resolved pursuant to those laws. ARTICLE 8 --------- GENERAL PROVISIONS ------------------ 8.1 Governing Law. This Agreement and the rights of the parties thereunder ------------- shall be governed by and interpreted under California law. 8.2 Assignment. EMPLOYEE may not delegate, assign, pledge or encumber his ---------- rights or obligations under this Agreement or any part thereof. 8.3 Notice. Any notice required or permitted to be given under this ------ Agreement shall be sufficient if it is in writing and is sent by registered or certified mail, postage prepaid, or personally delivered, to the following addresses, or to such other addresses as either party shall specify by giving notice under this section: TO EMPLOYER: Chairman, Synbiotics Corporation 11011 Via Frontera San Diego, CA 92127 Copy to: Hayden J. Trubitt Brobeck, Phleger & Harrison 550 West C Street, Suite 1300 San Diego, CA 92101 TO EMPLOYEE: Kenneth M. Cohen 895 La Jolla Corona Court La Jolla, CA 92037
8.4 Amendment. This Agreement may be waived, amended or supplemented --------- only by an express writing signed by both of the parties hereto. To be valid, EMPLOYER's signature must be by a person specially authorized by EMPLOYER's Board of Directors to sign such particular document. 8.5 Waiver. No waiver of any provision of this Agreement shall be ------ binding unless and until set forth expressly in writing and signed by the waiving party. To be valid, EMPLOYER's signature must be by a person specially authorized by EMPLOYER's Board of Directors to sign such particular document. The waiver by either party of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any preceding or succeeding breach of the same or any other term or provision, or a waiver of any contemporaneous breach of any other term or provision, or a continuing waiver of the same or any other term or provision. No failure or delay by a party in exercising any right, power, or privilege hereunder or other conduct by a party shall operate as a waiver thereof, in the particular case or in any past or future case, and no single or partial exercise thereof shall preclude the full exercise or further exercise of any right, power, or privilege. No action taken pursuant to this Agreement shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants or agreements contained herein. 8.6 Severability. All provisions contained herein are severable and ------------ in the event that any of them shall be held to be to any extent invalid or otherwise unenforceable by any court of competent jurisdiction, such provision shall be construed as if it were written so as to effectuate to the greatest possible extent the parties' expressed intent; and in every case the remainder of this Agreement shall not be affected thereby and shall remain valid and enforceable, as if such affected provision were not contained herein. 8.7 Headings. Article and section headings are inserted herein for -------- convenience of reference only and in no way are to be construed to define, limit or affect the construction or interpretation of the terms of this Agreement. 8.8 Drafting Party. The provisions of this Agreement have been -------------- prepared, examined, negotiated and revised by each party hereto, and no implication shall be drawn and no provision shall be construed against either party by virtue of the purported identity of the drafter of this Agreement, or any portion thereof. 8.9 No Outside Representations. No representation, warranty, condition, -------------------------- promise, understanding or agreement of any kind with respect to the subject matter hereof has been made by either party, nor shall any such be relied upon by either party, except those contained herein. There were no inducements to enter into this Agreement, except for what is expressly set forth in this Agreement. 8.10 Entire Agreement. This Agreement, together with EMPLOYER's ---------------- standard Proprietary Information and Inventions Agreement, constitutes the entire agreement between the parties pertaining to the subject matter hereof and completely supersedes all prior or contemporaneous agreements, understandings, arrangements, commitments, negotiations and discussions of the parties, whether oral or written (all of which shall have no substantive significance or evidentiary effect). Each party acknowledges, represents and warrants that he or it has not relied on any representation, agreement, understanding, arrangement or commitment which has not been expressly set forth in this Agreement. Each party acknowledges, represents and warrants that this Agreement is fully integrated and not in need of parol evidence in order to reflect the intentions of the parties. The parties specifically intend that the literal words of this Agreement shall, alone, conclusively determine all questions concerning the parties' intent. IN WITNESS WHEREOF, the parties have executed and delivered this Employment Agreement in San Diego, California as of the date first written above. SYNBIOTICS CORPORATION By: ------------------------------------------------ Donald E. Phillips, Chairman ------------------------------------------------ KENNETH M. COHEN Attachment: Exhibit A (Special Arbitration Procedures) EXHIBIT A --------- SPECIAL ARBITRATION PROCEDURES ------------------------------ 1. Establishment of Forum. Arbitration shall be initiated by one party ---------------------- sending to the other a Notice of Arbitration, by registered or certified United States mail, which notice must contain a description of the dispute, the amount involved, and the remedy sought. Unless the parties agree on one arbitrator within ten days thereafter, a sole arbitrator shall be designated by the American Arbitration Association. The arbitration shall be held within 90 days after the mailing of the initiating notice, at a date, time and place in San Diego, California determined (subject to this Agreement) by the arbitrator. 