-----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, K3Zk31hr1WorDoRq4tQ0jC+U+epHMub195WddKB379mPR+SvsIvZ/73tMzW7ClsP J7XlgBcKy2VHUMhzR3OIvg== /in/edgar/work/20000814/0001072993-00-000618/0001072993-00-000618.txt : 20000921 0001072993-00-000618.hdr.sgml : 20000921 ACCESSION NUMBER: 0001072993-00-000618 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYNBIOTICS CORP CENTRAL INDEX KEY: 0000719483 STANDARD INDUSTRIAL CLASSIFICATION: [2835 ] IRS NUMBER: 953737816 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-11303 FILM NUMBER: 700517 BUSINESS ADDRESS: STREET 1: 11011 VIA FRONTERA CITY: SAN DIEGO STATE: CA ZIP: 92127 BUSINESS PHONE: 6194513771 10-Q 1 0001.txt FORM 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM 10-Q [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 OR [_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-11303 SYNBIOTICS CORPORATION (Exact name of registrant as specified in its charter) California 95-3737816 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 11011 Via Frontera San Diego, California 92127 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (858) 451-3771 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] As of July 31, 2000, 9,374,577 shares of Common Stock were outstanding. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SYNBIOTICS CORPORATION INDEX
Page ---- Part I Condensed Consolidated Statement of Operations and Comprehensive (Loss) Income - Three and six months ended June 30, 2000 and 1999............................................................ 1 Condensed Consolidated Balance Sheet - June 30, 2000 and December 31, 1999........................................................ 2 Condensed Consolidated Statement of Cash Flows - Six months ended June 30, 2000 and 1999.......................................... 3 Notes to Condensed Consolidated Financial Statements............. 4 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................... 9 Quantitative and Qualitative Disclosures About Market Risk....... 16 Part II Other Information................................................ 17
PART I--FINANCIAL INFORMATION Item 1. Financial Statements Synbiotics Corporation Condensed Consolidated Statement of Operations and Comprehensive (Loss) Income (unaudited) - --------------------------------------------------------------------------------
Three Months Ended Six Months Ended June 30, June 30, ----------------------- ------------------------ 2000 1999 2000 1999 ----------- ---------- ----------- ----------- Revenues: Net sales................. $ 8,646,000 $8,336,000 $17,804,000 $17,726,000 Internet revenues......... 45,000 47,000 License fees.............. 61,000 66,000 122,000 126,000 Royalties................. 2,000 2,000 4,000 5,000 ----------- ---------- ----------- ----------- 8,754,000 8,404,000 17,977,000 17,857,000 ----------- ---------- ----------- ----------- Operating expenses: Cost of sales............. 3,623,000 3,409,000 8,555,000 7,486,000 Research and development.. 538,000 576,000 1,085,000 1,136,000 Selling and marketing..... 2,772,000 1,782,000 5,313,000 3,800,000 General and administrative........... 1,966,000 1,401,000 3,693,000 2,816,000 ----------- ---------- ----------- ----------- 8,899,000 7,168,000 18,646,000 15,238,000 ----------- ---------- ----------- ----------- (Loss) income from operations................. (145,000) 1,236,000 (669,000) 2,619,000 Other income (expense): Interest, net............. (273,000) (286,000) (605,000) (613,000) ----------- ---------- ----------- ----------- (Loss) income before income taxes...................... (418,000) 950,000 (1,274,000) 2,006,000 Provision for income taxes.. 373,000 477,000 351,000 942,000 ----------- ---------- ----------- ----------- (Loss) income before extraordinary item......... (791,000) 473,000 (1,625,000) 1,064,000 Early extinguishment of debt, net of tax........... (583,000) (583,000) 116,000 ----------- ---------- ----------- ----------- Net (loss) income........... (1,374,000) 473,000 (2,208,000) 1,180,000 Translation adjustment...... 314,000 (350,000) 206,000 (1,254,000) ----------- ---------- ----------- ----------- Comprehensive (loss) income..................... $(1,060,000) $ 123,000 $(2,002,000) $ (74,000) =========== ========== =========== =========== Basic (loss) income per share: (Loss) income from continuing operations.... $ (0.09) $ 0.05 $ (0.18) $ 0.11 Early extinguishment of debt, net of tax......... (0.06) (0.06) 0.01 ----------- ---------- ----------- ----------- Net (loss) income......... $ (0.15) $ 0.05 $ (0.24) $ 0.12 =========== ========== =========== =========== Diluted (loss) income per share: (Loss) income from continuing operations.... $ (0.09) $ 0.05 $ (0.18) $ 0.11 Early extinguishment of debt, net of tax......... (0.06) (0.06) 0.01 ----------- ---------- ----------- ----------- Net (loss) income......... $ (0.15) $ 0.05 $ (0.24) $ 0.12 =========== ========== =========== ===========
See accompanying notes to condensed consolidated financial statements. 1 Item 1. Financial Statements (continued) Synbiotics Corporation Condensed Consolidated Balance Sheet - --------------------------------------------------------------------------------
June 30, December 31, 2000 1999 ------------ ------------ (unaudited) (audited) Assets Current assets: Cash and equivalents.............................. $ 1,341,000 $ 2,260,000 Securities available for sale..................... 1,316,000 3,443,000 Accounts receivable............................... 5,257,000 4,517,000 Inventories....................................... 6,540,000 5,178,000 Deferred tax assets............................... 640,000 505,000 Other current assets.............................. 1,661,000 1,570,000 ------------ ----------- Total current assets.............................. 16,755,000 17,473,000 Property and equipment, net......................... 1,981,000 1,744,000 Goodwill............................................ 18,763,000 12,137,000 Deferred tax assets................................. 7,942,000 8,055,000 Deferred debt issuance costs........................ 42,000 447,000 Other assets........................................ 3,868,000 4,191,000 ------------ ----------- $ 49,351,000 $44,047,000 ============ =========== Liabilities and Shareholders' Equity: Current liabilities: Accounts payable and accrued expenses............. $ 5,837,000 $ 5,921,000 Current portion of long-term debt................. 1,200,000 1,000,000 Deferred revenue.................................. 290,000 242,000 Other current liabilities......................... 1,000,000 ------------ ----------- Total current liabilities......................... 8,327,000 7,163,000 ------------ ----------- Long-term debt...................................... 11,500,000 5,914,000 Deferred revenue.................................... 848,000 969,000 Other liabilities................................... 1,606,000 1,546,000 ------------ ----------- 13,954,000 8,429,000 ------------ ----------- Mandatorily redeemable common stock................. 2,477,000 2,412,000 ------------ ----------- Non-mandatorily redeemable common stock and other shareholders' equity: Common stock, no par value, 24,800,000 share authorized, 9,375,000 and 8,576,000 shares issued and outstanding at June 30, 2000 and December 31, 1999............................................. 40,041,000 39,424,000 Common stock warrants............................. 1,003,000 1,003,000 Accumulated other comprehensive loss.............. (710,000) (916,000) Accumulated deficit............................... (15,741,000) (13,468,000) ------------ ----------- Total non-mandatorily redeemable common stock and other shareholders' equity....................... 24,593,000 26,043,000 ------------ ----------- $ 49,351,000 $44,047,000 ============ ===========
See accompanying notes to condensed consolidated financial statements. 2 Item 1. Financial Statements (continued) Synbiotics Corporation Condensed Consolidated Statement of Cash Flows (unaudited) - --------------------------------------------------------------------------------
Six Months Ended June 30, --------------------------- 2000 1999 ------------- ------------ Cash flows from operating activities: Net (loss) income................................ $ (2,208,000) $ 1,180,000 Adjustments to reconcile net (loss) income to net cash (used for) provided by operating activities: Depreciation and amortization.................. 1,101,000 1,231,000 Early extinguishment of debt................... 937,000 (200,000) Changes in assets and liabilities: Account receivable........................... (740,000) (940,000) Inventories.................................. (1,362,000) (441,000) Deferred taxes............................... (22,000) 754,000 Other assets................................. 211,000 770,000 Accounts payable and accrued expenses........ 133,000 (246,000) Income taxes payable......................... 186,000 Deferred revenue............................. (121,000) 1,332,000 Other liabilities............................ 61,000 59,000 ------------- ------------ Net cash (used for) provided by operating activities...................................... (2,010,000) 3,685,000 ------------- ------------ Cash flows from investing activities: Acquisition of property and equipment.......... (374,000) (432,000) Proceeds from sale of securities available for sale.......................................... 2,127,000 229,000 Acquisition of KPL poultry product line........ (3,554,000) ------------- ------------ Net cash used for investing activities........... (1,801,000) (203,000) ------------- ------------ Cash flows from financing activities: Proceeds from issuance of long-term debt....... 10,000,000 Payments of long-term debt..................... (7,450,000) (1,300,000) Proceeds from issuance of common stock, net.... 136,000 325,000 ------------- ------------ Net cash provided by (used for) financing activities...................................... 2,686,000 (975,000) ------------- ------------ Net (decrease) increase in cash and equivalents.. (1,125,000) 2,507,000 Effect of exchange rates on cash................. 206,000 (1,254,000) Cash and equivalents - beginning of period....... 2,260,000 4,357,000 ------------- ------------ Cash and equivalents - end of period............. $ 1,341,000 $ 5,610,000 ============= ============
See accompanying notes to condensed consolidated financial statements. 3 Item 1. Financial Statements (continued) SYNBIOTICS CORPORATION Notes to Condensed Consolidated Financial Statements (unaudited) - ------------------------------------------------------------------------------- Note 1--Interim Financial Statements: The accompanying condensed consolidated balance sheet as of June 30, 2000 and the condensed consolidated statements of operations and comprehensive (loss) income and of cash flows for the three and six months ended June 30, 2000 and 1999 have been prepared by Synbiotics Corporation (the "Company") and have not been audited. The condensed consolidated financial statements of the Company include the accounts of its wholly-owned subsidiaries Synbiotics Europe SAS and W3COMMERCE inc. All significant intercompany transactions and accounts have been eliminated in consolidation. 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 notes thereto included in the Company's Annual Report on Form 10-KSB filed for the year ended December 31, 1999. Interim operating results are not necessarily indicative of operating results for the full year. 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 2--Acquisitions: On January 12, 2000, the Company acquired W3COMMERCE LLC, now W3COMMERCE inc., a privately-held e-commerce and Internet solutions company based in San Diego, CA. The consideration paid was $2,913,000, which consisted of $100,000 in cash and a 5 year, $2,813,000 note payable, which bears interest at 6.21% and is convertible into 1,000,000 shares of the Company's common stock beginning January 12, 2002. Upon conversion, any accrued interest will be forgiven. The former shareholders of W3COMMERCE may receive up to an additional 800,000 shares of the Company's common stock if certain per share stock price targets for the Company's common stock are reached prior to January 12, 2003. The transaction was accounted for as a purchase. Goodwill arising from the transaction totalled $3,064,000 which is being amortized over an estimated useful life of 10 years utilizing the straight-line method. The convertible debt portion of the purchase price and liabilities assumed totalling $2,893,000 is considered a non-cash financing activity for purposes of the statement of cash flows. On April 21, 2000, the Company acquired the poultry diagnostic product line from Kirkegaard & Perry Laboratories, Inc. The consideration paid was $3,500,000 in cash upon closing, and an additional $1,000,000 due upon the earlier of the transfer of manufacturing or one year from the date of closing. In addition, the Company will be required to pay up to $1,500,000, during the three years from the date of closing, based upon its sales of the acquired products, which will be recorded as additional purchase price as the related sales are recognized. The transaction was accounted for as a purchase. Goodwill arising from the transaction totalled $4,288,000 which is being amortized over an estimated useful life of 10 years utilizing the straight-line method. The $1,000,000 manufacturing transfer liability portion of the purchase price is considered a non-cash investing activity for purposes of the statement of cash flows. 4 Item 1. Financial Statements (continued) SYNBIOTICS CORPORATION Notes to Condensed Consolidated Financial Statements (unaudited) - -------------------------------------------------------------------------------- The Company's statement of operations includes the results of operations of W3COMMERCE for the period January 1, 2000 to June 30, 2000 and the results of operations of the KPL poultry product line for the period April 21, 2000 to June 30, 2000. The following are pro forma results of operations as if the W3COMMERCE and KPL transactions had been consummated on January 1, 1999:
Three Months Ended Six Months Ended June 30, June 30, ----------------------- ------------------------ 2000 1999 2000 1999 ----------- ---------- ----------- ----------- (unaudited) (unaudited) (unaudited) (unaudited) Revenues: As reported............ $ 8,754,000 $8,404,000 $17,977,000 $17,857,000 =========== ========== =========== =========== Pro forma.............. $ 8,885,000 $9,049,000 $18,702,000 $19,103,000 =========== ========== =========== =========== (Loss) income before extraordinary item: As reported............ $ (791,000) $ 473,000 $(1,625,000) $ 1,064,000 =========== ========== =========== =========== Pro forma.............. $ (745,000) $ 480,000 $(1,372,000) $ 1,121,000 =========== ========== =========== =========== Net (loss) income: As reported............ $(1,374,000) $ 473,000 $(2,208,000) $ 1,180,000 =========== ========== =========== =========== Pro forma.............. $(1,328,000) $ 480,000 $(1,955,000) $ 1,237,000 =========== ========== =========== =========== Basic net (loss) income per share: As reported............ $ (0.15) $ 0.05 $ (0.24) $ 0.12 =========== ========== =========== =========== Pro forma.............. $ (0.14) $ 0.05 $ (0.21) $ 0.14 =========== ========== =========== =========== Diluted net (loss) income per share: As reported............ $ (0.15) $ 0.05 $ (0.24) $ 0.12 =========== ========== =========== =========== Pro forma.............. $ (0.14) $ 0.05 $ (0.21) $ 0.13 =========== ========== =========== ===========
