0000842023-01-500014.txt : 20011009
0000842023-01-500014.hdr.sgml : 20011009
ACCESSION NUMBER: 0000842023-01-500014
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 10
CONFORMED PERIOD OF REPORT: 20010630
FILED AS OF DATE: 20010927
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: TECHNE CORP /MN/
CENTRAL INDEX KEY: 0000842023
STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836]
IRS NUMBER: 411427402
STATE OF INCORPORATION: MN
FISCAL YEAR END: 0630
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-17272
FILM NUMBER: 1746391
BUSINESS ADDRESS:
STREET 1: 614 MCKINLEY PL N E
CITY: MINNEAPOLIS
STATE: MN
ZIP: 55413
BUSINESS PHONE: 6123798854
MAIL ADDRESS:
STREET 1: 614 MCKINLEY PLACE NE
CITY: MINNEAPOLIS
STATE: MN
ZIP: 55413
10-K
1
k601.txt
10-K FOR JUNE 30, 2001
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2001
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________to __________
Commission File Number: 0-17272
TECHNE CORPORATION
(Exact name of Registrant as specified in its charter)
Minnesota 41-1427402
(State of Incorporation) (IRS Employer Identification No.)
614 McKinley Place N.E., Minneapolis, MN 55413
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (612) 379-8854
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value.
Indicate by check mark whether the Company (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 ( ).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ( )
The aggregate market value of the Common Stock held by non-affiliates of the
Registrant, based upon the closing sale price on September 11, 2001 as reported
on The Nasdaq Stock Market was approximately $1,166,747,000. Shares of Common
Stock held by each officer and director and by each person who owns 5% or more
of the outstanding Common Stock have been excluded.
Shares of $.01 par value Common Stock outstanding at September 11, 2001:
41,443,688
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for its 2001 Annual Meeting of
Shareholders are incorporated by reference into Part III.
PART I
ITEM 1. BUSINESS
OVERVIEW
Techne Corporation (the Company) is a holding company which has two wholly-
owned operating subsidiaries: Research and Diagnostic Systems, Inc. (R&D
Systems) located in Minneapolis, Minnesota and R&D Systems Europe Ltd. (R&D
Europe) located in Abingdon, England. R&D Systems is a specialty manufacturer
of biological products. Its two major operating segments are hematology
controls, which are used in hospital and clinical laboratories to check the
accuracy of blood analysis instruments, and biotechnology products, including
purified proteins (cytokines) and antibodies which are sold exclusively to the
research market and assay kits which are sold to the research and clinical
diagnostic markets. R&D Europe distributes R&D Systems' biotechnology
products in Europe. R&D Europe has a German sales subsidiary, R&D Systems
GmbH (R&D GmbH). The Company also has a foreign sales corporation, Techne
Export Inc.
R&D Systems was founded and incorporated in 1976 in Minneapolis, Minnesota and
was acquired by the Company in 1985. In 1977 R&D Systems introduced its first
product, a Platelet-Rich-Plasma control. In 1981 R&D Systems was the second
manufacturer in the world to release a Whole Blood Control with Platelets,
thereby establishing itself as one of the leaders in the field of hematology
control products manufacturing. Subsequently, R&D Systems has developed
several types of hematology controls designed to keep pace with the technology
of the newest models of hematology instruments. These products are sold
throughout the United States directly by R&D Systems and in many foreign
countries through distributors.
In 1985 R&D Systems entered the research reagent market with its first
cytokine, TGF-beta. Cytokines are specialized protein molecules that
stimulate or suppress various cell functions in the body. Cytokines are in
demand by biomedical researchers who want to learn more about their diverse
effects. Encouraged by its success in the cytokine market, R&D Systems formed
a biotechnology division in 1986 with the goal of producing and marketing a
wide range of human cytokines through genetic engineering. Recombinant DNA
technology offers several advantages over extraction of these proteins from
natural sources, including lower production cost and potentially unlimited
supply.
In 1991 R&D Systems purchased Amgen Inc.'s research reagent and diagnostic
assay kit business. With this purchase, R&D Systems obtained Amgen's
Erythropoietin (EPO) kit, the Company's first enzyme-linked immunosorbent assay
kit for a cytokine that had been cleared by the U.S. Food and Drug
Administration (FDA) for clinical diagnostic use.
In 1993 the Company acquired its European biotechnology distributor, British
Bio-technology Products Ltd. (renamed R&D Systems Europe Ltd.) from British
Bio-technology Group plc. R&D Europe distributes biotechnology products
developed by R&D Systems.
During fiscal 1998, 1999, and 2000, the Company made equity investments in the
preferred stock of ChemoCentryx, Inc. (CCX), a technology and drug development
company. The Company currently holds approximately 26% of the outstanding
stock of CCX. In addition to the equity investment and joint research efforts,
the Company obtained research and diagnostic market rights to all products
discovered or developed by CCX.
On July 1, 1998, R&D Systems purchased Genzyme Corporation's research products
business. This acquisition established R&D Systems as the world's leading
supplier of research and diagnostic cytokine products.
On August 2, 2001, the Company made an equity investment of $3 million and
entered into a research and license agreement with Discovery Genomics, Inc.
(DGI). DGI holds licenses from the University of Minnesota to develop
technologies used for functional genomics and the discovery of druggable
targets. The Company currently holds a 39% equity interest in DGI and also
received the rights to develop antibodies and immunoassay kits for proteins
discovered by DGI and the rights to sell such products to the research market.
THE MARKET
The Company, through its two operating subsidiaries, manufactures and sells
products for the clinical diagnostics market (hematology controls and
calibrators) and the biotechnology research and clinical diagnostics market
(cytokines, assays and related products). In fiscal 2001, R&D Systems'
Hematology Division revenues accounted for approximately 13% of consolidated
revenues of $115,356,562. Revenues from R&D Systems' Biotechnology Division
and R&D Europe were 64% and 23% of consolidated revenues, respectively.
Biotechnology Products
R&D Systems is the world's leading supplier of cytokines and cytokine-related
reagents to the biotechnology research community. These valuable proteins
exist in minute amounts in different types of cells and can be extracted from
these cells or made through recombinant DNA technology. In 1985, R&D Systems
introduced its first cytokine and continues to add to this product line. The
first cytokines were extracted from natural sources (human and porcine
platelets and bovine brain). Currently almost all of cytokines are produced
by recombinant DNA technology. R&D Systems also sells antibodies for specific
cytokines, cytokine assay kits, clinical diagnostic kits, kits for cytokine
receptor binding studies, and related research reagents.
The growing interest by researchers in cytokines exists because of the profound
effect a tiny amount of a cytokine can have on the cells and tissues of the
body. Cytokines are intercellular messengers. They act as signals by
interacting with specific receptors on the effected cells. They carry vital
signals to the cell's genetic machinery that can trigger events that can lead
to significant changes in a cell, tissue or organism. For example, cytokines
can signal a cell to differentiate, i.e., to acquire the features necessary for
it to take on a more specialized task. Another example of cytokine action is
the key role they play in stimulating cells surrounding a wound to grow and
divide and to attract migratory cells to the injury site.
R&D Systems' Biotechnology Division was formed in response to a growing need
for highly purified biologically active proteins. R&D Systems believes that
its cytokines are addressing the growing demand for these products within the
scientific research community.
During fiscal 1990, the Biotechnology Division released its first cytokine
assay kits under the tradename Quantikine. These kits are used by researchers
to quantify the level of a specific cytokine in a sample of blood, serum, or
other biological fluid. In fiscal 1996, the Biotechnology Division expanded
its Quantikine line by introducing a line of assay kits for mouse cytokines.
These kits are used extensively by research scientists doing cytokine studies
using animal models, such as those used in pharmaceutical discovery and
development programs.
Current Biotechnology Products
Cytokines and Related Antibodies. Cytokines, extracted from natural sources
or produced using recombinant DNA technology, are manufactured to the highest
purity. Polyclonal antibodies are produced by injecting purified cytokines
into animals (primarily goats and rabbits). The animals' immune systems
recognize the cytokines as foreign and develop antibodies to these cytokines.
The polyclonal antibodies are then extracted from the animals' blood and
purified. Monoclonal antibodies are produced by injecting purified cytokines
into mice. The B cells of a mouse's immune system are then isolated and fused
with immortalized mouse cells that will produce the desired antibody. Purified
cytokines and antibodies are made available both as research reagents and as
parts of assay kits (below).
Assay Kits. This product line includes R&D Systems' human and murine
(mouse and rat) Quantikine kits which allow research scientists to
quantify the amount of a specific cytokine in a sample of blood or tissue.
Also included in this product line are assay kits, developed by R&D
Europe, to quantify adhesion molecules. These kits are used by research
scientists to measure cellular adhesion molecules in serum, plasma, or
cell culture media. Cellular adhesion molecules facilitate the movement
of infection fighting cells out of the blood stream to the site of
infections.
Clinical Diagnostic Kits. The EPO kit, acquired from Amgen Inc. in fiscal
1992, was the first diagnostic assay for which R&D Systems had FDA
marketing clearance. R&D Systems also has received FDA marketing
clearance for its transferrin receptor (TfR) and Beta2-microglobulin kits.
Flow Cytometry Products. This product line includes R&D Systems' Fluorokine
kits which are used to measure the presence or absence of receptors for
specific cytokines on the surface of cells.
DNA and Related Products. Designer genes and designer probes are synthetic
DNAs used in the study of gene function.
Hematology Controls and Calibrators
Hematology controls and calibrators, manufactured and marketed through the
Hematology Division of R&D Systems, are products made up of the various
cellular components of blood. Proper diagnosis of many illnesses requires a
thorough and accurate analysis of the patient's blood cells, which is usually
done with automatic or semiautomatic hematology instruments. Controls and
calibrators ensure that these instruments are performing accurately and
reliably.
Blood is composed of plasma, the fluid portion of which is mainly water, and
blood cells, which are suspended in the plasma. There are three basic types
of blood cells: red cells, white cells and platelets. Red cells transport
oxygen from the lungs throughout the body, which they do by being rich in
hemoglobin. White cells defend the body against foreign invaders. Platelets
serve as a "plug" to stem blood flow at the site of an injury by initiating a
complex series of biochemical reactions that lead to the formation of a clot.
The formed elements of blood (red cells, white cells and platelets) differ a
great deal in size and concentration. The white cells are the largest in
size and platelets the smallest. The red cells are the most numerous and
constitute 95 percent of all blood cells. The average adult has from 20 to
30 trillion red cells. For every 500 red cells there are approximately one
white cell and about 20 platelets. As noted above, hematology controls are
used in automatic and semiautomatic cell counting analyzers to make sure
these instruments are counting blood cells accurately. One of the most
frequently performed laboratory tests on a blood sample is called a complete
blood count, or CBC for short. Doctors use this test in disease screening
and diagnosis. More than a billion of these tests are done every year, the
great majority with cell counting instruments. In most laboratories the CBC
consists of the white cell count, the red cell count, the hemoglobin reading,
and the hematocrit reading or the percent of red cells in a volume of whole
blood after it has been centrifuged. Also included in a CBC test is the
differential which numbers and classifies the different types of white cells.
These and other characteristics or "parameters" of a blood sample can be
measured by automatic or semiautomatic cell counters. Cell counters can read
the parameters of blood either by impedance, in which a cell interrupts an
electrical current and is counted, or by a laser, in which a cell interrupts
a laser beam and is counted. The number of parameters measurable in a blood
control product depends on the type and sophistication of the instrument for
which the control is designed. Ordinarily, a hematology control is used once
to several times a day to make sure the instrument is reading accurately.
Some instruments need to be calibrated periodically. Hematology calibrators
are similar to controls but go through additional processing and testing to
ensure that the calibration values assigned are extremely accurate and can be
used to adjust the instrument.
The Hematology Division of R&D Systems offers a complete line of hematology
controls and calibrators for both impedance and laser type cell counters.
R&D Systems believes its products have improved stability and versatility and
a longer shelf life than most of those of its competitors. The Hematology
Division supplies hematology control products for use as proficiency testing
materials by laboratory certifying authorities of a number of states and
countries. All products are priced competitively and come with an
unconditional money back guarantee. R&D Systems recognizes that developing
technologies for cell counting instruments will require increasingly
sophisticated and high-quality controls and is prepared to meet this
challenge.
Current Retail Hematology Products
Impedance-Type Whole Blood Controls/Calibrators. The Hematology Division
of R&D Systems currently produces controls and calibrators for the
following impedance-type instruments: Abbott Cell-Dyn, ABX, Beckman
Coulter, Danam, Hycel, Roche and TOA Sysmex instruments.
Laser-Type Whole Blood Controls/Calibrators. Currently produced controls
and calibrators for laser-type instruments include products for the
following: Beckman Coulter MAXM, STKS and GENS; Abbott Cell-Dyn 3000,
3200, 3500 and 4000 instruments; ABX instruments; Bayer Technicon ADVIA
and H series instruments; and the TOA Sysmex NE-8000 and NE-5500
instruments.
Linearity Control. This product provides a means of assessing the
linearity of hematology analyzers for white blood cells, red blood cells,
hemoglobin and platelets.
Whole Blood Reticulocyte Control. This control is designed for manual and
automated counting of reticulocytes (immature red blood cells).
Whole Blood Flow Cytometry Control. This product is a control for flow
cytometry instruments. These instruments are used to identify and
quantify white blood cells by their surface antigens.
Whole Blood Glucose/Hemoglobin Control. This product is designed to
monitor instruments for measuring glucose and hemaglobin.
Erythrocyte Sedimentation Rate Control. This product is designed to
monitor erythrocyte sedimentation rate tests.
Multi-Purpose Platelet Reference Control. This product, Platelet-Trol
II, is designed for use by automatic and semi-automatic impedance and
laser instruments and is the successor to Platelet-Rich-Plasma which R&D
Systems introduced in 1977.
PRODUCTS UNDER DEVELOPMENT
R&D Systems is engaged in ongoing research and development in all of its
major product lines: hematology controls and calibrators, biotechnology
cytokines, antibodies, assays and related products. The Company believes
that its future success depends, to a large extent, on the ability to keep
pace with changing technologies and markets. At the same time, the Company
continues to examine its production processes to ensure high quality and
maximum economy.
R&D Systems' Biotechnology Division is planning to release new cytokines,
antibodies and cytokine assay kits in the coming year. All of these products
will be for research purposes only and therefore do not require FDA
clearance. R&D Systems' Hematology Division has developed several new
control products in fiscal 2001 and is continuously working on product
improvements and enhancements. However, there is no assurance that any of
the products in the research and development phase can be developed or, if
developed, can be successfully introduced into the marketplace.
Expenditures for research and development activities were $14,522,233,
$11,198,309 and $12,004,798 for fiscal years 2001, 2000 and 1999,
respectively.
BUSINESS RELATIONSHIPS
During fiscal 1998, 1999, and 2000, the Company purchased a total of $5
million of convertible preferred stock of ChemoCentryx, Inc. (CCX), which
gave the Company a 49% interest in CCX through January 2001. In February
2001, CCX obtained $23 million in financing through the issuance of 8,846,154
shares of additional preferred stock. The Company currently holds
approximately 26% of the outstanding voting stock of CCX. CCX is a
technology and drug development company working in the area of chemokines.
Chemokines are cytokines which regulate the trafficking patterns of
leukocytes, the effector cells of the human immune system. In conjunction
with the equity investment and joint research efforts, the Company obtained
exclusive worldwide research and diagnostic marketing rights to chemokine
proteins, antibodies and receptors discovered or developed by CCX or R&D
Systems. The Company accounts for the investment under the equity method of
accounting and, through January 2001, recognized 100% of the losses of CCX
due to the limited amount of cash consideration provided by the holders of
the common shares of CCX. Subsequent to January 2001, the Company is
including CCX operating results in its consolidated financial statements
based on its ownership percentage. The Company's net investment in CCX was
$6,441,481 and $3,553,516 at June 30, 2001 and 2000, respectively.
On August 2, 2001, the Company made an equity investment of $3 million and
entered into a research and license agreement with Discovery Genomics, Inc.
(DGI) of Minneapolis, Minnesota. DGI was recently organized and holds
licenses from the University of Minnesota to develop technologies used for
functional genomics and the discovery of druggable targets. The Company
acquired a 39% equity interest in DGI and warrants to acquire additional
equity. The Company also received the rights to develop antibodies and
immunoassay kits for proteins discovered by DGI and an exclusive, royalty
free license to sell such products in the research market. The Company's
investment will be accounted for under the equity method of accounting.
Original Equipment Manufacturers (OEM) agreements represent the largest
market for hematology controls and calibrators made by R&D Systems. In
fiscal year 2001, OEM contracts accounted for $7,096,901 or 48% of Hematology
Division revenues and 6% of total consolidated revenues.
GOVERNMENT REGULATION
All manufacturers of hematology controls and calibrators are regulated under
the Federal Food, Drug and Cosmetic Act, as amended. All of R&D Systems'
hematology control products are classified as "In Vitro Diagnostic Products"
by the FDA. The entire hematology control manufacturing process, from
receipt of raw materials to the monitoring of control products through their
expiration date, is strictly regulated and documented. FDA inspectors make
periodic site inspections of the Hematology Division's control operations and
facilities. Hematology control manufacturing must comply with Good
Manufacturing Practices (GMP) as set forth in the FDA's regulations governing
medical devices.
Three of R&D Systems' immunoassay kits, EPO, TfR and Beta2-microglobulin,
have FDA clearance to be sold for clinical diagnostic use. R&D Systems must
comply with GMP for the manufacture of these kits. Biotechnology products
manufactured in the United States and sold for use in the research market do
not require FDA clearance.
Some of R&D Systems' research groups use small amounts of radioactive
materials in the form of radioisotopes in their product development
activities. Thus, R&D Systems is subject to regulation by the US Nuclear
Regulatory Commission (NRC) and has been granted an NRC license due to expire
in April 2002. The license is renewable annually. R&D Systems is also
subject to regulation and inspection by the Department of Health of the State
of Minnesota for its use of radioactive materials. It has been granted a
certificate of registration, which is renewable annually, by the Minnesota
Department of Health. The current certificate expires April 1, 2002. R&D
Systems has had no difficulties in renewing these licenses in prior years and
has no reason to believe they will not be renewed in the future. If,
however, the licenses were not renewed, it would have minimal effect on R&D
Systems' business since there are other technologies the research groups
could use to replace radioisotopes.
AVAILABILITY OF RAW MATERIALS
The primary raw material for the Company's hematology controls is whole
blood. Human blood is purchased from commercial blood banks and porcine and
bovine blood is purchased from nearby meat processing plants. After raw
blood is received, it is separated into its components, processed and
stabilized. Although the cost of human blood has increased owing largely to
the requirement that it be tested for HIV (AIDS) antibodies and hepatitis,
the higher cost of these materials has not had a serious adverse effect on
the Company's business. R&D Systems does not perform its own testing for the
AIDS antibodies as the supplier tests all human blood purchased. R&D
Systems' Biotechnology Division develops and manufactures the majority of its
cytokines from synthetic genes developed in-house, thus significantly
reducing its reliance on outside resources. R&D Systems typically has
several outside sources for all critical raw materials necessary for the
manufacture of products.
PATENTS AND TRADEMARKS
R&D Systems owns patent protection for certain hematology controls. R&D
Systems may seek patent protection for new or existing products it
manufactures. No assurance can be given that any such patent protection will
be obtained. No assurance can be given that R&D Systems' products do not
infringe upon patents or proprietary rights owned or claimed by others,
particularly for genetically engineered products. R&D Systems has not
conducted a patent infringement study for each of its products.
R&D Systems and R&D Europe have a number of licensing agreements with patent
holders under which they have the non-exclusive right to patented technology
or the non-exclusive right to manufacture and sell certain patented cytokine
and cytokine related products to the research market. For fiscal 2001, total
royalties expensed under these licenses were approximately $1,563,000.
R&D Systems has obtained federal trademark registration for certain of its
hematology controls and biotechnology product groups. R&D Systems believes
it has common law trademark rights to certain marks in addition to those
which it has registered.
SEASONALITY OF BUSINESS
Sales of the products manufactured by R&D Systems and R&D Europe are not
seasonal, although R&D Europe historically experiences a slowing of sales
during the summer months.
SIGNIFICANT CUSTOMERS
No single customer accounted for more than 10% of total revenues during
fiscal 2001, 2000 or 1999.
BACKLOG
There was no significant backlog of orders for the Company's products as of
the date of this report or as of a comparable date for fiscal 2000.
COMPETITION
The worldwide market for cytokines and research diagnostic assay kits is
being supplied by a number of biotechnology companies, including BD
Biosciences, BioSource International, Sigma Chemical Co., Amersham Pharmacia
and CN Biosciences. R&D Systems believes that it is the leading worldwide
supplier of cytokine related products in the research marketplace. R&D
Systems believes that the expanding line of its products, their recognized
quality, and the growing demand for these rare and versatile proteins,
antibodies and assay kits, will allow the Company to remain competitive in
the growing biotechnology research and diagnostic market.
Competition is intense in the hematology control business. The first control
products were developed in response to the rapid advances in electronic
instrumentation used in hospital and clinical laboratories for blood cell
counting. Historically, most of the instrument manufacturing companies made
controls for use in their own instruments. With rapid expansion of the
instrument market, however, a need for more versatile controls enabled non-
instrument manufacturers to gain a foothold. Today the market is comprised
of manufacturers of laboratory reagents, chemicals and coagulation products
and independent control manufacturers in addition to instrument
manufacturers. The principal hematology control competitors of R&D Systems'
retail products are Beckman Coulter, Inc., TOA Sysmex, Streck Laboratories,
Abbott Diagnostics and Hematronix, Inc. R&D Systems believes it is the third
largest supplier of hematology controls in the marketplace behind Beckman
Coulter and Streck Laboratories.
EMPLOYEES
R&D Systems had 447 full-time and 47 part-time employees as of June 30, 2001.
R&D Europe had 47 full-time and 10 part-time employees as of June 30, 2001,
including 9 full-time and 1 part-time at R&D Europe's sales subsidiary in
Germany.
ENVIRONMENT
Compliance with federal, state and local environmental protection laws in the
United States, England and Germany had no material effect on R&D Systems or
R&D Europe in fiscal 2001.
FOREIGN AND DOMESTIC OPERATIONS
The following table represents certain financial information relating to
foreign and domestic operations for the fiscal years ended June 30 (all
amounts are in thousands of US dollars):
2001 2000 1999
-------- -------- --------
Net Sales to External Customers
Hematology Division:
US $ 12,357 $ 11,140 $ 10,549
Other 2,353 2,435 2,125
Biotechnology Division:
US 58,661 51,788 43,712
Other 14,995 12,443 11,249
R&D Europe:
Other 26,990 26,032 23,266
Gross Margin
R&D Systems (US) 76,578 66,125 52,791
R&D Europe (England) 8,731 9,373 9,490
R&D GmbH (Germany) 1,623 1,590 1,296
Net Earnings (Loss)
Parent and R&D Systems (US) 31,006 22,418 15,230
R&D Europe (England) 3,310 3,269 2,835
R&D GmbH (Germany) 229 253 8
ChemoCentryx (US) (500) 643 (1,417)
Identifiable Assets
Parent and R&D Systems (US) 194,355 165,834 112,327
R&D Europe (England) 17,029 13,546 10,213
R&D GmbH (Germany) 753 1,030 1,261
CAUTIONARY STATEMENTS
The Company wishes to caution investors that the following important factors,
among others, in some cases have affected and in the future could affect the
Company's actual results of operations and cause such results to differ
materially from those anticipated in forward-looking statements made in this
document and elsewhere by or on behalf of the Company:
Risk of Technological Obsolescence and Competition
The biotechnology industry is subject to rapid and significant technological
change. While the hematology controls industry historically has been subject
to less rapid change, it too is evolving and is impacted significantly by
changes in the automated testing equipment offered by hardware manufacturers.
Competitors of the Company in the United States and abroad are numerous and
include, among others, specialized biotechnology firms, medical laboratory
instrument and equipment manufacturers and disposables suppliers, major
pharmaceutical companies, universities and other research institutions.
There can be no assurance that the Company's competitors will not succeed in
developing technologies and products that are more effective than any which
have been or are being developed by the Company or that would render the
Company's technologies and products obsolete or noncompetitive. Many of
these competitors have substantially greater resources and product
development, production and marketing capabilities than the Company. With
regard to diagnostic kits, which constitute a relatively minor portion of the
Company's business, many of the Company's competitors have significantly
greater experience than the Company in undertaking preclinical testing and
clinical trials of new or improved diagnostic kits and obtaining FDA and
other regulatory approvals of such products.
Patents and Proprietary Rights
The Company's success will depend, in part, on its ability to obtain licenses
and patents, maintain trade secret protection and operate without infringing
the proprietary rights of others. The Company has filed a very limited
number of United States and foreign patent applications for products in which
it believes it has a proprietary interest. The Company has obtained and is
negotiating licenses to produce a number of cytokines and related products
claimed to be owned by others. The Company has not conducted a patent
infringement study for each of its products. It is possible that products of
the Company may unintentionally infringe patents of third parties or that the
Company may have to alter its products or processes, pay licensing fees or
cease certain activities because of patent rights of third parties, thereby
causing additional unexpected costs and delays which may have a material
adverse effect on the Company. The patenting of hematology and biotechnology
processes and products involves complex legal and factual questions and, to
date, there has emerged no consistent policy regarding the breadth of claims
in biotechnology patents. Protracted and costly litigation may be necessary
to enforce rights of the Company and defend against claims of infringement of
rights of others.
Financial Impact of Expansion Strategy
The Company engages in an expansion strategy which includes internal
development of new products, collaboration with manufacturers of automated
instruments which may use the Company's products, investment in joint
ventures and companies developing new products related to the Company's
business and acquisition of companies for new products or additional customer
base. Each of the strategies carries risks that objectives will not be
achieved and future earnings will be adversely affected. During the early
development stage, a percentage of the operating losses of certain companies
in which the Company may invest will be reported as losses of the Company, as
is the case with ChemoCentryx, Inc. and Discovery Genomics, Inc.
Government Regulation
Ongoing research and development activities, including preclinical and
clinical testing, and the production and marketing of the Company's products
are subject to regulation by numerous governmental authorities in the United
States and other countries. Some of the Company's products and manufacturing
processes and facilities require governmental approval prior to commercial
use. The approval process applicable to clinical diagnostic products of the
type which may be developed by the Company usually takes a number of years
and typically requires substantial expenditures. Delays in obtaining
regulatory approvals would adversely affect the marketing of products
developed by the Company and the Company's ability to receive product
revenues or royalties. There can be no assurance that regulatory approvals
for such products will be obtained without lengthy delays, if at all.
Attraction and Retention of Key Employees
Recruiting and retaining qualified scientific and production personnel to
perform research and development work and product manufacturing is critical
to the Company's success. Although the Company believes it has been and will
be able to attract and retain such personnel, there can be no assurance that
the Company will be successful. In addition, the Company's anticipated
growth and expansion into areas and activities requiring additional
expertise, such as clinical testing, government approvals, production and
marketing, will require the addition of new management personnel and the
development of additional expertise by existing management personnel. The
failure to attract and retain such personnel or to develop such expertise
would adversely affect the Company's business.
Litigation
On September 19, 2000, the Company brought a declaratory judgement action in
United States District Court for the District of Minnesota (the Court)
seeking to have the Court declare that no amount is owed by the Company to
Amgen, Inc. (Amgen) in connection with invoices in the amount of $31.9
million rendered by Amgen in June 2000 for materials provided to the Company
in past years. The Company also claimed damages for breach of contract and
unfair business practices in violation of applicable statutes. Amgen
subsequently acknowledged error and reduced the amount of its invoices by
$3.9 million to $28 million. Amgen filed a counterclaim seeking the $28
million plus interest and attorneys fees. The Company believes that it has
strong defenses to Amgen's claims and that it owes no material amount. The
ultimate outcome of litigation, however, cannot be predicted with certainty.
An unfavorable outcome to the litigation with Amgen would not adversely
impair the operations of the Company or its financial condition, but would
have a material effect on net income for the period in which realized. See
"Financial Statements, Note E. Commitments and contingencies."
ITEM 2. PROPERTIES
On July 1, 1999, the Company purchased, for approximately $28 million, the
facilities R&D Systems had been leasing in Minneapolis, Minnesota. The R&D
complex currently includes 365,000 square feet of administrative, research
and manufacturing space. The Hematology Division manufacturing and shipping
operations are located at 640 McKinley Place N.E. (47,000 square feet).
Biotechnology Division manufacturing and research operations are located at
600 McKinley Place NE (85,000 square feet) and 2201 Kennedy Street (200,000
square feet). Administrative, sales and marketing functions are also located
at the 2201 Kennnedy Street building. The Company also occupies an additional
20,000 square feet in space connecting the three buildings. This area houses
a lunchroom, a library and additional warehouse space. In addition, the
Company constructed a 13,000 square foot entrance to the facility. The
Company has entered into two option agreements for real estate adjacent to
the current facility. The options are exercisable through November 2001 and
January 2005 on the two properties, respectively. The Company plans to
exercise its option on the first property during fiscal 2002 and plans to
build an infill to connect this property with its current facility.
R&D Europe sub-leased approximately 12,500 square feet in one building in
Abingdon, England. The lease on the building expired in June 2001. In May
2001 R&D Europe began leasing approximately 17,000 square feet in a building
less than one mile from its previous location. Rental rates for the new
facility are expected to be slightly higher than rates under the previous
sub-lease. Base rent was $195,000 in fiscal 2001.
R&D GmbH leases approximately 2,300 square feet as a sales office in
Wiesbaden-Nordenstadt, Germany. Base rent was $32,000 in fiscal 2001.
The Company believes the acquired property, purchase options and leased
property discussed above are adequate to meet its occupancy needs in the
foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
On September 19, 2000, the Company brought a declaratory judgement action in
United States District Court for the District of Minnesota (the Court)
seeking to have the Court declare that no amount is owed by the Company to
Amgen, Inc. (Amgen) in connection with invoices in the amount of $31.9
million rendered by Amgen in June 2000 for materials provided to the Company
in past years. The Company also claimed damages for breach of contract and
unfair business practices in violation of applicable statutes. Amgen
subsequently acknowledged error and reduced the amount of its invoices by
$3.9 million to $28 million. Amgen filed a counterclaim seeking the $28
million plus interest and attorneys fees. The Company believes that it has
strong defenses to Amgen's claims and that it owes no material amount. The
ultimate outcome of litigation, however, cannot be predicted with certainty.