2. Pre-Hearing Conference. The arbitrator shall schedule a pre-hearing ---------------------- conference to reach agreement or procedural matters, arrange for the exchange of information, obtain stipulations, and attempt to narrow the issues. 3. Discovery. The parties agree to expedite the arbitration proceedings by --------- eliminating discovery. Instead of discovery, the parties agree to the following exchange of information: (a) Either party can make a written demand for lists of the witnesses to be called or the actual documents to be introduced at the hearing. The demand must be received prior to the pre-hearing conference. (b) The lists and such documents must be served within fifteen days of the demand. (c) Except as expressly provided in this Item 3, no depositions, interrogatories, or document production may be taken for discovery. 4. The Hearing. ----------- (a) The parties must file briefs with the arbitrator at least three days before the hearing, specifying the facts each intends to prove and analyzing the applicable law. (b) The parties have the right to representation by legal counsel throughout the arbitration proceedings. (c) Judicial rules of evidence and procedure relating to the conduct at the hearing, examination of witnesses, and presentation of evidence do not apply. Any relevant evidence, including hearsay, shall be admitted by the arbitrator if it is the sort of evidence on which responsible persons are accustomed to rely on in the conduct of serious affairs, regardless of the admissibility of such evidence in a court of law. (d) Subject to the discretion of the arbitrator, both sides at the hearing may call and examine witnesses for relevant testimony, introduce relevant exhibits or other documents, cross-examine or impeach witnesses who shall have testified orally on any matter relevant to the issues, and otherwise rebut evidence. (e) Any party desiring a stenographic record may secure a court reporter to attend the proceedings. The requesting party must notify the other parties of the arrangements in advance of the hearing and must pay for the cost incurred. (f) Any party may request the oral evidence to be given under oath. 5. The Award. --------- (a) The decision shall be based on the evidence introduced at the hearing, including all logical and reasonable inferences therefrom. The arbitrator may grant any remedy or relief which is just and equitable. The arbitrator shall be empowered to award relief which is legal and/or equitable in nature, as appropriate, and in accordance with any statutory provisions. A-1 (b) The award must be made in writing and signed by the arbitrator. It shall contain a concise statement of the reasons in support of the decision. (c) The award must be mailed promptly to the parties, but no later than thirty (30) days from the closing of the hearing. 6. Fees and Expenses. Each party must pay its one-half share of the ----------------- arbitrator's expenses and fees, together with other expenses of the arbitration incurred or approved by the arbitrator. The arbitrator shall have discretion to award, to the party he determines to be the prevailing party, its or his attorney fees, witness fees and other such expenses incurred. 7. Special Limitations Period. EMPLOYEE shall have six months after receipt -------------------------- of notification of termination pursuant to Article 6, or knowledge of facts alleged to constitute some other breach of this Agreement, in which to submit a demand for arbitration to EMPLOYER. If EMPLOYEE fails to submit a demand for arbitration within said six month period, such failure shall constitute an absolute bar to EMPLOYEE's institution of any arbitration proceeding (or any other kind of proceeding or court action) thereon. 