Note 3--Inventories: Inventories consist of the following:
June 30, December 31, 2000 1999 ----------- ------------ (unaudited) (audited) Inventories: Raw materials..................................... $2,958,000 $2,320,000 Work in process................................... 409,000 589,000 Finished goods.................................... 3,173,000 2,269,000 ---------- ---------- $6,540,000 $5,178,000 ========== ==========
Note 4--Long-Term Debt: In April 2000, the Company refinanced its outstanding Banque Paribas debt with Imperial Bank ("Imperial"). The new Imperial debt agreement includes a $6,000,000 term loan and a $4,000,000 revolving line of credit. The term loan is due in April 2005, bears interest at the rate of prime plus 0.50%, is payable beginning in May 2000 in monthly installments of $100,000 of principal plus accrued interest and is secured by substantially all our assets. The line of credit, of which the Company had drawn the entire $4,000,000 as of June 30, 2000, 5 Item 1. Financial Statements (continued) SYNBIOTICS CORPORATION Notes to Condensed Consolidated Financial Statements (unaudited) - ------------------------------------------------------------------------------- bears interest at the rate of prime plus 0.50%, with interest only payments to be made monthly beginning in May 2000. Any outstanding principal under the line of credit is due in April 2002. The Company is required to pay a quarterly commitment fee equal to 0.50% per annum on the average unused portion of the line of credit facility. Imperial requires the Company to maintain certain financial ratios and levels of tangible net worth and also restricts the Company's ability to pay dividends and make loans, capital expenditures or investments without Imperial's consent. As of June 30, 2000, the Company was not in compliance with certain financial covenants, and has obtained a waiver from the bank. In exchange for the waiver, the Company has: 1) paid the bank a waiver fee of $35,000; 2) made a one time principal payment on its term loan of $500,000 and 3) increased the interest rate on both the term debt and the line of credit to prime plus 2.00%. The Company recorded an extraordinary loss on early extinguishment of debt of $583,000, net of income tax benefit of $354,000, in the second quarter of 2000, which represents the remaining unamortized debt issuance costs and debt discount on the Banque Paribas debt. Note 5--(Loss) Income per Share: The following is a reconciliation of net (loss) income and share amounts used in the computations of (loss) income per share:
Three Months Ended Six Months Ended June 30, June 30, ----------------------- ----------------------- 2000 1999 2000 1999 ----------- ---------- ----------- ---------- (unaudited) (unaudited) (unaudited) (unaudited) Basic and diluted net (loss) income used: (Loss) income from continuing operations..... $ (791,000) $ 473,000 $(1,625,000) $1,064,000 Less accretion of mandatorily redeemable common stock.............. (33,000) (31,000) (65,000) (62,000) ----------- --------- ----------- ---------- (Loss) income from continuing operations used in computing basic (loss) income from continuing operations per share...... (824,000) 442,000 (1,690,000) 1,002,000 Early extinguishment of debt, net of tax.......... (583,000) (583,000) 116,000 ----------- --------- ----------- ---------- Net (loss) income used in computing basic and diluted net (loss) income per share................. $(1,407,000) $ 442,000 $(2,273,000) $1,118,000 =========== ========= =========== ========== Shares used: Weighted average common shares outstanding used in computing basic (loss) income per share.......... 9,369,000 9,071,000 9,312,000 9,003,000 Weighted average options and warrants to purchase common stock as determined by the treasury method.... 381,000 365,000 ----------- --------- ----------- ---------- Shares used in computing diluted (loss) income per share..................... 9,369,000 9,452,000 9,312,000 9,368,000 =========== ========= =========== ==========
Weighted average options and warrants to purchase common stock as determined by the application of the treasury method and weighted average shares of common stock issuable upon assumed conversion of debt totalling 1,245,000 and 1,291,000 shares have been excluded from the shares used in computing diluted net (loss) income per share for the three and six months ended June 30, 2000 as their effect is anti-dilutive. In addition, warrants to purchase 265,000 and 284,000 shares of common stock at $4.54 per share have been excluded from 6 Item 1. Financial Statements (continued) SYNBIOTICS CORPORATION Notes to Condensed Consolidated Financial Statements (unaudited) - ------------------------------------------------------------------------------- the shares used in computing diluted net (loss) income per share for the three and six months ended June 30, 2000 and 1999, respectively, as their exercise price is higher than the weighted average market price for those periods, and in addition their effect is anti-dilutive for the three and six months ended June 30, 2000. Note 6--Segment Information and Significant Customers: The Company has determined that it has only one reportable segment based on the fact that all of its net sales are from its animal health products, and its Internet revenues are insignificant at this time. Although the Company sells diagnostic, vaccine and instrument products, it does not base its business decision making on a product category basis. The following are revenues for the Company's diagnostic, vaccine and instrument products:
Three Months Ended Six Months Ended June 30, June 30, ----------------------- ------------------------ 2000 1999 2000 1999 ----------- ----------- ----------- ------------ (unaudited) (unaudited) (unaudited) (unaudited) Diagnostics............... $6,557,000 $6,748,000 $13,093,000 $14,138,000 Vaccines.................. 1,464,000 1,347,000 3,503,000 3,106,000 Instruments............... 625,000 241,000 1,204,000 482,000 Other revenues............ 108,000 68,000 177,000 131,000 ---------- ---------- ----------- ----------- $8,754,000 $8,404,000 $17,977,000 $17,857,000 ========== ========== =========== =========== The following are revenues and long-lived assets information by geographic area: Three Months Ended Six Months Ended June 30, June 30, ----------------------- ------------------------ 2000 1999 2000 1999 ----------- ----------- ----------- ------------ (unaudited) (unaudited) (unaudited) (unaudited) Revenues: United States........... $6,469,000 $6,189,000 $12,967,000 $12,585,000 France.................. 854,000 814,000 2,146,000 2,202,000 Other foreign countries.............. 1,431,000 1,401,000 2,864,000 3,070,000 ---------- ---------- ----------- ----------- $8,754,000 $8,404,000 $17,977,000 $17,857,000 ========== ========== =========== =========== June 30, December 31, 2000 1999 ----------- ------------ (unaudited) (audited) Long-lived assets: United States................................... $18,678,000 $12,079,000 France.......................................... 5,957,000 6,440,000 Other foreign countries......................... 19,000 ----------- ----------- $24,654,000 $18,519,000 =========== ===========
The Company had no significant customers during the three and six months ended June 30, 2000. During the three months ended June 30, 1999, sales to one customer totalled $1,690,000. The Company had sales to one customer totalling $2,292,000 during the six months ended June 30, 1999. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The information contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this Quarterly Report on Form 10-Q contains both historical financial information and forward-looking statements. We do not provide forecasts of future financial performance. The historical financial information may not be indicative of future financial performance. In fact, future financial performance may be materially different than the historical financial information presented herein. Moreover, the forward-looking statements about future business or future results of operations are subject to significant uncertainties and risks, which could cause actual future results to differ materially from what is suggested by the forward-looking information. The following risk factors should be considered in evaluating our forward-looking statements and assessing our future financial condition, results of operations and cash flows: We have put our primary business up for sale We have announced that we have engaged investment bankers to consider means of enhancing shareholder value, including the possible sale of our animal health business. There can be no assurance that our animal health business can be sold for a favorable price, and we have not decided what we would do with the proceeds of any sale. Also, the uncertainties caused by the sale process will, until a sale is completed, have the potential to undermine our relationships with our customers, employees and suppliers. The market in which we operate is intensely competitive, even with regard to our key canine heartworm diagnostic products, and many of our competitors are larger and more established The market for animal health care products is extremely competitive. Companies in the animal health care market compete to develop new products, to market and manufacture products efficiently, to implement effective research strategies, and to obtain regulatory approval. Our current competitors include significantly larger companies such as Pfizer Animal Health, Merial S.A.S. (the successor to Rhone-Merieux), Abbot Laboratories and IDEXX Laboratories. These companies are substantially larger and have greater financial, manufacturing, marketing, and research resources than we do. In addition, IDEXX Laboratories prohibits its distributors from selling competitors' products, including ours. Further, additional competition could come from new entrants to the animal health care market. We cannot assure you that we will be able to compete successfully in the future or that competition will not harm our business. Our canine heartworm products constitute 36% of our sales. In addition to our historic competition with IDEXX Laboratories, the sales leader in this product category, our sales were substantially affected in 1999 by a new heartworm product from Heska Corporation. We have filed a lawsuit against Heska, claiming that its heartworm product infringes our patent. Also, Abbott Laboratories entered the canine heartworm diagnostic market in March 2000, and our market share and average selling prices may decline, perhaps significantly. We have a history of losses and an accumulated deficit We did not achieve profitability for the years ended December 31, 1998 and 1999, and we have had a history of losses. We have incurred a consolidated accumulated deficit of $15,741,000 at June 30, 2000. We may not achieve profitability again and if we are profitable in the future there can be no assurance that profitability can be sustained. The additional expenses which we anticipate we will incur while building W3COMMERCE's business may prevent us from being profitable, even if our traditional animal health business were to be profitable. We depend on third party manufacturers We contract for the manufacture of some of our products, including our vaccines, our Witness(R) and VetRED(R) diagnostic products, our poultry diagnostic products and our SCA 2000(TM) blood coagulation timing instrument. We also expect that some of our anticipated new products will be manufactured by third parties. In 8 addition, some of the products manufactured for us by third parties, including Witness(R) and VetRED(R), are licensed to us by their manufacturers. There are a number of risks associated with our dependence on third-party manufacturers including: . reduced control over delivery schedules; . quality assurance; . manufacturing yields and costs; . the potential lack of adequate capacity during periods of excess demand; . limited warranties on products supplied to us; and . increases in prices and the potential misappropriation of our intellectual property. If our third party manufacturers fail to supply us with an adequate number of finished products, our business would be significantly harmed. We have no long-term contracts or arrangements with any of our vendors that guarantee product availability, the continuation of particular payment terms or the extension of credit limits. In addition, sales of our feline leukemia virus ("FeLV") vaccine to Merial S.A.S. and other distributors for resale in Europe will be at risk unless our manufacturer, Intervet, Inc. (formerly Bio-Trends International, Inc.) ("Intervet"), obtains European Union regulatory approvals for its manufacturing facilities. Loss of these sales would have a material adverse effect on our profitability and our cash flows. If we encounter delays or difficulties in our relationships with our manufacturers, the resulting problems could have a material adverse effect on us. For example, all of our vaccine products (other than our FeLV vaccine products) were manufactured using bulk antigen fluids that were supplied by a third party. The supply agreement expired and we were unable to locate a replacement supplier for these bulk antigen fluids. We decided to discontinue the sales of the affected products once our remaining supplies were exhausted, which occurred during the third quarter of 1999. Sales of the affected products totaled $1,645,000 and $2,073,000 during 1999 and 1998, respectively. We rely on third party distributors for a substantial portion of our sales, but we are experiencing difficulties with the distribution channel Because we have historically depended upon distributors for such a large portion of our sales (although we did not have any customers representing 10% or more of our net sales during 1999, sales to two distributors totaled 33% of our net sales during 1998), our ability to establish and maintain an adequate independent sales and marketing capability in any or all of our targeted markets may be impaired. Our failure to independently sell and market our products could materially harm our business. Further, distributor agreements render our sales exposed to the efforts of third parties who are not employees of Synbiotics and over whom we have no control. Their failure to generate significant sales of our products could materially harm our business. Reduction by these distributors of the quantity of our products which they distribute would materially harm our business. In addition, IDEXX Laboratories' prohibition against its distributors carrying competitors' products, including ours, has made, and could continue to make, some distributors unavailable to us. We adopted a similar policy in the second quarter of 1999, which caused some of our distributors to abandon our product line. Although we have rescinded this policy, and some of our former distributors are again selling our products, we do not expect our sales to distributors to reach their previous levels. We are also exposed to the risk that any sales by us directly to veterinarians could alienate our current distributors. Our direct selling efforts may not succeed We are increasing our efforts to sell our products directly to veterinarians, including by telesales and over the Internet. We are inexperienced in large-scale direct selling efforts and may not be able to successfully execute this strategy. Also, veterinarians have traditionally relied on distributors, and the number of veterinarians willing to purchase directly from manufacturers may be smaller than we believe. 