An unfavorable outcome to the litigation with Amgen would not adversely
impair the operations of the Company or its financial condition, but would
have a material effect on net income for the period in which realized. See
"Financial Statements, Note E. Commitments and contingencies."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders during the
fourth quarter of the Company's 2001 fiscal year.
EXECUTIVE OFFICERS OF THE COMPANY
(a) The names, ages and positions of each executive officer of the Company
are as follows:
Name Age Position Officer Since
---- --- --------- -------------
Thomas E. Oland 60 Chairman of the Board, President, 1985
Treasurer and Director
Dr. Monica Tsang 56 Vice President, Research 1995
Marcel Veronneau 46 Vice President, Hematology Operations 1995
Timothy M. Heaney 55 Vice President, Secretary, General 1999
Counsel and Director
The term of office of each executive officer is from one annual meeting of
directors until the next annual meeting of directors or until a successor is
elected. There are no arrangements or understandings among any of the
executive officers and any other person (not an officer or director acting as
such) pursuant to which any of the executive officers was selected as an
officer of the Company.
(b) The business experience of the executive officers during the past five
years is as follows:
Thomas E. Oland has been Chairman of the Board, President and Treasurer of
the Company since December 1985.
Dr. Monica Tsang was elected a Vice President of the Company in March 1995.
Prior thereto, she served as Executive Director of Cell Biology for R&D
Systems' Biotechnology Division and has been an employee of R&D Systems since
1985.
Marcel Veronneau was elected a Vice President of the Company in March 1995.
Prior thereto, he served as Director of Operations for R&D Systems'
Hematology Division since joining the Company in 1993.
Timothy M. Heaney was elected a Vice President of the Company in October
1999. Prior thereto, he was a partner at Fredrikson and Byron, P.A., the
Company's outside legal counsel and had served as the managing partner on the
Company's account.
An additional officer, Dr. James A. Weatherbee, who served as Vice President
and Chief Scientific Officer since 1995, is on medical leave. Dr. Weatherbee
and Dr. Tsang are husband and wife.
Dr. Thomas Detwiler, Vice President of the Company since March 1995, retired
from the Company in July 2000.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's common stock trades on The NASDAQ Stock Exchange under the
symbol "TECH." The following table sets forth for the periods indicated the
range of the closing price per share for the Company as reported by NASDAQ.
FISCAL 2001 PRICE FISCAL 2000 PRICE
HIGH LOW HIGH LOW
-------- ------- -------- --------
1st Quarter $ 74.00 $ 36.50 $ 16.38 $ 12.38
2nd Quarter 62.66 32.00 27.53 15.88
3rd Quarter 33.69 22.50 44.19 25.99
4th Quarter 38.41 24.81 70.00 30.00
As of September 11, 2001, there were approximately 300 shareholders of
record. As of September 11, 2001, there were over 14,000 beneficial
shareholders of the Company's common stock. TECHNE Corporation has never paid
cash dividends on its common stock. Payment of dividends is within the
discretion of TECHNE's Board of Directors, although the Board of Directors
plans to retain earnings for the foreseeable future for operating the
Company's business.
ITEM 6. SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
REVENUE, EARNINGS AND CASH
FLOW DATA FOR THE YEARS ENDED
JUNE 30 2001 2000 1999(1) 1998 1997
----------------------------- -------- -------- ------- ------- -------
Net sales $115,357 $103,838 $ 90,901 $67,291 $60,924
Gross margin 75.4% 74.2% 69.9% 70.3% 68.7%
Selling, general and
administrative expense 15.4% 16.7% 18.6% 22.8% 23.9%
Research and development
expenses 12.6% 10.8% 13.2% 15.8% 19.2%
Interest expense 1,381 1,441 -- -- 29
Earnings before income taxes 47,808 39,412 26,054 22,411 15,988
Net earnings 34,045 26,583 16,656 15,183 10,882
Diluted earnings per share(3) 0.80 0.63 0.40 0.39 0.28
Capital expenditures 6,815 30,368 5,564 2,780 4,243
Depreciation and amortization 12,737 12,651 11,890 2,303 2,322
Change in net working capital 34,560 36,352 (12,544) 15,033 6,639
Net cash provided by
operating activities 46,372 38,739 28,422 20,875 12,477
Return on sales 29.5% 25.6% 18.3% 22.6% 17.9%
Return on average equity 21.4% 22.3% 20.7% 27.1% 25.0%
BALANCE SHEET, COMMON STOCK
AND EMPLOYEE DATA AS OF
JUNE 30 2001 2000 1999(1) 1998 1997
----------------------------- -------- -------- ------- ------- -------
Cash, cash equivalents and
short-term investments $ 97,072 $ 59,824 $ 29,114 $41,436 $24,752
Receivables 18,322 15,601 13,520 10,002 9,114
Inventories 5,438 4,652 5,715 3,811 4,087
Working capital 108,300 73,740 37,388 49,932 34,899
Total assets 215,525 180,410 123,801 72,785 53,922
Long-term debt, less
current portion 18,050 18,935 -- -- --
Stockholders' equity 177,660 141,145 96,838 63,831 48,081
Average common and common
Equivalent shares (in
thousands)(3) 42,668 42,206 41,373 39,215 38,925
Book value per share(2)(3) 4.29 3.41 2.41 1.67 1.27
Share price:(3)
High 74.00 70.00 14.75 10.00 7.63
Low 22.50 12.38 6.13 6.72 5.06
Price to earnings ratio 41 103 31 25 27
Current ratio 7.81 6.87 3.78 7.84 8.12
Quick ratio 7.26 6.00 3.17 7.05 6.91
Full-time employees 494 440 402 356 326
(1) The Company acquired the research products business of Genzyme
Corporation on July 1, 1998.
(2) Total stockholders' equity divided by total shares outstanding at
June 30.
(3) The Company declared a two-for-one stock split with a record date of
November 24, 2000. All prior year share and per share amounts have been
restated to reflect the stock split.
The Company has not declared any cash dividends in the past, and it is not
anticipated that it will declare any dividends in the foreseeable future.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
COMPANY STRUCTURE
TECHNE (the Company) has two operating subsidiaries: Research and Diagnostic
Systems, Inc. (R&D Systems) and R&D Systems Europe Ltd. (R&D Europe). R&D
Systems, located in Minneapolis, Minnesota, has two operating segments: its
Biotechnology Division and its Hematology Division. The Biotechnology
Division develops and manufactures purified cytokines (proteins), antibodies
and assay kits which are sold to biomedical researchers and clinical research
laboratories. The Hematology Division develops and manufactures whole blood
hematology controls and calibrators which are sold to hospitals and clinical
laboratories to check the performance of hematology instruments to assure the
accuracy of hematology test results. R&D Europe, the Company's third
operating segment, located in Abingdon, England, is the European distributor
of R&D Systems' biotechnology products. R&D Europe has a German sales
subsidiary, R&D Systems GmbH. The Company also has a foreign sales
corporation, Techne Export Inc.
RESULTS OF OPERATIONS
Net sales for fiscal 2001 were $115,356,562, an increase of $11,518,407 (11%)
from fiscal 2000. Net sales by R&D Systems' Biotechnology Division for the
period increased $9,426,085 (15%). Net sales by R&D Systems' Hematology
Division increased $1,135,001 (8%) and net sales by R&D Europe increased
$957,321 (4%). The increase in consolidated net sales for the fiscal year was
due largely to increased sales of proteins and antibodies. R&D Europe's net
sales for fiscal 2001 were affected by changes in foreign currency exchange
rates. In British pounds, R&D Europe's net sales increased 14% from the prior
year and, adjusted for all changes in exchange rates, R&D Europe's net sales
for fiscal 2001 would have been approximately $2.9 million higher than
reported.
Net sales for fiscal 2000 were $103,838,155, an increase of $12,937,458
(14%) from fiscal 1999. Net sales by R&D Systems' Biotechnology Division for
the period increased $9,269,504 (17%). Net sales by R&D Systems' Hematology
Division increased $901,919 (7%) and net sales by R&D Europe increased
$2,766,035 (12%). The increase in consolidated net sales for the fiscal year
was due largely to increased sales of proteins and antibodies.
Net sales for fiscal 1999 were $90,900,697, an increase of $23,609,259 (35%)
from fiscal 1998. Net sales by R&D Systems' Biotechnology Division for the
period increased $17,247,069 (46%). Net sales by R&D Systems' Hematology
Division increased $889,451 (8%) and net sales by R&D Europe increased
$5,472,739 (31%). The increase in consolidated net sales for the fiscal year
was due, in part, to the acquisition of Genzyme Corporation's research
products business on July 1, 1998. In addition, the increase in consolidated
net sales was due to increased sales of R&D Systems products to both R&D
Systems customers and to former Genzyme customers as they were converted from
Genzyme products to R&D Systems products.
Gross margins, as a percentage of sales, increased from 74.2% in fiscal 2000
to 75.4% in fiscal 2001. Biotechnology Division gross margins increased from
76.9% in fiscal 2000 to 78.6% in fiscal 2001. Margins in the first half of
fiscal 2000 were affected by higher cost inventory acquired from Genzyme. R&D
Europe gross margins decreased from 41.9% in fiscal 2000 to 38.3% in fiscal
2001 mainly as a result of changes in exchange rates. Hematology Division
gross margins decreased from 48.4% in fiscal 2000 to 46.7% in fiscal 2001 as
a result of changes in product mix.
Gross margins, as a percentage of sales, increased from 69.9% in fiscal 1999
to 74.2% in fiscal 2000. Biotechnology Division gross margins increased from
70.8% in fiscal 1999 to 76.9% in fiscal 2000. Margins in fiscal 1999 were
affected by higher cost inventory acquired from Genzyme. R&D Europe gross
margins decreased from 46.0% in fiscal 1999 to 41.9% in fiscal 2000 mainly as
a result of changes in exchange rates. Hematology Division gross margins did
not change significantly from the prior year.
Gross margins, as a percentage of sales, decreased slightly from 70.3% in
fiscal 1998 to 69.9% in fiscal 1999. Biotechnology Division gross margins
decreased from 72.9% in fiscal 1998 to 70.8% in fiscal 1999 as a result of
lower gross profit levels on inventory acquired from Genzyme and the write-
off of obsolete Genzyme packaging and kit components due to conversion of
customers to R&D Systems labeled product. R&D Europe and Hematology Division
gross margins did not change significantly from the prior year.
Selling, general and administrative expenses increased $399,084 (2%) in
fiscal 2001. The increase was the result of increased wages and benefits
partially offset by exchange rate changes.
Selling, general and administrative expenses increased $452,914 (3%) in
fiscal 2000. The increase was the result of increased wages and benefits and
exchange rate losses partially offset by decreased rent expense due to the
purchase of R&D Systems' Minneapolis facilities on July 1, 1999.
Selling, general and administrative expenses increased $1,494,457 (10%) in
fiscal 1999. The majority of the increase in consolidated selling, general
and administrative expenses was due to additional sales personnel added in
the U.S. and Europe as a result of the Genzyme acquisition and associated
advertising and promotion activities.
Research and development expenses increased $3,323,924 in fiscal 2001,
decreased $806,489 in fiscal 2000 and increased $1,366,994 in fiscal 1999.
The decrease in consolidated research and development expenses in fiscal 2000
was a result of research grant money received in fiscal 2000 by ChemoCentryx,
Inc. (CCX), which offset CCX's research expenses. CCX is a technology and
drug development company in which the Company has invested. Research and
development expenses by R&D Systems increased $2.4, $1.6 and $.6 million in
fiscal 2001, 2000 and 1999, respectively. These increases were primarily the
result of the development and release of new cytokines, antibodies and assay
kits by R&D Systems' Biotechnology Division and the development and release
of several new Hematology Division control products. Management of the
Company believes that R&D Systems will continue to develop new products.
Earnings before taxes increased from $39,411,797 in fiscal 2000 to
$47,808,376 in fiscal 2001. The increase in earnings was primarily the result
of a $8,543,176 increase in R&D Systems' Biotechnology Division earnings, a
$573,280 increase in R&D Systems' Hematology Division earnings and a $270,873
increase in R&D Europe earnings. The increases were due mainly to increased
sales and improved Biotechnology Division gross margins. The increases in
consolidated earnings were partially offset by a $1,142,272 increase in
operating losses by CCX as a result of increased research spending.
Earnings before taxes increased from $26,054,010 in fiscal 1999 to
$39,411,797 in fiscal 2000. The increase in earnings was primarily the result
of a $10,803,845 increase in R&D Systems' Biotechnology Division earnings, a
$777,379 increase in R&D Systems' Hematology Division earnings and a $804,885
increase in R&D Europe earnings. The increases were due mainly to increased
sales and improved Biotechnology Division gross margins. In addition, as a
result of the research grant money received by CCX in fiscal 2000, CCX's
losses decreased $2,059,224 from fiscal 1999. The above were partially offset
by increased interest expense related to financing of the building
acquisition.
Earnings before taxes increased from $22,410,961 in fiscal 1998 to
$26,054,010 in fiscal 1999, despite $9.54 million in intangible asset
amortization in fiscal 1999 related to the Genzyme acquisition. The increase
in earnings was primarily the result of a $3,073,439 increase in R&D Systems'
Biotechnology Division earnings, a $583,237 increase in R&D Systems'
Hematology Division earnings and a $942,983 increase in R&D Europe earnings,
all as a result of increased sales. These increases were offset by increased
net losses by CCX of $744,209.
Income taxes for fiscal 2001, 2000 and 1999 were provided at rates of
approximately 29%, 33% and 36%, respectively. The decrease in the tax rate in
fiscal 2001 is due primarily to increased tax exempt interest income and a
one-time $1.2 million credit as a result of the close-out of pending issues
related to a state income tax examination for fiscal years 1996 through 1999.
In fiscal 2000, CCX losses were offset by grant money received, resulting in
a decrease in the tax rate from fiscal 1999. The higher tax rate in fiscal
1999 was due to the net losses of CCX for which no tax benefit was provided.
U.S. federal and state taxes have been reduced as a result of tax-exempt
interest income, the benefit of the foreign sales corporation, and the
federal and state credit for research and development expenditures. Foreign
income taxes have been provided at rates which approximate the tax rates in
the United Kingdom and Germany.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments at June 30, 2001, were
$97,071,868, an increase of 62% from the prior year. At June 30, 2000, cash,
equivalents and short-term investments were $59,824,291 compared to
$29,114,124 at June 30, 1999, an increase of 105%. The Company has an
unsecured line of credit of $750,000 available at June 30, 2001. The interest
rate on the line of credit is at the prime rate of 6.75% at June 30, 2001.
There were no borrowings on the line outstanding as of June 30, 2001 and
2000.
Management of the Company expects to be able to meet its future cash and
working capital requirements for operations, debt repayment, facility
expansion and capital additions through currently available funds, cash
generated from operations and maturities of short-term investments.
Cash flows from operating activities
The Company generated cash from operations of $46,371,711, $38,739,403 and
$28,421,859 in fiscal 2001, 2000 and 1999, respectively. The majority of cash
generated from operating activities in all three years resulted from an
increase in net earnings after adjustment for noncash expenses.
Cash flows from investing activities
The Company's net investment in short-term investments in fiscal 2001, 2000
and 1999 was $33,335,894, $26,123,527 and $1,022,721, respectively. The
Company's investment policy is to place excess cash in tax-exempt bonds with
the objective of obtaining the highest possible return with the lowest risk,
while keeping funds accessible.
Capital additions (excluding the building purchase discussed below) were
$6,814,953, $8,505,709 and $5,564,033 in fiscal 2001, 2000 and 1999,
respectively. Included in fiscal 2001 capital additions is $1.9 million for
the construction of a $7.9 million parking ramp. The ramp is currently under
construction and is expected to be completed in fiscal 2002. Also included in
fiscal 2001, 2000 and 1999 capital additions are building improvements of
$2.3, $5.1 and $3.5 million related to R&D Systems' remodeling and expansion.
The remaining capital additions were for laboratory, manufacturing and
computer equipment. Total capital additions planned for fiscal 2002 for
equipment, building improvements and the completion of the parking ramp are
expected to be approximately $8.8 million. All capital additions are expected
to be financed through currently available cash, cash generated from
operations and maturities of short-term investments.
On July 1, 1999, the Company purchased the facilities it occupies in
Minneapolis, Minnesota for approximately $28 million. Cash of $4 million and
200,000 shares of common stock valued at $2.16 million were placed in escrow
during fiscal 1999. The remainder of the purchase price was financed through
cash on hand and a $20.4 million 15-year mortgage.
On July 1, 1999, the Company paid $2 million and issued warrants to purchase
120,000 shares of common stock as a deposit on an option to purchase
additional property adjacent to its Minneapolis facility. The balance due on
the purchase is approximately $6 million. The Company plans to exercise its
option to purchase this property during fiscal 2002. Costs to renovate the
buildings are estimated at approximately $12 million, with renovation
expected to be completed early in fiscal 2003. The Company also plans to
build an infill to connect this property with its current facility. The
construction of the infill is expected to begin in the spring of 2002 with
completion in late fall 2002 and costs are estimated at approximately $5.5
million.
On July 1, 1998 the Company acquired the research products business of
Genzyme Corporation for $24.76 million cash, $17 million common stock and
royalties on the Company's biotechnology sales for five years. Cash and
equivalents at June 30, 1998 and maturities of short-term investments were
used to finance the cash portion of the acquisition.
Cash flows from financing activities
The Company received $814,892, $6,470,910 and $1,136,633 for the exercise of
options for 89,616, 1,052,046 and 385,704 shares of common stock in fiscal
2001, 2000 and 1999, respectively.
In fiscal 2001 and 1999, the Company purchased and retired 40,000 and
427,200 shares of Company common stock at a market value of $1,163,768 and
$3,941,950, respectively. In May 1995, the Company announced a plan to
purchase and retire up to $5 million of its common stock. In April 1997 and
January 2001 this was increased an additional $5 and $10 million,
respectively. Through June 30, 2001, $9,917,882 of common stock had been
purchased under the plan. Any additional purchases will be funded from
currently available cash.
The Company has never paid cash dividends and has no plans to do so in
fiscal 2002. The Company's earnings will be retained for reinvestment in the
business.
NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "REVENUE RECOGNITION IN FINANCIAL
STATEMENTS," which provides guidance in applying generally accepted
accounting principles to revenue recognition in financial statements. The
application of this SAB did not have a material impact on the Company's
operating results or financial position.
On July 1, 2000, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES", as amended by SFAS No. 138, "ACCOUNTING FOR CERTAIN DERIVATIVE
INSTRUMENTS AND CERTAIN HEDGING ACTIVITIES". SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires that all derivatives, including those embedded in
other contracts, be recognized as either assets or liabilities and that those
financial instruments be measured at fair value. The accounting for changes
in the fair value of derivatives depends on their intended use and
designation. Management has reviewed the requirements of SFAS No. 133 and
has determined that they have no free-standing or embedded derivatives. All
contracts that contain provisions meeting the definition of a derivative also
meet the requirements of, and have been designated as, normal purchases or
sales. The Company's policy is to not use free-standing derivatives and to
not enter into contracts with terms that cannot be designated as normal
purchases or sales.
In July 2001, the Financial Accounting Standards Board issued SFAS No.
141, "BUSINESS COMBINATIONS" and SFAS No. 142, "GOODWILL AND OTHER INTANGIBLE
ASSETS". SFAS No. 141 applies to all business combinations initiated after
June 30, 2001 and prohibits the use of the pooling-of-interests method of
accounting. There are also transition provisions provided that apply to
business combinations completed before July 1, 2001 that were accounted for
using the purchase method. Under SFAS No. 142, goodwill as well as other
intangibles determined to have an infinite life will no longer be amortized;
however, these assets will be reviewed for impairment on a periodic basis.
SFAS No. 142 also includes provisions for the reclassification of certain
existing recognized intangibles as goodwill, reclassification of certain
intangibles out of previously reported goodwill and the identification of
reporting units for purposes of assessing potential future impairments of
goodwill. The Company plans to adopt SFAS No. 142 on July 1, 2002. The
Company is currently assessing, but has not yet determined, the impact of
these statements on its financial position and results of operations. As of
June 30, 2001, the Company had net goodwill and other intangibles assets of
approximately $18.8 million and $8.6 million, respectively. Amortization
expense recorded during fiscal 2001, 2000, and 1999 was approximately $8.9
million, $9.2 million and $9.6 million, respectively.
FORWARD-LOOKING INFORMATION
Statements in this Annual Report, and elsewhere, that are forward-looking
involve risks and uncertainties which may affect the Company's actual results
of operations. Certain of these risks and uncertainties which have affected
and, in the future, could affect the Company's actual results are discussed
below.
The biotechnology industry is subject to rapid and significant technological
change. While the hematology controls industry historically has been subject
to less rapid change, it too is evolving and is impacted significantly by
changes in the automated testing equipment offered by hardware manufacturers.
Competitors of the Company are numerous and include, among others,
specialized biotechnology firms, medical laboratory instrument and equipment
manufacturers and disposables suppliers, major pharmaceutical companies,
universities and other research institutions. There can be no assurance that
the Company's competitors will not succeed in developing technologies and
products that are more effective than any which have been or are being
developed by the Company or that would render the Company's technologies and
products obsolete or noncompetitive.
The Company's success will depend, in part, on its ability to obtain
licenses and patents, maintain trade secret protection and operate without
infringing the proprietary rights of others. The Company has obtained and is
negotiating licenses to produce a number of cytokines and related products
claimed to be owned by others. Since the Company has not conducted a patent
infringement study for each of its products, it is possible that products of
the Company may unintentionally infringe patents of third parties or that the
Company may have to alter its products or processes, pay licensing fees or
cease certain activities because of patent rights of third parties, thereby
causing additional unexpected costs and delays which may have a material
adverse effect on the Company.
The Company's expansion strategies, which include internal development of
new products, collaborations, investments in joint ventures and companies
developing new products related to the Company's business, and the
acquisition of companies for new products and additional customer base, carry
risks that objectives will not be achieved and future earnings will be
adversely affected.
Ongoing research and development activities, including preclinical and
clinical testing, and the production and marketing of the Company's products
are subject to regulation by numerous governmental authorities in the United
States and other countries. The approval process applicable to clinical
diagnostic products of the type that may be developed by the Company usually
takes a number of years and typically requires substantial expenditures.
Delays in obtaining approvals could adversely affect the marketing of new
products developed by the Company.
Recruiting and retaining qualified scientific and production personnel to
perform research and development work and product manufacturing are critical
to the Company's success. The Company's anticipated growth and its expected
expansion into areas and activities requiring additional expertise will
require the addition of new personnel and the development of additional
expertise by existing personnel. The failure to attract and retain such
personnel could adversely affect the Company's business.
On September 19, 2000, the Company brought a declaratory judgement action
in United States District Court for the District of Minnesota (the Court)
seeking to have the Court declare that no amount is owed by the Company to
Amgen, Inc. (Amgen) in connection with invoices in the amount of $31.9
million rendered by Amgen in June 2000 for materials provided to the Company
in past years. The Company also claimed damages for breach of contract and
unfair business practices in violation of applicable statutes. Amgen
subsequently acknowledged error and reduced the amount of its invoices by
$3.9 million to $28 million. Amgen filed a counterclaim seeking the $28
million plus interest and attorneys fees. The Company believes that it has
strong defenses to Amgen's claims and that it owes no material amount. The
ultimate outcome of litigation, however, cannot be predicted with certainty.
An unfavorable outcome to the litigation with Amgen would not adversely
impair the operations of the Company or its financial condition, but would
have a material effect on net income for the period in which realized. See
"Financial Statements, Note E. Commitments and contingencies."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
At the end of fiscal 2001, the Company had an investment portfolio of fixed
income securities, excluding those classified as cash and cash equivalents,
of $75,804,077 (see Note A of Notes to Consolidated Financial Statements).
These securities, like all fixed income instruments, are subject to interest
rate risk and will decline in value if market interest rates increase.
However, the Company has the ability to hold its fixed income investments
until maturity and therefore the Company would not expect to recognize an
adverse impact in income or cash flows.
The Company operates internationally, and thus is subject to potentially
adverse movements in foreign currency rate changes. The Company does not
enter into foreign exchange forward contracts to reduce its exposure to
foreign currency rate changes on intercompany foreign currency denominated
balance sheet positions.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF EARNINGS
TECHNE CORPORATION AND SUBSIDIARIES
YEAR ENDED JUNE 30,
2001 2000 1999
------------ ------------ -----------
Net sales $115,356,562 $103,838,155 $90,900,697
Cost of sales 28,424,906 26,750,650 27,323,211
------------ ------------ -----------
Gross margin 86,931,656 77,087,505 63,577,486
Operating expenses:
Selling, general and administrative 17,714,215 17,315,131 16,862,217
Research and development 14,522,233 11,198,309 12,004,798
Amortization of intangible assets
(Note A) 8,889,254 9,229,250 9,578,646
Interest expense 1,381,276 1,441,272 --
Interest income (3,383,698) (1,508,254) (922,185)
------------ ------------ -----------
39,123,280 37,675,708 37,523,476
------------ ------------ -----------
Earnings before income taxes 47,808,376 39,411,797 26,054,010
Income taxes (Note G) 13,763,000 12,829,000 9,398,000
------------ ------------ -----------
Net earnings $ 34,045,376 $ 26,582,797 $16,656,010
============ ============ ===========
Earnings per share:(1)
Basic $ 0.82 $ 0.65 $ 0.41
Diluted $ 0.80 $ 0.63 $ 0.40
Weighted average common
shares outstanding:(1)
Basic 41,438,670 40,625,482 40,234,734
Diluted 42,668,236 42,206,042 41,373,350
(1) All earnings per share and share amounts for the periods presented have
been restated for the two-for-one stock split declared on November 9,
2000 and paid December 1, 2000.
See Notes to Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEETS
TECHNE CORPORATION AND SUBSIDIARIES
JUNE 30,
2001 2000
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 21,267,791 $ 17,356,108
Short-term available-for-sale
investments (Note A) 75,804,077 42,468,183
Trade accounts receivable, less
allowance for doubtful accounts
of $126,000 and $162,000, respectively 15,894,048 14,056,481
Interest receivable 2,428,240 1,544,387
Inventories (Note B) 5,437,594 4,651,615
Deferred income taxes (Note G) 2,720,000 2,440,000
Prepaid expenses 639,759 494,117
Income taxes receivable -- 3,290,314
------------ ------------
Total current assets 124,191,509 86,301,205
Property and equipment (Note C) 49,193,972 46,266,177
Intangible assets (Note A) 27,446,246 36,335,500
Deferred income taxes (Note G) 4,128,000 3,938,000
Other long-term assets (Note E) 10,565,386 7,568,699
------------ ------------
$215,525,113 $180,409,581
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 3,477,072 $ 2,630,164
Salaries, wages and related accounts 2,302,553 2,998,696
Other accounts payable and accrued expenses 6,155,189 6,107,979
Income taxes payable 3,071,982 --
Current portion of long-term debt (Note D) 884,760 824,315
------------ ------------
Total current liabilities 15,891,556 12,561,154
Royalty payable 3,923,000 7,768,000
Long-term debt, less current portion (Note D) 18,050,289 18,935,049
Commitments and contingencies (Note E) -- --
Stockholders' equity (Note F):
Undesignated capital stock, no par;
authorized 5,000,000 shares; none
issued or outstanding -- --
Common stock, par value $.01 a share;
authorized 100,000,000 shares;
issued and outstanding 41,432,390 and
41,381,998 shares, respectively 414,324 413,820
Additional paid-in capital 57,382,636 52,857,444
Retained earnings 121,209,686 88,336,230
Accumulated other comprehensive loss (1,346,378) (462,116)
------------ ------------
Total stockholders' equity 177,660,268 141,145,378
------------ ------------
$215,525,113 $180,409,581
============ ============
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
TECHNE CORPORATION AND SUBSIDIARIES
ACCUM.
