Download SECURITIES AND EXCHANGE COMMISSION Washington, D.C.

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-K
(Mark One)
|X|ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
----------------
October 31, 1999
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 0-15266
------BIO-REFERENCE LABORATORIES, INC.
-------------------------------(Exact name of registrant as specified in its charter)
New Jersey
---------(State or other jurisdiction of
incorporation or organization)
22-2405059
---------(I.R.S. Employer
Identification No.)
481 Edward H. Ross Drive, Elmwood Park, New Jersey
-------------------------------------------------(Address of principal executive offices)
Issuer's telephone number, including area code
------------
07407
----(Zip Code)
201-791-2600
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on which
Title of Class
-------------None
registered
------------------------None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
---------------------------(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
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 the issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or in any amendment to
this Form 10-K. [ ]
On January 21, 2000, the aggregate market value of the voting stock of
Bio-Reference Laboratories, Inc. (consisting of Common Stock, $.01 par value)
held by non-affiliates of the Issuer was approximately $ 18,354,000 based upon
the last sales price for such Common Stock on said date in the over-the-counter
market as reported by the NASDAQ Small Cap System. On such date, there were
8,100,920 shares of Common Stock of the Issuer outstanding.
PART I
Item. 1 - Business
-----------------Bio-Reference Laboratories,
Inc., "Bio-Reference" or the "Company,"
operates a clinical laboratory servicing the greater New York metropolitan area.
Bio-Reference offers a comprehensive list of chemical diagnostic tests including
blood and urine analysis, blood chemistry, hematology services, serology,
radioimmuno analysis, toxicology (including drug screening), pap smears, tissue
pathology (biopsies) and other tissue analyses. Bio-Reference holds the required
Federal and state licenses necessary to permit its operation of its processing
facilities in New Jersey and New York State and to permit its servicing of its
clients in Connecticut, Florida, Louisiana, Maryland, New Jersey, New York,
Pennsylvania, Texas and Virginia. Bio-Reference markets its services directly to
physicians, hospitals, clinics, and other health facilities.
Subsequent to the close of fiscal 1998, the Company commenced the
expansion of its business from an almost exclusively transaction processing
operation (i.e. clinical laboratory testing) into health information and
connectivity areas by seeking to expand its business base through utilization of
its physician network and marketing staff. During fiscal 1999, the Company
entered into the e-health marketplace through the opening of its own drug screen
website, "DRUGSCREENLAB.com" and subsequently acquired an Internet website
"DoctorNY.com" serving the New York metropolitan area and hosting a number of
existing physician websites. To date, virtually all of the Company's revenues
have been derived from its clinical laboratory testing.
The United States market for clinical laboratory testing is estimated to
generate approximately $30 billion in annual revenues.
- 50% of these revenues are generated by hospital laboratories
- 50% of these revenues are generated by independent laboratories and
physician office laboratories.
Bio-Reference was incorporated under the laws of the State of New Jersey
in December 1981 under the name "Med-Mobile, Inc." Its initial primary business
was to provide mobile medical examinations. This business was discontinued in
June 1989. Since February 1987, the Company's primary business has been the
operation of a clinical laboratory located in northern New Jersey servicing the
greater New York metropolitan area. The Company expanded its laboratory services
through the March 1988 acquisition of Cytology and Pathology Associates, Inc.
and relocated all of its laboratory operations to its facility in Elmwood Park,
New Jersey. The Company changed its name to Bio-Reference Laboratories, Inc. in
November 1989. Bio-Reference has expanded its laboratory testing capabilities
and its customer base through internal growth as well as through the completion
of a series of acquisitions of the businesses of other testing laboratories.
The Company's executive offices are located at 481 Edward H. Ross Drive,
Elmwood Park, New Jersey 07407. Its telephone number is (201) 791-2600.
Developments Since the Beginning of Fiscal 1999
On November 23, 1998, the Company's outstanding publicly owned Class A
Redeemable Warrants and Class B Redeemable Warrants expired by their terms.
In June 1999, the Company acquired a software license enabling the
grouping of medical claims data analysis and has proceeded to develop its own
proprietary algorithms and enhancements to the licensed software so as to
include laboratory and prescription data. The Company is currently negotiating
with two ERISA funds which cover more than 60,000 lives for access to certain of
their claims information in order to conduct beta site testing of its analytical
tools and programs. In the event such beta site testing is successful, the
Company anticipates offering such software tools and programs to customers.
In June 1999, in connection with the release of its second quarter
operating results, Bio-Reference announced the write-off of an approximate
$900,000 balance of unamortized goodwill related to its 1997 purchase of Smith
Kline Beecham's end stage renal dialysis business and the increase in the
allowance of approximately $2,000,000 for accounts receivable, all of which were
attributable to renal dialysis testing.