9 Our profitable vaccine sales in Europe may decline soon Merial distributes in Europe our FeLV vaccine, which we obtain from Intervet. Our gross profit in 1999 and 1998 on these sales of FeLV vaccine to Merial in Europe was $570,000 and $520,000, respectively. Merial has exercised a contractual right which will enable it, in 2002, to introduce its own FeLV vaccine product in Europe. If Merial does so, our sales to Merial in Europe would probably decline sharply. There is no assurance that acquired businesses can be successfully combined There can be no assurance that the anticipated benefits of the April 2000 acquisition of the poultry product line from Kirkegaard & Perry Laboratories, Inc., the January 2000 acquisition of W3COMMERCE, or any other future acquisitions (collectively, the "Acquired Business") will be realized. Acquisitions of businesses involve numerous risks, including difficulties in the assimilation of the operations, technologies and products of the Acquired Business, introduction of different distribution channels, potentially dilutive issuances of equity and/or increases in leverage and risk resulting from issuances of debt securities, the need to establish internally operating functions which had been previously provided pre-acquisition by a corporate parent, accounting charges, operating companies in different geographic locations with different cultures, the potential loss of key employees of the Acquired Business, the diversion of management's attention from other business concerns and the risks of entering markets in which we have no or limited direct prior experience. In addition, there can be no assurance that the acquisitions will not have a material adverse effect upon our business, results of operations, financial condition or cash flows, particularly in the quarters immediately following the consummation of the acquisition, due to operational disruptions, unexpected expenses and accounting charges which may be associated with the integration of the Acquired Business and us, as well as operating and development expenses inherent in the Acquired Business itself as opposed to integration of the Acquired Business. Our acquisition of W3COMMERCE may not prove profitable There can be no assurance that our January 2000 acquisition of W3COMMERCE will result in profits to us or that we will be able to recover the money we invest in W3COMMERCE's operations. The efforts of W3COMMERCE to integrate our business with the retailing of products over the Internet may not be successful, and this may harm our business. Our acquisition of W3COMMERCE subjects us to risks associated with the acquisition of any business, as well as the following risks specifically associated with doing business over the Internet: . W3COMMERCE's business model has not been demonstrated as profitable; . W3COMMERCE's business model could be replicated by other companies if it is perceived as being successful; . larger, more established competitors may enter the online markets in which we intend to operate; . the Internet may not continue to grow as a focal point of business transactions; . the Internet may become subject to additional government regulation that may harm our business; . retail sale of products on the Internet has not been widely demonstrated as profitable; and . we do not have experience in marketing products other than animal health products, yet W3COMMERCE's business plan calls for expansion into other markets. We depend on key executives and personnel Our future success will depend, to a significant extent, on the ability of our management to operate effectively, both individually and as a group. Competition for qualified personnel in the animal health care products industry is intense, and even more intense in the Internet marketing business, and we may not be successful in attracting and retaining such personnel. There are only a limited number of persons with the requisite skills to serve in those positions and it may become increasingly difficult to hire such persons. The loss of the services of any of our key personnel or the inability to attract or retain qualified personnel could harm our business. 10 We rely on new and recent products In our animal health business we rely to a significant extent on new and recently developed products, and expect that we will need to continue to introduce new products to be successful in the future. There can be no assurance that we will obtain and maintain market acceptance of our products. There can be no assurance that future products will meet applicable regulatory standards, be capable of being produced in commercial quantities at acceptable cost or be successfully commercialized. There can be no assurance that new products can be manufactured at a cost or in quantities necessary to make them commercially viable. If we are unable to produce internally, or to contract for, a sufficient supply of our new products on acceptable terms, or if we should encounter delays or difficulties in our relationships with manufacturers, the introduction of new products would be delayed, which could have a material adverse effect on our business. We may need additional capital in the future We may need to raise additional funds if our estimates of revenues, working capital and/or capital expenditure requirements change or prove inaccurate or in order for us to respond to unforeseen technological or marketing hurdles or to take advantage of unanticipated opportunities. The 621,000 shares of our common stock which we issued to Merial in conjunction with the 1997 acquisition of Synbiotics Europe are subject to put a provision. The put option gives Merial the right, beginning on July 9, 2001, to sell all or any portion of its shares to us at a price of $5 per share, for a total of $3,105,000. If Merial were to exercise its put option, we would be unable to pay for the shares. Further, our future capital requirements will depend on many factors beyond our control or ability to accurately estimate, including the expenses of building W3COMMERCE's Internet business, continued scientific progress in our product and development programs, the cost of manufacturing scale-up, the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims, the cost involved in patent infringement litigation, competing technological and market developments, and the cost of establishing effective sales and marketing arrangements. In addition, we expect to review potential acquisitions that would complement our existing product offerings or enhance our technical capabilities. Any future transaction of this nature could require potentially significant amounts of capital. Such funds may not be available at the time or times needed, or available on terms acceptable to us. If adequate funds are not available, or are not available on acceptable terms, we may not be able to take advantage of market opportunities, to develop new products, or to otherwise respond to competitive pressures, or we may need to delay, reduce, or eliminate one or more of our research and development programs. Any of these events would impair our competitive position and harm our business. We are not in compliance with our bank loan covenants In April 2000, we refinanced our outstanding Banque Paribas debt with Imperial Bank ("Imperial"). As of June 30, 2000, we were not in compliance with some of the financial covenants in our agreement with Imperial, and we have obtained a waiver from the bank. We cannot assure you that we will be in compliance with the covenants in the future. Failure to be in compliance with the covenants places us in technical default of the debt agreement, and Imperial could theoretically demand repayment of the loans. We do not have the funds to repay the loans on short notice. Our canine heartworm business is seasonal Our operations are seasonal due to the timing of sales of our canine heartworm diagnostic products. Our sales and profits tend to be concentrated in the first half of the year as our distributors prepare for the heartworm season by purchasing diagnostic products for resale to veterinarians. The operations of SBIO-E have reduced our seasonality as sales of their large animal diagnostic products tend to occur evenly throughout the year. We believe that increased sales of our instrument products, our newly acquired poultry diagnostic products and our Internet business will also reduce our seasonality. 11 Our failure to adequately establish or protect our proprietary rights may adversely affect us We rely on a combination of patent, copyright, and trademark laws, trade secrets, and confidentiality and other contractual provisions to protect our proprietary rights. These measures afford only limited protection. We currently have 11 issued U.S. patents and several pending patent applications. Our means of protecting our proprietary rights in the U.S. or abroad may not be adequate and competitors may independently develop similar technologies. Our future success will depend in part on our ability to protect our proprietary rights and the technologies used in our principal products. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use trade secrets or other information that we regard as proprietary. In addition, the laws of some foreign countries do not protect our proprietary rights as fully as do the laws of the U.S. Issued patents may not preserve our proprietary position. Even if they do, competitors or others may develop technologies similar to or superior to our own. If we do not enforce and protect our intellectual property, our business will be harmed. From time to time, third parties, including our competitors, have asserted patent, copyright, and other intellectual property rights to technologies that are important to us. We expect that we will increasingly be subject to infringement claims as the number of products and competitors in the animal health care market increases. The results of any litigated matter are inherently uncertain. In the event of an adverse result in any litigation with third parties that could arise in the future, we could be required to: . pay substantial damages, including treble damages if we are held to have willfully infringed; . cease the manufacture, use and sale of infringing products; . expend significant resources to develop non-infringing technology; or . obtain licenses to the infringing technology. Licenses may not be available from any third party that asserts intellectual property claims against us on commercially reasonable terms, or at all. Also, litigation is costly regardless of its outcome and can require significant management attention. For example, in 1997, Barnes-Jewish Hospital (the "Hospital") filed an action against us claiming that our canine heartworm diagnostic products infringe their patent. We settled this lawsuit, but there can be no assurance that we would be able to resolve similar incidents in the future. Our patent infringement litigation against Heska's use of heartworm diagnostic technology is also expensive. Also, because our patents and patent applications cover novel diagnostic approaches, . the patent coverage which we receive could be significantly narrower than the patent coverage we seek in our patent applications; and . our patent positions involve complex legal and factual issues which can be hard for patent examiners or lawyers asserting patent coverage to successfully resolve. Because of this, our patent position could be vulnerable and our business could be materially harmed. The U.S. patent application system also exposes us to risks. In the United States, the first party to make a discovery is granted the right to patent it and patent applications are maintained in secrecy until the underlying patents issue. For these reasons, we can never know if we are the first to discover particular technologies. Therefore, we can never be certain that our technologies will be patented and we could become involved in lengthy, expensive, and distracting disputes concerning whether we were the first to make the disputed discovery. Any of these events would materially harm our business. Our business is regulated by the United States and various foreign governments Our business is subject to substantial regulation by the United States government, most notably the United States Department of Agriculture, and the French government. In addition, our operations may be subject to 12 future legislation and/or rules issued by domestic or foreign governmental agencies with regulatory authority relating to our business. There can be no assurance that we will continue to be in compliance with any of these regulations. For marketing outside the United States, we, and our suppliers, are subject to foreign regulatory requirements, which vary widely from country to country. There can be no assurance that we, and our suppliers, will meet and sustain compliance with any such requirements. In particular, our sales of FeLV vaccine to Merial S.A.S. or other distributors for resale in Europe will be at risk unless Intervet, our supplier, obtains European Union regulatory approvals for its manufacturing facilities. Our liability insurance may prove inadequate Our products carry an inherent risk of product liability claims and associated adverse publicity. While we have maintained product liability insurance for such claims to date, we cannot be certain that this type of insurance will continue to be available to us or, if it is available, that it can be obtained on acceptable terms. Also, our current coverage limits may not be adequate. Any claim against us which results in our having to pay damages in excess of our coverage limits will materially harm our business. Even if such a claim is covered by our existing insurance, the resulting increase in insurance premiums or other charges would increase our expenses and harm our business. We use hazardous materials Our business requires that we store and use hazardous materials and chemicals, including radioactive compounds. Although we believe that our procedures for storing, handling, and disposing of these 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. If any of these materials were mishandled, or if an accident with them occurred, the consequences could be extremely damaging and we could be held liable for them. Our liability for such an event would materially harm our business and could exceed all of our available resources for satisfying it. Results of Operations Our net sales for the second quarter of 2000 increased by $310,000 or 4% over the second quarter of 1999. The increase reflects an increase in our vaccine product sales of $117,000 and an increase in our instrument product sales of $384,000, offset by a decrease in our sales of diagnostic products of $191,000. The decrease in our sales of diagnostic products is primarily due to promotional programs in the United States during the first quarter of 2000 in response to increased competition in the canine heartworm diagnostic market. As a result, sales that would have been made in the second quarter of 2000 were made in the first quarter of 2000, at reduced average selling prices, as our customers took advantage of our promotional program. Our U.S. heartworm sales during the second quarter of 2000 decreased by 28% from the second quarter of 1999. This decrease was partly offset by sales of the KPL poultry diagnostic products which we acquired in April 2000. The weakening of the French franc against the U.S. dollar also negatively impacted our diagnostic sales in Europe. Our increased vaccine sales reflected an increase of 59% in sales of bulk FeLV vaccine (related to the timing