OTHER
COMPRE-
ADDITIONAL HENSIVE
COMMON STOCK PAID-IN RETAINED INCOME
SHARES AMOUNT CAPITAL EARNINGS (LOSS) TOTAL
---------- -------- ----------- ------------ ------------ ------------
Balances at June 30, 1998 38,099,966 $381,000 $13,523,945 $ 49,446,319 $ 479,503 $ 63,830,767
Comprehensive income:
Net earnings -- -- -- 16,656,010 -- 16,656,010
Other comprehensive
income, net of tax:
Foreign currency trans-
lation adjustments -- -- -- -- (426,903) (426,903)
------------
Comprehensive income 16,229,107
Common stock issued:
Exercise of options
(Note F) 427,740 4,277 1,236,040 -- -- 1,240,317
Acquisition 1,974,412 19,744 16,980,256 -- -- 17,000,000
Real estate deposit 200,000 2,000 2,158,830 -- -- 2,160,830
Surrender and retirement
of stock to exercise
options (Note J) (9,608) (96) 48 (103,636) -- (103,684)
Repurchase and retirement
of common stock (427,200) (4,272) 2,136 (3,939,814) -- (3,941,950)
Tax benefit from exercise
of stock options -- -- 423,000 -- -- 423,000
---------- -------- ----------- ----------- ------------ ------------
Balances at June 30, 1999 40,265,310 402,653 34,324,255 62,058,879 52,600 96,838,387
Comprehensive income:
Net earnings -- -- -- 26,582,797 -- 26,582,797
Other comprehensive
income, net of tax:
Foreign currency trans-
lation adjustments -- -- -- -- (514,716) (514,716)
------------
Comprehensive income 26,068,081
Common stock issued:
Exercise of options
(Note F) 1,129,630 11,296 6,765,125 -- -- 6,776,421
Fair value of warrants
issued (Note F) -- -- 858,000 -- -- 858,000
Surrender and retirement
of stock to exercise
options (Note J) (12,942) (129) 64 (305,446) -- (305,511)
Tax benefit from exercise
of stock options -- -- 10,910,000 -- -- 10,910,000
---------- -------- ----------- ------------ ------------ ------------
Balances at June 30, 2000 41,381,998 413,820 52,857,444 88,336,230 (462,116) 141,145,378
Comprehensive income:
Net earnings -- -- -- 34,045,376 -- 34,045,376
Other comprehensive
income, net of tax:
Foreign currency trans-
lation adjustments -- -- -- -- (884,262) (884,262)
------------
Comprehensive income 33,161,114
Common stock issued:
Exercise of options
(Note F) 90,616 906 822,540 -- -- 823,446
Surrender and retirement
of stock to exercise
options (Note J) (224) (2) -- (8,552) -- (8,554)
Repurchase and retirement
of common stock (40,000) (400) -- (1,163,368) -- (1,163,768)
Sale of stock by equity
method investee (Note A) -- -- 3,387,652 -- -- 3,387,652
Tax benefit from exercise
of stock options -- -- 315,000 -- -- 315,000
---------- -------- ----------- ------------ ------------ ------------
Balances at June 30, 2001 41,432,390 $414,324 $57,382,636 $121,209,686 $ (1,346,378) $177,660,268
========== ======== =========== ============ ============ ============
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE J)
TECHNE CORPORATION AND SUBSIDIARIES
YEAR ENDED JUNE 30,
2001 2000 1999
------------ ------------ ------------
Cash flows from operating activities:
Net earnings $ 34,045,376 $ 26,582,797 $ 16,656,010
Adjustments to reconcile net
earnings to net cash provided by
operating activities:
Depreciation and amortization 12,737,448 12,651,350 11,890,384
Deferred income taxes (508,000) (1,157,000) (1,902,000)
Deferred rent -- -- 308,400
Other 919,722 (404,042) 2,081,435
Change in current assets and
current liabilities, net of
acquisition:
(Increase) decrease in:
Trade accounts and
interest receivable (3,036,047) (2,141,023) (3,764,422)
Inventories (846,902) 986,120 3,754,942
Prepaid expenses (153,452) (9,850) (14,113)
Increase (decrease) in:
Trade and other accounts payable (2,867,638) (2,898,880) (2,434,625)
Salaries, wages and related
accounts (680,839) 695,184 314,777
Income taxes payable/receivable 6,762,043 4,434,747 1,531,071
------------ ------------ ------------
Total adjustments 12,326,335 12,156,606 11,765,849
------------ ------------ ------------
Net cash provided by
operating activities 46,371,711 38,739,403 28,421,859
Cash flows from investing activities:
Acquisition -- -- (24,989,542)
Real estate deposits -- (2,001,000) (4,000,000)
Additions to property and equipment (6,814,953) (30,367,862 (5,564,033)
Purchase of short-term
available-for-sale investments (57,177,268) (39,569,406) (15,025,991)
Proceeds from sale of short-term
available-for-sale investments 23,841,374 13,445,879 14,003,270
Increase in other long-term assets (500,000) (1,552,160) (3,060,826)
------------ ------------ ------------
Net cash used in
investing activities (40,650,847) (60,044,549) (38,637,122)
Cash flows from financing activities:
Issuance of common stock 814,892 6,470,910 1,136,633
Repurchase of common stock (1,163,768) -- (3,941,950)
Proceeds from issuance of
long-term debt -- 20,400,000 --
Payments on long-term debt (824,315) (640,636) --
------------ ------------ ------------
Net cash (used in) provided
by financing activities (1,173,191) 26,230,274 (2,805,317)
Effect of exchange rate changes
on cash and cash equivalents (635,990) (338,488) (323,559)
------------ ------------ -----------
Net increase (decrease) in
cash and cash equivalents 3,911,683 4,586,640 (13,344,139)
Cash and cash equivalents
at beginning of year 17,356,108 12,769,468 26,113,607
------------ ------------ ------------
Cash and cash equivalents
at end of year $ 21,267,791 $ 17,356,108 $ 12,769,468
============ ============ ============
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TECHNE CORPORATION AND SUBSIDIARIES
Years Ended June 30, 2001, 2000 and 1999
A. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS: Techne Corporation and Subsidiaries (the Company) are
engaged domestically in the development and manufacture of biotechnology
products and hematology calibrators and controls. These activities are
primarily conducted through its wholly owned subsidiary, Research and
Diagnostic (R&D) Systems, Inc. Through its wholly owned English subsidiary,
R&D Systems Europe Ltd., the Company distributes biotechnology products
throughout Europe. R&D Systems Europe Ltd. has a sales subsidiary, R&D
Systems GmbH, in Germany. The Company also has a foreign sales corporation,
Techne Export Inc.
ESTIMATES: The preparation of consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
RISKS AND UNCERTAINTIES: There are no concentrations of business transacted
with a particular customer or supplier nor concentrations of revenue from a
particular product or geographic area that would severely impact the Company
in the near term.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries. All material
intercompany accounts and transactions have been eliminated.
TRANSLATION OF FOREIGN FINANCIAL STATEMENTS: Assets and liabilities of the
Company's foreign operations are translated at year end rates of exchange and
the foreign statements of earnings are translated at the average rate of
exchange for the year. Gains and losses resulting from translating foreign
currency financial statements are not included in operations but are
accumulated in other comprehensive income. Foreign currency transaction gains
and losses are included in operations.
REVENUE RECOGNITION: The Company recognizes revenues upon shipment of products.
Revenues are reduced to reflect estimated returns. Freight charges to
customers are included in net sales and freight costs are included in cost of
sales in accordance with Emerging Issues Task Force No. 00-10, "ACCOUNTING FOR
SHIPPING AND HANDLING FEES AND COSTS."
RESEARCH AND DEVELOPMENT: Research and development expenditures are expensed
as incurred. Development activities generally relate to creating new products,
improving or creating variations of existing products, or modifying existing
products to meet new applications.
EARNINGS PER SHARE: The number of shares used to calculate earnings per share
are as follows:
YEAR ENDED JUNE 30,
2001 2000 1999
---------- ---------- ----------
Weighted average common
shares outstanding (basic) 41,438,670 40,625,482 40,234,734
Dilutive stock options
and warrants outstanding 1,229,566 1,580,560 1,138,616
---------- ---------- ----------
Weighted average common shares
outstanding (diluted) 42,668,236 42,206,042 41,373,350
========== ========== ==========
CASH AND CASH EQUIVALENTS: Cash and cash equivalents include cash on hand and
highly liquid investments with original maturities less than three months.
SHORT-TERM INVESTMENTS: Short-term investments consist of tax-exempt bonds
with original maturities of generally three months to three years.
The Company reports marketable securities at fair market value. Unrealized
gains and losses on available-for-sale securities are excluded from income,
but are included in other comprehensive income. The Company considers all of
its marketable securities available-for-sale. Fair market values are based
on quoted market prices.
Proceeds from sales of available-for-sale securities were $23,841,374,
$13,445,879 and $14,003,270 during fiscal 2001, 2000 and 1999, respectively.
There were no material gross realized gains or losses on these sales.
Realized gains and losses are determined on the specific identification
method. Unrealized gains and losses at June 30, 2001, 2000 and 1999 were
not material.
INVENTORIES: Inventories are stated at the lower of cost (first-in, first-out
method) or market.
DEPRECIATION AND AMORTIZATION: Equipment is being depreciated using the
straight-line method over an estimated useful life of five years. Buildings,
building improvements and leasehold improvements are being amortized over
estimated useful lives of five to forty years.
INTANGIBLES: Intangible assets, related to the acquisition of Genzyme
Corporation's research products business in fiscal 1999 and Amgen Inc.'s
research reagent and diagnostic kit business in fiscal 1992 are being
amortized on a straight-line basis over the estimated useful lives and
consist of the following:
JUNE 30,
USEFUL LIFE 2001 2000
----------- ----------- -----------
Customer list 10 years $18,010,000 $18,010,000
Technology licensing agreements 16 years 500,000 500,000
Goodwill 6 years 39,075,089 39,075,089
----------- -----------
57,585,089 57,585,089
Less accumulated amortization 30,138,843 21,249,589
----------- -----------
$27,446,246 $36,335,500
=========== ===========
IMPAIRMENT OF LONG-LIVED ASSETS: Management periodically reviews the carrying
value of long-term assets based on the estimated undiscounted future cash
flows expected to result from the use of these assets. Should the sum of the
expected future net cash flows be less than the carrying value, an impairment
loss would be recognized. An impairment loss would be measured by the amount
by which the carrying value of the asset exceeds the fair value of the asset
based on discounted estimated future cash flows. To date, management has
determined that no impairment exists.
INVESTMENTS: The Company's accounting policy is to recognize gains arising
from issuances of stock by subsidiaries or equity method investees as a
component of stockholders' equity for all issuances that meet the conditions
of SEC Staff Accounting Bulletin (SAB) No. 51., "ACCOUNTING FOR THE SALE OF
STOCK BY A SUBSIDIARY."
The Company has an interest in the issued and outstanding voting shares of
ChemoCentryx, Inc. (CCX), a technology and drug development company. The
Company accounts for this investment under the equity method of accounting
and through January 2001 had a 49% interest in CCX. Through January 2001, the
Company included 100% of the operating results of CCX in its consolidated
financial statements due to the limited amount of cash consideration provided
by the holders of the common shares of CCX. In February 2001, CCX obtained
$23 million in financing through the issuance of 8,846,154 shares of preferred
stock. The Company currently holds approximately 26% of the outstanding
voting stock of CCX and is including CCX operating results in its consolidated
financial statements based on its ownership percentage. The Company's net
investment in CCX was $6,441,481 and $3,553,516 at June 30, 2001 and 2000,
respectively.
STOCK OPTIONS: As permitted by SFAS No. 123, the Company has elected to
continue following the guidance of Accounting Principles Board (APB) Opinion
No. 25 for measurement and recognition of stock-based transactions with
employees. No compensation cost has been recognized for stock options granted
to employees under the plans because the exercise price of all options
granted was at least equal to the fair value of the common stock at the date
of grant.
RECLASSIFICATIONS: Certain reclassifications have been made to prior years'
consolidated financial statements to conform to the current year presentation.
These reclassifications had no impact on net earnings or stockholders' equity
as previously reported.
NEW ACCOUNTING PRONOUNCEMENTS: In December 1999, the Securities and Exchange
Commission issued SAB No. 101, "REVENUE RECOGNITION IN FINANCIAL STATEMENTS,"
which provides guidance in applying generally accepted accounting principles
to revenue recognition in financial statements. The application of this SAB
did not have a material impact on the Company's operating results or financial
position.
On July 1, 2000, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES", as amended by SFAS No. 138, "ACCOUNTING FOR CERTAIN DERIVATIVE
INSTRUMENTS AND CERTAIN HEDGING ACTIVITIES". SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires that all derivatives, including those embedded in
other contracts, be recognized as either assets or liabilities and that those
financial instruments be measured at fair value. The accounting for changes
in the fair value of derivatives depends on their intended use and designation.
Management has reviewed the requirements of SFAS No. 133 and has determined
that they have no free-standing or embedded derivatives. All contracts that
contain provisions meeting the definition of a derivative also meet the
requirements of, and have been designated as, normal purchases or sales. The
Company's policy is to not use free-standing derivatives and to not enter
into contracts with terms that cannot be designated as normal purchases or
sales.
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"BUSINESS COMBINATIONS" and SFAS No. 142, "GOODWILL AND OTHER INTANGIBLE
ASSETS". SFAS No. 141 applies to all business combinations initiated after
June 30, 2001 and prohibits the use of the pooling-of-interests method of
accounting. There are also transition provisions provided that apply to
business combinations completed before July 1, 2001 that were accounted for
using the purchase method. Under SFAS No. 142, goodwill as well as other
intangibles determined to have an infinite life will no longer be amortized;
however, these assets will be reviewed for impairment on a periodic basis.
SFAS No. 142 also includes provisions for the reclassification of certain
existing recognized intangibles as goodwill, reclassification of certain
intangibles out of previously reported goodwill and the identification of
reporting units for purposes of assessing potential future impairments of
goodwill. The Company plans to adopt SFAS No. 142 on July 1, 2002. The Company
is currently assessing, but has not yet determined, the impact of these
statements on its financial position and results of operations. As of June 30,
2001, the Company had net goodwill and other intangibles assets of approximately
$18.8 million and $8.6 million, respectively. Amortization expense recorded
during fiscal 2001, 2000, and 1999 was approximately $8.9 million, $9.2 million
and $9.6 million, respectively.
B. INVENTORIES:
Inventories consist of:
JUNE 30,
2001 2000
---------- ----------
Raw materials $2,552,179 $2,288,719
Finished goods 2,749,820 2,238,164
Supplies 135,595 124,732
---------- ----------
$5,437,594 $4,651,615
========== ==========
C. PROPERTY AND EQUIPMENT:
Property and equipment consist of:
JUNE 30,
2001 2000
----------- -----------
Cost:
Land $ 871,000 $ 871,000
Buildings and improvements 48,906,991 43,965,312
Laboratory equipment 15,023,754 14,114,039
Office and computer equipment 3,833,730 3,535,164
Leasehold improvements 459,191 180,770
----------- -----------
69,094,666 62,666,285
Less accumulated depreciation
and amortization 19,900,694 16,400,108
----------- -----------
$49,193,972 $46,266,177
=========== ===========
D. DEBT:
The Company's short-term line of credit facility consists of an unsecured
line of credit of $750,000 at June 30, 2001. The interest rate charged on the
line of credit is at the prime rate of 6.75% at June 30, 2001. There were no
borrowings on the line outstanding as of June 30, 2001 and 2000.
Long-term debt consists of:
JUNE 30,
2001 2000
----------- -----------
Mortgage note, payable in monthly
installments of $183,631
including interest $18,935,049 $19,759,364
Less current portion 884,760 824,315
----------- -----------
$18,050,289 $18,935,049
=========== ===========
The interest rate on the mortgage note is fixed at 7% for the first seven years
and is thereafter adjusted based on U.S. Treasury rates.
Principal maturities of long-term debt as of June 30, 2001 are as follows:
YEAR ENDING JUNE 30:
---------------------
2002 $ 884,760
2003 949,637
2004 1,016,017
2005 1,093,772
2006 1,173,975
Thereafter 13,816,888
-----------
$18,935,049
===========
E. COMMITMENTS AND CONTINGENCIES:
The Company leases buildings, vehicles and various data processing, office
and laboratory equipment under operating leases. These leases provide for
renewal or purchase options during or at the end of the lease periods. At June
30, 2001, aggregate net minimum rental commitments under noncancelable leases
having an initial or remaining term of more than one year are payable as
follows:
YEAR ENDING JUNE 30:
---------------------
2002 $ 425,990
2003 408,373
2004 399,361
2005 389,445
2006 388,537
Thereafter 3,612,468
----------
$5,624,174
==========
Total rent expense was approximately $337,000, $305,000 and $2,587,000 for
the years ended June 30, 2001, 2000 and 1999, respectively.
In fiscal 1999, the Company entered into two option agreements for real estate
adjacent to its R&D Systems' facility. The purchase price for the property
under the first option is $7,951,000 and six-year warrants to purchase 120,000
shares of the Company's common stock at $11.89 per share. This purchase option
expires on November 15, 2001. On July 1, 1999, the Company paid $2 million cash
and issued the warrants as a nonrefundable deposit on the option purchase price.
The fair market value of the warrants was $858,000. The deposit is included in
other long-term assets at June 30, 2001 and 2000.
The purchase price for the property under the second option is $7 million plus
capital improvement costs. This option expires on January 1, 2005 and requires
a nonrefundable deposit of $2 million. A deposit of $1,000 was made on this
option in fiscal 2000 with the remainder of the deposit due on the earlier of
January 15, 2002 or sixty days after exercise of the first option.
A party has presented invoices in the amount of $28 million for materials
provided to the Company over past years, allegedly pursuant to a contract under
which no accounting or invoices were rendered for nine years. The Company has
brought a declaratory judgement action seeking to have the court declare that
no amount is owed. The party filed a counterclaim seeking the $28 million plus
interest and attorney's fees. The Company's management believes that no
material amount is owed, that it has strong defenses against the other party's
claims, and that the ultimate resolution of the matter will not adversely
impair the operations of the Company or its financial condition.
The Company is routinely subject to claims and involved in legal actions which
are incidental to the business of the Company. Although it is difficult to
predict the ultimate outcome of these matters, management believes that any
ultimate liability will not materially affect the consolidated financial
position or operations of the Company.
F. STOCKHOLDERS' EQUITY:
STOCK SPLIT: On November 9, 2000, the Company declared a two-for-one stock
split in the form of a 100% stock dividend payable to shareholders of record on
November 24, 2000. All earnings per share and share amounts for the periods
presented have been restated to reflect the stock split.
STOCK OPTION PLANS: The Company has stock option plans which provide for the
granting of stock options to employees (the TECHNE Corporation 1997 and 1987
Incentive Stock Option Plans) and to employees, officers, directors and
consultants (the TECHNE Corporation 1998 and 1988 Nonqualified Stock Option
Plans). The plans are administered by the Board of Directors, or a committee
designated by the Board, which determines the persons who are to receive awards
under the plans, the number of shares subject to each award and the term and
exercise price of each option. The maximum term of options granted under all
plans is ten years. The number of shares of common stock authorized to be
issued is 3,200,000, 3,200,000, 1,600,000 and 2,000,000 under the TECHNE
Corporation 1997 Incentive Stock Option Plan, the TECHNE Corporation 1987
Incentive Stock Option Plan, the TECHNE Corporation 1998 Nonqualified Stock
Option Plan and the TECHNE Corporation 1988 Nonqualified Stock Option Plan,
respectively.
Stock option activity during the three years ended June 30, 2001 consists of
the following:
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
----------- ----------------
Outstanding at June 30, 1998 2,510,116 $ 4.71
Granted 233,290 8.55
Exercised (427,740) 2.90
----------
Outstanding at June 30, 1999 2,315,666 5.43
Granted 231,304 17.93
Exercised (1,129,630) 6.00
----------
Outstanding at June 30, 2000 1,417,340 7.02
Granted 593,098 38.23
Canceled (15,348) 37.44
Exercised (90,616) 9.09
----------
Outstanding at June 30, 2001 1,904,474 16.40
==========
Options exercisable at June 30:
1999 1,871,666 5.43
2000 1,298,338 6.55
2001 1,804,328 15.76
Currently outstanding and exercisable stock options at June 30, 2001 consist
of the following:
OPTIONS OUTSTANDING
--------------------------------------------
WEIGHTED AVG.
CONTRACTUAL WEIGHTED AVG.
EXERCISE PRICES OUTSTANDING LIFE (YRS.) EXERCISE PRICE
--------------- ----------- ------------- --------------
$ 2.69-10.00 1,128,574 3.92 $ 5.05
10.01-20.00 205,498 6.92 18.02
36.50 508,972 6.08 36.50
50.00-65.00 61,430 9.25 52.94
---------
1,904,474 5.00 16.40
=========
OPTIONS EXERCISABLE
-----------------------------
WEIGHTED AVG.
EXERCISE PRICES EXERCISABLE EXERCISE PRICE
--------------- ----------- --------------
$ 2.69-10.00 1,128,574 $ 5.05
10.01-20.00 163,830 18.57
36.50 450,494 36.50
50.00-65.00 61,430 52.94
---------
1,804,328 15.76
=========
If compensation cost for employee options granted under the Company's stock
option plans had been determined based on the fair value at the grant dates,
consistent with the methods provided in SFAS No. 123, "ACCOUNTING FOR
STOCK-BASED COMPENSATION," the Company's net earnings and earnings per share
would have been as follows:
YEAR ENDED JUNE 30,
2001 2000 1999
----------- ----------- -----------
Net earnings:
As reported $34,045,376 $26,582,797 $16,656,010
Pro forma 16,624,096 24,817,402 15,071,990
Basic earnings per share:
As reported $ 0.82 $ 0.65 $ 0.41
Pro forma 0.40 0.61 0.37
Diluted earnings per share:
As reported $ 0.80 $ 0.63 $ 0.40
Pro forma 0.39 0.59 0.36
The fair value of options granted under the Company's stock option plans were
estimated on the date of grant using the Black-Scholes option-pricing model
with the following assumptions used: no dividend yield, expected volatility
of between 35% and 99%, risk-free interest rates between 4.6% and 6.4% and
expected lives between 7 and 10 years.
WARRANTS: In fiscal 2000, the Company issued warrants to purchase 120,000
shares of the Company's common stock at $11.89 per share as a nonrefundable
deposit on an option to purchase property adjacent to its R&D Systems'
facility. The fair market value of the warrants was $858,000.
G. INCOME TAXES:
The provisions for income taxes consist of the following:
YEAR ENDED JUNE 30,
2001 2000 1999
----------- ----------- -----------
Earnings before income
taxes consist of:
Domestic $42,480,134 $34,354,428 $21,801,526
Foreign 5,328,242 5,057,369 4,252,484
----------- ----------- -----------
$47,808,376 $39,411,797 $26,054,010
=========== =========== ===========
Taxes (benefits) on
income consist of:
Currently payable:
Federal $13,578,000 $ 1,358,000 $ 9,122,000
State (1,173,000) 305,000 355,000
Foreign 1,513,000 1,396,000 1,355,000
Tax benefit from exercise
of stock options 315,000 10,910,000 423,000
Net deferred (470,000) (1,140,000) (1,857,000)
----------- ----------- -----------
$13,763,000 $12,829,000 $ 9,398,000
=========== =========== ===========
The following is a reconciliation of the federal tax calculated at the
statutory rate of 35% to the actual income taxes provided:
YEAR ENDED JUNE 30,
2001 2000 1999
----------- ----------- -----------
Computed expected federal
income tax expense $16,733,000 $13,794,000 $ 9,119,000
State income taxes, net
of federal benefit (1,138,000) 335,000 377,000
Foreign sales corporation (697,000) (566,000) (444,000)
Research and development
credits (563,000) (605,000) (334,000)
Tax-exempt interest (887,000) (318,000) (165,000)
Other 315,000 189,000 845,000
----------- ----------- -----------
$13,763,000 $12,829,000 $ 9,398,000
=========== =========== ===========
State income taxes for the year ended June 30, 2001 were affected by a one-
time $1.2 million credit as a result of the close-out of pending issues related
to a state income tax examination for fiscal years 1996 through 1999.
Deferred income taxes are provided to record the income tax effect of temporary
differences between the tax basis and financial reporting basis of assets and
liabilities. Temporary differences comprising deferred taxes on the
consolidated balance sheets are as follows:
JUNE 30,
2001 2000
----------- -----------
Inventory $ 1,564,000 $ 1,335,000
Inventory costs capitalized 735,000 619,000
Foreign net operating loss carryforward -- 81,000
Unrealized profit on intercompany sales 306,000 293,000
Other 115,000 112,000
----------- -----------
Current asset 2,720,000 2,440,000
Excess of book over tax intangible
asset amortization 3,491,000 2,613,000
Excess of book over tax research expense 361,000 382,000
Excess of book over tax depreciation 503,000 870,000
Other (227,000) 73,000
----------- -----------
Noncurrent asset 4,128,000 3,938,000
----------- -----------
$ 6,848,000 $ 6,378,000
=========== ===========
The Company's tax returns are subject to audit by various governmental entities
in the normal course of business. The Company does not believe that such audits
will have a material impact on the Company's financial position or results of
operations.
H. SEGMENT INFORMATION:
The Company has three reportable operating segments based on the nature of
products and geographic location: Hematology Division, Biotechnology Division
and R&D Systems Europe. The Hematology Division develops and manufactures
hematology controls and calibrators for sale world-wide. The Biotechnology
Division develops and manufactures biotechnology research and diagnostic
products for sale world-wide. R&D Systems Europe distributes Biotechnology
Division products throughout Europe. No customer accounted for more than 10% of
the Company's revenues for the years ended June 30, 2001, 2000 and 1999.
The accounting policies of the segments are the same as those described in Note
A. In evaluating segment performance, management focuses on sales and income
before taxes. Sales between segments are made at prices which would approximate
transfers to unaffiliated distributors.
Following is financial information relating to the operating segments:
YEAR ENDED JUNE 30,
2001 2000 1999
------------ ------------ ------------
External sales
Hematology $ 14,710,464 $ 13,575,463 $ 12,673,544
Biotechnology 73,656,405 64,230,320 54,960,816
R&D Systems Europe 26,989,693 26,032,372 23,266,337
------------ ------------ ------------
Total external sales $115,356,562 $103,838,155 $ 90,900,697
============ ============ ============
Intersegment sales
Hematology $ -- $ -- $ --
Biotechnology 15,010,487 13,422,813 11,578,230
R&D Systems Europe 77,237 135,106 187,054
------------ ------------ ------------
Total intersegment sales $ 15,087,724 $ 13,557,919 $ 11,765,284
============ ============ ============
Earnings before taxes
Hematology $ 5,057,119 $ 4,483,839 $ 3,706,460
Biotechnology 39,766,406 31,223,230 20,419,385
R&D Systems Europe 5,328,242 5,057,369 4,252,484
Corporate and other (2,343,391) (1,352,641) (2,324,319)
------------ ------------ ------------
Total earnings before taxes $ 47,808,376 $ 39,411,797 $ 26,054,010
============ ============ ============
Interest income
Hematology $ 508,149 $ 322,166 $ 289,105
Biotechnology 2,032,596 751,720 313,373
R&D Systems Europe 552,245 376,405 213,589
Corporate and other 290,708 57,963 106,118
------------ ------------ ------------
Total interest income $ 3,383,698 $ 1,508,254 $ 922,185
============ ============ ============
Depreciation and amortization
Hematology $ 239,909 $ 187,077 $ 170,105
Biotechnology 11,028,893 11,135,442 11,109,795
R&D Systems Europe 174,940 221,272 239,277
Corporate and other 1,293,706 1,107,559 371,207
------------ ------------ ------------
Total depreciation and
amortization $ 12,737,448 $ 12,651,350 $ 11,890,384
============ ============ ============
Capital purchases
Hematology $ 313,936 $ 437,057 $ 174,844
Biotechnology 3,472,146 4,122,418 3,940,127
R&D Systems Europe 655,430 150,471 287,413
Corporate and other 2,373,441 25,657,916 1,161,649
------------ ------------ ------------
Total capital purchases $ 6,814,953 $ 30,367,862 $ 5,564,033
============ ============ ============
Corporate and other reconciling items include the results of unallocated
corporate expenses and assets, the elimination of profit on intersegment sales
and the operations of the Company's equity investment in ChemoCentryx, Inc.
Following is financial information relating to geographic areas:
YEAR ENDED JUNE 30,
2001 2000 1999
------------ ------------ ------------
External sales
United States $ 71,018,421 $ 62,927,628 $ 54,261,592
Other areas 44,338,141 40,910,527 36,639,105
------------ ------------ ------------
Total external sales $115,356,562 $103,838,155 $ 90,900,697
============ ============ ============
Long-lived assets
United States $ 51,404,348 $ 48,928,147 $ 20,923,992
Other areas 815,851 374,325 462,898
------------ ------------ ------------
Total long-lived assets $ 52,220,199 $ 49,302,472 $ 21,386,890
============ ============ ============
External sales are attributed to countries based on the location of the
customer/distributor. Long-lived assets are comprised of land, buildings and
improvements, equipment and deposits on real estate.
I. BENEFIT PLANS:
PROFIT SHARING PLAN: The Company has a Profit Sharing and Savings Plan for
non-union U.S. employees, which conforms to IRS provisions for 401(k) plans.
The Company may make profit sharing contributions at the discretion of the
Board of Directors. Operations have been charged for contributions to the plan
of $810,000, $787,500 and $651,000 for the years ended June 30, 2001, 2000
and 1999, respectively.
STOCK BONUS PLANS: The Company also has Stock Bonus Plans covering non-union
employees. The Company may make contributions to the plans in the form of
common stock, cash or other property at the discretion of the Board of
Directors. The Company purchases its common stock at market value for
contribution to the plans for the years ended June 30, 2001, 2000 and 1999 and
operations have been charged $851,000, $832,000 and $684,000, respectively.
PERFORMANCE INCENTIVE PROGRAM: Under certain employment agreements with
executive officers, the Company recorded bonuses of $101,000, $126,000 and
$80,000 for the years ended June 30, 2001, 2000 and 1999, respectively. In
addition, options for 1,938, 6,304 and 8,290 shares of common stock were
granted to the executive officers during fiscal 2001, 2000 and 1999,
respectively.
J. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION AND NONCASH INVESTING AND
FINANCING ACTIVITIES:
The Company paid and received cash for the following items:
YEAR ENDED JUNE 30,
2001 2000 1999
----------- ----------- -----------
Income taxes paid $ 7,508,196 $ 9,561,485 $ 9,763,600
Interest paid 1,386,085 1,326,009 --
Interest received 3,748,696 1,626,260 1,019,630
Noncash transactions during the years ended June 30, 2001, 2000 and 1999
consisted of:
In fiscal 2001, stock options for 1,000 shares of common stock were exercised
by surrender of 224 shares of common stock at fair market value of $8,554. In
fiscal 2000, stock options for 77,584 shares of common stock were exercised by
surrender of 12,942 shares of common stock at fair market value of $305,511.
In fiscal 1999, stock options for 42,036 shares of common stock were exercised
by surrender of 9,608 shares of common stock at fair market value of $103,684.
K. SUBSEQUENT EVENT:
On August 2, 2001, the Company made an equity investment of $3 million and
entered into a research and license agreement with Discovery Genomics, Inc.
(DGI) of Minneapolis, Minnesota. DGI was recently organized and holds licenses
from the University of Minnesota to develop technologies used for functional
genomics and the discovery of druggable targets. The Company acquired a 39%
equity interest in DGI and warrants to acquire additional equity. The Company
also received the rights to develop antibodies and immunoassay kits for
proteins discovered by DGI and an exclusive, royalty free license to sell such
products in the research market. The Company's investment in DGI will be
accounted for under the equity method of accounting.