2
In June 1999, the Company announced the signing of a letter of intent with
General Prescription Programs, Inc., a prescription benefit manager ("GPP") and
others, to form a new company called PsiMedica, to provide population health
management and medical claims processing services to third- party payors of
health related claims and benefits. The new company, which will be principally
funded by Bio-Reference, is expected to obtain a license to market medical
management services to GPP customers representing approximately one million
lives. The license will also provide the new company with access to GPP's claims
information and analytical software. The Company believes that through the
analytical process of interrelating laboratory, prescription and medical claims
data, it can provide critical strategies and solutions to promote population
health management primarily to ERISA funds and other payors.No assurances can be
given that the Company will be able to successfully market these strategies and
solutions.
In September 1999, Bio-Reference announced the opening of its Internet
drug screen website, "DRUGSCREENLAB.COM" to provide drug-related medical
technical information for both professionals and non-professionals. The site
established to answer questions or concerns about drug testing procedures
services rendered by Bio-Reference as well as about drug testing laws
requirements.
and
was
and
and
In November 1999, the New York State Department of Corrections renewed its
contract with Bio-Reference's
wholly-owned
Medilabs subsidiary retaining
Medilabs to perform all laboratory testing for the Department's seventy
correctional institutions in the state encompassing over 70,000 prisoners from
maximum security prisons to rehabilitation centers. Bio-Reference estimates that
revenues from this contract will aggregate approximately $6.3 million in fiscal
year 2000, an increase of more than 10% over fiscal year 1999.
On December 2, 1999, the Company acquired the WEB Business of Medical
Marketing Group, Inc. ("MMGI") including its Internet website "DoctorNY.com" as
well as certain website-based agreements and arrangements with MMGI's physician
clients in the New York metropolitan area for an aggregate 140,000 shares of
Bio-Reference's authorized but unissued common stock. MMGI also agreed during
the period that its Advertising
Consulting
Agreement with the Company
(hereinafter described) is in effect, to market Internet -oriented services to
healthcare and healthcare related businesses for linking to and participation in
the WEB Business conducted by the Company. The Company has agreed to pay a
commission to MMGI equal to 15% of the recurring Internet access and website
fees received by the Company from additional customers produced by MMGI through
its sales efforts but solely with respect to those customers produced after
production of the 1,000th additional customer.
The "DoctorNY.com" website, with its associated domain sites and existing
physician websites, includes website development capabilities for subscribing
physicians as well as a search engine allowing consumers to locate physicians by
region, credentials, specialty or other parameters. The Company plans to further
develop
the
physician
services
offered
by the
system
to
enhance
physician-patient and physician-payor electronic communications on a secure
basis (i.e., preserving confidentiality), including communicating laboratory
results, e-mail prescriptions, refills, payor verification and eligibility, etc.
The offering of physician CME credits through the system is also contemplated.
The Company intends to market these services to its existing physician network
as well as to other individual physicians and groups of physicians.
Pursuant to non-competition agreements executed in connection with the
acquisition, the Company issued an additional 20,000 shares of Bio-Reference's
authorized but unissued common stock to MMGI, an additional 40,000 of such
shares to MMGI's principal stockholder and chief executive officer, and paid
$10,000 to a former MMGI executive officer. The Company also executed a one-year
Advertising Consulting Agreement (renewable by the Company for a maximum of
three additional one- year terms), pursuant to which MMGI agreed to render
advertising consulting, advisory and public relations services for the WEB
Business operated by Bio-Reference, on a project by project basis. For such
services, MMGI will be paid a minimum consulting fee of $40,000 in the Initial
Year and of $50,000 in any subsequent year, the minimum consulting fee to be
credited against a Consulting Fee calculated based upon mutually agreed rates
with respect to each project performed under the Advertising Consulting
Agreement. As an additional inducement to MMGI to market Internet oriented
services to healthcare and healthcare related businesses for linkage to and
participation in the WEB Business conducted by the Company, the Company granted
an option to MMGI exercisable to purchase a maximum 100,000 shares of
Bio-Reference's authorized but unissued common stock at an exercise price
3
of $3.00 per share (equal to the last reported per share sales price for
Bio-Reference common stock on The Nasdaq Stock Market on December 1, 1999, the
day immediately preceding the acquisition). The option is only exercisable with
respect to those shares as to which it becomes "vested," from the date of
vesting until one year after completion of the term of the Advertising
Consulting Agreement. The option becomes vested as to each 25,000 shares upon
delivery by MMGI of 500 additional customers for the WEB Business conducted by
the Company.
On December 14, 1999, the Company acquired the Health Food Business of
Right Body Foods, inc. ("RBF"), a manufacturer of starch free, low carbohydrate,
low caloric food products distributed in Long Island, New York, through health
professionals, dieticians, nutritionists and physicians. The acquisition was
effected through a newly formed, wholly-owned Company subsidiary. The Health
Food Business was acquired for an aggregate 180,000 shares of Bio-Reference's
authorized but unissued common stock. The Company intends to attempt to expand
the market for the Health Food Business products through its current physician
accounts utilizing its existing sales force and distribution network.