of shipments as requested by our OEM customer), offset by a 62% decrease in sales of vaccines to private label partners. Our instrument and reagent product sales increased due to sales in Europe, as these instruments have obtained the European CE mark, increased sales of reagents in the U.S. resulting from increased placements of instruments, and to a full quarter's worth of sales of our SCA 2000(TM) blood coagulation timing instrument, which we introduced during the second quarter of 1999. Our net sales for the six months ended June 30, 2000 were relatively flat compared to the six months ended June 30, 1999, although our sales of diagnostic products decreased $1,045,000, offset by an increase in our vaccine product sales of $398,000 and an increase in our instrument product sales of $725,000. The decrease in our sales of diagnostic products is primarily due to promotional programs in the United States during the first 13 quarter of 2000 in response to increased competition in the canine heartworm diagnostic market. While our sales in units have increased, these sales were at reduced average selling prices. Our U.S. heartworm sales in units during the six months ended June 30, 2000 increased by 6% over the six months ended June 30, 1999, yet our sales in dollars for these products decreased by 17%. In Europe, sales of our large animal diagnostic products decreased due to increased competition, and a change in the timing of mandated disease eradication testing required by certain European governmental authorities. Tests that used to be required annually are now only required to be performed every other year. The weakening of the French franc against the U.S. dollar also negatively impacted our European diagnostic sales. Our increased vaccine sales reflected an increase of 89% in sales of bulk FeLV vaccine (related to the timing of shipments as requested by our OEM customer), offset by a 71% decrease in sales of vaccines to private label partners. Our instrument product sales increased due to sales in Europe, as these instruments have obtained the European CE mark, increased sales of reagents in the U.S. resulting from increased placements of instruments. and to a full six month's worth of sales of our SCA 2000(TM) blood coagulation timing instrument, which we introduced during the second quarter of 1999. All of our vaccine products (exclusive of our FeLV vaccine products) were manufactured using bulk antigen fluids that were supplied by a third party. The supply agreement expired and we were unable to locate a replacement supplier for these bulk antigen fluids. We decided to discontinue the sales of the affected products once our remaining supplies were exhausted, which occurred during the third quarter of 1999. Sales of the affected products totaled $1,645,000 and $2,073,000 during 1999 and 1998, respectively. Although veterinary products manufacturers, including us, have traditionally relied on distributors, we have been increasing our direct sales of products to veterinarians via telesales and the Internet as part of a focused strategy. In addition, we stopped selling to several distributors and to Vedco, Inc., a distributor co-op, in the second quarter of 1999. Our cost of sales as a percentage of our net sales was 42% during the second quarter of 2000 compared to 41% during the second quarter of 1999 (i.e., our gross margin decreased to 58% from 59%). The lower gross margin is a direct result of two factors: i) the increased sales of no margin bulk FeLV vaccine to Merial, which are at cost, and ii) the fact that a significant portion of our manufacturing costs are fixed costs. Our gross margin, exclusive of the no margin bulk FeLV vaccine sales, would have been 65% and 62% for the second quarter of 2000 and 1999, respectively. Among our major products, our DiroCHEK(R) canine heartworm diagnostic products and the ProChem(R) analyzer are manufactured at our facilities, whereas our WITNESS(R), VetRED(R), all poultry diagnostic, all vaccines and the SCA 2000(TM) products are manufactured by third parties. In addition to affecting our gross margins, outsourcing of manufacturing renders us relatively more dependent on the third-party manufacturers. Our cost of sales as a percentage of our net sales was 48% during the six months ended June 30, 2000 compared to 42% during the six months ended June 30, 1999 (i.e., our gross margin decreased to 52% from 58%). The lower gross margins are a result of the two factors mentioned above. Our gross margin, exclusive of the no margin bulk FeLV vaccine sales, would have been 58% and 61% for the six months ended June 30, 2000 and 1999, respectively. We are currently in the process of transferring the manufacturing of our poultry diagnostic products to our manufacturing facilities in San Diego, and we expect the transfer to be completed within the next twelve months. We believe that our gross margins on these products will improve as we will have more products to absorb our fixed manufacturing costs. In March 1999, we amended (effective July 1, 1998) our FeLV vaccine supply agreement with Merial Limited ("Merial"). Since 1992, we have supplied FeLV vaccine to Merial in the United States. This has included shipments to Merial at our cost, while Merial has paid a royalty to us on their sales of Merial- labeled FeLV vaccine. In exchange for $1,500,000 in cash ($1,453,000 of which we are recognizing ratably over the remaining term of the supply agreement, and the remainder of which was applied to royalties receivable from Merial), the revised supply agreement broadened Merial's U.S. distribution rights (which were an area of ongoing discussions) and eliminated the royalty. In addition, we will work with Merial to try to have Intervet supply FeLV vaccine directly to Merial for U.S. distribution. Our FeLV vaccine sales to Merial totalled $2,431,000 and $2,029,000 during 1999 and 1998, respectively. In the meantime, we will continue to resell Intervet-supplied 14 FeLV vaccine to Merial at cost for the U.S. Sales of our own VacSyn FeLV vaccine product, our sales to Merial S.A.S. in France, which are at a profit rather than at cost, and the collaborative research relationship between Merial Limited and us were not affected by this amendment. Our research and development expenses decreased $38,000 or 7% during the second quarter of 2000 as compared to the second quarter of 1999, and decreased $51,000 or 4% during the six months ended June 30, 2000 as compared to the six months ended June 30, 1999 Our research and development expenses as a percentage of our net sales were 6% and 7% during the second quarter of 2000 and 1999, respectively, and were 6% during the six months ended June 30, 2000 and 1999. We expect our research and development expenses to increase during the remainder of 2000 due to further development of our instrument product line and our newly acquired poultry diagnostic product line. Our selling and marketing expenses during the second quarter of 2000 increased by $990,000 or 56% over the second quarter of 1999, and increased $1,513,000 or 40% during the six months ended June 30, 2000 as compared to the six months ended June 30, 1999. The increases are due primarily to the acquisition of W3COMMERCE, promotional programs and an increase in our direct- to-veterinarian telemarketing group. Our selling and marketing expenses as a percentage of our net sales were 32% and 21% during the second quarter of 2000 and 1999, respectively, and were 30% and 21% during the six months ended June 30, 2000 and 1999, respectively. Our general and administrative expenses during the second quarter of 2000 increased by $565,000 or 40% over the second quarter of 1999, and increased $876,000 or 31% during the six months ended June 30, 2000 as compared to the six months ended June 30, 1999. The increases are due primarily to legal expenses related to our patent litigation with Heska, increased goodwill amortization related to our W3COMMERCE and KPL acquisitions, increased use tax resulting from a state use tax audit, and foreign currency losses related to our intercompany receivable from SBIO-E. Our general and administrative expenses as a percentage of our net sales were 23% and 17% during the second quarter of 2000 and 1999, respectively, and were 21% and 16% during the six months ended June 30, 2000 and 1999, respectively. Our combined effective tax rate was 0% during the six months ended June 30, 2000 as compared to 47% during the six months ended June 30, 1999. The decrease in our effective rate is due primarily to the net operating loss for the six months ended June 30, 2000, offset by a change in our deferred tax assets and state income tax expense resulting from certain states' taxes being calculated on our net worth rather than our net income. Financial Condition We believe that our present capital resources, which included working capital of $8,428,000 at June 30, 2000, are sufficient to meet our current working capital needs and service our debt. As of June 30, 2000, we had outstanding principal balances on our Imperial Bank debt of $9,800,000, and outstanding principal balances on our convertible debt issued in conjunction with the acquisition of W3COMMERCE of $2,813,000. As of June 30, 2000, we were not in compliance with certain financial covenants in our loan agreement with Imperial Bank, and has obtained a waiver from the bank. In exchange for the waiver, the Company has: 1) paid the bank a waiver fee of $35,000; 2) made a one time principal payment on its term loan of $500,000 and 3) increased the interest rate on both the term debt and the line of credit to prime plus 2.00%. The 621,000 shares of our common stock which we issued to Merial in conjunction with the 1997 acquisition of Synbiotics Europe are subject to put provision. The put option gives Merial the right, beginning on July 9, 2001, to sell all or any portion of its shares to us at a price of $5 per share, for a total of $3,105,000. If Merial were to exercise its put option, we would be unable to pay for the shares. Our operations are seasonal due to the timing of sales of our canine heartworm diagnostic products. Our sales and profits tend to be concentrated in the first half of the year, as our distributors prepare for the heartworm season by purchasing diagnostic products for resale to veterinarians. The operations of SBIO-E have reduced our 15 seasonality as sales of their large animal diagnostic products tend to occur evenly throughout the year. We believe that increased sales of our instruments and supplies and our newly acquired poultry diagnostic products success in our Internet marketing business will also reduce our seasonality. Success in our Internet marketing business would also reduce our seasonality. On June 19, 2000 we announced that we had retained investment bankers to advise us in exploring strategic alternatives for enhancing the value of Synbiotics to our shareholders. Included in these strategic alternatives is the possible sale of our animal health business. If we were to sell the animal health business, the financial condition and results of operations would be materially affected, as substantially all of our assets, liabilities, revenues and expenses are attributable to the animal health business. Subsequent to any possible sale of the animal health business, our assets would consist primarily of the sales proceeds and the operations of W3COMMERCE, and our future results of operations would be contingent upon the efforts of W3COMMERCE. Impact of the Year 2000 Issue We did not incur any disruption of our operations related to the year 2000 issue, nor are we aware of any disruption in the operations of our major suppliers and customers due to the year 2000 issue. Item 3--Quantitative and Qualitative Disclosures About Market Risk Our market risk consists primarily of the potential for changes in interest rates and foreign currency exchange rates. Interest Rate Risk The fair value of our investments available for sale at June 30, 2000 was $1,316,000, all of which consists of fixed interest rate securities. The objectives of our investment policy are the safety and preservation of invested funds, and liquidity of investments that is sufficient to meet cash flow requirements. Our policy is to place our cash, cash equivalents, and investments available for sale with high credit quality financial institutions, commercial companies, and government agencies in order to limit the amount of credit exposure. The fair value of our long-term debt at June 30, 2000 was $12,613,000, of which $2,813,000 has a fixed interest rate of 6.21%, and the remaining $9,800,000 has a variable interest rate based on the prime rate. A 5% change in interest rates would have no material impact on our financial condition, results of operations or cash flows as it relates to our securities available for sale. However, a 5% change in interest rates would have a material impact on our financial condition, results of operations and cash flows as it relates to our variable rate long-term debt. Foreign Currency Exchange Rate Risk Our foreign currency exchange rate risk relates to the operations of SBIO-E as it transacts business in Euros, its local currency. However, this risk is limited to our intercompany receivable from SBIO-E and the conversion of its financial statements into the U.S. dollar for consolidation. There is no foreign currency exchange rate risk related to SBIO-E's transactions outside of the European Union as those transactions are denominated in Euros. Similarly, all of the foreign transactions of our U.S. operations are denominated in U.S. dollars. We do not hedge our cash flows on intercompany transactions. As a result, the effects of a 5% change in exchange rates would have a material impact on our financial condition, results of operations and cash flows, but only to the extent that it relates to the conversion of SBIO- E's financial statements, including its intercompany payable, into the U.S. dollar for consolidation. 16 PART II--OTHER INFORMATION Item 1. Legal Proceedings No material changes. Item 2. Changes in Securities None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders On March 10, 2000 we began a solicitation of written consent, of shareholders of record on March 6, 2000, to approve an amendment of our articles of incorporation to change our name. The solicitation was completed on April 30, 2000, and 52.8% of the outstanding shares of our common stock on March 6, 2000 were voted (by giving written consent) in favor approval of the amendment, with the results indicated below: For: 4,927,536 Against: 453,813 Abstain: 27,280 We have suspended the name change process pending the outcome of the possible sale of the animal health business. Our Annual Meeting of Shareholders was held on June 8, 2000. The only matter submitted to a vote was the election of directors, with the results indicated below:
Nominee For Against Abstain Withheld Broker Non-votes ------- --------- ------- ------- -------- ---------------- Patrick Owen Burns....... 7,573,872 N/A N/A 230,605 0 Kenneth M. Cohen......... 7,732,951 N/A N/A 71,526 0 Rigdon Currie............ 7,719,899 N/A N/A 84,578 0 James C. DeCesare........ 7,575,220 N/A N/A 229,257 0 Joseph Klein III......... 7,732,587 N/A N/A 71,890 0 Colin Lucas-Mudd......... 7,766,187 N/A N/A 38,290 0 Donald E. Phillips....... 7,731,894 N/A N/A 72,583 0
Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 4.4 Credit Agreement by and between the Registrant and Imperial Bank, dated April 12, 2000. 4.4.1 First Amendment to Credit Agreement by and between the Registrant and Imperial Bank, dated April 18, 2000.