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
TECHNE Corporation and Subsidiaries
Minneapolis, Minnesota
We have audited the accompanying consolidated balance sheets of TECHNE
Corporation and Subsidiaries (the Company) as of June 30, 2001 and 2000, and
the related consolidated statements of earnings, stockholders' equity and cash
flows for each of the three years in the period ended June 30, 2001. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of TECHNE Corporation
and Subsidiaries at June 30, 2001 and 2000 and the results of their operations
and cash flows for each of the three years in the period ended June 30, 2001,
in conformity with accounting principles generally accepted in the United
States of America.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
August 14, 2001
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Other than "Executive Officers of the Company" which is set forth at the end
of Part I of this Form 10-K, the information required by Item 10 is
incorporated herein by reference to the sections entitled "Election of
Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in
the Company's proxy statement for its 2001 Annual Meeting of Shareholders
which will be filed with the Securities and Exchange Commission pursuant to
Regulation 14A within 120 days after the close of the fiscal year for which
this report is filed.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to
the section entitled "Executive Compensation" in the Company's proxy
statement for its 2001 Annual Meeting of Shareholders which will be filed
with the Securities and Exchange Commission pursuant to Regulation 14A within
120 days after the close of the fiscal year for which this report is filed.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated by reference to the
sections entitled "Principal Shareholders" and "Management Shareholdings" in
the Company's proxy statement for its 2001 Annual Meeting of Shareholders
which will be filed with the Securities and Exchange Commission pursuant to
Regulation 14A within 120 days after the close of the fiscal year for which
this report is filed.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K.
A. (1) List of Financial Statements.
The following Consolidated Financial Statements are filed as part
of this Report:
Consolidated Statements of Earnings for the Years Ended
June 30, 2001, 2000 and 1999
Consolidated Balance Sheets as of June 30, 2001 and 2000
Consolidated Statements of Stockholders' Equity for the Years
Ended June 30, 2001, 2000 and 1999
Consolidated Statements of Cash Flows for the Years Ended
June 30, 2001, 2000 and 1999
Notes to Consolidated Financial Statements for the Years
Ended June 30, 2001, 2000 and 1999
Independent Auditors' Report
(2) Financial Statement Schedules.
None.
(3) Exhibits.
See Exhibit Index immediately following signature page.
B. Reports on Form 8-K:
No report on Form 8-K was filed during the quarter ended June 30, 2001.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
TECHNE CORPORATION
Date: September 27, 2001 Thomas E. Oland
--------------------------------
By: Thomas E. Oland
Its: President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
Date Signature and Title
---- -------------------
September 27, 2001 Thomas E. Oland
--------------------------------
Thomas E. Oland
President, Treasurer and Director
(principal executive officer and
principal financial and accounting
officer)
September 27, 2001 Roger C. Lucas, Ph.D.
-----------------------------------
Dr. Roger C. Lucas, Director
September 27, 2001 Howard V. O'Connell
-----------------------------------
Howard V. O'Connell, Director
September 27, 2001 G. Arthur Herbert
-----------------------------------
G. Arthur Herbert, Director
September 27, 2001 Randolph C. Steer, Ph.D., M.D.
-----------------------------------
Dr. Randolph C. Steer, Director
September 27, 2001 Lowell E. Sears
-----------------------------------
Lowell E. Sears, Director
September 27, 2001 Christopher S. Henney, Ph.D., D.Sc.
-----------------------------------
Dr. Christopher S. Henney, Director
September 27, 2001 Timothy M. Heaney
-----------------------------------
Timothy M. Heaney, Director
EXHIBIT INDEX
for Form 10-K for the 2001 Fiscal Year
Exhibit
Number Description
------- -----------
3.1 Restated Articles of Incorporation of Company, as amended to date
--incorporated by reference to Exhibit 3.1 of the Company's Form
10-Q for the quarter ended September 30, 2000*
3.2 Restated Bylaws, as amended to date--incorporated by reference to
Exhibit 3.2 of the Company's Form 10, dated October 27, 1988*
10.1 Employee Agreement with Respect to Inventions, Proprietary
Information, and Unfair Competition with Thomas E. Oland--
incorporated by reference to Exhibit 10.2 of the Company's Form
10, dated October 27, 1988*
10.2** Company's Profit Sharing Plan--incorporated by reference to
Exhibit 10.6 of the Company's Form 10, dated October 27, 1988*
10.3** Company's Stock Bonus Plan--incorporated by reference to Exhibit
10.7 of the Company's Form 10, dated October 27, 1988*
10.4** 1987 Incentive Stock Option Plan--incorporated by reference to
Exhibit 10.14 of the Company's Form 10, dated October 27, 1988*
10.5 Form of Stock Option Agreement for 1987 Incentive Stock Option
Plan--incorporated by reference to Exhibit 10.15 of the Company's
Form 10, dated October 27, 1988*
10.6** 1988 Nonqualified Stock Option Plan--incorporated by reference to
Exhibit 10.16 of the Company's Form 10, dated October 27, 1988*
10.7 Form of Stock Option Agreement for Nonqualified Stock Option Plan
incorporated by reference to Exhibit 10.17 of the Company's Form
10, dated October 27, 1988*
10.8 International Distributor Agreement dated October 1, 1991 between
Research and Diagnostic Systems, Inc. and Hycel, S.A.--
incorporated by reference to Exhibit 28.2 of the Company's Form
8-K dated September 30, 1991, as amended by Forms 8 dated
November 1, 1991 and November 25, 1991*
10.9** Employment Agreement, dated March 6, 1996, with Monica Tsang--
incorporated by reference to Exhibit 10.25 of the Company's Form
10-K for the year ended June 30, 1996*
10.10** 1997 Incentive Stock Option Plan--incorporated by reference to
Exhibit 10.24 of the Company's Form 10-K for the year ended June
30, 1997*
10.11 Form of Stock Option Agreement for 1997 Incentive Stock Option Plan
--incorporated by reference to Exhibit 10.25 of the Company's Form
10-K for the year ended June 30, 1997*
10.12 Investment Agreement between ChemoCentryx, Inc. and Techne
Corporation dated November 18, 1997--incorporated by reference to
Exhibit 10.1 of the Company's Form 10-Q for the quarter ended
December 31, 1997*
10.13 Purchase and Sale Agreement dated as of June 22, 1998 among Techne
Corporation, Research and Diagnostic Systems, Inc. and Genzyme
Corporation--incorporated by reference to Exhibit 2.1 of the
Company's Form 8-K dated July 1, 1998, as amended by Form 8-K/A
dated September 14, 1998*
10.14** 1998 Nonqualified Stock Option Plan--incorporated by reference to
Exhibit 10.1 of the Company's Form 10-Q for the quarter ended
September 30, 1998*
10.15 Form of Stock Option Agreement for 1998 Nonqualified Stock Option
Plan--incorporated by reference to Exhibit 10.2 of the Company's
Form 10-Q for the quarter ended September 30, 1998*
10.16 Purchase Agreement dated January 22, 1999, between R&D Systems, Inc.
and Hillcrest Development, relating to the purchase of property
as 614 and 640 McKinley Place NE and 2201 Kennedy Street in
Minneapolis, Minnesota and First amendment dated February 5,
1999--incorporated by reference to Exhibit 10.1 of the Company's
Form 10-Q for the quarter ended December 31, 1998*
10.17** Extension, dated March 31, 1999, to Employment Agreement with Monica
Tsang, Ph.D.--incorporated by reference to Exhibit 10.2 of the
Company's Form 10-Q for the quarter ended March 31, 1999*
10.18** Extension, dated March 31, 1999, to Employment Agreement with Marcel
Veronneau--incorporated by reference to Exhibit 10.3 of the
Company's Form 10-Q for the quarter ended March 31, 1999*
10.19 Second Amendment, dated February 2, 1999, to Purchase Agreement
dated January 22, 1999 between R&D Systems, Inc. and Hillcrest
Development--incorporated by reference to Exhibit 10.4 of the
Company's Form 10-Q for the quarter ended March 31, 1999*
10.20 Third Amendment, dated April 3, 1999, to Purchase Agreement dated
January 22, 1999 between R&D Systems, Inc. and Hillcrest
Development--incorporated by reference to Exhibit 10.5 of the
Company's Form 10-Q for the quarter ended March 31, 1999*
10.21 Phase I Option Agreement, dated February 10, 1999, between R&D
Systems, Inc. and Hillcrest Development and form of Purchase
Agreement relating to the purchase of property at 2101 Kennedy
Street in Minneapolis, Minnesota-- incorporated by reference to
Exhibit 10.6 of the Company's Form 10-Q for the quarter ended
March 31, 1999*
10.22 First Amendment, dated April 10, 1999, to Phase I Option Agreement
dated February 10, 1999-- incorporated by reference to Exhibit
10.7 of the Company's Form 10-Q for the quarter ended March 31,
1999*
10.23 Phase II Option Agreement, dated February 10, 1999, between R&D
Systems, Inc. and Hillcrest Development and form of Purchase
Agreement relating to the purchase of property at 2001 Kennedy
Street in Minneapolis, Minnesota-- incorporated by reference to
Exhibit 10.8 of the Company's Form 10-Q for the quarter ended
March 31, 1999*
10.24 Second Amendment, dated June 9, 1999, to Phase I Option Agreement
dated February 10, 1999-- incorporated by reference to Exhibit
10.33 of the Company's Form 10-K for the year ended June 30,
1999*
10.25 Second Amendment, dated June 10, 1999, to Phase II Option Agreement
dated February 10, 1999-- incorporated by reference to Exhibit
10.34 of the Company's Form 10-K for the year ended June 30,
1999*
10.26 Warrant to purchase 60,000 shares of Common Stock issued to
Hillcrest Development on July 1, 1999--incorporated by reference
to Exhibit 10.35 of the Company's Form 10-K for the year ended June
30, 1999*
10.27 Combination Mortgage, Security Agreement and Fixture Financing
Statement dated July 1, 1999 between the Company and TCF National
Bank Minnesota (TCF)--incorporated by reference to Exhibit 10.36
of the Company's Form 10-K for the year ended June 30, 1999*
10.28 Promissory Note from the Company to TCF dated July 1, 1999 in the
principal amount of $20,400,000-- incorporated by reference to
Exhibit 10.37 of the Company's Form 10-K for the year ended June
30, 1999*
10.29** Employment Agreement, dated October 1, 1999, with Timothy M. Heaney
--incorporated by reference to Exhibit 10.1 of the Company's Form
10-Q for the quarter ended September 30, 1999*
10.30 Investment Agreement between the Company and Discovery Genomics,
Inc. dated August 2, 2001.
10.31 Research and License Agreement between R&D Systems and Discovery
Genomics, Inc. dated August 2, 2001.
10.32 Investors Rights Agreement dated February 2, 2001 among
ChemoCentryx, Inc., the Company and certain investors amending the
Investment Agreement between ChemoCentryx, Inc. and the Company
dated November 18, 1997.
10.33 Letter Agreement dated February 2, 2001 between ChemoCentryx,
Inc. and the Company amending the terms of warrants held by the
Company.
10.34 Third Amendment, dated October 4, 2000, to Phase I Option
Agreement dated February 10, 1999.
10.35** Extension, dated August 28, 2001, to Employment Agreement with
Monica Tsang, Ph.D.
10.36** Extension, dated August 28, 2001, to Employment Agreement with
Marcel Veronneau.
11 Calculation of Earnings Per Share
21 Subsidiaries of the Company:
State/Country of
Name Incorporation
---- -------------------
Research and Diagnostic Systems, Inc. Minnesota
Techne Export Inc. Barbados
R&D Systems Europe Ltd. Great Britain
R&D Systems GmbH Germany
23 Independent Auditors' Consent
-------------
*Incorporated by reference; SEC File No. 0-17272
**Management contract or compensatory plan or arrangement
EX-10.30
3
dginvest.txt
INVESTMENT AGREEMENT WITH DGI
DISCOVERY GENOMICS, INC.
TECHNE CORPORATION
INVESTMENT AGREEMENT
August 2, 2001
TABLE OF CONTENTS
Page
1. Definitions 1
1.1 Specific Definitions 1
1.2 Definitional Provisions 4
2. Purchase and Sale of Stock 4
2.1 Sale and Purchase of Shares; Grant of Warrants 4
2.2 Closing 4
3. Representations and Warranties by Company 5
3.1 Organization, Standing, etc 5
3.2 Qualification 5
3.3 Capital Stock 5
3.4 Financial Statements; Absence of Changes 6
3.5 Title to Properties and Encumbrances 7
3.6 Litigation; Governmental Proceedings 7
3.7 Compliance with Applicable Laws and Other Instruments 7
3.8 Preferred Shares, Warrants, Conversion Stock and Warrant Stock 7
3.9 Securities Laws 8
3.10 Patents and Other Intangible Rights 8
3.11 Outstanding Debt 8
3.12 Corporate Acts and Proceedings 8
3.13 No Brokers or Finders 9
3.14 Conflicts of Interest 9
3.15 Licenses 9
3.16 Registration Rights 9
3.17 Retirement Plans 9
3.18 Application of Proceeds 9
3.19 Disclosure 9
4. Representations and Warranties of Investors 10
4.1 Investment Intent 10
4.2 Location of Principal Office/Residence and Qualification as
Accredited Investor 10
4.3 Acts and Proceedings 10
4.4 No Brokers or Finders 10
4.5 Disclosure of Information 10
4.6 Investment Experience 11
4.7 Restricted Securities 11
4.8 Further Limitations on Disposition 11
4.9 Legends 11
5. Conditions of Investors' Obligation 11
5.1 Representations and Warranties 11
5.2 Compliance with Agreement 12
5.3 Certificate of Officers 12
5.4 Opinion of Company's Counsel 12
5.5 Qualification Under State Securities Laws 14
5.7 Co-Sale Agreement 14
5.8 Research and License Agreement 14
5.9 Employment and Consulting Agreements 14
6. Affirmative Covenants 14
6.1 Corporate Existence 14
6.2 Books of Account and Reserves 15
6.3 Furnishing of Financial Statements and Information 15
6.4 Inspection 16
6.5 Preparation and Approval of Budgets 17
6.6 Payment of Taxes and Maintenance of Properties 17
6.7 Insurance 17
6.8 Directors' and Stockholders' Meetings 17
6.9 Replacement of Certificates 18
6.10 Application of Proceeds 18
6.11 Patents and Other Intangible Rights 18
6.12 Proprietary Information and Invention Agreements 19
6.13 Rights to Purchase Additional Securities 19
6.14 Waivers of Affirmative Covenants 19
7. Negative Covenants 19
7.2 Other Restrictions 20
7.3 Waivers of Negative Covenants 20
8. Registration Rights 20
8.1 Required Registration 20
8.2 Incidental Registration 21
8.3 Registration Procedures 22
8.4 Expenses 23
8.5 Indemnification 23
8.6 Transfer; Termination and Grant of Additional Registration
Rights 25
9. Miscellaneous 25
9.1 Operating Assistance 25
9.2 Termination of Certain Covenants 26
9.3 Changes, Waivers, etc 26
9.4 Payment of Fees and Expenses 26
9.5 Notice 26
9.6 Survival of Representations and Warranties, etc 26
9.7 Parties in Interest 26
9.8 Headings 27
9.9 Arbitration 27
9.10 Choice of Law 27
9.11 Counterparts 27
Exhibits
Exhibit 1A - Articles of Incorporation
Exhibit 1B - Bylaws
Exhibit 1C - Statement of Designation
Exhibit 2 - Form of Warrant
Exhibit 3 - Exceptions to the Company's Representations and Warranties
Exhibit 4A - Employment Agreement
Exhibit 4B - Consulting Agreements
Exhibit 5 - Co-Sale Agreement
Exhibit 6 - Research and License Agreement
Schedules
Schedule A - Terms of Operating Assistance
INVESTMENT AGREEMENT
THIS INVESTMENT AGREEMENT is made and entered into as of the 2nd day of
August, 2001, by and between Discovery Genomics, Inc., a Minnesota corporation
and Techne Corporation, a Minnesota corporation ("Techne"), and Roger Lucas.
1. Definitions.
1.1 Specific Definitions. As used in this Agreement, the following
terms shall have the meanings set forth or as referenced below:
"Additional Shares of Common Stock" shall mean all shares of Common
Stock of the Company issued by the Company on or after the Closing Date,
except the Conversion Stock.
"Articles of Incorporation" shall mean the Company's Articles of
Incorporation, including the Statement of Designation, in effect as of the
date hereof.
"Bylaws" shall mean the Company's Bylaws in effect as of the date
hereof.
"Closing" is defined in Section 2.2.
"Closing Date" is defined in Section 2.2.
"Commission" shall mean the U.S. Securities and Exchange Commission.
"Common Stock" shall mean the Company's authorized common stock, par
value $0.01 per share, any additional common shares which may be
authorized in the future by the Company, and any stock into which such
common shares may hereafter be changed, and shall also include stock of
the Company of any other class which is not preferred as to dividends or
as to distributions of assets on liquidation, dissolution or winding up of
the Company over any other class of stock of the Company, and which is not
subject to redemption.
"Company" shall mean Discovery Genomics, Inc., a Minnesota corporation.
"Conversion Price" shall mean such price at which the Preferred
Shares are convertible into Common Stock pursuant to Section 11 hereof and
the Statement of Designation.
"Conversion Stock" shall mean the shares of Common Stock issuable
upon conversion of the Preferred Shares and all securities issued in
exchange or substitution therefore.
"Convertible Securities" shall mean evidences of indebtedness,
shares of stock or other securities which are at any time directly or
indirectly convertible into or exchangeable for Additional Shares of
Common Stock.
"Co-Sale Agreement" shall mean the Co-Sale Agreement, substantially
in the form attached as Exhibit 5 hereto, dated of even date herewith, by
and between the Company, the Investors, Hackett, Ekker, McIvor and
Largaespada.
"Ekker" shall mean Stephen C. Ekker.
"GAAP" shall mean United States generally accepted accounting
principles, applied on a consistent basis.
"Hackett" shall mean Perry B. Hackett.
"Indebtedness for Borrowed Money" shall include only indebtedness of
the Company and its Subsidiaries incurred as the result of a direct
borrowing of money and shall not include any other indebtedness including,
but not limited to, indebtedness incurred with respect to trade accounts.
"Investors" shall mean Techne and Lucas, collectively.
"Largaespada" shall mean David A. Largaespada.
"Lucas" shall mean Roger Lucas.
"McIvor" shall mean R. Scott McIvor.
"Permitted Liens" shall mean (a) liens for taxes and assessments or
governmental charges or levies not at the time due or in respect of which
the validity thereof shall currently be contested in good faith by
appropriate proceedings; and (b) liens in respect of pledges or deposits
under worker's compensation laws or similar legislation, carriers',
warehousemen's, mechanics', laborers' and materialmen's, landlord's and
statutory and similar liens, if the obligations secured by such liens are
not then delinquent or are being contested in good faith, and (c) liens
and encumbrances incidental to the conduct of the business of the Company
or any Subsidiary which were not incurred in connection with the borrowing
of money or the obtaining of advances or credits and which do not in the
aggregate materially detract from the value of its property or materially
impair the use thereof in the operation of its business.
"Preferred Shares" is defined in Section 2.1.
"Public Offering" shall mean a firm underwritten public offering of
the Company's Common Stock pursuant to a registration filed under the
Securities Act and through NASD member firms.
"Purchased Stock" shall mean the Preferred Shares, the Conversion
Stock, the Warrant Stock and the stock or other securities of the Company
issued in a stock split or reclassification of, or a stock dividend or
other distribution on or in substitution or exchange for, or otherwise in
connection with, any of the foregoing securities, or in a merger or
consolidation involving the Company or a sale of all or substantially all
of the Company's assets.
"Qualified Public Offering" shall mean a firm commitment,
underwritten public offering registered under the Securities Act (other
than a registration relating solely to a transaction under Rule 145 under
such Act (or any successor thereto) or to an employee benefit plan of the
Company), in which the public offering price per share of Common Stock is
at least $10.00 (appropriately adjusted to reflect splits or reverse
splits of the Common Stock and dividends or distributions of additional
shares of Common Stock made with respect to the Common Stock after the
date hereof) and the aggregate public offering price of the securities
sold for cash by the Corporation in the offering is at least $30 million.
"Registrable Shares" are defined in Section 8.1.
"Research and License Agreement" shall mean the Research and License
Agreement, substantially in the form attached hereto as Exhibit 6, dated
of even date herewith, by and between the Company and R&D Systems.
"R&D Systems" shall mean Research & Diagnostic Systems, Inc., a
subsidiary of the Techne.
"Securities" shall mean the Preferred Shares, Warrants, Conversion
Stock and Warrant Stock.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Senior Indebtedness" shall mean (a) the principal of all
Indebtedness for Borrowed Money of the Company and its Subsidiaries to
banks, insurance companies or other financial institutions, (b) the
present value of net minimum lease payments of all leases under which the
Company or any of its Subsidiaries is the lessee and which are required to
be capitalized under generally accepted accounting principles, (c) the
principal of all indebtedness of the Company or any of its Subsidiaries
under installment purchase agreements, and (d) the principal of all
indebtedness of the Company or any of its Subsidiaries to the owners of
any real property leased by the Company for leasehold improvements
financed by such owners.
"Series A Preferred Stock" shall mean the Company's authorized
Series A Preferred Stock, par value $0.01 per share, and any stock into
which such preferred shares may hereafter be changed.
"Statement of Designation" shall mean the Series A Preferred Stock
Statement of Designation attached hereto at Exhibit 1C.
"Subsidiary" shall mean any corporation, association or other
business entity more than a majority (by number of votes) of the voting
stock of which is owned or controlled, directly or indirectly, by the
Company or by one or more of its Subsidiaries or both.
"Transaction Agreements" shall mean this Agreement, the Research and
License Agreement and the Co-Sale Agreement.
"Warrants" are defined in Section 2.1.
"Warrant Stock" shall mean the shares of Series A Preferred Stock
issuable upon exercise of the Warrants and all shares of Series A
Preferred Stock or Common Stock issued in exchange or substitution
therefor.
1.2 Definitional Provisions.
(a) The words "hereof," "herein," and "hereunder" and words of
similar import, when used in this Agreement, shall refer to this Agreement
as a whole and not to any particular provisions of this Agreement.
(b) Terms defined in the singular shall have a comparable meaning
when used in the plural, and vice-versa.
(c) References to an "Exhibit" or to a "Schedule" are, unless
otherwise specified, to one of the Exhibits or Schedules attached to or
referenced in this Agreement, and references to a "Section" or "paragraph"
are, unless otherwise specified, to one of the Sections or paragraphs of
this Agreement.
(d) All accounting terms defined below shall, except as otherwise
expressly provided, be determined by reference to the Company's books of
account and in conformity with generally accepted accounting principles as
applied to such books of account in the opinion of the independent
certified public accountants selected by the Board of Directors of the
Company as required under the provisions of Section 6.3(b) hereof.
(e) The term "person" includes any individual, partnership, joint
venture, corporation, trust, unincorporated organization or government or
any department or agency thereof.
(f) Terms not defined in this Section 1 shall have the meanings set
forth herein for such terms.
2. Purchase and Sale of Stock.
2.1 Sale and Purchase of Shares; Grant of Warrants. Subject to and in
accordance with the terms and conditions hereof, (i) the Company agrees to sell
to the Techne, and the Techne agrees to purchase from the Company, 1,500,000
shares of Series A Preferred Stock at $2.00 per share, and (ii) the Company
agrees to sell to Lucas, and Lucas agrees to purchase from the Company, 100,000
shares of Series A Preferred Stock at $2.00 per share. The term "Preferred
Shares" as used herein shall mean the 1,600,000 shares of Series A Preferred
Stock purchased in accordance with this Agreement and all shares of the
Company issued in a stock split or reclassification of, or a stock dividend or
other distribution on, such Preferred Shares or in exchange, conversion or
substitution therefor. Furthermore, the Company agrees to issue to Techne and
Lucas Warrants to purchase 1,500,000 and 100,000 shares of Series A Preferred
Stock, respectively, pursuant to and in accordance with the terms of this
Agreement, in the form attached hereto as Exhibit 2. The term "Warrants" as
used herein shall mean the warrants so issued.
2.2 Closing. The closing of the sale to, and purchase by, the Investors
of the Preferred Shares (the "Closing") and the issuance of the Warrants shall
occur at the offices of the Techne, at 10:00 A.M., Minneapolis time, on August
2, 2001 or on such other day or at such other time or place as the Investors and
the Company shall agree upon (the "Closing Date").
At the Closing, the Company will deliver to the Investors certificates
representing the Preferred Shares being purchased by the Investors and the
Warrants to be granted to the Investors, registered in their respective names,
against delivery to the Company of checks or wire transfers in the aggregate
amount of $3,200,000 in payment of the total purchase price of the Preferred
Shares being purchased by the Investors, of which $3,000,000 shall be tendered
by Techne and $200,000 shall be tendered by Lucas.
3. Representations and Warranties by Company. Except as disclosed in Exhibit
3 hereto (specifying the Section or Sections making reference to certain
disclosures), the Company represents and warrants to the Investors that:
3.1 Organization, Standing, etc. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Minnesota, and has the requisite corporate power and authority to own its
properties and to carry on its business in all material respects as it is now
being conducted. The Company has the requisite corporate power and authority to
issue the Preferred Shares, the Warrants, the Conversion Stock and the Warrant
Stock, and to otherwise perform its obligations under the Transaction
Agreements. The certified copies of the Articles of Incorporation, Bylaws and
Statement of Designation of the Company, attached hereto as Exhibits 1A, 1B and
1C, respectively, are true and complete copies of the duly authorized Articles
of Incorporation and Bylaws of the Company in effect as of the date of this
Agreement. The Company does not have any direct or indirect equity interest in
any other firm, corporation, partnership, joint venture association or other
business organization except as set forth in Exhibit 3 hereto. If the Company
has any Subsidiary, the representations and warranties set forth in this
Section 3 are being hereby restated with respect to such Subsidiary.
3.2 Qualification. The Company is duly qualified or licensed as a
foreign corporation in good standing in each jurisdiction wherein the nature
of its activities or of its properties owned or leased makes such qualification
or licensing necessary and failure to be so qualified or licensed would have a
material adverse impact on its business.
3.3 Capital Stock. The authorized capital stock of the Company consists
of 75,000,000 shares of Common Stock (of which 2,293,300 shares are issued and
outstanding as of the date hereof) and 3,200,000 shares of Series A Preferred
Stock (of which no shares are issued and outstanding as of the date hereof)
and 21,800,000 undesignated shares. The rights and preferences of the
Company's Common Stock and Series A Preferred Stock are as provided in the
Company's Articles of Incorporation. All of the Company's outstanding shares
of capital stock were duly authorized and validly issued and are fully paid
and nonassessable. There are no outstanding subscriptions, options, warrants,
calls, contracts, demands, commitments, Convertible Securities or other
agreements or arrangements of any character or nature whatever, except as
disclosed in Exhibit 3 hereto or as contemplated by this Agreement, under
which the Company is or may be obligated to issue capital stock or other
securities of any kind representing an ownership interest or contingent
ownership interest in the Company. Except as otherwise disclosed in Exhibit
3 hereto, neither the offer nor the issuance or sale of the Securities,
constitutes an event, under any anti-dilution provisions of any securities
issued or issuable by the Company or any agreements with respect to the
issuance of securities by the Company, which will either increase the number
of shares issuable pursuant to such provisions or decrease the consideration
per share to be received by the Company pursuant to such provisions. No holder
of any security of the Company is entitled to any preemptive or similar rights
to purchase securities from the Company which has not been irrevocably waived,
in writing, a copy of which waiver has been delivered to the Investors;
provided, however, that nothing in this Section 3 shall affect, alter or
diminish any right granted to the Investors in this Agreement. All outstanding
securities of the Company have been issued in full compliance with an exemption
or exemptions from the registration and prospectus delivery requirements of the
Securities Act and from the registration and qualification requirements of all
applicable state securities laws.
3.4 Financial Statements; Absence of Changes. The Company has delivered
to the Investors an unaudited balance sheet as at June 30, 2001 and a statement
of operations for the six-month period ended June 30, 2001. Such financial
statements and notes thereto fairly present the financial condition and the
results of operations of the Company, all in accordance with GAAP. Such
financial statements accurately set out and describe the financial condition
and operating results of the Company as of the dates, and during the periods,
indicated therein. The Company has no liabilities except for liabilities
reflected or reserved against in the balance sheets of such financial
statements and current liabilities incurred in the ordinary course of business
since the respective dates thereof. Since June 30, 2001 (the date of the
latest financial statements) there has not been:
(a) any change in the assets, liabilities, financial condition or
operating results of the Company from that reflected in such financial
statements;
(b) any damage, destruction or loss, whether or not covered by
insurance, affecting the assets, properties, financial condition, operating
results, prospects or business of the Company as such business is presently
conducted;
(c) any waiver by the Company of a valuable right or of a debt owed to
it;
(d) any satisfaction or discharge of any lien, claim or encumbrance or
payment of any obligation by the Company;
(e) any change or amendment to a contract or arrangement by which the
Company or any of its assets or properties are bound or subject;
(f) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets of the Company;
(g) any resignation or termination of employment of any key officer or
key employee of the Company, and the Company is not aware of any impending
resignation or termination of employment of any such officer or key employee;
(h) any mortgage, pledge, transfer of a security interest in, or lien,
created by the Company, with respect to any of its properties or assets,
except liens for taxes not yet due or payable;
(i) any loans or guarantees made by the Company to or for the benefit
of its employees, officers or directors, or any members of their immediate
families;
(j) any declaration, setting aside or payment or other distribution in
respect of any of the Company's capital stock, or any direct or indirect
redemption, purchase or other acquisition of any of such stock by the Company;
or
(k) any event or condition of any character that might adversely affect
the assets, properties, financial condition, operating results or business of
the Company as such business is presently conducted.
3.5 Title to Properties and Encumbrances. The Company has good and
marketable title to all its owned properties and assets, and the properties and
assets used in the conduct of its business, which properties and assets are not
subject to any mortgage, pledge, lease, lien, charge, security interest,
encumbrance or restriction, except (a) those which are shown and described in
the financial statements delivered to the Investors or the notes thereto and
(b) Permitted Liens.
3.6 Litigation; Governmental Proceedings. There are no legal actions,
suits, arbitrations or other legal, administrative or governmental proceedings
or investigations pending or, to the knowledge of the Company, threatened
against the Company, its properties, assets or business, and the Company is not
aware of any facts which are likely to result in or form the basis for any such
action, suit or other proceeding. The Company is not in default with respect
to any judgment, order or decree of any court or any governmental agency or
instrumentality.