8. California Arbitration Statutes. Except to the extent expressly ------------------------------- contradicted by this Agreement, the arbitration provisions of Section 1280 et seq. (Part 3, Title 9) (with the exception of Section 1283.05) of the California Code of Civil Procedure shall be fully applicable to this Agreement. For purposes of California Code of Civil Procedure Section 1281.8 (relating to court issuance of provisional remedies), the parties agree that in any controversy, claim or dispute involving the protection of any intellectual property, it shall be conclusively presumed, if a party is otherwise entitled to have a court issue a provisional remedy, that the arbitration award to which the party may be entitled may be rendered ineffectual without such provisional remedy. Except for applications or other procedures to obtain provisional relief from a court as contemplated by California Code of Civil Procedure Section 1281.8 or any equivalent statute, if any controversy, claim or dispute within the scope of Article 7 becomes the subject of a judicial action and, despite the other party's request for arbitration, for any reason remains the subject of a judicial action, all decisions of fact and law shall be determined by reference pursuant to Section 638 et seq. (Part 2, Title 8, Chapter 6) of the California Code of Civil Procedure. The parties shall designate to the court as referee a person determined by the parties in accordance with the provisions established for the selection of an arbitrator pursuant to this Agreement; but if an arbitrator is already selected pursuant to this Agreement the reference shall be to such arbitrator. A-2 EX-10.3 5 GENERAL RELEASE AND SEVERANCE AGREEMENT EXHIBIT 10.3 ------------ GENERAL RELEASE AND SEVERANCE AGREEMENT --------------------------------------- This General Release and Severance Agreement (hereinafter "Agreement") is made and entered into in San Diego, California by and between Robert L. Widerkehr (hereinafter "EMPLOYEE") and Synbiotics Corporation (hereinafter "EMPLOYER") as of July 31, 1996. (EMPLOYEE and EMPLOYER are sometimes hereinafter referred to collectively as the "Parties.") RECITALS -------- A. EMPLOYEE was for a period of time an employee of EMPLOYER; B. EMPLOYEE's employment with EMPLOYER terminated July 31, 1996; C. EMPLOYEE and EMPLOYER wish to resolve permanently and amicably any and all disputes arising or which may ever arise out of EMPLOYEE's employment with EMPLOYER. NOW, THEREFORE, for and in consideration of the mutual agreements contained in the following paragraphs, EMPLOYER and EMPLOYEE agree as follows: 9. Standard Benefits. EMPLOYER agrees to provide the following to EMPLOYEE: ----------------- a. Accrued salary through July 31, 1996, less applicable tax withholding. b. Pay for accrued but unused vacation through July 31, 1996, in accordance with and subject to EMPLOYEE's vacation accrual plan and policies, amounting to $27,446 (310.68 hours of accrued but unused vacation) less applicable tax withholding. c. Reimbursement for all reasonable out-of-pocket business expenses incurred by EMPLOYEE in the course of his duties through July 31, 1996, upon submission by EMPLOYEE of appropriate expense account reports and substantiating receipts. d. COBRA benefits as required by law. 10. Additional Benefits. EMPLOYER agrees to provide the following additional ------------------- benefits to EMPLOYEE, which the Parties acknowledge EMPLOYEE would not be entitled to receive but for this Agreement, in consideration for this Agreement: a. All of EMPLOYEE's EMPLOYER stock options shall become fully vested as of July 31, 1996, and shall remain exercisable until July 31, 1999. b. In respect of all obligations under EMPLOYER's management cash bonus plan for 1996, EMPLOYER shall pay EMPLOYEE on February 28, 1997 the product of $183,750 times 40% times 7/12 times the percentage of their maximum bonus which EMPLOYER's other managers receive under such plan for 1996 (less applicable tax withholding). c. EMPLOYER shall pay EMPLOYEE an additional $30,000 (less applicable tax withholding) on February 28, 1997. d. EMPLOYER shall pay EMPLOYEE an additional $5,104.17 (less applicable tax withholding) on the 15th day of each calendar month from August 1996 through July 1999. e. EMPLOYER shall procure and pay for the period of August 1, 1996 through July 31, 1997 all premiums on a term life insurance policy on and in the name of EMPLOYEE with a face value of $250,000. EMPLOYEE shall be the owner of this term life insurance policy and shall have the sole right to designate the beneficiary or beneficiaries thereof in his complete discretion. 11. Definition of "Claims". For purposes of this Agreement, "Claims" shall ---------------------- mean any and all manner of action or actions, cause or causes of action, in law or in equity, suits, debts, liens, contracts, agreements, promises, liabilities, claims, demands, losses, settlements, judgments, costs, or expenses of any nature whatsoever, whether known or unknown, fixed or contingent, which heretofore have existed or now exist or may in the future exist; provided, however, that "Claims" shall not include EMPLOYEE's rights under or arising out of this Agreement. 