(b) Reports on Form 8-K None. 17 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SYNBIOTICS CORPORATION Date: August 14, 2000 /s/ Michael K. Green ------------------------------------- Michael K. Green Senior Vice President and Chief Financial Officer (signing both as a duly authorized officer and as principal financial officer) 18 EXHIBIT INDEX
Exhibit No. Exhibit ----------- ------- 4.4 Credit Agreement by and between the Registrant and Imperial Bank, dated April 12, 2000. 4.4.1 First Amendment to Credit Agreement by and between the Registrant and Imperial Bank, dated April 18, 2000.
19 EX-4.4 2 0002.txt CREDIT AGREEMENT EXHIBIT 4.4 ----------- CREDIT AGREEMENT ---------------- This Credit Agreement ("Agreement") is made and entered into on April 12, 2000, by and between Synbiotics Corporation, a California corporation, ("Borrower"), and Imperial Bank, a California banking corporation, ("Bank"). Subject to the terms and conditions of this Agreement, any security agreement(s) executed by Borrower in favor of Bank, any note(s) executed by Borrower in favor of Bank, or any other agreements executed in conjunction therewith (collectively, the "Loan Documents"), Bank shall make the loan(s) and or advance(s) (individually a "Loan" and collectively "Loans") referred to below to Borrower. In consideration of mutual covenants and conditions hereof, the parties hereto agree as follows: 1. AMOUNT AND TERMS OF CREDIT -------------------------- 1.01 TERM LOAN COMMITMENT. (a) TERM LOAN. Subject to the terms and conditions of this Agreement, Bank shall make available to Borrower a term loan (the "Term Loan") in the amount of Six Million Dollars ($6,000,000) the proceeds of which shall be used only for refinancing existing senior debt. (b) TERM LOAN NOTE. The interest rate, payment terms, maturity date and certain other terms of the Term Loan will be contained in a promissory note dated the date of this agreement, as such may be amended or replaced from time to time. 1.02 REVOLVING CREDIT COMMITMENT. (a) REVOLVING LINE OF CREDIT. Subject to the terms and conditions of this Agreement, provided that no event of default then has occurred and is continuing, Bank shall, upon Borrower's request make advances ("Revolving Loans") to Borrower, for general corporate purposes and the issuance of letters of credit, in an amount not to exceed Four Million Dollars ($4,000,000) (the "Revolving Line of Credit") until March 29, 2002 (the "Revolving Line of Credit Maturity Date"). Revolving Loans may be repaid and reborrowed, subject to the provisions of the LIBOR Addendum attached to the promissory note evidencing the Revolving Line of Credit, provided that all outstanding principal and accrued interest on the Revolving Loans shall be payable in full on the Revolving Credit Maturity Date. (b) REVOLVING NOTE. The interest rate, payment terms maturity date and certain other terms of the Revolving Loan will be contained in a promissory note dated the date of this agreement, as such may be amended or replaced from time to time. (c) LETTER OF CREDIT USAGE AND SUBLIMIT. Subject to availability under the Revolving Line of Credit, at any time and from time to time from the date hereof through the banking day immediately prior to the Revolving Line of Credit Maturity Date, Bank shall issue for the account of Borrower such standby and commercial letters of credit ("Letters of Credit") as Borrower may request, which requests shall be made by delivering to Bank a duly executed letter of credit application on Bank's standard form; provided, however, that the outstanding and undrawn amounts under all such Letters of Credit (i) shall not at any time exceed 1 $1,000,000 ("Letter of Credit Sublimit") and (ii) shall be deemed to constitute Revolving Loans for the purpose of calculating availability under the Revolving Line of Credit. Unless agreed to in writing by Bank, no Letter of Credit shall have an expiration date that is later than the Revolving Line of Credit Maturity Date. All Letters of Credit shall be in form and substance acceptable to Bank in its sole discretion and shall be subject to the terms and conditions of Bank's form application and letter of credit agreement and other agreements required by Bank. Borrower will pay all usual issuance and other fees that Bank notifies Borrower it will be charged for issuing and processing Letters of Credit for Borrower. 1.03 LOAN FEES. In addition to any other amounts due, or to become due, concurrent with the execution hereof, in connection with: (a) the Revolving Line of Credit, Borrower shall pay to Bank a loan fee of Ten Thousand Dollars ($10,000) and (b) the Term Loan, Borrower shall pay to Bank a loan fee in the amount of Thirty Thousand Dollars ($30,000). Borrower has paid, and Bank hereby acknowledges receipt of Ten Thousand Dollars ($10,000) towards the payment of these Loan Fees. Borrower shall pay to Bank a fee on the unused portion of the Revolving Line of Credit equal to one-half percent (0.50%) per annum payable quarterly in arrears (any amounts reserved for letters of credit will be included in used portion). 1.04 DOCUMENTATION FEES, COSTS AND EXPENSES. In addition to any other amounts due, or to become due, concurrently with the execution hereof, Borrower agrees to pay to Bank a documentation fee in the amount of Five Thousand Dollars ($5000.00), and all other costs and expenses incurred by the Bank in the preparation of this Agreement, the other Loan Documents and the perfection of any security interest granted to Bank by Borrower. 1.05 COLLATERAL. Borrower shall grant or cause to be granted to Bank a first priority lien on any and all personal property assets of Borrower which is assigned or hereafter is assigned to Bank as security or in which Bank now has or hereafter acquires a security interest or pursuant to the terms of any security agreement, an intellectual property security agreement or otherwise as security for all of Borrower's obligations to Bank, all as may be subject to Section 5.03 hereof. 1.06 COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect all interest, fees, costs, and/or expenses due under this Agreement by charging Borrower's demand deposit account number 08-220-638 with Bank, or any other demand deposit account maintained by Borrower with Bank, for the full amount thereof. Should there be insufficient funds in any such demand deposit account to pay all such sums when due, the full amount of such deficiency shall be immediately due and payable by Borrower. 2. REPRESENTATIONS OF BORROWER --------------------------- Borrower represents and warrants that: 2.01 EXISTENCE AND RIGHTS. Borrower is a corporation, duly organized and existing and in good standing under the laws of the state of California, which shall survive at least five years beyond the maturity of any Loans hereunder, and Borrower is authorized and in good standing to do business in the state of its incorporation. Borrower has the appropriate powers and adequate authority, rights and franchises to own its property and to carry on its business as now conducted, and is duly qualified and in good standing in each state in which the character of the properties owned by it therein or the conduct of its business makes such qualification necessary; and Borrower has the power and adequate authority to make and carry out this Agreement. Borrower has no investment in any other business entity (other than those listed on Schedule 2.01) unless ------------- specified in writing to Bank. 2 2.02 AGREEMENT AUTHORIZED. The execution, delivery and performance of this Agreement and the Loan Documents are duly authorized and do not require the consent or approval of any governmental body or other regulatory authority; are not in contravention of or in conflict with any law or regulation or any term or provision of Borrower's articles of incorporation, or similar document as the case may be, and this Agreement is the valid, binding and legally enforceable obligation of Borrower in accordance with its terms; subject only to bankruptcy, insolvency or similar laws affecting creditors rights generally. 2.03 NO CONFLICT. The execution, delivery and performance of this Agreement and the Loan Documents are not in contravention of or in conflict with any agreement, indenture or undertaking to which Borrower is a party or by which it or any of its property may be bound or affected, and do not cause any lien, charge or other encumbrance to be created or imposed upon any such property by reason thereof. 2.04 LITIGATION. Except as disclosed in writing to Bank by Borrower, there is no litigation or other proceeding pending or threatened against or affecting Borrower which if determined adversely to Borrower or its interest would have a material adverse effect on the financial condition of Borrower, and Borrower is not in default with respect to any order, writ, injunction, decree or demand of any court or other governmental or regulatory authority. 2.05 FINANCIAL CONDITION. The consolidated balance sheet of Borrower as of December 31, 1999 and the related profit and loss statement for the 12- month period ended as of that date, a copy of which has heretofore been delivered to Bank by Borrower, and all other statements and data submitted in writing by Borrower to Bank in connection with this request for credit are true and correct, and said balance sheet truly presents the financial condition of Borrower as of the date thereof, and has been prepared in accordance with generally accepted accounting principles on a basis consistently maintained. Since such date there have been no material adverse changes in the financial condition or business of Borrower. Borrower has no knowledge of any liabilities, contingent or otherwise, at such date not reflected in said balance sheet, and Borrower has not entered into any special commitments or substantial contracts which are not reflected in said balance sheet, other than in the ordinary and normal course of its business, which may have a materially adverse effect upon its financial condition, operations or business as now conducted. 2.06 TITLE TO ASSETS. Borrower has good title to its assets, and the same are not subject to any liens or encumbrances other than those permitted by Section 5.03 hereof. 2.07 TAX STATUS. Borrower has no liability for any delinquent state, local or federal taxes, and, if Borrower has contracted with any government agency, Borrower has no liability for renegotiation of profits. 2.08 TRADEMARKS, PATENTS. Borrower, as of the date hereof, possesses all necessary trademarks, trade names, copyrights, patents, patent rights, and licenses to conduct its business as now operated, without any known conflict with the valid trademarks, trade names, copyrights, patents and license rights of others. 2.09 REGULATION U. None of the proceeds of any Loan shall be used to purchase or carry margin stock (as defined within Regulation U of the Board of Governors of the Federal Reserve system). 3 2.10 ERISA. All defined benefit pension plans as defined in the Employees Retirement Income Security Act of 1974, as amended ("ERISA"), of Borrower meet, as of the date hereof, the minimum funding standards of Section 302 of ERISA, and no Reportable Event or Prohibited Transaction as defined in ERISA has occurred with respect to any such plan. 3. CONDITIONS PRECEDENT TO LOAN ---------------------------- Prior to Bank being obligated to make any Loan pursuant to this Agreement, Bank must receive all of the following, each of which must be in form and substance satisfactory to Bank: 3.01 PROMISSORY NOTE(S). Original, executed promissory note(s) as applicable. 3.02 SECURITY AGREEMENT. Original, executed security agreement(s) covering the personal property collateral securing the Loans. 3.03 FINANCING STATEMENT. Financing statement(s) executed by Borrower and any grantor of a security interest, including Borrower's subsidiaries. 3.04 INSURANCE. Borrower shall have delivered to Bank evidence of insurance coverage required pursuant to that Agreement to Provide Insurance executed by Borrower, in form, substance, amounts, covering risks and issued by companies satisfactory to Bank, and where required by Bank, with Lenders Loss Payable endorsement in favor of Bank. 3.05 ORGANIZATIONAL DOCUMENTS. Copies of the articles of incorporation, or similar document as the case may be, of the any Borrower. 3.06 AUTHORIZATIONS. Certified copies of all action taken by any Borrower to authorize the execution, delivery and performance of the Loan Documents. 3.07 GOOD STANDING. Good standing certificates from the appropriate secretary of state of the state in which any Borrower is organized and in each state in which it is required to be qualified to do business. 3.08 CREDIT AGREEMENT. This Agreement executed by Borrower. 3.09 ADDITIONAL DOCUMENTS. Such other documents as Bank may reasonably deem necessary. 4. AFFIRMATIVE COVENANTS OF BORROWER --------------------------------- Borrower agrees that so long as it is indebted to Bank, under borrowings, or other indebtedness, or so long as Bank has any obligation to extend credit to Borrower it will, unless Bank shall otherwise consent in writing: 4 4.01 RIGHTS AND FACILITIES. Maintain and preserve all rights, franchises and other authority adequate for the conduct of its business; maintain its properties, equipment and facilities in good order and repair; conduct its business in an orderly manner without voluntary interruption and, if a corporation or partnership, maintain and preserve its existence. 4.02 USE OF PROCEEDS. Use the proceeds of the Loans only for purposes specified in Section 1 of this Agreement. 