3.7 Compliance with Applicable Laws and Other Instruments. The business
and operations of the Company have been and are being conducted in accordance
with all applicable laws, rules and regulations of all governmental authorities,
the violation of which could reasonably be expected to have a material adverse
impact on the Company. Neither the execution nor delivery of, nor the
performance of or compliance with, the Transaction Agreements nor the
consummation of the transactions contemplated hereby will conflict with, or,
with or without the giving of notice or passage of time, result in any breach
of, or constitute a default under, or result in the imposition of any lien or
encumbrance upon any asset or property of the Company pursuant to, any
applicable law, administrative regulation or judgment, order or decree of any
court or governmental body, any material agreement or other instrument to which
the Company is a party or by which it or any of its properties, assets or
rights is bound or affected, and will not violate the Company's Articles of
Incorporation or Bylaws. The Company is not in violation of its Articles of
Incorporation or its Bylaws nor in violation of, or in default under, any lien,
indenture, mortgage, lease, material agreement, instrument, commitment or
arrangement in any material respect. There are no consents required to
consummate the transactions contemplated hereby, which have not been obtained,
under any lien, indenture, mortgage, lease, material agreement, instrument,
commitment or arrangement to which the Company is a party.
3.8 Preferred Shares, Warrants, Conversion Stock and Warrant Stock. The
Preferred Shares, when issued and paid for pursuant to the terms of this
Agreement, will be duly authorized, validly issued and outstanding, fully
paid and non-assessable, free and clear of all pledges, liens and
encumbrances. The Warrants, when issued and delivered pursuant to this
Agreement, will constitute valid and binding obligations of the Company in
accordance with their terms. The Conversion Stock and the Warrant Stock have
been reserved for issuance based upon the initial Conversion Price and initial
Warrant Exercise Price and when issued upon conversion or exercise thereof in
accordance with the Articles of Incorporation and the terms of the Warrants
will be duly authorized, validly issued and outstanding, fully paid,
nonassessable and free and clear of all pledges, liens and encumbrances.
The certificates representing the Preferred Shares and Warrants to be delivered
by the Company hereunder, and the certificates representing the Conversion
Stock to be delivered upon the conversion of the Preferred Shares and Warrant
Stock and the certificates representing the Warrant Stock to be delivered upon
exercise of the Warrants, will be genuine, and the Company has no knowledge of
any fact which would impair the validity thereof.
3.9 Securities Laws. Based in part upon the representations and
warranties contained in Section 4 hereof, no consent, authorization, approval,
permit or order of or filing with any governmental or regulatory authority is
required under current laws and regulations in connection with the execution
and delivery of the Transaction Agreements or the offer, issuance, sale or
delivery of the Securities other than the qualification thereof, if required,
under applicable state securities laws, which qualification has been or will be
effected as a condition of this sale. The Company has not, directly or through
an agent, offered the Securities, or any similar securities for sale to, or
solicited any offers to acquire such securities from, persons other than the
Investors and other accredited investors. Under the circumstances contemplated
hereby, the offer, issuance, sale and delivery of the Preferred Shares, the
issuance of the Warrants, the offer of the Conversion Stock and Warrant Stock
will not under current laws and regulations require compliance with the
prospectus delivery or registration requirements of the Securities Act.
3.10 Patents and Other Intangible Rights. Except as otherwise set forth
in Exhibit 3 hereto, the Company (a) owns or has the exclusive right to use,
free and clear of all material liens, claims and restrictions, all of the
right, title and interest in all patents, trademarks, service marks, trade
names, copyrights, licenses, rights and other intellectual property necessary
to conduct its business as currently being conducted or as proposed to be
conducted, (b) is not obligated or under any liability to make any payments of
a material nature by way of royalties, fees or otherwise to any owner of,
licensor of, or other claimant to, any patent, trademark, trade name, copyright
or other intangible asset, with respect to the use thereof or in connection
with the conduct of its business or otherwise, (c) owns or has the unrestricted
right to use all trade secrets, including know-how, inventions, designs,
processes, computer programs and technical data necessary to the development,
operation and sale of all products and services sold or proposed to be sold by
it, free and clear of any rights, liens or claims of others, and (d) is not
using any confidential information or trade secrets of others. To the best of
its knowledge, the Company is not, nor has it received actual notice that it
is, infringing upon or otherwise acting adversely to any known right or
claimed right of any person under or with respect to any patents, trademarks,
service marks, trade names, copyrights, licenses or rights with respect to the
foregoing. Each of the Company's employees have signed a proprietary
information and inventions agreement in a form approved by the Company's Board
of Directors.
3.11 Outstanding Debt. The Company has no Indebtedness for Borrowed
Money except as set forth in Exhibit 3 hereto. The Company is not in default
in the payment of the principal of or interest or premium on any such
Indebtedness for Borrowed Money, and no event has occurred or is continuing
under the provisions of any instrument, document or agreement evidencing or
relating to any such Indebtedness for Borrowed Money which with the lapse of
time or the giving of notice, or both, would constitute an event of default
thereunder.
3.12 Corporate Acts and Proceedings. The Transaction Agreements and all
transactions contemplated thereby have been duly authorized by all necessary
corporate action on behalf of the Company. The Transaction Agreements have has
been duly executed and delivered by authorized officers of the Company. All
corporate action necessary to the authorization, creation, issuance and
delivery of the Securities, has been taken on the part of the Company, or will
be taken by the Company on or prior to the Closing Date. The Transaction
Agreements are valid and binding agreements of the Company enforceable in
accordance with their respective terms, except as the enforceability thereof
may be limited by bankruptcy, insolvency, moratorium, reorganization or other
similar laws affecting the enforcement of creditors' rights generally, and
except for judicial limitations on the enforcement of the remedy of specific
enforcement and other equitable remedies.
3.13 No Brokers or Finders. No person, firm or corporation has or will
have, as a result of any act or omission of the Company, any right, interest or
valid claim against or upon the Company or any Investors for any commission,
fee or other compensation as a finder or broker, or in any similar capacity, in
connection with the transactions contemplated by this Agreement. The Company
will indemnify and hold each of the Investors harmless against any and all
liability with respect to any such commission, fee or other compensation which
may be payable or determined to be payable in connection with the transactions
contemplated by this Agreement.
3.14 Conflicts of Interest. Except as disclosed on Exhibit 3 hereto, no
officer, director or stockholder of the Company or any affiliate (as such term
is defined in Rule 405 under the Securities Act) of any such person has any
direct or indirect interest (a) in any entity which does business with the
Company, or (b) in any property, asset or right which is used by the Company
in the conduct of its business or (c) in any contractual relationship with
the Company other than as an employee.
3.15 Licenses. The Company possesses from the appropriate agency,
commission, board and government body and authority, whether state, local or
federal, all licenses, permits, authorizations, approvals, franchises and
rights which (a) are necessary for it to engage in the business currently
conducted by it and (b) if not possessed by the Company, would have a material
adverse impact on the Company's business. The Company has no knowledge that
would lead it to believe that it will not be able to obtain all material
licenses, permits, authorizations, approvals, franchises and rights that may
be required for any business the Company proposes to conduct.
3.16 Registration Rights. Except as disclosed on Exhibit 3 hereto or
contemplated by this Agreement, the Company has not granted, and is not
obligated to grant, any registration rights under the Securities Act relating
to any of its authorized or outstanding securities, which registration rights
are superior or preferential to those granted to the Investors pursuant to
this Agreement.
3.17 Retirement Plans. The Company does not have any retirement plan in
which any employees of the Company participate that is subject to any
provisions of the Employee Retirement Income Security Act of 1974, as amended,
and of the regulations adopted pursuant thereto ("ERISA").
3.18 Application of Proceeds. The proceeds from the issue and sale of
the Preferred Shares pursuant to this Agreement will be used to fund working
capital and other general corporate purposes.
3.19 Disclosure. The Company has not knowingly withheld from the
Investors any material facts relating to the assets, business, operations,
financial condition or prospects of the Company. No representation or
warranty in the Transaction Agreements or in any certificate, schedule,
statement, exhibit, annex or other document furnished or to be furnished to
the Investors pursuant thereto or in connection with the transactions
contemplated thereby contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact required to
be stated herein or therein or necessary to make the statements herein or
therein not misleading.
4. Representations and Warranties of Investors. Unless specifically
identified as a representation or warranty of Techne or Lucas, each Investor
hereby severally, and not jointly, represents and warrants that:
4.1 Investment Intent. The Securities being acquired by each Investor
hereunder or that will be acquired upon conversion of the Preferred Shares or
Warrant Stock or exercise of the Warrants are being or will be acquired, for
such Investor's own account, not as a nominee or agent, and not with a view
to, or for resale in connection with, any distribution or public offering
thereof within the meaning of the Securities Act and that such Investor has
no present intention of selling, granting, any participation in, or otherwise
distributing the same. By executing this Agreement, such Investor further
represents that such Investor does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of
the Securities. Each Investor understands that the Securities have not been
registered under the Securities Act or any applicable state laws by reason
of their issuance or contemplated issuance in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act and
such laws, and that the reliance of the Company and others upon this
exemption is predicated in part upon this representation and warranty. Each
Investor further understands that the Securities may not be transferred or
resold without (a) registration under the Securities Act and any applicable
state securities laws, or (b) an exemption from the requirements of the
Securities Act and applicable state securities laws.
4.2 Location of Principal Office/Residence and Qualification as
Accredited Investor. Techne's principal office is located in the State of
Minnesota. Lucas is a resident of the State of Minnesota. Each Investor
qualifies as an accredited investor within the meaning of Rule 501 under the
Securities Act. Techne also represents it has not been organized for the
purpose of acquiring the Series A Preferred Stock.
4.3 Acts and Proceedings. Each Investor has full power and authority to
enter into this Agreement. This Agreement has been duly authorized by all
necessary corporate action on the part of Techne. This Agreement has been
duly executed and delivered by each Investor and is a valid and binding
agreement upon each Investor.
4.4 No Brokers or Finders. No person, firm or corporation has or will
have, as a result of any act or omission by such Investor, any right, interest
or valid claim against the Company for any commission, fee or other
compensation as a finder or broker, or in any similar capacity, in connection
with the transactions contemplated by this Agreement.
4.5 Disclosure of Information. Such Investor believes it has received
all the information it considers necessary or appropriate for deciding whether
to acquire the Preferred Shares and Warrants. Such Investor further
represents that it/he has had an opportunity to ask questions and receive
answers from the Company regarding the terms and conditions of the offering of
the Series A Preferred Stock and the business, properties, prospects and
financial condition of the Company. The foregoing, however, does not limit
or modify the representations and warranties of the Company in Section 3 of
this Agreement or the right of each Investor to rely thereon.
4.6 Investment Experience. Such Investor is an investor in securities
of companies in the development stage and acknowledges that such Investor is
able to fend for itself/himself, can bear the economic risk of its/his
investment, and has such knowledge and experience in financial or business
matters that such Investor is capable of evaluating the merits and risks of
the investment in the Securities.
4.7 Restricted Securities. Such Investor understands that the
Securities it/he is purchasing are characterized as "restricted securities"
under the federal securities laws inasmuch as they are being acquired from the
Company in a transaction not involving a public offering and that under such
laws and applicable regulations such securities may be resold without
registration under the Act, only in certain limited circumstances. In this
connection, such Investor represents that it/he is familiar with Commission
Rule 144, as presently in effect, and understands the resale limitations
imposed thereby and by the Act.
4.8 Further Limitations on Disposition. Without in any way limiting the
representations set forth above, each Investor further agrees not to make any
disposition of all or any portion of the Securities unless and until the
transferee has agreed in writing for the benefit of the Company to be bound by
this Section 4, and:
(a) There is then in effect a registration statement under the Securities
Act covering such proposed disposition and such disposition is made in
accordance with such registration statement; or
(b) (i) Such Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and (ii) if reasonably
requested by the Company, such Investor shall have furnished the Company with
an opinion of counsel, reasonably satisfactory to the Company that such
disposition will not require registration of such shares under the Act. It is
agreed that the Company will not require opinions of counsel for transactions
made pursuant to Rule 144 except in unusual circumstances.
4.9 Legends. It is understood that the certificates evidencing the
Securities may bear one or all of the following legends:
(a) "These securities have not been registered under the Securities Act
of 1933, as amended. They may not be sold, offered for sale, pledged or
hypothecated in the absence of a registration statement in effect with respect
to the securities under such Act or an opinion of counsel satisfactory to the
Company that such registration is not required or unless sold pursuant to Rule
144 of such Act."
(b) Any legend required by state securities laws.
5. Conditions of Investors' Obligation. The respective obligation to
purchase and pay for the Preferred Shares which each Investor has agreed to
purchase on the Closing Date is subject to the fulfillment prior to or on the
Closing Date of the following conditions:
5.1 Representations and Warranties. The representations and warranties
of the Company under this Agreement shall be true in all material respects as
of each Closing Date with the same effect as though made on and as of each
Closing Date.
5.2 Compliance with Agreement. The Company shall have performed and
complied with all agreements, covenants and conditions required by this
Agreement and by the Research and License Agreement attached hereto as Exhibit
6 to be performed and complied with by it prior to or as of the Closing Date.
5.3 Certificate of Officers. The Company shall have delivered to the
Investor a certificate, dated as of the Closing Date, executed by the senior
executive officer and the senior financial officer of the Company and
certifying to the satisfaction of the conditions specified in this Section 5.
5.4 Opinion of Company's Counsel. On the Closing Date coincident with
the date of this Agreement only, the Company shall have delivered to the
Investors an opinion of Moss & Barnett, counsel for the Company, dated the
Closing Date, to the effect that:
(a) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of
Minnesota; has the corporate power and authority to enter into the
Transaction Agreements, to issue and sell the Securities as contemplated
by the Transaction Agreements, and to carry out the provisions of the
Transaction Agreements; has the corporate power and authority to own and
hold its properties owned and leased and to carry on the business in which
it is engaged; and has not failed to qualify to do business as a foreign
corporation in good standing in any state or jurisdiction wherein the
nature of its activities or of its properties owned or leased makes such
qualification necessary and failure to be so qualified would have a
material adverse effect upon the Company.
(b) The Transaction Agreements have been duly authorized, executed
and delivered by the Company, and constitute legal, valid and binding
agreements of the Company enforceable in accordance with their respective
terms.
(c) The Statement of Designation, in the form set forth in
Exhibit 1C hereto, have been duly adopted by all necessary corporate
action, and have been duly filed with the Secretary of State of the State
of Minnesota (no other or additional filing or recording being necessary
in order for the holders of the Preferred Shares to obtain the rights and
privileges of the Preferred Shares provided in the Articles of
Incorporation).
(d) The Company is authorized by its Articles of Incorporation to
issue 75,000,000 shares of Common Stock, 3,200,000 shares of Series A
Preferred Stock and 21,800,000 undesignated shares. Other than the Series
A Preferred Stock to be issued pursuant to this Agreement, there are no
shares of Series A Preferred Stock issued and outstanding. There are
2,293,300 shares of Common Stock duly issued and outstanding, all of which
are, to our knowledge, fully paid and nonassessable. The issuance and
sale of such outstanding shares of Common Stock were exempt from
registration under the Securities Act and such shares were issued in
conformity with the permit or qualification requirements of all applicable
state securities laws. Except for such preferred shares and such common
shares, the Company has no other authorized or outstanding series or class
of capital stock. Except for (i) the conversion privileges of the Series
A Preferred Stock, (ii) the Warrants and the 1,600,000 shares of Series A
Preferred Stock reserved for issuance pursuant to the exercise of the
Warrants to be issued pursuant to this Agreement and (iii) 600,000 shares
of Common Stock reserved for issuance pursuant to the Company's 2001
Equity Incentive Plan there are no preemptive rights or, to our knowledge,
options, warrants, conversion privileges or other rights (or agreements
for any such rights) outstanding to purchase or otherwise obtain from the
Company any of the Company's equity securities. To the knowledge of such
counsel, except as set forth on Exhibit 3 hereto, there are no agreements
or understandings on the part of the Company with respect to the
registration of any securities of the Company under the Securities Act,
other than those granted under this Agreement, and there are no
obligations on the part of the Company to purchase or redeem any
outstanding shares of capital stock of the Company.
(e) The respective rights, privileges, restrictions and preferences
of the Series A Preferred Stock are as stated in the Statement of
Designation.
(f) The Preferred Shares to be purchased at the Closing have been
duly authorized and, upon payment for and delivery of such securities in
accordance with the terms of this Agreement, will be validly issued, fully
paid and nonassessable. The certificates for the Preferred Shares when
issued, will be in valid and sufficient form, and the Preferred Shares are
entitled to the benefits of this Agreement applicable thereto. The
Conversion Stock has been duly authorized and reserved for issuance upon
conversion of the Series A Preferred Stock and when issued upon such
conversion in accordance with the terms and conditions of the Statement of
Designation, the Conversion Stock will be duly authorized and issued and
will be fully paid and nonassessable.
(g) The Warrants have been duly authorized and, when issued in
accordance with the terms and conditions of this Agreement, will be duly
authorized and issued. The Warrant Stock has been duly authorized and
reserved for issuance upon exercise of the Warrants and when issued upon
such exercise in accordance with the terms and conditions of the Warrants
and those of this Agreement, the Warrant Stock will be duly authorized and
issued and will be fully paid and nonassessable.
(h) All corporate proceedings required by law or by the provisions
of the Transaction Agreements to be taken by the Board of Directors and
the stockholders of the Company on or prior to the Closing Date in
connection with the execution and delivery of the Transaction Agreement,
the offer, issuance and sale of the Securities, and in connection with the
consummation of the transactions contemplated by the Transaction
Agreements, have been duly and validly taken.
(i) All consents, approvals, permits, orders or authorizations of,
and all qualifications, registrations, designations or declarations with,
any federal or Minnesota corporate authority on the part of the Company
required in connection with the execution and delivery of the Transaction
Agreements and consummation of the transactions contemplated thereby have
been obtained, and are effective, and we are not aware of any proceedings,
or written threat of any proceedings, that question the validity thereof.
(j) The Company's execution and delivery of, and its performance
and compliance as of the date hereof with the terms of, the Transaction
Agreements do not violate any provision of any federal, or Minnesota
corporate law, rule or regulation applicable to the Company or any
provision of the Company's Articles of Incorporation or Bylaws and do not
conflict with or constitute a default under the provisions of any
judgment, writ, decree or order to which the Company is bound or any
material agreement to which the Company is a party.
(k) Assuming the accuracy of the representations of the Investors
set forth in Section 4 hereof, the offer, sale, issuance and delivery of
the Preferred Shares, the grant and issuance of the Warrants and the offer
of the Conversion Stock and Warrant Stock to the Investors through
conversion by it of the Preferred Shares or Warrant Stock or exercise by
it of the Warrants under the circumstances contemplated by the Articles of
Incorporation, the Warrants and this Agreement are exempt from the
registration and prospectus delivery requirements of the Securities Act,
and all registrations, qualifications, permits and approvals required
under applicable state securities laws for the lawful offer, sale,
issuance and delivery of the Preferred Shares, the grant and issuance of
the Warrants and the offer of the Conversion Stock and Warrant Stock shall
have been obtained.
(m) Such counsel has no knowledge of any litigation, proceeding or
governmental investigation pending or threatened against the Company, its
key management employees, properties or business which, if determined
adversely to the Company, would have a material adverse effect upon the
financial condition, operations, results of operations or business of the
Company.
5.5 Qualification Under State Securities Laws. All registrations,
qualifications, permits and approvals required under applicable state
securities laws for the lawful execution and delivery of this Agreement and
the offer, sale, issuance and delivery of the Preferred Shares, the grant
and issuance of the Warrants and the offer of the Conversion Stock and
Warrant Stock shall have been obtained.
5.6 Proceedings and Documents. All corporate and other proceedings and
actions taken in connection with the transactions contemplated hereby and all
certificates, opinions, agreements, instruments and documents mentioned herein
or incident to any such transaction shall be satisfactory in form and
substance to the Investors and their respective counsel.
5.7 Co-Sale Agreement. The Company, Hackett, Ekker, McIvor and
Largaespada shall have entered into a Co-Sale Agreement with the Investors
substantially in the form of Exhibit 5 hereto.
5.8 Research and License Agreement. R&D Systems and the Company shall
have entered into a Research and License Agreement substantially in the form
of Exhibit 6 hereto.
5.9 Employment and Consulting Agreements. Hackett shall have entered
into the Employment Agreement attached hereto as Exhibit 4A and each of Ekker,
McIvor and Largaespada shall have entered into their respective Consulting
Agreements attached hereto as Exhibit 4B.
6. Affirmative Covenants. The Company covenants and agrees that:
6.1 Corporate Existence. The Company will maintain its corporate
existence in good standing and comply with all applicable laws and
regulations of the United States or of any state or states thereof or of any
political subdivision thereof and of any governmental authority where failure
to so comply would have a material adverse impact on the Company or its
business or operations.
6.2 Books of Account and Reserves. The Company will keep books of
record and account in which full, true and correct entries are made of all of
its and their respective dealings, business and affairs, in accordance with
generally accepted accounting principles. The Company will employ certified
public accountants selected by the Board of Directors of the Company who are
"independent" within the meaning of the accounting regulations of the
Commission and have annual audits made by such independent public accountants
in the course of which such accountants shall make such examinations, in
accordance with generally accepted auditing standards, as will enable them to
give such reports or opinions with respect to the financial statements of the
Company and its Subsidiaries as will satisfy the requirements of the
Commission in effect at such time with respect to certificates and opinions
of accountants.
6.3 Furnishing of Financial Statements and Information. The Company
will deliver to Investors:
(a) as soon as practicable, but in any event within 30 days after
the close of each month, unaudited balance sheets of the Company as of the
end of such month, together with the related statements of operations for
such month, setting forth the budgeted figures for such month prepared and
submitted in connection with the Company's annual plan as required under
Section 6.5 hereof and in comparative form figures for the corresponding
month of the previous fiscal year, all in reasonable detail and certified
by an authorized officer of the Company, subject to year-end adjustments;
(b) as soon as practicable, but in any event within 90 days after
the end of each fiscal year, a balance sheet of the Company, as of the end
of such fiscal year, together with the related statements of operations,
stockholders' equity and cash flow for such fiscal year, setting forth in
comparative form figures for the previous fiscal year, all in reasonable
detail and duly certified independent public accountants selected by the
Board of Directors of the Company, which accountants shall have given the
Company an opinion, unqualified as to the scope of the audit, regarding
such statements;
(c) concurrently with the delivery of any financial statements
referred to in paragraphs (a) and (b) of this Section 6.3, current
schedules of Indebtedness for Borrowed Money and Senior Indebtedness
together with a certificate of the President and the principal accounting
officer of the Company to the effect that such schedules are accurate and
correct and that there exists no condition or event which constitutes an
event of default with respect to any indebtedness of the Company, or, if
any such condition or event exists, specifying the nature and period of
existence thereof and what action the Company is taking or proposes to
take with respect thereto;
(d) within 90 days after the end of each fiscal year, written
notice of the current Conversion Price and Warrant Exercise Price,
including a brief statement indicating any adjustments reasonably
anticipated;
(e) promptly after the submission thereof to the Company, copies of
all reports and recommendations submitted by independent public
accountants in connection with any annual or interim audit of the accounts
of the Company or any of its Subsidiaries made by such accountants;
(f) promptly upon transmission thereof, copies of all reports,
proxy statements, registration statements and notifications filed by it
with the Commission pursuant to any act administered by the Commission or
furnished to stockholders of the Company or to any national securities
exchange;
(g) with reasonable promptness, such other financial data relating
to the business, affairs and financial condition of the Company as is
available to the Company and as from time to time the Investors may
reasonably request;
(h) promptly following the issuance of any Additional Shares of
Common Stock or of any Convertible Securities, or any options, warrants or
other rights to purchase Additional Shares of Common Stock or Convertible
Securities written notice of the amount of securities so issued and the
total consideration received therefor;
(i) at least 20 days prior to the earlier of the holding of any
meeting of the stockholders of the Company for the purpose of approving
such action, written notice of the terms and conditions of such proposed
merger, consolidation, plan of exchange, sale, transfer or other
disposition;
(j) within 15 days after the Company learns in writing of the
commencement or threatened commencement of any material suit, legal or
equitable, or of any claim or assertion that the Company or any of its
products infringes on the patent rights or other intellectual property
rights of any person or party, or of any material administrative,
arbitration or other proceeding against the Company, any of its
Subsidiaries or their respective businesses, assets or properties, written
notice of the nature and extent of such suit or proceeding;
The financial statements that the Company will deliver to the Investors in
accordance with provisions of Section 6.3 hereof shall fairly present the
financial condition and the results of operations, and as to audited
statements, changes in stockholder's equity and cash flow of the Company as at
the respective dates and for the periods referred to in such financial
statements, all in accordance with GAAP, subject in the case of interim
financial statements, to normal recurring year-end adjustments (the effect of
which will not, individually or in the aggregate, be materially adverse) and
the absence of notes (that, if presented, would not differ materially from
those included in previously delivered audited balance sheets); such financial
statements will reflect the consistent application of such accounting
principles throughout the periods involved, except as disclosed in the notes to
such financial statements.
6.4 Inspection. The Company will permit the Investors and any
representatives of the Investors to visit and inspect at the respective
Investor's expense any of the properties of the Company, including its books,
records and material agreements (and to make photocopies thereof or make
extracts therefrom), and to discuss its affairs, finances, and accounts with
its officers, lawyers and accountants, all to such reasonable extent and at
such reasonable times and intervals as such Investor may reasonably request.
Except as otherwise required by applicable laws or regulations, the Investors
shall maintain, and shall require its representatives to maintain, all
information confidential to the Company obtained pursuant to Section 6.3
hereof, this Section 6.4 and Section 6.5 hereof on a confidential basis.
6.5 Preparation and Approval of Budgets. At least one month prior to
the beginning of each fiscal year of the Company, the Company shall prepare and
submit to its Board of Directors, for its review and approval, an annual plan
for such year, which shall include monthly capital and operating expense
budgets, cash flow statements and profit and loss projections itemized in such
detail as the Board of Directors may reasonably request. Each annual plan
shall be modified as often as is necessary in the judgment of the Board of
Directors to reflect changes required as a result of operating results and
other events that occur, or may be reasonably expected to occur, during the
year covered by the annual plan, and copies of each such modification shall be
submitted to the Board of Directors. The Company will, simultaneously with the
submission thereof to the Board of Directors, deliver a copy of each such
annual plan and modification thereof to the Investors.
6.6 Payment of Taxes and Maintenance of Properties. The Company will:
(a) pay and discharge promptly, or cause to be paid and discharged
promptly when due and payable, all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or upon any of its
properties, as well as all material claims of any kind (including claims
for labor, material and supplies) which, if unpaid, might by law become a
lien or charge upon its property; provided, however, that neither the
Company nor any Subsidiary shall be required to pay any such tax,
assessment, charge, levy or claim if the amount, applicability or validity
thereof shall currently be contested in good faith by appropriate
proceedings and if the Company shall have set aside on its books reserves
(segregated to the extent required by generally accepted accounting
principles) deemed adequate by it with respect thereto; and
(b) maintain and keep, or cause to be maintained and kept, its
properties in good repair, working order and condition, and from time to
time make, or cause to be made, all repairs and renewals and replacements
which in the opinion of the Company are necessary and proper so that the
business carried on in connection therewith may be properly and
advantageously conducted at all times; the Company will maintain or cause
to be maintained back-up copies of all valuable papers and software.
6.7 Insurance. The Company will obtain and maintain in force such
property damage, public liability, business interruption, worker's
compensation, indemnity bonds and other types of insurance as the Company's
executive officers, after consultation with an accredited insurance broker,
shall determine to be necessary or appropriate to protect the Company from the
insurable hazards or risks associated with the conduct of the Company's
business. The Company's executive officers shall periodically report to the
Board of Directors on the status of such insurance coverage.
All insurance shall be maintained in at least such amounts and to
such extent as shall be determined to be reasonable by the Board of Directors;
and all such insurance shall be effected and maintained in force under a policy
or policies issued by insurers of recognized responsibility, except that the
Company may effect worker's compensation or similar insurance in respect of
operations in any state or other jurisdiction either through an insurance fund
operated by such state or other jurisdiction or by causing to be maintained a
system or systems of self-insurance which is in accord with applicable laws.
6.8 Directors' and Stockholders' Meetings. The holders of the Preferred
Shares and the Conversion Stock issued upon voluntary conversion by the holders
of the Preferred Shares shall have the right to elect three directors of the
Company as set forth in the Statement of Designation. In addition, the holders
of the Preferred Shares and the Conversion Stock issued upon voluntary
conversion by the holders of Preferred Shares shall be entitled, as a class,
to elect such additional directors so as to give such holders the right to
elect, in the aggregate, sufficient directors to represent a majority by one
of the directors in the event the Company records (i) a net loss in excess of
$800,000 in fiscal 2001, (ii) a net loss in excess of $1,600,000 in fiscal
2002, (iii) a net loss in excess of $1,600,000 in fiscal 2003 and (iv) for
each fiscal year thereafter, a net income that is less than 50% of the Board-
approved budgeted net income for such year or a net loss. The right to such
additional director as set forth in the preceding sentence shall continue
until such time as the Company provides to the such holders audited financial
statements for a subsequent fiscal year that demonstrate compliance with the
applicable financial milestone (as set forth in the preceding sentence) for
that year. The director election rights set forth in this paragraph shall
continue until the completion of a Qualified Public Offering; provided,
however, that upon the completion of a Qualified Public Offering, Techne or
its affiliates shall continue to have a right to elect one director to the
Company's Board of Directors for so long as Techne or its affiliates holds in
the aggregate at least 50% of the Common Stock issued to Techne or its
affiliates upon conversion of the Preferred Shares purchased by Techne
pursuant to this Agreement.
The Company shall reimburse the reasonable out-of-pocket expenses
incurred by the directors designated and elected by the holders of Preferred
Shares pursuant to the Statement of Designation in connection with the
attending of meetings by their director designees or carrying out any other
duties by such director designees that may be specified by the Board of
Directors or any committee thereof, shall pay such director designees the
same directors' fees paid to the other non-employee directors of the Company,
and shall maintain as part of its Articles of Incorporation or Bylaws a
provision for the indemnification of its directors to the full extent
permitted by law.