12. EMPLOYEE Release. ---------------- 4.1 Release. EMPLOYEE, for EMPLOYEE and for EMPLOYEE's relatives, ------- spouse, legal representatives, agents, attorneys, heirs, executors, administrators, assigns and affiliates, past and present and future, and each of them, does hereby fully and forever release and discharge EMPLOYER and each of EMPLOYER's present and former shareholders, parents, subsidiaries, related entities, predecessors, successors, officers, directors, employees, agents, attorneys, partners, affiliates and assigns (collectively with EMPLOYER, the "Primary EMPLOYER Releasees"), and each of them, and the Primary EMPLOYER Releasees' spouses, relatives, heirs, executors, administrators, legal representatives, officers, directors, employees, agents, attorneys, predecessors, successors, assigns, shareholders, partners, parents, subsidiaries, related entities and affiliates, past and present, and all persons acting by, through, under, or in concert with them, or any of them (collectively, together with the Primary EMPLOYER Releasees, the "EMPLOYER Releasees"), with respect to any and all Claims which EMPLOYEE now has or may hereafter have against the EMPLOYER Releasees, or any of them, by reason of any matter, cause or thing whatsoever from the beginning of time to the date hereof. (It is expressly agreed that EMPLOYEE's rights under the agreements expressly identified in Section 9 as not being superseded are not released hereunder.) The Parties specifically understand, acknowledge and agree that this is a full and final release, applying to all of EMPLOYEE's Claims, whether known or unknown, against the EMPLOYER Releasees, or any of them. EMPLOYEE understands and agrees that EMPLOYEE is waiving any rights EMPLOYEE may have had, now has, or in the future may have to pursue any and all remedies available to EMPLOYEE under (among other things) any employment-related causes of action, including without limitation, claims of wrongful discharge, breach of contract, claims under Title VII of the 1964 Civil Rights Act, as amended, the California Fair Employment and Housing Act, the Equal Pay Act of 1963, California Labor Code Section 1197.5, the Age Discrimination in Employment Act of 1967, the Civil Rights Act of 1866, the Americans with Disabilities Act, and any other laws and regulations relating to employment or employment discrimination. EMPLOYEE hereby expressly and voluntarily waives all rights or benefits that EMPLOYEE might otherwise have under the provisions of Section 1542 of the Civil Code of the State of California, which provides as follows, and under all federal, state and/or common-law statutes or principles of similar effect: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. This Agreement is in full accord, satisfaction and discharge of all of EMPLOYEE's Claims against the EMPLOYER Releasees, or any of them. This Agreement has been executed with the express intention of effectuating the full and final extinguishment of all such Claims. 4.2 No Suit or Cooperation. EMPLOYEE represents, warrants, covenants and ---------------------- agrees that EMPLOYEE will not, at any time hereafter, initiate, assign, maintain or prosecute, or knowingly aid in the initiation, assignment, maintenance or prosecution of any action, claim, demand or cause of action against the EMPLOYER Releasees, or any of them (or against any other person or entity, if such action, claim, demand or cause of action materially adversely affects or might materially adversely affect EMPLOYER), arising from, or relating to, or in any way connected with any Claim with respect to which EMPLOYEE has released the EMPLOYER Releasees pursuant to this Agreement. EMPLOYEE further represents and warrants that neither EMPLOYEE nor EMPLOYEE's relatives, spouse, legal representatives, agents, attorneys, assigns or affiliates, past or present, has instituted any action or claim against the EMPLOYER Releasees, or any of them, with respect to any matter. EMPLOYEE 2 agrees that if EMPLOYEE violates this Section 4.2 in any manner or in any manner asserts against the EMPLOYER Releasees, or any of them, any of the Claims released hereunder, then EMPLOYEE will pay to the EMPLOYER Releasees, and each of them, in addition to any other damages caused to the EMPLOYER Releasees thereby, all attorneys' fees incurred by the EMPLOYER Releasees in defending or otherwise responding to said action, etc. or Claim. 4.3 No Prior Assignments. EMPLOYEE represents and warrants that there -------------------- has been no assignment or other transfer of any interest in any Claim which EMPLOYEE may have against the EMPLOYER Releasees, or any of them, and EMPLOYEE agrees to defend, indemnify and hold the EMPLOYER Releasees, and each of them, harmless from any liability, claims, demands, damages, costs, expenses and attorneys' fees incurred by the EMPLOYER Releasees, or any of them, as a result of any person asserting any such assignment or transfer. It is the intention of the Parties that this indemnity does not require payment as a condition precedent to recovery by the EMPLOYER Releasees under the indemnity, and that this indemnity shall be payable as incurred and on demand. 4.4 Denial of Liability and Obligation. This Agreement is not intended ---------------------------------- to and shall not constitute any admission or concession of any kind by EMPLOYER or any other person as to the existence of any liability or obligation to EMPLOYEE under any Claim. The EMPLOYER Releasees specifically deny the existence of any such liability or obligation to EMPLOYEE. 13. Full Defense. It is specifically understood and agreed that this ------------ Agreement may be pleaded as a full and complete defense to and may be used as the basis for an injunction against any action, arbitration, suit, or other proceeding which may be instituted, prosecuted or attempted in breach of this Agreement. 