4.03 INSURANCE. Maintain public liability, property damage and workers' compensation insurance and insurance on all its insurable property against fire and other hazards with responsible insurance carriers to the extent usually maintained by similar businesses and/or in the exercise of good business judgment, and as required by that Agreement to Provide Insurance executed by Borrower, with the Bank to be shown as Lenders Loss Payee on such policies. 4.04 TAXES AND OTHER LIABILITIES. Pay and discharge, before the same become delinquent and before penalties accrue thereon, all taxes, assessments and governmental charges upon or against it or any of its properties, and all its other liabilities at any time existing, except to the extent and so long as: (a) The same are being contested in good faith and by appropriate proceedings in such manner as not to cause any materially adverse effect upon its financial condition or the loss of any right of redemption from any sale thereunder; and (b) It shall have set aside on its books reserves (segregated to the extent required by generally accepted accounting practice) deemed by it to be adequate with respect thereto. 4.05 RECORDS AND REPORTS. Maintain a standard and modern system of accounting in accordance with generally accepted accounting principles on a basis consistently maintained; permit Bank's representatives to have access to, and to examine its properties, books and records at all reasonable times and upon reasonable notice during normal business hours; and furnish Bank: (a) MONTHLY FINANCIAL STATEMENT. As soon as available, and in any event within thirty (30) days after the close of each month, a consolidated and consolidating balance sheet, profit and loss statement and reconciliation of Borrower's capital balance accounts as of the close of such period and covering operations for the portion of Borrower's fiscal year ending on the last day of such period, all in reasonable detail and reasonably acceptable to Bank, in accordance with generally accepted accounting principles on a basis consistently maintained by Borrower and certified by an appropriate officer of Borrower. (b) QUARTERLY FINANCIAL STATEMENT. As soon as available, and in any event within forty-five (45) days after the close of each quarter (except Borrower's last fiscal quarter), a 10Q report and a consolidated and consolidating balance sheet, profit and loss statement and reconciliation of Borrower's capital balance accounts as of the close of such period and covering operations for the portion of Borrower's fiscal year ending on the last day of such period, all in reasonable detail and reasonably acceptable to Bank, in accordance with generally accepted accounting principles on a basis consistently maintained by Borrower and certified by an appropriate officer of Borrower. 5 (c) ANNUAL FINANCIAL STATEMENT. As soon as available, and in any event within ninety (90) days after and as of the close of each fiscal year of Borrower, a 10K report and a consolidated report of audit of Company, all in reasonable detail, audited by an independent certified public accountant selected by Borrower and reasonably acceptable to Bank, in accordance with generally accepted accounting principles on a basis consistently maintained by Borrower and certified by an appropriate officer of Borrower. (d) OFFICER'S CERTIFICATE. Within forty-five (45) days after the end of each quarter and within ninety (90) days of fiscal year end of Borrower, a certificate of the chief financial officer of Borrower ("Compliance Certificate"), stating that Borrower has performed and observed each and every covenant contained in this Agreement to be performed by it and that no event has occurred and no condition then exists which constitutes an event of default hereunder or would constitute such an event of default upon the lapse of time or upon the giving of notice and the lapse of time specified herein; or, if any such event has occurred or any such condition exists, specifying the nature thereof in the form of Schedule 4.05 (c) attached hereto. (e) AUDIT REPORTS. Promptly after the receipt thereof by Borrower, copies of any detailed audit reports submitted to Borrower by independent accountants in connection with each annual or interim work on the accounts of Borrower made by such accountants; (f) STOCKHOLDER, SECURITY AND EXCHANGE COMMISSION STATEMENTS AND REPORTS. Promptly after the same are available, copies of all such proxy statements, financial statements and reports as Borrower or any subsidiary shall send to its members or stockholders as appropriate, if any, and copies of all reports which Borrower or any subsidiary may file with the Securities and Exchange Commission. (g) OTHER INFORMATION. Such other information relating to the affairs of Borrower as the Bank reasonably may request from time to time. 4.06 WORKING CAPITAL. Maintain at all times working capital, meaning current assets (excluding all amounts due from stockholders, officers and affiliates) minus total current liabilities (including all amounts due to stockholders, officers and affiliates and any outstandings under the Revolving Line of Credit) of not less than Six Million Dollars ($6,000,000). 4.07 TANGIBLE NET WORTH. Maintain at all times a consolidated Tangible Net Worth (defined as stockholder's equity less any value for goodwill, trademarks, patents, copyrights, leaseholds, organization expense and other similar intangible items, and any amounts due from stockholders, officers and affiliates) plus Subordinated Debt, meaning debt subordinated to the obligations of Borrower to Bank, in form and substance satisfactory to Bank, of not less than Five Million Dollars ($5,000,000) to be increased on a cumulative basis by: (i) 70% of positive net income, plus (ii) 100% of the proceeds from the sale of issuance of stock by Borrower, plus (iii) 100% of the equity issued in connection with mergers and acquisitions, plus (iv) 100% of extraordinary gains; all calculated in accordance with generally accepted accounting principles on a basis consistently maintained by Borrower. 4.08 FIXED CHARGE COVERAGE RATIO. Maintain at all times on a consolidated basis, a Fixed Charge Coverage Ratio of not less than 1.50 to 1.00. Fixed Charge Coverage Ratio is defined as the ratio of EBITDA divided by the sum of (a) current maturities of Long Term Debt, plus (b) capital lease expense, (c) plus interest expense, (d) plus cash state and federal income taxes actually paid. EBITDA 6 shall mean the sum of (a) net income after taxes, plus (b) interest expense, plus (c) consolidated income tax expense, plus (d) depreciation and amortization expense. Long Term Debt shall mean those debts or renewals or extensions thereof whose original terms exceed one (1) year. 4.09 FUNDED SENIOR DEBT TO EBITDA. Maintain at all times on a consolidated basis a ratio of Funded Senior Debt to EBITDA of not more than 3.0 to 1.0 beginning with test date March 31, 2000 through and including December 31, 2001; of not more than 2.5 to 1.0 beginning with March 31, 2002 through and including December 31, 2002; and of not more than 2.0 to 1.0 beginning with March 31, 2003 through maturity. Funded Senior Debt shall mean all liabilities of whatever nature or duration consisting of indebtedness for borrowed money or indebtedness (including obligations under capital leases but excluding debt subordinated to the obligations of Borrower to Bank) incurred to finance the purchase of any asset (including letter of credit obligations). EBITDA shall mean the sum of (a) net income after taxes, plus (b) interest expense, plus (c) consolidated income tax expense, plus (d) depreciation and amortization expense. Long Term Debt shall mean those debts or renewals or extensions thereof whose original terms exceed one (1) year. For purposes of determining the Leverage Ratio and the Fixed Charge Coverage Ratio, EBITDA shall be calculated as set forth in the table below opposite the applicable Test Date: Test Date EBITDA CALCULATION --------- ------------------ 3/31/00 EBITDA for the prior fiscal quarter ended on the test date multiplied by 4. 6/30/00 EBITDA for the prior two fiscal quarters ended on the test date multiplied by 2. 9/30/00 EBITDA for the prior three fiscal quarters ended on the test date multiplied by 4 then divided by 3. 12/31/00 and each EBITDA for the prior four fiscal quarters quarter thereafter ended on the test date 4.10 ERISA. Cause all defined benefit pension plans, as defined in ERISA, of Borrower to, at all times, meet the minimum funding standards of Section 302 of ERISA, and ensure that no Reportable Event or Prohibited Transaction, as defined in ERISA, will occur with respect to any such plan. 4.11 LAWS. At all times comply with, or cause to be complied with, all laws, statues, rules, regulations, orders and directions of any governmental authority having jurisdiction over Borrower or Borrower's business. 4.12 GAAP. Compliance with all financial covenants shall be calculated based on generally accepted accounting principles applied on a consistent basis as maintained by Borrower. 7 4.13 OPERATING ACCOUNTS. Maintain all primary accounts and banking relationship with the Bank. Maintain, or cause to be maintained, on deposit with Bank, non-interest bearing demand deposit balances sufficient to compensate Bank for all services provided by Bank. Balances shall be calculated after reduction for the reserve requirement of the Federal Reserve Board and uncollected funds. Any deficiencies shall be charged directly to the Borrower on a monthly basis. 4.14 NOTICES. Promptly notify Bank in writing of (i) the occurrence of any Event of Default hereunder or any event which upon notice and lapse of time would be an Event of Default; (ii) all litigation affecting Borrower where the amount is Fifty Thousand Dollars ($50,000) or more; any substantial dispute which may exist between Borrower and any governmental regulatory body or law enforcement authority; any change in Borrower's name or principal place of business; or any other matter which has resulted or might result in a material adverse change in Borrower's financial condition or operations. 5. NEGATIVE COVENANTS OF BORROWER ------------------------------ Borrower agrees that so long as it is indebted to Bank, or so long as Bank has any obligation to extend credit to Borrower, it will not, without Bank's written consent: 5.01 TYPE OF BUSINESS; MANAGEMENT; CHANGE IN CONTROL. Make any substantial change in the character of its business or make any change in its executive management. 5.02 OUTSIDE INDEBTEDNESS. Create, incur, assume or permit to exist any indebtedness for borrowed moneys other than Loans from the Bank except obligations now existing as shown in the financial statement dated December 31, 1999, excluding those obligations being refinanced by Bank, and other than those Permitted Indebtedness listed on Schedule 5.02 attached hereto, or sell or transfer, either with or without recourse, any accounts or notes receivable or any moneys due or to become due. 5.03 LIENS AND ENCUMBRANCES. Create, incur, permit to exist, or assume any mortgage, pledge, encumbrance, lien or charge of any kind upon any asset now owned or hereafter acquired by it, other than liens for taxes not delinquent and liens in Bank's favor and other than liens agreed to in writing by Bank (as shown on Schedule 5.03 Permitted Liens). 5.04 LOANS, INVESTMENTS, SECONDARY LIABILITIES. Make any loans or advances to any person or other entity other than in the ordinary and normal course of its business as now conducted or make any investment in the securities of any person or other entity other than the United States Government; or guarantee or otherwise become liable upon the obligation of any person or other entity, except by endorsement of negotiable instruments for deposit or collection in the ordinary and normal course of its business. 5.05 ACQUISITION OR SALE OF BUSINESS; MERGER OR CONSOLIDATION. Purchase or otherwise acquire the assets or business of any person or other entity; or liquidate, dissolve, merge or consolidate, or commence any proceedings therefor; or sell any assets except in the ordinary and normal course of its business as now conducted; or sell, lease, assign, or transfer any substantial part of its business or fixed assets, or any property or other assets necessary for the continuance of its business as now conducted, including without limitation the selling of any property or other asset accompanied by the leasing back of the same. 8 Notwithstanding the above, Borrower is permitted to acquire the assets comprising the Poultry Diagnostics Business from Kirkegaard & Perry Laboratories ("KPL") for Six Million Dollars ($6,000,000) pursuant to the Exchange Agreement dated April 14, 2000 by and between Borrower and KPL. In addition, Bank acknowledges Borrower and the members and managers of W3 Commcerce LLC ("W3C") have entered into an Exchange Agreement dated as of January 12, 2000 whereby the individual members of W3C agreed to exchange their membership interests in W3C solely for the convertible subordinated promissory notes of Borrower with an aggregate original principal amount equal to Two Million Eight Hundred Twelve Thousand Four Hundred Ninety-nine Dollars and Fifty Cents ($2,812,499.50) and, if and when certain contingencies are satsified as stated in the subordinated promissory notes, shares of common stock of Borrower. 5.06 CAPITAL EXPENDITURES. Make or incur obligations for fixed or capital assets, which includes purchase money indebtedness or capital lease obligations, in excess of One Million Dollars ($1,000,000) in any fiscal year. Notwithstanding the above, Borrower is permitted to purchase the assets comprising the Poultry Diagnostics Business from Kirkegaard & Perry Laboratories ("KPL") pursuant to the Exchange Agreement dated April 14, 2000 by and between Borrower and KPL. The total purchase price of Six Million Dollars ($6,000,000) shall be comprised of Three Million Five Hundred Thousand Dollars ($3,500,000) cash payment to KPL at closing; One Million Dollars ($1,000,000) cash payment to KPL upon the successful transfer of manufacturing to Borrower; and a three-year royalty agreement not to exceed One Million Five Hundred Thousand Dollars ($1,500,000). 