The Company agrees, as a general practice, to hold a meeting of its
Board of Directors at least once every three months, and during each year to
hold its annual meeting of stockholders on or approximately on the date
provided in its Bylaws.
6.9 Replacement of Certificates. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
the certificates representing any Securities, and, in the case of any such
loss, theft or destruction, upon delivery of a bond of indemnity satisfactory
to the Company, or, in the case of any such mutilation, upon surrender and
cancellation of such certificates, the Company will issue new certificates
representing such Securities of like tenor, in lieu of such lost, stolen,
destroyed or mutilated certificates.
6.10 Application of Proceeds. Unless otherwise approved by the
Investors, the net proceeds received by the Company from the sale of the
Preferred Shares shall be used for working capital purposes. Pending use of
the proceeds in the business, they shall be deposited in a bank or banks
having deposits of $150,000,000 or more, invested in money market mutual funds
having assets of $500,000,000 or more, or invested in securities issued or
guaranteed by the United States Government.
6.11 Patents and Other Intangible Rights. The Company will apply for, or
obtain assignments of, or licenses to use, all patents, trademarks, trademark
rights, trade names, trade name rights and copyrights which in the opinion of a
prudent and experienced businessperson operating in the industry in which the
Company is operating are desirable or necessary for the conduct and protection
of the business of the Company.
6.12 Proprietary Information and Invention Agreements. The Company will
require each of its officers, employees and consultants to enter into
proprietary and invention assignment agreements with it in a form approved by
the Company's Board of Directors.
6.13 Rights to Purchase Additional Securities. If the Company should
decide to issue and sell additional shares of any of its capital stock or any
of its warrants, securities convertible into capital stock or other rights to
subscribe for or to purchase any of its capital stock, other than (a) shares of
Common Stock sold in a Public Offering, (b) the 600,000 shares of Common Stock
issued or reserved for issuance pursuant to the Company's 2001 Equity Incentive
Plan, and the grant of options to purchase such shares, (c) shares of Common
Stock issued upon conversion of the Preferred Shares, and (d) shares of Series
A Preferred Stock issued upon exercise of the Warrants and shares of Common
Stock issuable upon conversion thereof (all such capital stock, warrants,
options and other rights, other than securities referred to in (a), (b), (c)
and (d) above, being hereinafter sometimes collectively referred to as
"Additional Securities"), then the Company shall first offer to sell to each
Investor, upon the same terms and conditions as the Company is proposing to
issue and sell such Additional Securities to others, such Investor's pro rata
share (as defined below) of such Additional Securities. Such offer shall be
made by written notice given to such Investor and specifying therein the amount
of the Additional Securities being offered, the purchase price and other terms
of such offer. Such Investor shall have a period of 20 days from and after the
date of receipt by it of such notice within which to accept such offer. If
such Investor elects to accept such offer in whole or in part, such Investor
shall so accept by written notice to the Company given within such 20-day
period. If such Investor fails to accept such offer in whole or in part within
such 20-day period, any of such Additional Securities not purchased by such
Investor pursuant to such offer may be offered for sale to others by the
Company for a period of 120 days from the last day of such 20-day period, but
only on the same terms and conditions as set forth in the initial offer to such
third-party purchaser, free and clear of the restrictions imposed by this
Section 6.13.
For purposes of the previous paragraph, such Investor's "pro rata share"
is the number of shares of Additional Securities (rounded to the nearest whole
share) as is equal to the product of (a)(i) the number of shares of Common
Stock issued, or issuable upon the exercise or conversion of rights, options,
warrants or Convertible Securities, to such Investor immediately prior to the
issuance of the Additional Securities being offered divided by (ii) the total
number of shares of Common Stock issued, or issuable upon the exercise or
conversion of outstanding rights, options, warrants or Convertible Securities,
by the Company immediately prior to the issuance of the Additional Securities,
multiplied by (b) the entire offering of Additional Securities.
6.14 Waivers of Affirmative Covenants. Any provision of this Section 6
may be changed, waived, discharged or terminated with a statement in writing
signed by the holders of a majority of the Purchased Stock.
7. Negative Covenants. The Company will be limited and restricted as
follows:
7.1 Future Registration Rights. Except for any registration expressly
permitted by Section 8 hereof, the Company will not, without the prior approval
of the Investors, agree with the holders of any securities issued or to be
issued by the Company to register such securities under the Securities Act nor
will it grant any incidental registration rights which are superior or
preferred to those granted to the Investors by this Agreement.
7.2 Other Restrictions. The Company will not without the prior written
consent of the Investors, which consent shall not be unreasonably withheld:
(a) authorize or issue any shares of preferred stock or other
securities with preferences superior to or on parity with those of the
Series A Preferred Stock issued to the Investors pursuant to this
Agreement, or
(b) enter into any agreement, grant any right or take any action
which would impair or dilute the rights of Techne's subsidiary, Research &
Diagnostic Systems, Inc., under the Research and License Agreement
attached hereto as Exhibit 6.
7.3 Waivers of Negative Covenants. Any provision of this Section 7 may
be changed, waived, discharged or terminated with a statement in writing signed
by the holders of a majority of the Purchased Stock.
8. Registration Rights.
8.1 Required Registration. If at any time after the earlier to occur of
the fourth anniversary of the Closing Date or the date that is six-months after
the closing of the Company's initial Public Offering, the Company shall receive
a written request therefor from holders of a majority of the shares of Common
Stock issued or issuable upon conversion of the Preferred Shares or Warrant
Stock (the "Registrable Shares"), the Company shall prepare and file a
registration statement under the Securities Act covering the Registrable
Shares, which are the subject of such request and shall use its best efforts to
cause such registration statement to become effective. The Company shall be
obligated to prepare, file and cause to become effective only two registration
statements (other than on Form S-3 or any successor form promulgated by the
Commission ("Form S-3")) pursuant to this Section 8.1, and to pay the expenses
associated with such registration statements. Notwithstanding the foregoing,
the holders of a majority of the Registrable Shares may require, pursuant to
this Section 8.1, the Company to file, and to pay the expenses associated with,
any number of registration statements on Form S-3, if such form is then
available for use by the Company. In the event that holders of a majority of
the Registrable Shares participating in the registration determine for any
reason not to proceed with such registration at any time before a registration
statement has been declared effective by the Commission, and such registration
statement, if theretofore filed with the Commission, is withdrawn with respect
to the Registrable Shares covered thereby, and the holders of the Registrable
Shares participating in such registration each agree to bear their own expenses
incurred in connection therewith and to reimburse the Company, on a pro rata
basis, for the expenses incurred by it attributable to the registration of such
Registrable Shares, then such holders shall not be deemed to have exercised
their right to require the Company to register Registrable Shares pursuant to
this Section 8.1.
If, at the time any written request for registration is received by the
Company pursuant to this Section 8.1, the Company has determined to proceed
with the actual preparation and filing of a registration statement under the
Securities Act in connection with the proposed offer and sale for cash of any
of its securities by it or any of its security holders, such written request
shall be deemed to have been given pursuant to Section 8.2 hereof rather than
this Section 8.1, and the rights of the holders of Registrable Shares covered
by such written request shall be governed by Section 8.2 hereof.
Without the written consent of the holders of Registrable Shares, neither
the Company nor any other holder of securities of the Company may include
securities in a registration effected under this Section 8.1 if in the good
faith judgment of the managing underwriter of such public offering the
inclusion of such securities would interfere with the successful marketing of
the Purchased Stock or require the exclusion of any portion of the Registrable
Shares to be registered.
8.2 Incidental Registration. Each time the Company shall determine to
proceed with the actual preparation and filing of a registration statement
under the Securities Act in connection with the proposed offer and sale for
cash of any of its securities by it or any of its security holders (other
than a registration statement on Form S-4, Form S-8 or any other form that
does not permit the inclusion of shares by its security holders), the Company
will give written notice of its determination to the holders of Registrable
Shares. Upon the written request of the holders of Registrable Shares given
within 20 days after receipt of any such notice from the Company, the Company
will, except as herein provided, cause all Registrable Shares, which have been
requested by such holders to be registered to be included in such registration
statement, all to the extent requisite to permit the sale or other disposition
by such holders to be so registered; provided, however, that nothing herein
shall prevent the Company from, at any time, abandoning or delaying any such
registration initiated by it; provided, further, however, that if the Company
determines not to proceed with a registration after the registration statement
has been filed with the Commission and the Company's decision not to proceed
is primarily based upon the anticipated public offering price of the
securities to be sold by the Company, the Company shall promptly complete the
registration if the holders of a majority of the Registrable Shares
participating in the registration wish to proceed with a public offering of
their Registrable Shares and will bear, on a pro rata basis, all expenses in
excess of $100,000 incurred by the Company as the result of such registration
after the Company has decided not to proceed. If any registration pursuant to
this Section 8.2 shall be underwritten in whole or in part, the Company may
require that the securities requested for inclusion by selling stockholders,
including the holders of Registrable Shares, pursuant to this Section 8.2, be
included in the underwriting on the same terms and conditions as the securities
otherwise being sold through the underwriters. If the total amount of
securities, including Registrable Shares, requested by stockholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the managing underwriters determine in their sole discretion
is compatible with the success of the offering, then the Company shall be
required to include in the offering only that number of such securities,
including Registrable Shares, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering. The securities
so included to be apportioned pro rata among the selling stockholders,
including the holders of Registrable Shares, according to the total amount
of securities entitled to be included therein owned by each such selling
stockholder or in such other proportions as shall mutually be agreed to
by such selling stockholders, but in no event shall the amount of Registrable
Shares included in the offering be reduced below 20% of the total amount of
securities included in such offering, unless such offering is the initial
public offering of the Company's securities, in which case the selling
stockholders, including the holders of Registrable Shares, may be excluded
completely if the underwriters make the determination described above and no
other stockholder's securities are included. For purposes of the preceding
sentence concerning apportionment, for any selling stockholder which is a
partnership or corporation, the partners, retired partners and stockholders
of such holder, or the estates and family members of any such partners and
retired partners and any trusts for the benefit of any of the foregoing
persons shall be deemed to be a single "selling stockholder", and any
pro-rata reduction with respect to such "selling stockholder" shall be
based upon the aggregate amount of shares carrying registration rights owned
by all entities and individuals included in such "selling stockholder", as
defined in this sentence.
8.3 Registration Procedures. If and whenever the Company is required by
the provisions of Section 8.1 or 8.2 hereof to effect the registration of
shares of Registrable Shares under the Securities Act, the Company will:
(a) prepare and file with the Commission a registration statement
with respect to such securities, and use its best efforts to cause such
registration statement to become and remain effective for such period as
may be reasonably necessary to effect the sale of such securities, not to
exceed three months;
(b) prepare and file with the Commission such amendments to such
registration statement and supplements to the prospectus contained therein
as may be necessary to keep such registration statement effective for such
period as may be reasonably necessary to effect the sale of such
securities, not to exceed two years;
(c) furnish to the holders of Registrable Shares participating in
the registration and to the underwriters of the securities being
registered such reasonable number of copies of the registration statement,
preliminary prospectus, final prospectus and such other documents as such
underwriters may reasonably request in order to facilitate the public
offering of such securities;
(d) use its best efforts to register or qualify the securities
covered by such registration statement under such state securities or blue
sky laws of such jurisdictions as the holders of Registrable Shares
participating in the registration may reasonably request in writing within
30 days following the original filing of such registration statement;
(e) notify the holders of Registrable Shares participating in the
registration, promptly after it shall receive notice thereof, of the time
when such registration statement has become effective or a supplement to
any prospectus forming a part of such registration statement has been
filed;
(f) notify the holders of Registrable Shares participating in the
registration promptly of any request by the Commission for the amending or
supplementing of such registration statement or prospectus or for
additional information;
(g) prepare and file with the Commission, promptly upon the request
of the holders of a majority of the Registrable Shares participating in
the registration, any amendments or supplements to such registration
statement or prospectus which, in the opinion of counsel for such holders
(and concurred in by counsel for the Company), is required under the
Securities Act or the rules and regulations thereunder in connection with
the distribution of the Registrable Shares by such holder;
(h) prepare and promptly file with the Commission and promptly
notify the holders of Registrable Shares participating in the registration
of the filing of such amendment or supplement to such registration
statement or prospectus as may be necessary to correct any statements or
omissions if, at the time when a prospectus relating to such securities is
required to be delivered under the Securities Act, any event shall have
occurred as the result of which any such prospectus or any other
prospectus as then in effect would include an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances in which they were
made, not misleading;
(i) advise the holders of Registrable Shares participating in the
registration, promptly after it shall receive notice or obtain knowledge
thereof, of the issuance of any stop order by the Commission suspending
the effectiveness of such registration statement or the initiation or
threatening of any proceeding for that purpose and promptly use its best
efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued;
(j) not file any amendment or supplement to such registration
statement or prospectus to which the holders of a majority of the
Registrable Shares participating in the registration shall have reasonably
objected on the grounds that such amendment or supplement does not comply
in all material respects with the requirements of the Securities Act or
the rules and regulations thereunder, after having been furnished with a
copy thereof at least five business days prior to the filing thereof,
unless in the opinion of counsel for the Company the filing of such
amendment or supplement is reasonably necessary to protect the Company
from any liabilities under any applicable federal or state law and such
filing will not violate applicable law; and
(k) at the request of the holders of Registrable Shares
participating in the registration, furnish an opinion, dated as of the
closing date, of the counsel representing the Company for the purposes of
such registration, addressed to the underwriters, if any, and to the
holders of Registrable Shares participating in the registration making
such request, in form and substance as is customarily given to
underwriters in an underwritten public offering.
8.4 Expenses. With respect to each registration, including
registrations pursuant to Form S-3, requested pursuant to Section 8.1 hereof
(except as otherwise provided in such Section with respect to registrations
voluntarily terminated at the request of the requesting security holders) and
with respect to each inclusion of Registrable Shares in a registration
statement pursuant to Section 8.2 hereof (except as otherwise provided in
Section 8.2 with respect to registrations initiated by the Company but with
respect to which the Company has determined not to proceed), the Company shall
bear the following fees, costs and expenses: all registration, filing and
NASD fees, printing expenses, fees and disbursements of counsel and accountants
for the Company, fees and disbursements of counsel for the underwriter or
underwriters of such securities (if the Company and/or selling security holders
are required to bear such fees and disbursements), all internal Company
expenses, all legal fees and disbursements and other expenses of complying with
state securities or blue sky laws of any jurisdictions in which the securities
to be offered are to be registered or qualified, and the premiums and other
costs of policies of insurance against liability (if any) arising out of such
public offering. Fees and disbursements of counsel and accountants for the
selling security holders, underwriting discounts and commissions and transfer
taxes relating to the shares included in the offering by the selling security
holders, and any other expenses incurred by the selling security holders not
expressly included above, shall be borne by the selling security holders.
8.5 Indemnification. In the event that any Registrable Shares are
included in a registration statement under Section 8.1 or 8.2 hereof:
(a) The Company will indemnify and hold harmless each holder of
Registrable Shares, its respective directors and officers, and any
underwriter (as defined in the Securities Act) for such holder and each
person, if any, who controls such holder or such underwriter within the
meaning of the Securities Act, from and against, and will reimburse each
such holder and each such underwriter and controlling person with respect
to, any and all loss, damage, liability, cost and expense to which such
holder or any such underwriter or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue statement or
alleged untrue statement of any material fact contained in such
registration statement, any prospectus contained therein or any amendment
or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; provided, however,
that the Company will not be liable in any such case to the extent that
any such loss, damage, liability, cost or expense arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission (i) made in conformity with information furnished by such
holder, such underwriter or such controlling person in writing
specifically for use in the preparation thereof or (ii) which was
corrected by a supplement or amendment to the registration statement or
prospectus filed with the Commission and provided to such holder prior to
the event allegedly giving rise to the liability.
(b) Each holder of Registrable Shares participating in the
registration will, severally and not jointly, indemnify and hold harmless
the Company, its directors and officers, any controlling person and any
underwriter from and against, and will reimburse the Company, its
directors and officers, any controlling person and any underwriter with
respect to, any and all loss, damage, liability, cost or expense to which
the Company or any controlling person and/or any underwriter may become
subject under the Securities Act or otherwise, insofar as such losses,
damages, liabilities, costs or expenses are caused by any untrue or
alleged untrue statement of any material fact contained in such
registration statement, any prospectus contained therein or any amendment
or supplement thereto, or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading, in each case to
the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was so made in reliance
upon and in strict conformity with written information furnished by such
holder specifically for use in the preparation thereof.
(c) Promptly after receipt by an indemnified party pursuant to the
provisions of paragraph (a) or (b) of this Section 8.5 of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions, such indemnified party will, if a claim thereof is
to be made against the indemnifying party pursuant to the provisions of
said paragraph (a) or (b), promptly notify the indemnifying party of the
commencement thereof; but the omission to so notify the indemnifying party
will not relieve it from any liability which it may have to any
indemnified party otherwise than hereunder. In case such action is
brought against any indemnified party and it notifies the indemnifying
party of the commencement thereof, the indemnifying party shall have the
right to participate in, and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party, provided,
however, if the defendants in any action include both the indemnified
party and the indemnifying party and the indemnified party shall have
reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, or if there is a conflict of
interest which would prevent counsel for the indemnifying party from also
representing the indemnified party, the indemnified party or parties shall
have the right to select separate counsel to participate in the defense of
such action on behalf of such indemnified party or parties. After notice
from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party will not be liable
to such indemnified party pursuant to the provisions of said paragraph (a)
or (b) for any legal or other expense subsequently incurred by such
indemnified party in connection with the defense thereof other than
reasonable costs of investigation, unless (i) the indemnified party shall
have employed counsel in accordance with the proviso of the preceding
sentence, (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party
within a reasonable time after the notice of the commencement of the
action, or (iii) the indemnifying party has authorized the employment of
counsel for the indemnified party at the expense of the indemnifying
party.
8.6 Transfer; Termination and Grant of Additional Registration Rights.
(a) The rights to cause the Company to register securities
granted to the Investors under this Section 8 may be transferred or
assigned by the Investors to any transferee or assignee of the Purchased
Stock, provided that the Company is given written notice at the time of
or within a reasonable time after said transfer or assignment, stating
the name and address of the transferee or assignee and identifying the
securities with respect to which such registration rights are being
transferred or assigned, and, provided further, that the transferee or
assignee of such rights assumes the obligations of the Investors under
this Section 8.
(b) The right of an Investor to register the Registrable
Shares under Section 8 shall terminate on the earlier of: (a) the date
on which such Investor's Registrable Shares are eligible for sale under
Rule 144 and none of such Investor;s Registrable Shares are restricted
from sale due to Rule 144 volume limitations or (c) the sale or other
disposition by such Investor of all of such Investor's Registrable
Shares.
(c) The Company shall not, without the prior written consent
of the Investors, grant additional registration rights that have a
preference over the registration rights of the Investors under this
Section 8.
(d) Any provision of this Section 8 may be changed, waived,
discharged or terminated with a statement in writing signed by the holders
of a majority of the Registrable Shares.
9. Miscellaneous.
9.1 Operating Assistance. Techne may provide laboratory and
administrative office space, access to equipment, accounting services and such
other assistance as Techne may agree to provide. The terms of any such
agreement shall be set forth in Schedule A hereto, which schedule may amended
by the parties hereto from time to time. Such operating assistance shall be
provided at Techne's cost, but in the case of space, such costs shall not
exceed $10 per square foot.
9.2 Termination of Certain Covenants. Unless another termination date
is specifically provided for therein, the obligations of the Company under
Sections 6 and 7 of this Agreement shall terminate upon the closing of a
Qualified Public Offering except that the Techne shall continue to have a
right to one director, as provided in Section 6.8.
9.3 Changes, Waivers, etc. Except as specifically provided in Sections
6, 7 and 8, this Agreement and any provision hereof may not be changed, waived,
discharged or terminated orally without a statement in writing signed by the
party against which enforcement of the change, waiver, discharge or termination
is sought.
9.4 Payment of Fees and Expenses. The Company and each Investor will
each pay its own expenses incurred in connection with entering into this
Agreement. Payment of expenses related to disputes arising out of or related
to this Agreement shall be determined in accordance with Section 9.8 below.
9.5 Notices. All notices, requests, consents and other communications
required or permitted hereunder shall be in writing and shall be delivered, or
mailed first-class postage prepaid, registered or certified mail,
(a) if to Techne, 614 McKinley Place, N.E., Minneapolis, Minnesota
55413, Attention: Thomas E. Oland, President, with a copy to Melodie R.
Rose, Fredrikson & Byron, P.A., 1100 International Centre, 900 Second
Avenue South, Minneapolis, Minnesota 55402 or
(b) if to Lucas, 614 McKinley Place, N.E., Minneapolis, Minnesota
55413, with a copy to Melodie R. Rose, Fredrikson & Byron, P.A., 1100
International Centre, 900 Second Avenue South, Minneapolis, Minnesota
55402 or
(c) if to the Company, Attention: President, 1895 Rice Street, St.
Paul, Minnesota 55112 or to such other address as the Company may specify
by written notice to the Investors, with a copy to Janna Severance, Moss &
Barnett, 4800 Wells Fargo Center, 90 S. 7th Street, Minneapolis, MN 55402.
Such notices and other communications shall for all purposes of this
Agreement be treated as being effective or having been given if delivered
personally, or, if sent by mail, when received.
9.6 Survival of Representations and Warranties, etc. All
representations and warranties contained herein shall survive the execution and
delivery of this Agreement, any investigation at any time made by the Investors
or on their behalf, and the sales and purchases of the Purchased Stock. All
statements contained in any certificate, instrument or other writing delivered
by or on behalf of the Company pursuant hereto or in connection with or
contemplation of the transactions herein contemplated (other than legal
opinions) shall constitute representations and warranties by the Company
hereunder.
9.7 Parties in Interest. All the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
respective successors and assigns of the parties hereto, whether so expressed
or not, and, in particular, shall inure to the benefit of and be enforceable by
the holder or holders at the time of any of the Purchased Stock.
9.8 Headings. The headings of the Sections and paragraphs of this
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
9.9 Arbitration. Any dispute arising out of or relating to this
Agreement or the alleged breach of it, or the making of this Agreement or the
agreements referenced herein, including claims of fraud in the inducement,
shall be discussed between the disputing parties in a good faith effort to
arrive at a mutual settlement of any such controversy. If, notwithstanding,
such dispute cannot be resolved, such dispute shall be settled by binding
arbitration. Judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. The arbitrator shall be a
retired state or federal judge or an attorney who has practiced in substantive
areas similar to the issues under dispute for at least 10 years. If the
parties cannot agree on an arbitrator within 20 days, any party may request
that the chief judge of the District Court for Hennepin County, Minnesota,
select an arbitrator. Arbitration will be conducted pursuant to the
provisions of this Agreement, and the commercial arbitration rules of the
America Arbitration Association, unless such rules are inconsistent with the
provisions of this Agreement, but without submission of the dispute to such
Association. Limited civil discovery shall be permitted for the production
of documents and taking of depositions. Unresolved discovery disputes may
be brought to the attention of the arbitrator who may dispose of such
dispute. The arbitrator shall have the authority to award any remedy or
relief that a court of this state could order or grant; provided, however,
that punitive of exemplary damages shall not be awarded. The arbitrator may
award to the prevailing party, if any, as determined by the arbitrator, all
of its costs and fees, including the arbitrator's fees. Unless otherwise
agreed by the parties, the place of any arbitration proceedings shall
be Hennepin County, Minnesota.
9.10 Choice of Law. It is the intention of the parties that the laws of
the State of Minnesota (other than its law with respect to conflicts of law)
shall govern the validity of this Agreement, the construction of its terms and
the interpretation of the rights and duties of the parties.
9.11 Counterparts. This Agreement may be executed concurrently in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
DISCOVERY GENOMICS, INC.
By:__________________________
Its:_________________________
TECHNE CORPORATION
By:_________________________
Thomas E. Oland
President and Chief Executive
Officer
____________________________
Roger Lucas
EX-10.31
4
dgirsch.txt
RESEARCH AGREEMENT WITHDGI
RESEARCH AND LICENSE AGREEMENT
This Agreement, dated as of 02 August 2001 (the "Effective Date"), is by
and between Research and Diagnostic Systems, Inc., a Minnesota corporation
with principal offices at 614 McKinley Place NE, Minneapolis, Minnesota 55413-
2647 ("R&D") and Discovery Genomics Inc., a Minnesota corporation with
principal offices at 240 Gortner Lab, 1479 Gortner Avenue, St. Paul, MN 55108
("DGI").
Recitals:
A. Techne Corporation ("Techne"), the parent corporation of R&D, and
DGI are parties to a certain Investment Agreement on the same date as this
Agreement. Under the terms of such Investment Agreement, Techne has
subscribed for the purchase of 1.5 (one and one-half) million shares of
preferred stock in DGI.
B. Techne through R&D is engaged in the development, manufacturing and
sales of proteins, antibodies, immunoassays and related products ("R&D
Products") primarily for use as research reagents and has developed
proprietary processes and reagents for manufacturing and using such products.
Techne does not intend to sell its R&D Products as therapeutic agents. Techne
and R&D have acquired patents and have amassed substantial know-how relating
to R&D Products ("Existing R&D Technology").
C. DGI is engaged in the development of therapeutics and therapeutic
targets using nucleotide analogues, zebrafish and zebrafish embryos, and the
sleeping beauty transposon. DGI owns proprietary technology relating to the
use of certain nucleotide analogues in the zebrafish for the determination of
gene function and the sleeping beauty transposon and uses therefor ("Existing
DGI Technology"), including certain patent applications and invention
disclosures identified on Exhibit A hereto.
D. DGI is also engaged in the development of drug screening products
and services employing DGI Technology for the discovery and development of
therapeutics ("DGI Products"). As an outgrowth of these developments and
services DGI will discover genes and their gene products ("Proteins") and may
have need for antibodies against these Proteins ("Antibodies"), and
immunoassays to quantitate these Proteins ("Immunoassays"). For purposes of
this Agreement Proteins, Antibodies, and Immunoassays will be known as
"Products."
E. Dr. Stephen C. Ekker ("Ekker"), Dr. Perry B. Hackett, Jr.
("Hackett"), Dr. R. Scott McIvor ("McIvor"), and Dr. David Largaespada
("Largaespada") are the founders ("Founders") and have substantial expertise
in the field. Hackett is a full-time employee of DGI and is devoting his time
and energies to research and development on behalf of DGI and DGI will own all
right, title and interest to the results of such research and development.
Ekker, McIvor, and Largaespada are part-time employees or consultants to DGI.
Each will be devoting some time and energy to research and development on
behalf of DGI. DGI will own all right, title and interest to the results of
such research and development performed within DGI's facilities for the
benefit of DGI.
F. Techne and R&D wish to obtain an exclusive license from DGI to make,
use, sell and import DGI Products.
In partial consideration of the agreement of Techne to subscribe for the
purchase of shares of DGI pursuant to the Investment Agreement and in
consideration of mutual agreements contained herein, the Parties therefore
agree as follows:
1. DGI RESEARCH
1.1. Research. DGI and Founders agree to use their best efforts to
diligently and efficiently discover and develop DGI Products.
1.2. Products To Be Supplied To R&D. Representatives of R&D and DGI will
meet at least once each six (6) months to determine which DGI
Products will be made available to R&D for development as research
reagent products. At R&D's request, and upon mutual agreement by the
Parties as described herein, DGI will provide R&D, at no charge, with
reasonable quantities of cDNA or the necessary starting material
("Starting Materials") of each such DGI Product it discovers in order
to allow R&D to derive a manufacturing process for such DGI Product
and for the potential development of Antibodies and Immunoassays.
R&D's use and sale of such DGI Products shall be governed by the
terms of Section 2.2.
1.3. Joint Discoveries. If DGI jointly with any other party discovers any
Product that is of interest to R&D, it will use commercially
reasonable efforts to obtain a license for R&D commensurate in scope
with the license granted R&D under Section 3 of this Agreement. Upon
grant of license or permission of the third party, DGI will provide
R&D with reasonable quantities of Starting Materials of Joint
Discoveries, at no charge, to allow R&D to produce such Products.
1.4. Products Not of Current Interest to R&D. If DGI discovers a Product
that is not of current interest to R&D, it may forward said Starting
Materials to R&D for expression and antibody development at R&D's
discretion, but at no charge to DGI, under the same terms and
conditions of Section 2.1. If R&D does undertake such expression and
antibody development, any resulting Proteins and Antibodies shall be
included in the license set forth in Section 3 below.
2. R&D TECHNICAL ASSISTANCE
2.1. Products To Be Supplied To DGI. Upon receipt of Starting Materials
for Products from DGI, R&D will use commercially reasonable efforts
to develop processes to produce Products and without charge provide
reasonable quantities (up to 30 milligrams but not more than ten (10)
percent of R&D's total production) of market quality Protein to DGI
for its research use. R&D agrees that the LPS/endotoxin levels of
these preparations will be within the specifications of currently-
available catalog items manufactured by R&D, or as agreed between
representatives of R&D and DGI. In addition, R&D will provide DGI
with 100 milligrams of total monoclonal antibodies and 500 milligrams
of polyclonal total IgG antibody for each molecule. DGI will have
access to every antibody (monoclonal or polyclonal) generated against
a given Protein in order to evaluate which is most appropriate for
its research purposes, and to determine which it chooses to receive
in quantity.