14. Assumption of Risk as to Facts. The Parties both understand that if the ------------------------------ facts with respect to which they are executing this Agreement are later found to be other than or different from the facts both or either of them now believe to be true, they expressly accept and assume the risk of such possible difference in fact and agree that this Agreement shall remain effective despite any difference of fact. 15. No Outside Representations. No representation, warranty, condition, -------------------------- promise, understanding or agreement of any kind with respect to the subject matter hereof has been made by any Party, nor shall any such be relied upon by any Party, except those contained herein. There were no inducements to enter into this Agreement, except for what is expressly set forth in this Agreement. 16. Benefit. This Agreement shall inure to the benefit of and be binding ------- upon the Parties and the Parties' respective spouse, agents, relatives, employees, officers, directors, shareholders, parents, subsidiaries, related entities, affiliates, attorneys, partners, legal representatives, heirs, executors, administrators, successors and assigns. 17. Entire Agreement. This Agreement represents and contains the entire ---------------- agreement and understanding between the Parties with respect to the subject matter of this Agreement (which is deemed to include, without limitation, EMPLOYEE's employment with EMPLOYER, all rights and benefits in connection therewith, all written or oral contracts relating thereto, and all matters relating to the cessation or termination of such employment), and completely supersedes any and all prior or contemporaneous agreements, understandings, arrangements, commitments, negotiations and discussions of the Parties, whether oral or written (all of which shall have no substantive significance or evidentiary effect); provided, that the Parties hereby confirm that this Agreement does not in any way supersede the Indemnification Agreement dated --- November 27, 1991 between EMPLOYER and EMPLOYEE and the proprietary information and inventions Agreement dated June 13, 1991 between EMPLOYER and EMPLOYEE. Each Party acknowledges, represents and warrants that he or it has not relied on any representation, agreement, understanding, arrangement or commitment which has not been expressly set forth in this Agreement. Each Party acknowledges, represents and warrants that this Agreement is fully integrated and not in need of parol evidence in order to reflect the intentions of the Parties. The Parties specifically intend that the literal words of this Agreement shall, alone, conclusively determine all questions concerning the Parties' intent. This Agreement may not be amended or modified or waived except by an agreement signed by both Parties. 3 18. Counterparts. This Agreement may be executed in counterparts, each of ------------ which shall be deemed an original, and all of which together shall be deemed one and the same instrument. 19. California Law. This Agreement is made pursuant to, and shall be -------------- governed by, the internal laws of the State of California. 20. Waiver. No waiver of any provision of this Agreement shall be binding ------ unless and until set forth expressly in writing and signed by the waiving Party. The waiver by any Party of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any preceding or succeeding breach of the same or any other term or provision, or a waiver of any contemporaneous breach of any other term or provision, or a continuing waiver of the same or any other term or provision. No failure or delay by a Party in exercising any right, power, or privilege hereunder or other conduct by a Party shall operate as a waiver thereof, in the particular case or in any past or future case, and no single or partial exercise thereof shall preclude the full exercise or further exercise of any right, power, or privilege. No action taken pursuant to this Agreement shall be deemed to constitute a waiver by the Party taking such action of compliance with any representations, warranties, covenants or agreements contained herein. 21. Severability. All provisions contained herein are severable and in the ------------ event that any of them shall be held to be to any extent invalid or otherwise unenforceable by any court of competent jurisdiction, such provision shall be construed as if it were written so as to effectuate to the greatest possible extent the Parties' expressed intent; and in every case the remainder of this Agreement shall not be affected thereby and shall remain valid and enforceable, as if such affected provision were not contained herein. 22. Headings. Section headings are inserted herein for convenience of -------- reference only and in no way are to be construed to define, limit or affect the construction or interpretation of the terms of this Agreement. 23. Drafting Party. The provisions of this Agreement have been prepared, -------------- examined, negotiated and revised by each Party hereto. No implication shall be drawn and no provision shall be construed against any Party by virtue of the purported identity of the drafter of this Agreement, or any portion thereof. 