5.07 OPERATING LEASE EXPENDITURES. Make or incur obligations for operating leases for real or personal property in excess of Two Hundred Thousand Dollars ($200,000) in any fiscal year. 5.08 DIVIDENDS. Declare or pay any dividend or make any other distribution on any of its capital stock now outstanding or hereafter issued or purchase, redeem or retire any of such stock other than in dividends or distributions payable in Borrower's capital stock, except for the repurchase of Borrower's capital stock from officers, directors, employees or consultants of Borrower upon termination of their employment with or rendering of service to Borrower. 5.09 SUBORDINATED LIABILITIES. Make any payments on any Borrower's obligation subordinated to the obligations to Bank, other than in accordance with the provisions of any subordination agreement executed by the Bank and the subordinated debt holder. 6. EVENTS OF DEFAULT ----------------- The occurrence of any of the following events of default ("Events of Default") shall, at Bank's option, terminate Bank's commitment to lend and make all sums of principal and interest then remaining unpaid on all Borrower's indebtedness to Bank immediately due and payable, all without demand, presentment or notice, all of which are hereby expressly waived: 6.01 FAILURE TO PAY. Failure to pay any installment of principal or of interest on any indebtedness of Borrower to Bank within five (5) days of its due date. 9 6.02 BREACH OF COVENANT. Failure of Borrower to perform any other term or condition of this Agreement or any Loan Document binding upon Borrower. 6.03 BREACH OF WARRANTY. Any of Borrower's representations or warranties made herein or any statement or certificate at any time given in writing pursuant hereto or in connection herewith shall be false or misleading in any respect. 6.04 INSOLVENCY; RECEIVER OR TRUSTEE. Borrower shall become insolvent; or admit its inability to pay its debts as they mature; or make an assignment for the benefit of creditors; or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business. 6.05 JUDGMENTS, ATTACHMENTS. Any money judgment in excess of Fifty Thousand Dollars ($50,000), writ or warrant of attachment, or similar process shall be entered or filed against Borrower or any of its assets and shall remain unvacated, unbonded or unstayed for a period of ten (10) days or in any event later than five (5) days prior to the date of any proposed sale thereunder. 6.06 BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against Borrower and, if instituted against it, shall not be dismissed within thirty (30) days thereafter. 6.07 REVOCATION OF GUARANTEE AND/OR SUBORDINATION AGREEMENT. Any guarantee or subordination agreement required hereunder is breached or becomes ineffective; or any Guarantor or subordination creditor disavows or attempts to revoke or terminate such guarantee or subordination agreement. 6.08 CESSATION OF BUSINESS. Borrower shall voluntarily suspend its business. 6.09 ADVERSE CHANGE. Any change which, in the opinion of Bank, is materially adverse to the financial condition of Borrower or any Guarantor; or should Bank, for any reason, believe that the prospect of Borrower's payment or performance hereunder or under any other agreement or instrument with Bank be impaired. 6.10 OTHER DEFAULTS. Borrower shall commit or do or fail to commit or do any act or thing which would constitute an event of default under any of the terms of any other agreement, document or instrument executed or to be executed by it concerning the obligation to pay money. 6.11 ADVANCES. Notwithstanding anything to the contrary contained herein, Bank shall have no duty to make advances while any event of default exists notwithstanding any cure period provided for herein. 7. MISCELLANEOUS PROVISIONS ------------------------ 7.01 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of Bank or any holder of notes issued hereunder, in the exercise of any power, right or privilege hereunder shall operate 10 as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing under this Agreement or any note (s) issued in connection with a Loan that Bank may make hereunder, are cumulative to, and not exclusive of, any rights or remedies otherwise available. 7.02 COUNTERPARTS; ENTIRE AGREEMENT. This Agreement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. This Agreement, and the other Loan Documents constitute the entire understanding among the parties hereto with respect to the subject matter hereof and supersedes any prior agreements, written or oral, with respect thereto. 7.03 ATTORNEY'S FEES. Borrower will pay promptly to Bank without demand after notice, with interest thereon from the date of expenditure at the rate applicable to the Loan, reasonable attorneys' fees and all costs and expenses paid or incurred by Bank in collecting or compromising the Loan after the occurrence of an Event of Default, whether or not suit is filed. If suit is brought to enforce any provision of this Agreement, the prevailing party shall be entitled to recover its reasonable attorneys' fees and court costs in addition to any other remedy or recovery awarded by the court. 7.04 ADDITIONAL REMEDIES. The rights, powers and remedies given to Bank hereunder shall be cumulative and not alternative and shall be in addition to all rights, powers and remedies given to Bank by law against Borrower or any other person, including but not limited to Bank's rights of setoff or banker's lien. 7.05 INUREMENT. The benefits of this Agreement shall inure to the successors and assigns of Bank and the permitted successors and assigns of Borrower. 7.06 APPLICABLE LAW. This Agreement and all other agreements and instruments required by Bank in connection therewith shall be governed by and construed according to the laws of the state of California, to the jurisdiction of whose courts the parties hereby agree to submit. 7.07 OFFSET. In addition to and not in limitation of all rights of offset that Bank or other holder of the Loan may have under applicable law, Bank or other holder of any note issued hereunder shall, upon the occurrence of any Event of Default or any event which with the passage of time or notice would constitute such an Event of Default, have the right to appropriate and apply to the payment of the Loan any and all balances, credits, deposits, accounts or monies of Borrower then or thereafter with Bank or other holder, within ten (10) days after the Event of Default, and notice of the occurrence of any Event of Default by Bank to Borrower. 7.08 SEVERABILITY. Should any one or more provisions of the Agreement be determined to be illegal or unenforceable, all other provisions nevertheless shall be effective. 7.09 TIME OF THE ESSENCE. Time is hereby declared to be of the essence of this Agreement and of every part hereof. 7.10 ACCOUNTING. All accounting terms shall have the meanings applied under generally accepted accounting principles unless otherwise specified. 11 7.11 REFERENCE PROVISION. (a) Other than (i) nonjudicial foreclosure and all matters in connection therewith regarding security interests in real or personal property; or (ii) the appointment of a receiver, or the exercise of other provisional remedies (any and all of which may be initiated pursuant to applicable law), each controversy, dispute or claim between the parties arising out of or relating to this Credit Agreement, any security agreement executed by Borrower in favor of Bank or any note executed by Borrower in favor of Bank or any other agreement or instrument issued in favor of Bank by Borrower (collectively in this Section, the "Agreement") which controversy, dispute or claim is not settled in writing within thirty (30) days after the "Claim Date" (defined as the date on which a ---------- party subject to this Agreement gives written notice to all other parties that a controversy, dispute or claim exists), will be settled by a reference proceeding in California in accordance with the provisions of Section 638 et seq. of the ------- California Code of Civil Procedure, or their successor section ("CCP"), which --- shall constitute the exclusive remedy for the settlement of any controversy, dispute or claim concerning this Agreement, including whether such controversy, dispute or claim is subject to the reference proceeding and except as set forth above, the parties waive their rights to initiate any legal proceedings against each other in any court or jurisdiction other than the Superior Court in the County where the Real Property, if any, is located or Los Angeles County if none (the "Court"). The referee shall be a retired Judge of the Court selected ----- by mutual agreement of the parties, and if they cannot so agree within forty-five (45) days after the Claim Date, the referee shall be promptly selected by the Presiding Judge of the Court (or his representative). The referee shall be appointed to sit as a temporary judge, with all of the powers for a temporary judge, as authorized by law, and upon selection should take and subscribe to the oath of office as provided for in Rule 244 of the California Rules of Court (or any subsequently enacted Rule). Each party shall have one peremptory challenge pursuant to CCP (S)170.6. The referee shall (a) be requested to set the matter for hearing within sixty (60) days after the date of selection of the referee and (b) try any and all issues of law or fact and report a statement of decision upon them, if possible, within ninety (90) days of the Claim Date. Any decision rendered by the referee will be final, binding and conclusive and judgment shall be entered pursuant to CCP (S)644 in any court in the state of California having jurisdiction. Any party may apply for a reference proceeding at any time after thirty (30) days following notice to any other party of the nature of the controversy, dispute or claim, by filing a petition for a hearing and/or trial. All discovery permitted by this Agreement shall be completed no later than fifteen (15) days before the first hearing date established by the referee. The referee may extend such period in the event of a party's refusal to provide requested discovery for any reason whatsoever, including, without limitation, legal objections raised to such discovery or unavailability of a witness due to absence or illness. No party shall be entitled to "priority" in conducting discovery. Depositions may be taken by either party upon seven (7) days written notice, and request for production or inspection of documents shall be responded to within ten (10) days after service. All disputes relating to discovery which cannot be resolved by the parties shall be submitted to the referee whose decision shall be final and binding upon the parties. Pending appointment of the referee as provided herein, the Superior Court is empowered to issue temporary and/or provisional remedies, as appropriate. (b) Except as expressly set forth in this Agreement, the referee shall determine the manner in which the reference proceeding is conducted including the time and place of all hearings, the order of presentation of evidence, and all other questions that arise with respect to the course of the reference proceeding. All proceedings and hearings conducted before the referee, except for trial, shall be conducted without a court reporter except that when any party so requests, a court reporter will be used at any hearing conducted before the referee. The party making such a request shall have the obligation to arrange for and pay for the court reporter. The costs of the court reporter at the trial shall be borne equally by the parties. (c) The referee shall be required to determine all issues in accordance with existing case law and the statutory laws of the state of California. The rules of evidence applicable to proceedings at law in the state 12 of California will be applicable to the reference proceeding. The referee shall be empowered to enter equitable as well as legal relief, to provide all temporary and/or provisional remedies and to enter equitable orders that will be binding upon the parties. The referee shall issue a single judgment at the close of the reference proceeding which shall dispose of all of the claims of the parties that are the subject of the reference. The parties hereto expressly reserve the right to contest or appeal from the final judgment or any appealable order or appealable judgment entered by the referee. The parties hereto expressly reserve the right to findings of fact, conclusions of laws, a written statement of decision, and the right to move for a new trial or a different judgment, which new trial, if granted, is also to be a reference proceeding under this provision. (d) In the event that the enabling legislation which provides for appointment of a referee is repealed (and no successor statute is enacted), any dispute between the parties that would otherwise be determined by the reference procedure herein described will be resolved and determined by arbitration. The arbitration will be conducted by a retired judge of the Court, in accordance with the California Arbitration Act, (S)1280 through (S)1294.2 of the CCP as amended from time to time. The limitations with respect to discovery as set forth hereinabove shall apply to any such arbitration proceeding. 