2.2. Exclusivity of Supply. R&D will not market or make available to third
parties any Product resulting from this Agreement sooner than
mutually agreed or one (1) year from receipt of Starting Materials,
whichever is earlier (such period of time being the "Restriction
Period"). DGI agrees not to distribute to third parties any such
Products or other materials, other than in connection with a
scientific collaboration (provided that any collaborator involved in
such scientific collaboration shall be prevented from selling,
distributing or disclosing such Product(s) to any third parties) or
fee for service, prior to publication. If R&D fails to provide DGI
with Product within one year after DGI provides Starting Material, or
R&D informs DGI of its intent not produce Products from said Starting
Material then DGI may provide the Starting Material to another group
for the purposes of Protein or Antibody production.
a) DGI acknowledges that R&D should be free to market Products in a
manner consistent with the license granted under Section 3 of this
Agreement upon expiration of the Restriction Period. However, DGI
may ask for an extension of the Restriction Period with respect to
any particular Product in cases where its competitive advantage
may be jeopardized. If DGI requests such an extension,
representatives of R&D and DGI will meet and discuss DGI's
request. In the event R&D and DGI are unable to agree on such an
extension after good faith negotiations, DGI shall be entitled to
unilaterally extend the Restriction Period by six (6) months with
respect to that Product. DGI may request and require additional
extensions on the same terms, but in no event shall the
Restriction Period for a given Product extend beyond the
publication by DGI or a third party of the full sequence or
biological activity of such Product.
b) R&D may ask for a waiver of the Restriction Period (including any
extensions thereof) in cases where its competitive advantage may
be jeopardized, which permission shall not be unreasonably
withheld by DGI.
2.3. Other Research Reagents. R&D may also provide DGI with other
research reagents from its stock catalog at special prices, as
mutually agreed, provided that such reagents are used exclusively by
DGI for its research. DGI may also seek in certain circumstances to
obtain Protein from a third party provider via non-biological
methods, such as chemical synthesis, but will do so only with the
provider's understanding that such products are not subsequently sold
by the provider to compete with R&D products.
2.4. Progress Reports. Representatives of DGI and R&D will track the
progress of the projects encompassed by this agreement on a regular
basis, and provide written reports on the status of protein and
antibody production, and biological activity assessment, at least
twice yearly.
3. LICENSE
3.1. Research Marketplace License to R&D. DGI grants to R&D a perpetual,
irrevocable, royalty-free, exclusive worldwide license under DGI
Technology to make, have made, sell, and import Products, as
designated by mutual agreement as set out in section 1.2, in the
Biomedical Research Marketplace. DGI also grants to R&D perpetual,
irrevocable, royalty-free, exclusive worldwide license under DGI
Technology to use any Products in the Biomedical Research
Marketplace, provided that DGI retains the right to use such Products
for its own research and may grant scientific collaborators the
limited right to use such Products solely in furtherance of DGI's
research.
3.2. Diagnostic Marketplace License to R&D. Some Products made available
to R&D as set out in section 1.2 herein may have applicability in the
Diagnostic Marketplace. If a Product is found to be of such use, the
parties will negotiate in good faith to provide license to R&D to
make, have made, sell, import, and sublicense for the Diagnostic
Marketplace. Any license for the Diagnostic Marketplace will include
royalties paid to DGI for sales of Product and a sharing of any
sublicensing fees. Terms are to be comparable to those common in
licensing agreements between unrelated parties for diagnostic
products in markets similar to those for the product at issue.
3.3. For purposes of these licenses:
a) "DGI Technology" means all of DGI's technology relating to the
usage of nucleotide analogues for RNA antisense in Zebrafish or
Zebrafish embryos and the Sleeping Beauty Transposon including,
but not limited to, any patents, patent applications (set out in
Appendix A herein), Confidential Information (defined in Section
5.1 below) or other proprietary technology, whether based on or
incorporating Existing DGI Technology, technology developed by
DGI, or technology in which DGI acquires rights during the term of
this Agreement.
b) "Biomedical Research Marketplace" means the worldwide market where
the end user employs the products to gain knowledge. Excluded
from the Biomedical Research Marketplace are uses in which the
product is used to treat or diagnose a human disease or condition,
except for purposes of research.
c) "Diagnostic Marketplace" means the worldwide market where the end
user employs the product to detect the presence or absence of a
disease or condition.
4. OWNERSHIP OF TECHNOLOGY
4.1. Existing Technology. Nothing in this Agreement shall give DGI any
right, title or interest in the Existing R&D Technology. Other than
the License granted in Section 3, nothing in this Agreement shall
give Techne or R&D any right, title or interest in the Existing DGI
Technology. DGI warrants that it owns the Existing DGI Technology
and has the right to grant the license granted in Section 3. This
warranty does not encompass the use of the licensed technology for
therapeutic uses falling outside the Biomedical Research Marketplace
and the Diagnostic Marketplace.
4.2. Enforcement of Rights in Technology. If either party knows or has
reason to believe that a third party is infringing rights in any DGI
Technology, either directly or by inducement or contributorily, the
party possessing such knowledge or belief shall promptly notify the
other party thereof. DGI shall have the first right to commence
judicial proceedings for its own benefit to attempt to stop such
infringement. Each party agrees to fully cooperate with the other
party by providing, at the other party's expense, any assistance that
such other party deems necessary or appropriate in the conduct of
such suit, including appearing as witness and, if required by law or
if requested by the party bringing suit, to join as a party
plaintiff. If DGI fails to either stop the infringing activities or
bring any infringement, unfair competition or other appropriate suit
against the alleged infringer within one hundred eighty (180) days of
first learning of the infringement, the other party shall have the
option to bring such suit at its own expense. The party initiating
judicial proceedings shall be entitled to retain any award resulting
therefrom. If the party initiating the suit notifies the other party
of its intent to settle such suit, and if the other party does not
wish to enter into such settlement, such other party may obtain the
right to continue such suit at its own expense and to retain the
entire award or subsequent settlement by guaranteeing to pay the
initiating party the amount which it would have received from the
proposed settlement.
5. CONFIDENTIALITY
5.1. Definition of Confidential Information. For purposes of this
Agreement, "Confidential Information" means information not generally
known which is proprietary to the disclosing party and includes,
without limitation, all ideas, inventions, discoveries, improvements,
product designs, manufacturing methods and processes techniques,
technical information, engineering data, specifications, know-how,
formulae, computer programs and other confidential processes, methods
and information which relate to any Regulatory Factor owned by the
disclosing party or a disclosing party's other products. All
information identified as being "confidential" or "trade secret"
shall be presumed to be Confidential Information. Confidential
Information shall include any information described above which has
already been disclosed to the receiving party by the disclosing
party. Confidential Information does not include any information
which :
a) was in the public domain at the time of disclosure by the
disclosing party to the receiving party;
b) is published or otherwise comes into the public domain after its
disclosure to the receiving party through no violation of this
Agreement by the receiving party;
c) was in the receiving party's possession at the time of disclosure
to it by the other party;
d) is disclosed to the receiving party by a third party not under an
obligation of confidence to the disclosing party; or
e) is required to be produced by any applicable court, government
agency, regulation or statute.
5.2. Security of Confidential Information. The receiving party agrees to
treat all Confidential Information as confidential and to use
commercially reasonable efforts to protect the Confidential
Information from any unauthorized use or disclosure by it or its
employees, agents or representatives and shall at least use the same
degree of care to protect the Confidential Information as the
receiving party uses to protect its own confidential information.
The receiving party shall limit access to the Confidential
Information to those employees, agents and representatives of the
receiving party to whom it is necessary to disclose the Confidential
Information in furtherance of such party's rights, and performance of
such party's obligations, under this Agreement.
5.3. Sale of Products. It is acknowledged that the sale of Products may
inherently disclose Confidential Information. Nonetheless, sale of
Products in accordance with this Agreement shall not be deemed a
breach of any obligation of confidentiality.
6. INDEMNIFICATION
6.1. By DGI. DGI agrees to indemnify and hold R&D, and its affiliates,
shareholders, officers, directors, employees, successors and assigns,
harmless from and against any and all claims, actions, liabilities,
damages, losses, costs and expenses, including, without limitation,
reasonable attorneys' fees and legal expenses, actually incurred by
any such party in connection with any claim, action or proceeding
asserted by any person or entity arising from any matter which
constitutes a breach of DGI's obligations or representations and
warranties provided herein.
6.2. By R&D. R&D agrees to indemnify and hold DGI, and its affiliates,
shareholders, officers, directors, employees, successors and assigns,
harmless from and against any and all claims, actions, liabilities,
damages, losses, costs and expenses, including, without limitation,
reasonable attorneys' fees and legal expenses, actually incurred by
any such party in connection with any claim, action or proceeding
asserted by any person or entity arising from any matter which
constitutes a breach of R&D's obligations or representations and
warranties provided herein.
7. MISCELLANEOUS PROVISIONS
7.1. Survival. All of the representations and warranties made in this
Agreement and all terms and provisions hereof intended to be observed
and performed by the parties after the termination hereof, including
the obligations of Section 3 ("LICENSE") and Section 5
("CONFIDENTIALITY"), shall survive such termination and continue
thereafter in full force and effect.
7.2. Complete Agreement. This Agreement constitutes the entire agreement
of the parties with respect to the subject matter described in this
Agreement and shall supersede all previous negotiations, commitments
or writings with respect to such subject matter.
7.3. Waiver, Discharge, etc. This Agreement may not be released,
discharged, abandoned, changed or modified in any manner, except by
an instrument in writing signed on behalf of each of the parties to
this Agreement by their duly authorized representatives. The failure
of either party to enforce at any time any of the provisions of this
Agreement shall in no way be construed to be a waiver of any such
provision, nor in any way to affect the validity of this Agreement or
any part of it or the right of either party after any such failure to
enforce each and every such provision. No waiver of any breach of
this Agreement shall be held to be a waiver of any other or
subsequent breach.
7.4. Applicable Law. This Agreement shall be governed by, and construed
in accordance with, the law of the State of Minnesota (other than its
law with respect to conflicts of laws), including all matters of
construction, validity and performance.
7.5. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties to this Agreement and their
successors or assigns, provided that, except as otherwise provided
herein, the rights and obligations of either party under this
Agreement may not be assigned without the written consent of the
other party. Either party, however, may assign its rights and
obligations to an entity succeeding to substantially all of its
assets and business.
7.6. Execution in Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same
agreement, and shall become a binding agreement when one or more
counterparts have been signed by each party and delivered to the
other party.
7.7. Titles and Headings. Titles and headings to sections herein are
inserted for the convenience of reference only and are not intended
to be a part of or to affect the meaning or interpretation of this
Agreement.
7.8. Benefit. Nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties to this
Agreement or their respective successors or assigns, any rights,
remedies, obligations or liabilities under or by reason of this
Agreement.
7.9. Notices. Any notice or other communication required or permitted
under this Agreement shall be in writing and shall be deemed to have
been given, when received, if personally delivered or delivered by
telegram, telex or facsimile, or, when deposited, if placed in the
U.S. Mails for delivery by registered or certified mail, return
receipt requested, postage prepaid and addressed to the appropriate
party at the addresses set forth on the first page of this Agreement.
Addresses may be changed by written notice given pursuant to the
provisions of this paragraph; however, any such notice shall not be
effective, if mailed, until three (3) working days after depositing
in the U.S. Mails or when actually received, whichever occurs first.
7.10.Severability. The invalidity of any portion hereof shall not affect
the validity, force or effect of the remaining portions hereof.
7.11.Execution of Further Documents. Each party agrees to execute and
deliver without further consideration any further applications,
licenses, assignments or other documents, and to perform such other
lawful acts as the other party may reasonably require to fully secure
and/or evidence the rights or interests herein.
7.12.Arbitration. Any dispute arising out of or relating to this Agreement
or the alleged breach of it, the making of this Agreement or the
agreements referenced herein, including claims of fraud in the
inducement, any dispute relating to Products available to R&D as set
forth in Section 1.2, and any dispute relating to the licensing of
Products for the Diagnositc Markeplace as set forth in Section 3.2,
shall be discussed between the disputing parties in a good faith effort
to arrive at a mutual settlement of any such controversy. If,
notwithstanding, such dispute cannot be resolved, such dispute shall be
settled by binding arbitration. Judgment upon the award rendered by
the arbitrator may be entered in any court having jurisdiction thereof.
The arbitrator shall be a retired state or federal judge or an attorney
who has practiced in substantive areas similar to the issues under
dispute for at least 10 years. If the parties cannot agree on an
arbitrator within 20 days, any party may request that the chief judge
of the District Court for Hennepin County, Minnesota, select an
arbitrator. Arbitration will be conducted pursuant to the provisions
of this Agreement, and the commercial arbitration rules of the American
Arbitration Association, unless such rules are inconsistent with the
provisions of this Agreement, but without submission of the dispute to
such Association. Limited civil discovery shall be permitted for the
production of documents and taking of depositions. Unresolved
discovery disputes may be brought to the attention of the arbitrator
who may dispose of such dispute. The arbitrator shall have the
authority to award any remedy or relief that a court of this state
could order or grant; provided, however, that punitive or exemplary
damages shall not be awarded. The arbitrator may award to the
prevailing party, if any, as determined by the arbitrator, all of its
costs and fees, including the arbitrator's fees. Unless otherwise
agreed by the parties, the place of any arbitration proceedings shall
be Hennepin County, Minnesota.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed in the manner appropriate for each.
RESEARCH AND DIAGNOSTIC SYSTEMS, INC.
By____________________________
Thomas E. Oland
President
DISCOVERY GENOMICS, INC.
By____________________________
John E. Haaland, Ph.D.
President
EXHIBIT A
RESEARCH AND LICENSE AGREEMENT
DGI is engaged in the development of therapeutics and therapeutic targets
using nucleotide analogues, zebrafish and zebrafish embryos, and the sleeping
beauty transposon. DGI owns proprietary technology relating to the use of
certain nucleotide analogues in the zebrafish for the determination of gene
function and the sleeping beauty transposon and uses therefor ("Existing DGI
Technology"), including certain patent applications and invention disclosures
identified below.
Existing DGI Technology, exclusively licensed to DGI by the University of
Minnesota:
Role of EC1 (heparin sulphate-6-0-sulfurotransferase) in the Vascular
Formation in Zebrafish, filed July 6, 2001.
"DNA-Based Transposon System for the Introduction of Nucleic Acid into DNA
of a Cell," U.S. Patent Application Serial No. 142,593, filed September 10,
1998 (from UM Docket 96135).
"Nucleic Acid Transfer Vector for the Introduction of Nucleic Acid into the
DNA of a Cell," U.S. Patent Application Serial No. 191,572 filed November
13, 1998 (from UM Docket 99002).
"Vector-Mediated Delivery of Integrating Transposon Sequences," U.S. Patent
Application Serial No. 569,257 filed May 11, 2000 (from UM Docket 99131).
"Germline Transgenesis in Animals," U.S. Provisional Patent Application
Serial No. 60/229,072 filed August 30, 2000 (from UM Docket Z01029).
Improvement under License L1185. U/M Docket Z01092: Fluorescent-protein
Based Gene Detection using Standard and Insertion Site Context DNA Elements
in Zebrafish, July 24, 2001.
"INHIBITION OF GENE EXPRESSION USING POLYNUCLEOTIDE ANALOGUES", US Patent
application filed 7/30/01. Includes information found within two separate
morphant-based provisional applications, the earliest was filed 7/31/00.
- U.S. Provisional Patent Application Serial No. 60/221,722142,593, filed
July 31, 2000, entitled Morpholino Substituted Oligonucleotides to
Inhibit Gene Expression in Aquatic Organisms.
- U.S. Provisional Patent Application Serial No. 76/169,890 filed
November 22, 2000 entitled Inhibition of Gene Expression in Vertebrate
Organisms.
EX-10.32
5
ccxrights.txt
INVESTOR RIGHTS AGREEMENT WITH CCX
CHEMOCENTRYX, INC.
INVESTORS RIGHTS AGREEMENT
February 2, 2001
TABLE OF CONTENTS
Page
1. REGISTRATION RIGHTS 1
1.1 DEFINITIONS 1
1.2 REQUEST FOR REGISTRATION 2
1.3 COMPANY REGISTRATION 4
1.4 FORM S-3 REGISTRATION 4
1.5 OBLIGATIONS OF THE COMPANY 5
1.6 FURNISH INFORMATION 6
1.7 EXPENSES OF REGISTRATION 6
1.8 UNDERWRITING REQUIREMENTS 7
1.9 DELAY OF REGISTRATION 7
1.10 INDEMNIFICATION 8
1.11 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934 10
1.12 ASSIGNMENT OF REGISTRATION RIGHTS 10
1.13 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS 11
1.14 MARKET-STANDOFF AGREEMENT 11
1.15 TERMINATION OF REGISTRATION RIGHTS 12
2. COVENANTS OF THE COMPANY 12
2.1 DELIVERY OF FINANCIAL STATEMENTS 12
2.2 INSPECTION 12
2.3 RIGHT OF FIRST OFFER 12
2.4 BOARD OF DIRECTORS 14
2.5 OBSERVATION RIGHTS 14
2.6 TERMINATION OF COVENANTS 15
3. MISCELLANEOUS 15
3.1 SUCCESSORS AND ASSIGNS 15
3.2 AMENDMENTS AND WAIVERS 15
3.3 NOTICES 15
3.4 SEVERABILITY 16
3.5 GOVERNING LAW 16
3.6 COUNTERPARTS 16
3.7 TITLES AND SUBTITLES 16
3.8 AGGREGATION OF STOCK 16
3.9 ADDITIONAL INVESTORS 16
3.10 CONSENT 16
CHEMOCENTRYX, INC.
INVESTORS RIGHTS AGREEMENT
This Investors Rights Agreement (the "Agreement") is made as of the
2nd day of February, 2001, by and among ChemoCentryx, Inc., a Delaware
corporation (the "Company"), Techne Corporation, a Minnesota corporation
("Techne"), the individuals or entities who are signatories hereto, each
of which is herein referred to as an "Investor," and Thomas J. Schall (the
"Founder").
RECITALS
The Investors have entered into agreements (the "Purchase Agreements"),
pursuant to which the Investors purchased shares (the "Shares") of Preferred
Stock of the Company. In connection with the Purchase Agreements, the Company
has and is granting certain registration rights to the Investors. All terms
not otherwise defined in this Agreement shall have the meaning defined in the
Purchase Agreements.
AGREEMENT
The parties hereby agree as follows:
1. Registration Rights. The Company, Techne, the Investors and
the Founder covenant and agree as follows:
1.1 Definitions. For purposes of this Section 1:
(a) The terms "register," "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended
(the "Securities Act"), and the declaration or ordering of effectiveness of
such registration statement or document;
(b) The term "Registrable Securities" means (i) the shares of
Common Stock issuable or issued upon conversion of the Series A
Preferred Stock, (ii) the shares of Common Stock issuable or issued upon
conversion of the Series B Preferred Stock, (iii) the shares of Common
Stock issued to the Founder (the "Founder's Stock"); provided, however,
that for the purposes of Section 1.2, 1.4 or 1.13 the Founder's Stock
shall not be deemed Registrable Securities and the Founder shall not be
deemed a Holder, and (iv) any other shares of Common Stock of the Company
issued as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, the
shares listed in (i), (ii) and (iii); provided, however, that the
foregoing definition shall exclude in all cases any Registrable Securities
sold by a person in a transaction in which his or her rights under this
Agreement are not assigned. Notwithstanding the foregoing, Common Stock
or other securities shall only be treated as Registrable Securities if and
so long as they have not been (A) sold to or through a broker or dealer or
underwriter in a public distribution or a public securities transaction,
or (B) sold in a transaction exempt from the registration and prospectus
delivery requirements of the Securities Act under Section 4(1) thereof so
that all transfer restrictions, and restrictive legends with respect
thereto, if any, are removed upon the consummation of such sale;
(c) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are,
Registrable Securities;
(d) The term "Holder" means any person owning or having
the right to acquire Registrable Securities or any assignee thereof in
accordance with Section 1.12 of this Agreement;
(e) The term "Form S-3" means such form under the
Securities Act as in effect on the date hereof or any successor form under
the Securities Act;
(f) The term "SEC" means the Securities and Exchange
Commission; and
(g) The term "Qualified IPO" means a firm commitment
underwritten public offering by the Company of shares of its Common Stock
pursuant to a registration statement on Form S-1 under the Securities Act,
the public offering price of which is not less than $8.00 per share
(appropriately adjusted for any stock split, dividend, combination or
other recapitalization) and which results in aggregate cash proceeds to
the Company of $20,000,000 (net of underwriting discounts and
commissions).
1.2 Request for Registration.
(a) If the Company shall receive at any time after the
earlier of (i) November 15, 2004, or (ii) six (6) months after the
effective date of the first registration statement for a public offering
of securities of the Company (other than a registration statement relating
either to the sale of securities to employees of the Company pursuant to a
stock option, stock purchase or similar plan or an SEC Rule 145
transaction), a written request from either (x) the Holders of a majority
of the Series A Preferred Stock (or the Common Stock issuable or issued
upon conversion thereof) then outstanding or (y) the Holders of a majority
of the Series B Preferred Stock (or the Common Stock issuable or issued
upon conversion thereof) then outstanding that the Company file a
registration statement under the Securities Act covering the registration
of at least thirty percent (30%) of the Registrable Securities then
outstanding (or a lesser percent if the anticipated aggregate offering
price, net of underwriting discounts and commissions, would exceed
$10,000,000), then the Company shall, within ten (10) days of the receipt
thereof, give written notice of such request to all Holders and shall,
subject to the limitations of subsection 1.2(b), use its best efforts to
effect as soon as practicable, and in any event within 60 days of the
receipt of such request, the registration under the Securities Act of all
Registrable Securities which the Holders request to be registered within
twenty (20) days of the mailing of such notice by the Company in
accordance with Section 3.3.
(b) If the Holders initiating the registration request
hereunder ("Initiating Holders") intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they
shall so advise the Company as a part of their request made pursuant to
this Section 1.2 and the Company shall include such information in the
written notice referred to in subsection 1.2(a). The underwriter will be
selected by a majority in interest of the Initiating Holders and shall be
reasonably acceptable to the Company. In such event, the right of any
Holder to include his Registrable Securities in such registration shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting
(unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting
shall (together with the Company as provided in subsection 1.5(e)) enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting. Notwithstanding any other
provision of this Section 1.2, if the underwriter advises the Initiating
Holders in writing that marketing factors require a limitation of the
number of shares to be underwritten, then the Initiating Holders shall so
advise all Holders of Registrable Securities which would otherwise be
underwritten pursuant hereto, and the number of shares of Registrable
Securities that may be included in the underwriting shall be allocated
among all Holders thereof, in proportion (as nearly as practicable) to the
amount of Registrable Securities of the Company owned by each Holder;
provided, however, that in no event shall (i) any securities held by a
Holder (other than an Initiating Holder) be included in such underwriting
if any Initiating Holder's securities are excluded from the underwriting,
or (ii) the number of shares of Registrable Securities to be included in
such underwriting be reduced unless all other securities are first
entirely excluded from the underwriting.
(c) Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting a registration statement pursuant to this
Section 1.2, a certificate signed by the President of the Company stating
that in the good faith judgment of the Board of Directors of the Company,
it would be seriously detrimental to the Company and its stockholders for
such registration statement to be filed and it is therefore essential to
defer the filing of such registration statement, the Company shall have
the right to defer such filing for a period of not more than 120 days
after receipt of the request of the Initiating Holders; provided, however,
that the Company may not utilize this right more than once in any twelve-
month period.
(d) In addition, the Company shall not be obligated to
effect, or to take any action to effect, any registration pursuant to this
Section 1.2:
(i) With respect to Holders of the Series A
Preferred Stock (or the Common Stock issuable or issued upon conversion
thereof), after the Company has effected one (1) registration pursuant to
this Section 1.2 at the request of such Holders of Series A Preferred
Stock and such registration has been declared or ordered effective;
(ii) With respect to Holders of the Series B
Preferred Stock (or the Common Stock issuable or issued upon conversion
thereof), after the Company has effected one (1) registration pursuant to
this Section 1.2 at the request of such Holders of Series B Preferred
Stock and such registration has been declared or ordered effective;
(iii) During the period starting with the date sixty
(60) days prior to the Company's good faith estimate of the date of filing
of, and ending on a date one hundred eighty (180) days after the effective
date of, a registration subject to Section 1.3 hereof; provided that the
Company is actively employing in good faith all reasonable efforts to
cause such registration statement to become effective; or
(iv) If the Initiating Holders propose to dispose
of shares of Registrable Securities that may be immediately registered on
Form S-3 pursuant to a request made pursuant to Section 1.4 below.
1.3 Company Registration. If (but without any obligation to
do so) the Company proposes to register (including for this purpose a
registration effected by the Company for stockholders other than the
Holders) any of its stock under the Securities Act in connection with the
public offering of such securities solely for cash (other than a
registration relating solely to the sale of securities to participants in
a Company stock plan or a transaction covered by Rule 145 under the
Securities Act, a registration in which the only stock being registered is
Common Stock issuable upon conversion of debt securities which are also
being registered, or any registration on any form which does not include
substantially the same information as would be required to be included in
a registration statement covering the sale of the Registrable Securities),
the Company shall, at such time, promptly give each Holder written notice
of such registration. Upon the written request of each Holder given
within twenty (20) days after mailing of such notice by the Company in
accordance with Section 3.3, the Company shall, subject to the provisions
of Section 1.8, cause to be registered under the Securities Act all of the
Registrable Securities that each such Holder has requested to be
registered.
1.4 Form S-3 Registration. In case the Company shall receive
from any Holder or Holders of the Registrable Securities, a written
request or requests that the Company file a registration on Form S-3 and
the reasonably anticipated aggregate offering price, net of underwriting
discounts and commissions, would exceed $2,000,000, the Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other
Holders; and
(b) as soon as practicable, effect such registration and
all such qualifications and compliances as may be so requested and as
would permit or facilitate the sale and distribution of all or such
portion of such Holder's or Holders' Registrable Securities as are
specified in such request, together with all or such portion of the
Registrable Securities of any other Holder or Holders joining in such
request as are specified in a written request given within 15 days after
receipt of such written notice from the Company; provided, however, that
the Company shall not be obligated to effect any such registration,
qualification or compliance, pursuant to this Section 1.4: (i) if
Form S-3 is not available for such offering by the Holders; (ii) if the
Company shall furnish to the Holders a certificate signed by the President
of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company
and its stockholders for such Form S-3 Registration to be effected at such
time, in which event the Company shall have the right to defer the filing
of the Form S-3 registration statement for a period of not more than 120
days after receipt of the request of the Holder or Holders under this
Section 1.4; provided, however, that the Company shall not utilize this
right more than once in any twelve month period; (iii) if the Company has,
within the twelve (12) month period preceding the date of such request,
already effected a registration on Form S-3 for the Holders pursuant to
this Section 1.4; (iv) in any particular jurisdiction in which the Company
would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration,
qualification or compliance; or (v) during the period ending one hundred
eighty (180) days after the effective date of a registration statement
subject to Section 1.3.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after
receipt of the request or requests of the Holders. Registrations effected
pursuant to this Section 1.4 shall not be counted as demands for
registration or registrations effected pursuant to Sections 1.2 or 1.3,
respectively.
1.5 Obligations of the Company. Whenever required under this
Section 1 to effect the registration of any Registrable Securities, the
Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best
efforts to cause such registration statement to become effective, and,
upon the request of the Holders of a majority of the Registrable
Securities registered thereunder, keep such registration statement
effective for up to one hundred twenty (120) days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement for up to one
hundred twenty (120) days.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders, provided that the Company shall not be required
in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such
states or jurisdictions.
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in
usual and customary form, with the managing underwriter of such offering.
Each Holder participating in such underwriting shall also enter into and
perform its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered
by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the
happening of any event as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing, such
obligation to continue for one hundred twenty (120) days.
(g) Cause all such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange on which
similar securities issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all
Registrable Securities registered pursuant hereunder and a CUSIP number
for all such Registrable Securities, in each case not later than the
effective date of such registration.
(i) Use its best efforts to furnish, at the request of
any Holder requesting registration of Registrable Securities pursuant to
this Section 1, on the date that such Registrable Securities are delivered
to the underwriters for sale in connection with a registration pursuant to
this Section 1, if such securities are being sold through underwriters,
or, if such securities are not being sold through underwriters, on the
date that the registration statement with respect to such securities
becomes effective, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities and (ii) a letter dated
such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.
1.6 Furnish Information. It shall be a condition precedent
to the obligations of the Company to take any action pursuant to this
Section 1 with respect to the Registrable Securities of any selling Holder
that such Holder shall furnish to the Company such information regarding
itself, the Registrable Securities held by it, and the intended method of
disposition of such securities as shall be required to effect the
registration of such Holder's Registrable Securities. The Company shall
have no obligation with respect to any registration requested pursuant to
Section 1.2 or Section 1.4 of this Agreement if, as a result of the
application of the preceding sentence, the number of shares or the
anticipated aggregate offering price of the Registrable Securities to be
included in the registration does not equal or exceed the number of shares
or the anticipated aggregate offering price required to originally trigger
the Company's obligation to initiate such registration as specified in
subsection 1.2(a) or subsection 1.4(b)(2), whichever is applicable.
1.7 Expenses of Registration. All expenses (other than
underwriting discounts and commissions incurred in connection with
registrations), filings or qualifications pursuant to Sections 1.2, 1.3
and 1.4, including (without limitation) all registration, filing and
qualification fees, printers' and accounting fees, fees and disbursements
of counsel for the Company, and the reasonable fees and disbursements of
one counsel for the selling Holders selected by them with the approval of
the Company, which approval shall not be unreasonably withheld, shall be
borne by the Company; provided, however, that the Company shall not be
required to pay for any expenses of any registration proceeding begun
pursuant to Section 1.2 if the registration request is subsequently
withdrawn at the request of the Holders of a majority of the Registrable
Securities to be registered (in which case all participating Holders shall
bear such expenses), unless the Initiating Holders of a majority of the
Registrable Securities agree to forfeit their right to one demand
registration pursuant to Section 1.2.