24. Tax Consequences. EMPLOYER shall have no obligation to EMPLOYEE with ---------------- respect to any tax obligations incurred as the result of or attributable to this Agreement or arising from any payments made or to be made hereunder. Any payments made pursuant to this Agreement shall be subject to such withholding and reports as may be required by any then-applicable laws or regulations of any state or federal taxing authority. 25. Survival of Agreement. The obligations of EMPLOYER in this Agreement --------------------- shall not be terminated by reason of any liquidation, dissolution, bankruptcy, cessation of business or similar event involving EMPLOYER. Nor shall this Agreement be terminated by any merger, consolidation or other reorganization of EMPLOYER. In the event any such merger, consolidation or reorganization shall be accomplished by a transfer of stock, assets or otherwise, the obligations of EMPLOYER in this Agreement shall be binding upon the transferee and inure to the benefit of the surviving or resulting company or person. 26. No Coercion. EMPLOYEE acknowledges that EMPLOYEE was given at least ----------- twenty-one (21) days before the signing of this Agreement in which to consider this Agreement (including EMPLOYEE's waivers made in this Agreement). EMPLOYEE acknowledges that EMPLOYEE has read and understands this Agreement, and that EMPLOYEE has been encouraged to and has had the opportunity to consult an attorney and obtain independent legal advice regarding this Agreement, and has in fact retained attorneys and received such consultation and advice in connection with this Agreement. EMPLOYEE has not been coerced into signing this Agreement and is entering into this Agreement voluntarily and of EMPLOYEE's own free will. EMPLOYEE further acknowledges that the waivers EMPLOYEE has made in this Agreement are knowing, conscious and voluntary and are made with full appreciation that EMPLOYEE is forever foreclosed from pursuing any of the rights so waived. 27. Temporary Right to Revoke. EMPLOYEE understands that for a period of ------------------------- seven (7) days after signing this Agreement EMPLOYEE has the right to revoke it and that this Agreement shall not become effective or enforceable until after those seven (7) days. 4 28. Resignation. EMPLOYEE hereby resigns as a Director of EMPLOYER and from ----------- all positions as an officer of EMPLOYER. IN WITNESS WHEREOF, the Parties have executed and delivered this General Release and Severance Agreement on and as of July 31, 1996. ------------------------------------- ROBERT L. WIDERKEHR SYNBIOTICS CORPORATION By: - ------------------ ---------------------------------- Donald E. Phillips, Chairman 5 EX-23.1 6 CONSENT OF PRICE WATERHOUSE LLP EXHIBIT 23.1 ------------ CONSENT OF PRICE WATERHOUSE LLP ------------------------------- We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-4 of Synbiotics Corporation of our report dated February 15, 1996 relating to the financial statements of Synbiotics Corporation, which appears in such Prospectus. We also consent to the reference to us under the heading "Experts" in such Prospectus. PRICE WATERHOUSE LLP San Diego, California August 15, 1996 6 EX-23.2 7 CONSENT OF COOPERS & LYBRAND L.L.P. EXHIBIT 23.2 ------------ CONSENT OF COOPERS & LYBRAND L.L.P. ----------------------------------- We hereby consent to the inclusion in this registration statement on Form S-4 of our report dated August 7, 1996 which includes an explanatory paragraph regarding the Company's ability to continue as a going concern), on our audits of the financial statements of International Canine Genetics, Inc. We also consent to the refernece to our firm under the caption "Experts." COOPERS & LYBRAND L.L.P. 2400 Eleven Penn Center Philadelphia, PA 19103 August 14, 1996 1 EX-24.1 8 POWER OF ATTORNEY EXHIBIT 24.1 - ------------ SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Diego, County of San Diego, State of California, on _______________, 1996. SYNBIOTICS CORPORATION By: ----------------------------------------- Kenneth M. Cohen President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kenneth M. Cohen and Michael K. Green, or either of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement and any registration statement related to this Registration Statement and filed pursuant to Rule 462 under the Securities Act of 1933, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date - --------------------- ------------------------------ ---------------- Chief Executive Officer __________, 1996 - --------------------- (Principal Executive Officer) Kenneth M. Cohen Vice President--Finance and __________, 1996 - --------------------- Chief Financial Officer Michael K. Green (Principal Financial Officer) - --------------------- Corporate Controller and __________, 1996 Chief Keith A. Butler Accounting Officer Chairman of the Board __________, 1996 - --------------------- Donald E. Phillips Director __________, 1996 - --------------------- Patrick Owen Burns Director __________, 1996 - --------------------- James C. DeCesare Director __________, 1996 - --------------------- M. Blake Ingle Director __________, 1996 - --------------------- Robert J. Kunze
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