7.12 This Agreement may be modified only by a writing signed by all parties hereto. This Agreement is executed on behalf of the parties by duly authorized officers as of the date first above written. IMPERIAL BANK SYNBIOTICS CORPORATION ("BANK") ("BORROWER") By: /s/ Jamie L. Harney By: /s/ Michael K. Green ------------------- -------------------- Jamie L. Harney Michael K. Green Its: Vice President Its: Vice President - Finance By: By: -------------------- -------------------- Its: Its: 13 SCHEDULE 2.01 BORROWER'S INVESTMENTS SUBSIDIARIES OF SYNBIOTICS CORPORATION: - --------------------------------------- W3Commerce LLC 125 S. Tremont Street, #C Oceanside, CA 92054 Synbiotics Europe S.A.S. 299 Avenue Jean-Jaures 69007 Lyons, France 14 SCHEDULE 4.05 (c) COMPLIANCE CERTIFICATE with Schedule I thereto TO: IMPERIAL BANK Orange County Regional Headquarters 695 Town Center Drive, Suite 100 Costa Mesa, CA 92626-1924 Attention: Commercial Loans Fax (714) 641-2219 THIS COMPLIANCE CERTIFICATE is furnished pursuant to Section 4.05(c) of that certain Credit Agreement (the "Agreement") dated as of April ____, 2000, between Synbiotics Corporation ("Borrower") and IMPERIAL BANK ("Bank"). Unless otherwise defined herein, initially capitalized terms used in this Compliance Certificate have the meanings described in the Agreement. THE UNDERSIGNED HEREBY CERTIFIES THAT: (1) The undersigned is the duly elected and serving President or Chief Financial Officer of Borrower. (2) The undersigned has reviewed the terms of the Agreement and the Loan Documents, and has made, or has caused to be made under the undersigned's supervision, a detailed review of the transactions and conditions of the Borrower during the accounting period covered by the attached financial statements; (3) The examinations described in Paragraph (2) above did not disclose, and the undersigned has no knowledge of, the existence of any condition or event which constitutes an Event of Default or Unmatured Event of Default during, or at the end of, the accounting period covered by the attached financial statement or as of the date of this certificate, except as set forth below; (4) Schedule I and Exhibit 1(financial statements) attached hereto and incorporated by this references set forth financial data and computations evidencing Borrower's compliance with the Agreement, all of which data and computations are true, complete and correct. (5) Described below are the exceptions, if any, to Paragraph (3) above which list, in detail, the nature of the condition or event, the period during which it has existed and the action which Borrower has taken, is taking, or proposed to take with respect to each such condition or event: ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ 15 This Compliance Certificate, together with the computations set forth in Schedule A and Exhibit 1 hereto and the financial statements delivered concurrently herewith in support hereof, are made and delivered this _______day of _______ , 2000. By: ________________________________ President or Chief Financial Officer 16 SCHEDULE I TO COMPLIANCE CERTIFICATE
WORKING CAPITAL - SECTION 4.06 - ------------------------------ Current Assets ____________ Minus: Current Liabilities ____________ Actual Working Capital ____________ Required $6,000,000 In Compliance? Yes No TANGIBLE NET WORTH - SECTION 4.07 - --------------------------------- (a) Consolidated Tangible Net Worth as shown on March 31, 2000 Financial Statements (after giving effect to KPL Acquisition) ____________ (b) 70% of cumulative Consolidated Net Income for all fiscal quarters from and including March 31, 2000 (determined without making any reduction in the amount thereof by reason of any net loss arising in any fiscal quarter) ____________ (c) 100% of proceeds received by Borrower or Subsidiaries after March 31, 2000 through the sale of equity of Borrower or its subsidiaries ____________ (d) 100% of equity issued in connection with mergers and acquisitions after March 31, 2000 ____________ (e) 100% of proceeds resulting from extraordinary gains realized after March 31, 2000 ____________ Required Tangible Net Worth (sum of (a) through (e)) ____________ Actual Tangible Net Worth ____________ In Compliance? Yes No
17
FIXED CHARGE COVERAGE RATIO - SECTION 4.08 - ------------------------------------------- (a) Current Maturities of Long Term Debt ____________ (b) Capital Lease Expense (for last fiscal four quarters) ____________ (c) Interest Expense (for last fiscal four quarters) ____________ (d) State and Federal Income Taxes (Cash Taxes Actually Paid) (for last fiscal four quarters) ____________ (e) Total Fixed Charges for Last Fiscal Four Quarters (sum of (a) through (d)) ============ (f) Net Income After Taxes (for last fiscal four quarters) ____________ (g) Interest Expense (for last fiscal four quarters) ____________ (h) Consolidated Income Tax Expense (for last fiscal four quarters) ____________ (i) Depreciation and Income Tax Expense (for last fiscal four quarters) ____________ (j) Rolling Four Quarter EBITDA (sum of (f) through (i)) ============ Required Fixed Charge Coverage Ratio 1.50:1.00 ____________ Actual Fixed Charge Coverage Ratio ((j) divided by (e)) ____________ In Compliance? Yes No
For test periods 3/31/00; 6/30/00; and 9/30/00, EBITDA will be calculated per Section 4.09 of the Credit Agreement
FUNDED SENIOR DEBT TO EBITDA - ---------------------------- (a) Consolidated Total Senior Indebtedness (including outstanding Letters of Credit) ____________ (b) Capital Leases ____________ (C) Total Senior Indebtedness (sum of (a) through (b)) ============ (d) Net Income After Taxes (for last fiscal four quarters) ____________ (e) Interest Expense (for last fiscal four quarters) ____________ (f) Consolidated Income Tax Expense (for last fiscal four quarters) ____________ (g) Depreciation and Income Tax Expense (for last fiscal four quarters) ____________ (h) Rolling Four Quarter EBITDA (sum of (d) through (g)) ============ Required Funded Senior Debt to EBITDA Ratio ____________ Actual Funded Senior Debt to EBITDA Ratio ((c) divided by (h)) ____________ In Compliance? Yes No
For test periods 3/31/00; 6/30/00; and 9/30/00, EBITDA will be calculated per Section 4.09 of the Credit Agreement 18 SCHEDULE 5.02 PERMITTED INDEBTEDNESS Convertible Promissory Noted dated January 12, 2000 in the amount of Fourteen Thousand Sixty-two Dollars ($14,062.00) from Synbiotics Corporation ("Maker") to Kimberley Lind ("Payee") Convertible Promissory Noted dated January 12, 2000 in the amount of Twenty- eight Thousand One Hundred Twenty-five Dollars ($28,125.00) from Synbiotics Corporation ("Maker") to Drew Keene ("Payee") Convertible Promissory Noted dated January 12, 2000 in the amount of Twenty- eight Thousand One Hundred Twenty-five Dollars ($28,125.00) from Synbiotics Corporation ("Maker") to Steven Usrey ("Payee") Convertible Promissory Noted dated January 12, 2000 in the amount of Twenty- eight Thousand One Hundred Twenty-five Dollars ($28,125.00) from Synbiotics Corporation ("Maker") to Tim Mudd ("Payee") Convertible Promissory Note dated January 12, 2000 in the amount of Forty-two Thousand One Hundred Eighty-seven Dollars and Fifty Cents ($42,187.50) from Synbiotics Corporation ("Maker") to Mark Brunel-Cohen ("Payee") Convertible Promissory Note dated January 12, 2000 in the amount of Fifty-six Thousand Two Hundred Fifty Dollars ($56,250.00) from Synbiotics Corporation ("Maker") to Rigdon Currie ("Payee") Convertible Promissory Note dated January 12, 2000 in the amount of Eighty-four Thousand Three Hundred Seventy-five Dollars ($84,375.00) from Synbiotics Corporation ("Maker") to Regan Francis Carey ("Payee") Convertible Promissory Note dated January 12, 2000 in the amount of Three Hundred Thirty-seven Thousand Five Hundred Dollars ($337,500.00) from Synbiotics Corporation ("Maker")to Edward Brunel-Cohen ("Payee") Convertible Promissory Note dated January 12, 2000 in the amount of Four Hundred Twenty-one Thoursand Eight Hundred Seventy-five Dollars ($421,875.00) from Synbiotics Corporation ("Maker") to Donna Lucas-Mudd ("Payee") Convertible Promissory Note dated January 12, 2000 in the amount of One Million Seven Hundred Seventy-one Thousand Eight Hundred Seventy-five Dollars ($1,771,875.00) from Synbiotics Corporation ("Maker") to Colin Lucas-Mudd ("Payee") 19 SCHEDULE 5.03 PERMITTED LIENS UCC Financing Statement, #9513760936 filed on May 15, 1995 Secured Party: Copelco Capital Inc. Debtor: Synbiotics Corporation UCC Financing Statement, #9616460594 filed on June 10, 1996 Secured Party: Bankers Leasing Association, Inc. Debtor: Synbiotics Corporation UCC Financing Statement, #9620560318 filed on July 19, 1996 Secured Party: Bankers Leasing Association, Inc. Debtor: Synbiotics Corporation UCC Financing Statement, #9710761031 filed on April 15, 1997 Secured Party: Canon Financial Services, Inc. Debtor: Synbiotics Corporation UCC Financing Statement, #9824660102 filed on August 31, 1998 Secured Party: Inter-Tel Leasing Inc. Debtor: Synbiotics Corporation UCC Financing Statement, #9824660292 filed on August 31, 1998 Secured Party: Inter-Tel Leasing Inc. Debtor: Synbiotics Corporation UCC Financing Statement, #9912360657 filed on April 26, 1999 Secured Party: General Electric Capital Business Asset Funding Corp. Debtor: Synbiotics Corporation UCC Financing Statement, #99146C0331 filed on May 24, 1999 - Assignment Secured Party: Celtic Leasing Corp. Debtor: Synbiotics Corporation Assignee: General Electric Capital Business Asset Funding Corp. UCC Financing Statement, #99355C0326 filed on December 15, 1999 Secured Party: General Electric Capital Business Asset Funding Corp. Debtor: Synbiotics Corporation 20 EX-4.4.1 3 0003.txt FIRST AMENDMENT TO CREDIT AGREEMENT EXHIBIT 4.4.1 ------------- FIRST AMENDMENT TO CREDIT AGREEMENT This First Amendment to Credit Agreement (this "Amendment") is entered into as of April 18, 2000, by and between IMPERIAL BANK, a California banking corporation ("Bank") on the one hand, and Synbiotics Corporation ("Borrower") on the other hand. WHEREAS, Borrower and Bank are parties to that certain Credit Agreement, dated as of April 12, 2000 ( as otherwise amended, modified, revised, supplemented or restated from time to time, the "Agreement"); and WHEREAS, the parties hereto desire to amend the Agreement in accordance with the terms and conditions of this Amendment. NOW, THEREFORE, the parties agree as follows: 1. Schedule 5.02 PERMITTED INDEBTEDNESS: Add the following at the end of Schedule 5.02: "Secured Promissory Note dated April 18, 2000 in the amount of One Million Dollars ($1,000,000.00) from Synbiotics Corporation ("Maker") and Kirkegaard & Perry Laboratories, Inc. ("Holder"), as secured by specific assets listed in Exhibit B-1 to the Asset Purchase Agreement by and between Synbiotics Corporation and Kirkegaard & Perry Laboratories, Inc. dated April 18, 2000." 2. Schedule 5.03 PERMITTED LIENS: Add the following at the end of Schedule 5.03: "UCC Financing Statement, #_____________ to be filed on April 18, 2000 regarding specific assets listed in Exhibit A to said financing statement and Exhibit B-1 to the Asset Purchase Agreement by and between Synbiotics Corporation and Kirkegaard & Perry Laboratories, Inc. dated April 18, 2000 Secured Party: Kirkegaard & Perry Laboratories, Inc. Debtor: Synbiotics Corporation " 3. Section 5.05 ACQUISITION OR SALE OF BUSINESS; MERGER OR CONSOLIDATION: In the third line of the second paragraph, delete "Exchange Agreement dated April 14, 2000" and insert "Asset Purchase Agreement dated April 18, 2000" therefor. 4. Section 5.06 CAPITAL EXPENDITURES: -1- In the second line of the second paragraph, delete "Exchange Agreement dated April 14, 2000" and insert "Asset Purchase Agreement dated April 18, 2000" therefor. 5. Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement. The Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and hereby is ratified and confirmed in all respects. Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of Bank under the Agreement, as in effect prior to the date hereof. Borrower ratifies and reaffirms the continuing effectiveness of all promissory notes, guaranties, security agreements, mortgages, deeds of trust, environmental agreements, and all other instruments, documents and agreements entered into in connection with the Agreement. 6. Borrower represents and warrants that the Representations and Warranties contained in the Agreement are true and correct as of the date of this Amendment, and that no Event of Default has occurred and is continuing. 7. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument. 8. As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following: (a) this Amendment, duly executed by Borrower; (b) if requested by Bank, Bank shall have received a certified copy of the resolutions of Borrower's board of directors authorizing the execution and delivery of this Amendment and the execution and delivery of such other documents, instruments and agreements as Bank shall reasonably request; and (c) such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate. IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written. SYNBIOTICS CORPORATION By: /s/ Michael K. Green ----------------------------- Michael K Green Title: Vice President - Finance IMPERIAL BANK By: /s/ Jamie L. Harney ----------------------------- Jamie L. Harney Title: Vice President -2- EX-27 4 0004.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 2000 AND THE RELATED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2000 INCLUDED ELSEWHERE IN THIS FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 1,341 1,316 5,591 334 6,540 16,755 3,365 1,384 49,351 8,327 0 2,477 0 40,041 (15,448) 49,351 17,804 17,977 8,555 18,646 0 0 605 (1,274) 351 (1,625) 0 (583) 0 (2,208) (0.24) (.024)
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