1.8 Underwriting Requirements. In connection with any
offering involving an underwriting of shares of the Company's capital
stock, the Company shall not be required under Section 1.3 to include any
of the Holders' securities in such underwriting unless they accept the
terms of the underwriting as agreed upon between the Company and the
underwriters selected by it (or by other persons entitled to select the
underwriters), and then only in such quantity as the underwriters
determine in their sole discretion will not jeopardize the success of the
offering by the Company. If the total amount of securities, including
Registrable Securities, requested by stockholders to be included in such
offering exceeds the amount of securities sold other than by the Company
that the underwriters determine in their sole discretion is compatible
with the success of the offering, then the Company shall be required to
include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities
so included to be apportioned pro rata among the selling stockholders
according to the total amount of securities entitled to be included
therein owned by each selling stockholder or in such other proportions as
shall mutually be agreed to by such selling stockholders) but in no event
shall (i) the amount of securities of the selling Holders included in the
offering be reduced below twenty percent (20%) of the total amount of
securities included in such offering unless such offering is the initial
public offering of the Company's securities, in which case the selling
Holders may be excluded if the underwriters make the determination
described above and no other stockholder's securities are included or (ii)
any securities held by a Founder be included if any securities held by any
selling Holder are excluded. For purposes of the preceding parenthetical
concerning apportionment, for any selling stockholder which is a holder of
Registrable Securities and which is a partnership or corporation, the
partners, retired partners and stockholders of such holder, or the estates
and family members of any such partners and retired partners and any
trusts for the benefit of any of the foregoing persons shall be deemed to
be a single "selling stockholder," and any pro-rata reduction with respect
to such "selling stockholder" shall be based upon the aggregate amount of
shares carrying registration rights owned by all entities and individuals
included in such "selling stockholder," as defined in this sentence.
1.9 Delay of Registration. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with
respect to the interpretation or implementation of this Section 1.
1.10 Indemnification. In the event any Registrable Securities
are included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, its officers, directors,
employees, partners, members and agents, any underwriter (as defined in
the Securities Act) for such Holder and each person, if any, who controls
such Holder or underwriter within the meaning of the Securities Act or the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), against
any losses, claims, damages, or liabilities (joint or several) and
reasonable expenses to which they may become subject under the Securities
Act, the Exchange Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon any of the following statements, omissions
or violations (collectively a "Violation"): (i) any untrue statement or
alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to
be stated therein, or necessary to make the statements therein not
misleading, or (iii) any violation or alleged violation by the Company of
the Securities Act, the Exchange Act, any state securities law or any rule
or regulation promulgated under the Securities Act, the Exchange Act or
any state securities law; and the Company will pay to each such Holder,
underwriter or controlling person, as incurred, any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided,
however, that the indemnity agreement contained in this subsection 1.10(a)
shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability, or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld),
nor shall the Company be liable to any Holder, underwriter or controlling
person for any such loss, claim, damage, liability, or action to the
extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such Holder,
underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder
will indemnify and hold harmless the Company, each of its directors, each
of its officers who has signed the registration statement, each person, if
any, who controls the Company within the meaning of the Securities Act,
any underwriter, any other Holder selling securities in such registration
statement and any controlling person of any such underwriter or other
Holder, against any losses, claims, damages, or liabilities (joint or
several) and reasonable expenses to which any of the foregoing persons may
become subject, under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise out of or are based upon
any Violation, in each case to the extent (and only to the extent) that
such Violation occurs in reliance upon and in conformity with written
information furnished by such Holder expressly for use in connection with
such registration; and each such Holder will pay, as incurred, any legal
or other expenses reasonably incurred by any person intended to be
indemnified pursuant to this subsection 1.10(b), in connection with
investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
subsection 1.10(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Holder, which consent shall not be
unreasonably withheld; provided, that in no event shall any indemnity
under this subsection 1.10(b) exceed the net proceeds from the offering
received by such Holder, except in the case of willful fraud by such
Holder.
(c) Promptly after receipt by an indemnified party under
this Section 1.10 of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this
Section 1.10, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly noticed, to assume the
defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party (together with all other
indemnified parties which may be represented without conflict by one
counsel) shall have the right to retain one separate counsel, with the
reasonable fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend
such action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 1.10, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under
this Section 1.10.
(d) If the indemnification provided for in this
Section 1.10 is held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any loss, liability,
claim, damage or expense referred to therein, then the indemnifying party,
in lieu of indemnifying such indemnified party hereunder, shall contribute
to the amount paid or payable by such indemnified party as a result of
such loss, liability, claim, damage, or expense in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the
one hand and of the indemnified party on the other in connection with the
statements or omissions that resulted in such loss, liability, claim,
damage or expense as well as any other relevant equitable considerations;
provided, that in no event shall any contribution by a Holder under this
Subsection 1.10(d) exceed the net proceeds from the offering received by
such Holder, except in the case of willful fraud by such Holder. The
relative fault of the indemnifying party and of the indemnified party
shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission to
state a material fact relates to information supplied by the indemnifying
party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent
such statement or omission.
(e) Notwithstanding the foregoing, to the extent that
the provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten
public offering are in conflict with the foregoing provisions, the
provisions in the underwriting agreement shall control.
(f) The obligations of the Company and Holders under
this Section 1.10 shall survive the completion of any offering of
Registrable Securities in a registration statement under this Section 1,
and otherwise.
1.11 Reports Under Securities Exchange Act of 1934. With a
view to making available to the Holders the benefits of Rule 144
promulgated under the Securities Act and any other rule or regulation of
the SEC that may at any time permit a Holder to sell securities of the
Company to the public without registration or pursuant to a registration
on Form S-3, the Company agrees to:
(a) make and keep public information available, as those
terms are understood and defined in SEC Rule 144, at all times after
ninety (90) days after the effective date of the first registration
statement filed by the Company for the offering of its securities to the
general public so long as the Company remains subject to the periodic
reporting requirements under Sections 13 or 15(d) of the Exchange Act;
(b) take such action, including the voluntary
registration of its Common Stock under Section 12 of the Exchange Act, as
is necessary to enable the Holders to utilize Form S-3 for the sale of
their Registrable Securities, such action to be taken as soon as
practicable after the end of the fiscal year in which the first
registration statement filed by the Company for the offering of its
securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(d) furnish to any Holder, so long as the Holder owns
any Registrable Securities, forthwith upon request (i) a written statement
by the Company that it has complied with the reporting requirements of SEC
Rule 144 (at any time after ninety (90) days after the effective date of
the first registration statement filed by the Company), the Securities Act
and the Exchange Act (at any time after it has become subject to such
reporting requirements), or that it qualifies as a registrant whose
securities may be resold pursuant to Form S-3 (at any time after it so
qualifies), (ii) a copy of the most recent annual or quarterly report of
the Company and such other reports and documents so filed by the Company,
and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such
form.
1.12 Assignment of Registration Rights. The rights to cause
the Company to register Registrable Securities pursuant to this Section 1
may be assigned (but only with all related obligations) by a Holder to a
transferee or assignee of (a) at least 1,000,000 shares of such
securities, or (b) all securities owned by a Holder, provided the Company
is, within a reasonable time after such transfer, furnished with written
notice of the name and address of such transferee or assignee and the
securities with respect to which such registration rights are being
assigned. For the purposes of determining the number of shares of
Registrable Securities held by a transferee or assignee, the holdings of
transferees and assignees of a partnership who are partners or retired
partners of such partnership (including spouses and ancestors, lineal
descendants and siblings of such partners or spouses who acquire
Registrable Securities by gift, will or intestate succession) shall be
aggregated together and with the partnership; provided that all assignees
and transferees who would not qualify individually for assignment of
registration rights shall have a single attorney-in-fact for the purpose
of exercising any rights, receiving notices or taking any action under
Section 1.
1.13 Limitations on Subsequent Registration Rights. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of a majority of the Series A Preferred
Stock (or the Common Stock issuable or issued upon conversion thereof) and
the Series B Preferred Stock (or the Common Stock issuable or issued upon
conversion thereof), voting together as a single class, enter into any
agreement with any holder or prospective holder of any securities of the
Company which would allow such holder or prospective holder (a) to include
such securities in any registration filed under Section 1.2 hereof, unless
under the terms of such agreement, such holder or prospective holder may
include such securities in any such registration only to the extent that
the inclusion of his securities will not reduce the amount of the
Registrable Securities of the Holders which is included or (b) to make a
demand registration which could result in such registration statement
being declared effective prior to the earlier of either of the dates set
forth in subsection 1.2(a) or within one hundred twenty (120) days of the
effective date of any registration effected pursuant to Section 1.2.
1.14 Market-Standoff Agreement.
(a) Market-Standoff Period; Agreement. In connection
with the initial public offering of the Company's securities and upon
request of the Company or the underwriters managing such offering of the
Company's securities, each Holder agrees not to sell, make any short sale
of, loan, grant any option for the purchase of, or otherwise dispose of
any securities of the Company (other than those included in the
registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed
180 days) from the effective date of such registration as may be requested
by the Company or such managing underwriters and to execute an agreement
reflecting the foregoing as may be requested by the underwriters at the
time of the Company's initial public offering.
(b) Limitations. The obligations described in Section
1.14(a) shall apply only if all officers, directors and five percent (5%)
stockholders of the Company enter into similar agreements, and shall not
apply to a registration relating solely to employee benefit plans, or to a
registration relating solely to a transaction pursuant to Rule 145 under
the Securities Act.
(c) Stop-Transfer Instructions. In order to enforce the
foregoing covenants, the Company may impose stop-transfer instructions
with respect to the securities of each Holder (and the securities of every
other person subject to the restrictions in Section 1.14(a)).
(d) Transferees Bound. Each Holder agrees that prior to
the Company's initial public offering it will not transfer securities of
the Company unless each transferee agrees in writing to be bound by all of
the provisions of this Section 1.14.
1.15 Termination of Registration Rights. No Holder shall be
entitled to exercise any right provided for in this Section 1 after the
earlier of (i) five (5) years following the consummation of a Qualified
IPO, or (ii) such time as Rule 144 or another similar exemption under the
Securities Act is available for the sale of all of such Holder's shares
during a three (3)-month period without registration and without
limitation.
2. Covenants of the Company.
2.1 Delivery of Financial Statements. The Company shall
deliver to each Holder of at least 400,000 shares of Registrable
Securities:
(a) as soon as practicable, but in any event within
ninety (90) days after the end of each fiscal year of the Company, an
income statement for such fiscal year, a balance sheet of the Company and
statement of stockholder's equity as of the end of such year, and a
statement of cash flows for such year, such year-end financial reports to
be in reasonable detail, prepared in accordance with generally accepted
accounting principles ("GAAP"), and audited and certified by an
independent public accounting firm of nationally recognized standing
selected by the Company;
(b) as soon as practicable, but in any event within
thirty (30) days after the end of each of the first three (3) quarters of
each fiscal year of the Company, an unaudited profit or loss statement, a
statement of cash flows for such fiscal quarter and an unaudited balance
sheet as of the end of such fiscal quarter prepared in accordance with
GAAP;
(c) upon written request, within thirty (30) days of the
end of each month, an unaudited income statement and a statement of cash
flows and balance sheet for and as of the end of such month, in reasonable
detail; provided, however, that only Holders of at least 2,000,000 shares
of Registrable Securities shall be entitled to request such statement; and
(d) as soon as practicable, but in any event thirty (30)
days prior to the end of each fiscal year, a budget and business plan for
the next fiscal year, prepared on a monthly basis, and, as soon as
prepared, any other budgets or revised budgets prepared by the Company.
2.2 Inspection. The Company shall permit each Holder of at
least 400,000 shares of Registrable Securities, at such Holder's expense,
to visit and inspect the Company's properties, to examine its books of
account and records and to discuss the Company's affairs, finances and
accounts with its officers, all at such reasonable times as may be
requested by the Investor or Techne, as applicable; provided, however,
that the Company shall not be obligated pursuant to this Section 2.2 to
provide access to any information which it reasonably considers to be a
trade secret or similar confidential information, the disclosure of which
would have a material adverse effect on the Company or which would
jeopardize the trade secret's status as such.
2.3 Right of First Offer. Subject to the terms and
conditions specified in this Section 2.3, the Company hereby grants to
each Major Investor (as hereinafter defined) a right of first offer with
respect to future sales by the Company of its Shares (as hereinafter
defined). For purposes of this Section 2.3, a "Major Investor" shall mean
any person who holds at least 1,000,000 shares of Registrable Securities.
For purposes of this Section 2.3, Major Investor includes any general
partners and affiliates of a Major Investor. A Major Investor who chooses
to exercise the right of first offer may designate as purchasers under
such right itself or its partners or affiliates in such proportions as it
deems appropriate.
Each time the Company proposes to offer any shares of, or
securities convertible into or exercisable for any shares of, any class of
its capital stock ("Shares"), the Company shall first make an offering of
such Shares to each Major Investor in accordance with the following
provisions:
(a) The Company shall deliver a notice by certified mail
("Notice") to the Major Investors stating (i) its bona fide intention to
offer such Shares, (ii) the number of such Shares to be offered, and
(iii) the price and terms, if any, upon which it proposes to offer such
Shares.
(b) Within 15 calendar days after delivery of the
Notice, the Major Investor may elect to purchase or obtain, at the price
and on the terms specified in the Notice, up to that portion of such
Shares which equals the proportion that the number of shares of Common
Stock issued and held, or issuable upon conversion and exercise of all
convertible or exercisable securities then held, by such Major Investor
bears to the total number of shares of Common Stock then outstanding
(assuming full conversion and exercise of all convertible or exercisable
securities). The Company shall promptly, in writing, inform each Major
Investor that purchases all the shares available to it (each, a
"Fully-Exercising Investor") of any other Major Investor's failure to do
likewise. During the ten (10)-day period commencing after receipt of such
information, each Fully-Exercising Investor shall be entitled to obtain
that portion of the Shares for which Major Investors were entitled to
subscribe but which were not subscribed for by the Major Investors that is
equal to the proportion that the number of shares of Common Stock issued
and held, or issuable upon conversion and exercise of all convertible or
exercisable securities then held, by such Fully-Exercising Investor bears
to the total number of shares of Common Stock then outstanding (assuming
full conversion and exercise of all convertible or exercisable
securities).
(c) The Company may, during the 45-day period following
the expiration of the period provided in subsection 2.3(b) hereof, offer
the remaining unsubscribed portion of the Shares to any person or persons
at a price not less than, and upon terms no more favorable to the offeree
than those specified in the Notice. If the Company does not enter into an
agreement for the sale of the Shares within such period, or if such
agreement is not consummated within 60 days of the execution thereof, the
right provided hereunder shall be deemed to be revived and such Shares
shall not be offered unless first reoffered to the Major Investors in
accordance herewith.
(d) The right of first offer in this paragraph 2.3 shall
not be applicable (i) to the issuance or sale of up to 2,500,000 shares of
Common Stock (or options therefor) since the inception of the Company to
employees, consultants and directors, pursuant to plans or agreements
approved by the Board of Directors for the primary purpose of soliciting
or retaining their services, (ii) to or after consummation of a Qualified
IPO, (iii) to the issuance of securities pursuant to the conversion or
exercise of convertible or exercisable securities outstanding as of the
date hereof, (iv) to the issuance of securities in connection with a bona
fide business acquisition of or by the Company that is approved by the
Board of Directors, whether by merger, consolidation, sale of assets, sale
or exchange of stock or otherwise, (v) to the issuance of securities to
financial institutions or lessors in connection with commercial credit
arrangements, equipment financings, or similar transactions, (vi) to the
issuance or sale of up to 8,153,846 shares of Series B Preferred Stock, or
(vii) to the issuance of securities that, with unanimous approval of the
Board of Directors of the Company, are not offered to any existing
stockholder of the Company.
2.4 Board of Directors. As of the date of this Agreement,
and notwithstanding anything to the contrary in the Bylaws of the Company,
the Board of Directors of the Company shall consist of five (5) members,
not more than two (2) of which shall be employees of the Company. OrbiMed
Advisors LLC or its affiliates (collectively "OrbiMed") shall have the
right to designate one member of the Board of Directors and the OrbiMed
designee shall also be a member of each committee of the Board of
Directors, including, without limitation, the Compensation Committee and
the Audit Committee. The Board of Directors shall hold a regularly
scheduled meeting at least once every ninety (90) days. Each member of the
Board of Directors and the members of each committee of the Board of
Directors shall receive notice of each meeting at least fifteen (15) days
before the meeting and such notice shall be provided to each member in the
same manner. The Company will reimburse the OrbiMed director for his
reasonable out-of-pocket and travel expenses incurred in connection with
attending such meetings.
2.5 Observation Rights.
(a) The Company agrees that for so long as Healthcap III
or its affiliates (collectively "Healthcap") owns 269,231 shares of
Registrable Securities, Healthcap shall be entitled to designate one
individual to act as a non-voting observer of the Board of Directors of
the Company (the "Observer"). The Observer shall not have any right to
vote as a director of the Company but shall otherwise be entitled to
notice of and to attend all meetings of the Board of Directors of the
Company, and to receive any material distributed to the directors in their
capacity as directors of the Company. The Company shall not have any
obligation to pay any expenses incurred in connection with the Observer's
attendance at such meetings.
(b) The Observer shall be subject to the obligations of
confidentiality set forth in the Purchase Agreements. Notwithstanding
Section 2.5(a), the Company reserves the right not to provide information
and to exclude the Observer from any meeting or portion thereof if
delivery of such information or attendance at such meeting would result in
a loss of trade secret protection for trade secrets of the Company, or
would adversely affect the attorney-client privilege between the Company
and its counsel.
2.6 Termination of Covenants.
(a) The covenants set forth in Sections 2.1 through
Section 2.5 shall terminate as to each Investor and Techne and be of no
further force or effect (i) immediately prior to the consummation of a
Qualified IPO, or (ii) at such time the Company becomes subject to the
reporting provisions of the Securities and Exchange Act of 1934, as
amended.
(b) The covenants set forth in Sections 2.1 and 2.2
shall terminate as to each Holder and be of no further force or effect
when the Company first becomes subject to the periodic reporting
requirements of Sections 13 or 15(d) of the Exchange Act, if this occurs
earlier than the events described in Section 2.6(a) above.
3. Miscellaneous.
3.1 Successors and Assigns. Except as otherwise provided in
this Agreement, the terms and conditions of this Agreement shall inure to
the benefit of and be binding upon the respective permitted successors and
assigns of the parties (including transferees of any of the Registrable
Securities). Nothing in this Agreement, express or implied, is intended
to confer upon any party other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations, or liabilities
under or by reason of this Agreement, except as expressly provided in this
Agreement.
3.2 Amendments and Waivers. Any term of this Agreement may
be amended or waived only with the written consent of the Company and the
holders of a majority of the Registrable Securities then outstanding, not
including the Founder's Stock; provided that if (i) such amendment has the
effect of affecting the Founder's Stock (a) in a manner different than
securities issued to the Investors or Techne and (b) in a manner adverse
to the interests of the holders of the Founder's Stock, then such
amendment shall require the consent of the holder or holders of a majority
of the Founder's Stock, (ii) such amendment has the effect of affecting
the Series A Preferred Stock (m) in a manner different than securities
issued to the Investors or (n) in a manner adverse to the interests of the
holders of the Series A Preferred Stock, then such amendment shall require
the consent of the holder or holders of a majority of the Series A
Preferred Stock, (iii) such amendment has the effect of affecting the
Series B Preferred Stock (x) in a manner different than securities issued
to Techne or (y) in a manner adverse to the interests of the holders of
the Series B Preferred Stock, then such amendment shall require the
consent of the holder or holders of a majority of the Series B Preferred
Stock, or (iv) such amendment alters Section 2.4, then such amendment
shall require the consent of OrbiMed. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
Registrable Securities then outstanding, each future holder of all such
Registrable Securities, and the Company.
3.3 Notices. Unless otherwise provided, any notice required
or permitted by this Agreement shall be in writing and shall be deemed
sufficient upon delivery, when delivered personally or by overnight
courier or sent by telegram or fax, or forty-eight (48) hours after being
deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, and addressed to the party to be notified at such party's address
or fax number as set forth below hereto or as subsequently modified by
written notice.
3.4 Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, the parties
agree to renegotiate such provision in good faith. In the event that the
parties cannot reach a mutually agreeable and enforceable replacement for
such provision, then (a) such provision shall be excluded from this
Agreement, (b) the balance of the Agreement shall be interpreted as if
such provision were so excluded and (c) the balance of the Agreement shall
be enforceable in accordance with its terms.
3.5 Governing Law. This Agreement and all acts and
transactions pursuant hereto shall be governed, construed and interpreted
in accordance with the laws of the State of New York, without giving
effect to principles of conflicts of laws.
3.6 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
3.7 Titles and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered
in construing or interpreting this Agreement.
3.8 Aggregation of Stock. All shares of the Preferred Stock
held or acquired by affiliated entities or persons, successor entities,
investment funds managed or advised by an Investor, a manager or advisor
of an Investor, or an affiliate of such manager or advisor shall be
aggregated together for the purpose of determining the availability of any
rights under this Agreement.
3.9 Additional Investors. Notwithstanding anything to the
contrary contained herein, if the Company shall issue additional shares of
its Series B Preferred Stock, any purchaser of such shares of Series B
Preferred Stock may become a party to this Agreement by executing and
delivering an additional counterpart signature page to this Agreement and
shall be deemed an "Investor" hereunder.
3.10 Consent. The execution and delivery of this Agreement by
Techne shall constitute: (i) a complete waiver of Techne's rights under
Sections 6.3, 6.4, 6.5, 6.13, 7.1, 7.2(a) and 8 of that certain Investment
Agreement, dated November 18, 1997, by and between the Company and Techne;
and (ii) consent to the Company's proposed Amended and Restated
Certificate of Incorporation, in the form attached as Exhibit A to the
Purchase Agreement.
The parties have executed this Investors Rights Agreement as of the
date first above written.
COMPANY: INVESTORS:
CHEMOCENTRYX, INC. ________________________
(Investor)
By:_____________________ By:_____________________
Name: Thomas J. Schall
Title: President and Chief Executive Officer Name:___________________
(print)
Address: Title:__________________
Fax: Address:
Fax:
FOUNDER: TECHNE:
___________________________ TECHNE CORPORATION
Thomas J. Schall
By:______________________
Name:____________________
Title:___________________
Address:
Fax:
EX-10.33
6
ccxletter.txt
LETTER AGREEMENT WITH CCX
LETTER AGREEMENT
This Letter Agreement ("Letter Agreement") is made and entered into as of
the 2nd day of February 2001, by and between ChemoCentryx, Inc., a Delaware
corporation (the "Company") and Techne Corporation, a Minnesota corporation
("Techne").
RECITALS
WHEREAS, the Company and Techne previously entered into an Investment
Agreement dated November 18, 1997, pursuant to which Techne purchased shares of
the Company's Series A Preferred Stock (the "Series A Stock") and was granted
warrants to purchase shares of the Series A Stock (the "Warrants"); and
WHEREAS, the Company and Techne desire to amend the terms of the
Warrants.
AGREEMENT
NOW, THEREFORE, the parties hereby agree as follows:
1. Relation to the Warrants. Except as hereby amended, the Warrants
shall continue in full force and effect.
2. Amendment. The Warrants are hereby amended so that they shall
not expire until December 31, 2005.
3. Miscellaneous. This Letter Agreement and all acts and
transactions pursuant hereto and the rights and obligation of the parties
hereto shall be governed, construed and interpreted in all respects by the laws
of the State of California, without regard to the conflict of law provisions
thereof.
4. Counterparts. This Letter Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[Signature Page Follows]
The parties have executed this Letter Agreement as of the date first above
written.
COMPANY:
CHEMOCENTRYX, INC.
By:
Name:
Title:
TECHNE:
TECHNE CORPORATION
By:
Name:
Title:
EX-10.34
7
amend.txt
THIRD AMENDMENT TO PHASE I OPTION AGREEMENT
THIRD AMENDMENT TO PHASE I OPTION AGREEMENT
(2101 Kennedy Option)
THIS THIRD AMENDMENT TO PHASE I OPTION AGREEMENT is dated this 4th day of
October, 2000, by and between Hillcrest Development ("Owner") and Techne
Corporation ("Buyer").
RECITALS:
1. Owner and Buyer's predecessor in interest, R & D Systems, Inc., entered
into a Phase I Option Agreement dated February 10, 1999 (the "Option
Agreement") with respect to property commonly known as 2101 Kennedy and 659
Cleveland, together with surface parking parcels (the "Property").
2. The parties wish to amend the Option Agreement on the terms and
conditions hereafter set forth.
NOW, THEREFORE, in consideration of the foregoing, the parties agree as
follows:
1. Except as provided herein, the term "Property" as used both in the
Option Agreement and in the Purchase Agreement attached as Exhibit B to the
Option Agreement (the "Exhibit B Purchase Agreement") shall exclude that
northerly portion of Parcel A on Exhibit A to the Option Agreement which will
be taken by the City of Minneapolis in its realignment of Kennedy Street but
shall include an additional strip ("Additional Strip") of surface parking
legally described as follows:
That portion of Lot 33, Auditor's Subdivision Number 268, Hennepin
County, Minnesota, described as follows: Beginning at a point in
the North Line of Block 12, "Minneapolis Industrial District", which
point is 815.96 feet West of the Northeast corner of said Block 12;
then South parallel with the Southwest line of said Lot 33 a distance
of 368.03 feet; then Southwesterly on a line which is perpendicular
to Southwest line of said Lot 33 to said Southwesterly line of Lot 33;
thence Northwesterly on the Southwesterly line of said Lot 33 to
the North Line of Block 12, thence Easterly on the North Line of Block
12 to point of beginning.
2. The Purchase Price as defined in paragraph 3 of the Option Agreement and
in Section I of the Purchase Agreement attached as Exhibit B to the Option
Agreement shall be deemed to have increased by an additional amount equal to
$20,000 plus the anticipated costs, legal expenses and survey expenses incurred
by Owner in its acquisition of the Additional Strip, which anticipated costs,
legal expenses and survey expenses is estimated to be $2,000.
3. Buyer agrees to reimburse Owner at closing for any and all costs and
expenses that Owner incurs in improving the Northerly portion of the MT-BN Lot
and the Additional Strip, including but not limited to, costs and expenses for
grading, fencing, landscaping, blacktopping, lighting, site work and related
items. Buyer also agrees at closing to reimburse Owner for up to $20,000.00
in asbestos removal expenses incurred with respect to 2101 Kennedy Street.
4. The representations and warranties contained in Section 4 of the
Option Agreement, or Section IX of the Exhibit B Purchase Agreement, as they
may relate to the environmental or physical condition of the Property, shall
not extend to the Additional Strip since it is acknowledged that Owner, when
purchasing the Additional Strip, did not undertake any environmental or
physical examination of the Additional Strip. It is agreed that any leases
for use of the railroad trackage on the Additional Strip shall be deemed a
Permitted Encumbrance. In the event Buyer exercises its option to purchase the
Property, Buyer shall have no rights to terminate the Purchase Agreement for
the Property due to the physical condition or environmental condition of the
Additional Strip pursuant to the final paragraph of Section IV of the Exhibit B
Purchase Agreement.
5. Buyer agrees that a storm water retention pond ("Pond") may be
constructed on or prior to the closing on the Triangular Portion to benefit the
Property and other properties in the Stinson Technology District. Buyer
further agrees that after the closing it will, if requested by Owner, execute
a recordable easement ("Easement") to evidence the use of the Pond by the
other benefited properties provided that all owners of the benefited properties
shall execute an agreement to share in proportion to their prospective use in
any maintenance costs of the Pond. The Easement shall be deemed a Permitted
Encumbrance in the event it is executed by Owner prior to the closing.
6. Except as provided for above, all the terms and conditions of the
Option Agreement shall remain in full force and effect. All agreements of
Buyer and Owner herein shall survive the closing.
OWNER: BUYER:
HILLCREST DEVELOPMENT TECHNE CORPORATION
By: By:
Its: General Partner Its: President
EX-10.35
8
tsang.txt
EXTENSION AGREEMENT WITH MONICA TSANG
EXTENSION OF EMPLOYMENT AGREEMENT
DATE: August 28, 2001
Parties: Techne Corporation
614 McKinley Place N.E.
Minneapolis, MN 55413
Monica Tsang, Ph.D.
AGREEMENTS:
The parties hereby agree that the termination date of the Employment
Agreement between them for the period July 1, 1995 through June 30, 1998 and
previously extended to June 30, 2001 is extended to June 30, 2004. All other
provisions of such Employment Agreement shall remain in full force and
effect.
Techne Corporation
By /s/ Thomas E. Oland
Thomas E. Oland, President
/s/ Monica Tsang
Monica Tsang, Ph.D.
EX-10.36
9
veronneau.txt
EXTENSION AGREEMENT WITH MARCEL VERONNEAU
EXTENSION OF EMPLOYMENT AGREEMENT
DATE: August 28, 2001
Parties: Techne Corporation
614 McKinley Place N.E.
Minneapolis, MN 55413
Marcel Veronneau
AGREEMENTS:
The parties hereby agree that the termination date of the Employment
Agreement between them for the period July 1, 1995 through June 30, 1998 and
previously extended to June 30, 2001 is extended to June 30, 2004. All other
provisions of such Employment Agreement shall remain in full force and
effect.
Techne Corporation
By /s/ Thomas E. Oland
Thomas E. Oland, President
/s/ Marcel Veronneau
Marcel Veronneau
EX-11
10
ex11.txt
CALCULATION OF EPS
TECHNE CORPORATION
CALCULATION OF BASIC EARNINGS PER SHARE
Fiscal Years Ended June 30,
-------------------------------------
2001 2000 1999
----------- ----------- -----------
Net earnings $34,045,376 $26,582,797 $16,656,010
Weighted average number
of common shares 41,438,670 40,625,482 40,234,734
Net earnings per share $ 0.82 $ 0.65 $ 0.41
CALCULATION OF DILUTED EARNINGS PER SHARE
Fiscal Years Ended June 30,
-------------------------------------
2001 2000 1999
----------- ----------- -----------
Net earnings $34,045,376 $26,582,797 $16,656,010
Weighted average number
of common shares 41,438,670 40,625,482 40,234,734
Dilutive effect of stock
options and warrants 1,229,566 1,580,560 1,138,616
----------- ----------- -----------
Average common and dilutive
shares outstanding 42,668,236 42,206,042 41,373,350
=========== =========== ===========
Net earnings per share $ 0.80 $ 0.63 $ 0.40
EX-23
11
ex23.txt
AUDITORS' CONSENT
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-42992, 33-49160, 33-86728, 33-86732, 333-14211, 333-37263, 333-88885 and
333-49962 of Techne Corporation on Form S-8, of our report dated August 14,
2001, included in this Annual Report on Form 10-K of Techne Corporation for
the year ended June 30, 2001.
/s/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
September 27, 2001