The Company also executed an employment agreement with RBF's chief
executive officer, employing her through October 31, 2004 to perform executive
and marketing duties in connection with the establishment, supervision of
manufacturing and marketing of products for the Health Food Business. Pursuant
to the employment agreement, the executive will be paid a minimum annual salary
of $150,000 and commissions equal to varying percentages (from 5% to 1%) of net
cash receipts of the Health Food Business in each fiscal year to the extent such
net cash receipts exceed $1,000,000 in such fiscal year. The commissions earned
will be credited against a guaranteed $50,000 commission bonus (effective only
for the first year). The executive is also being paid a $100,000 signing bonus
in 24 monthly installments. The executive was issued an additional 20,000 shares
of Bio-Reference's authorized but unissued common stock in consideration of her
executing a non-competition agreement.
At November 1, 1998, the Company was being represented by counsel in
connection with various reviews being conducted by the Company's Medicare
carrier. One review involved overpayments that occur in the normal course of
business.
The Company believes the overpayments
will be determined to
approximate $150,000, of which approximately $75,000 has already been remitted
by the Company to Medicare. Counsel representing the Company in this matter
advised at such time that he could not offer any opinion or projection as to
whether the anticipated liability will be resolved at $150,000 or whether it
will be increased. Counsel further advised that based upon his review of
documents, many of the claims that Medicare thought were duplicate payments were
not in fact duplicates, but rather were properly billed. Counsel also advised
that in view of the complexity of this issue, he believed the final overpayment
would be an amount negotiated between the Company and Medicare. During fiscal
1999, there was no change in the status of this matter. At October 31, 1999, the
Company had reserved the sum of $150,000 on its October 31, 1999 financial
statements as the estimated liability in connection therewith.
In January 2000, the Company commenced negotiations with New Jersey
Medicaid regarding a claim (the "Claim") made by the State in December 1999 that
with respect to certain clinical laboratory tests for which reimbursements were
made by the State to the Company, although such tests were authorized by the
physician, the underlying laboratory test requisitions did not bear the actual
signature of the physician ordering the test. The Company believes that it has
been in compliance with all requirements regarding bills submitted for payment
by New Jersey Medicaid and requires actual physician signatures before it bills
New Jersey Medicaid. However, in order to dispose of the issue, the Company
entered into an oral agreement with New Jersey Medicaid in January 2000 to
settle the Claim for approximately $227,000. The Company has accrued the
estimated settlement of $227,000 on its October 31, 1999 financial statements.
The settlement is subject to the parties' execution of a written agreement
setting forth its terms and to the approval of the Director of the Division of
Medical Assistance. Approval of the settlement is being recommended to the
Director.
New Jersey Medicaid is the only payor with which the Company conducts
business that requires a physician signature on each laboratory requisition. In
the fiscal year ended October 31, 1999, New Jersey Medicaid accounted for
approximately 3% of the Company's total net revenues.
4
CLINICAL LABORATORY OPERATIONS
-----------------------------The Clinical Laboratory Industry
-------------------------------The United States market for clinical laboratory testing is estimated to
generate approximately $30 billion in annual revenues.
- 50% of these revenues are generated by hospital laboratories
- 50% of these revenues are generated by independent laboratories and
physician office laboratories.
History
------Bio-Reference was incorporated in December 1981 to provide mobile medical
examination services but discontinued that business in June 1989. Bio-Reference
commenced clinical laboratory operations in 1987 with the belief that a strong
business opportunity existed for a medium-sized clinical laboratory that
produced high quality test results in a timely manner to practicing physicians.
The current competition may be primarily categorized in two groups:
- businesses that are national in scope performing millions of tests
per month but impersonal in nature
- smaller laboratories that attempt to compete in terms of quality and
service but are limited in resources and scope of capabilities.
Consequently, management believed that there existed a definite place for a
medium-sized commercial laboratory in the greater New York metropolitan area.
The Company did not realize income from operations from the time it
commenced clinical laboratory operations in 1987 until fiscal 1994. The Company
realized net income in each of the succeeding years until fiscal 1999. During
fiscal 1999, the Company had a loss of approximately $4,900,000 which included a
write-down of approximately $2.9 million for an impaired asset of $900,000 and
its associated
additional reserve of $2,000,000 for accounts receivable
attributable to the Company's end stage renal dialysis business acquired from
Smith Kline Beecham.
In 1988, the Company consolidated and relocated all of its laboratory
operations
into a 35,000 sq. ft. space in Elmwood Park,
New Jersey,
approximately 10 miles from mid-town Manhattan. The new location was carefully
chosen to offer easy access to the greater New York metropolitan area. This move
afforded the Company an excellent geographical location to expand into newer
markets in southern New York State, including Westchester, Rockland and Nassau
Counties, southern and western New Jersey and southern Connecticut.
Bio-Reference proceeded to develop esoteric testing, while maintaining its
routine tests. It was found that by emphasizing the more difficult esoteric
tests, routine tests also increased, particularly profile testing in chemistry
and hematology. The Company hopes to continue its growth by aggressive
marketing, entry into additional markets, primarily in the greater New York
metropolitan area through acquisitions and the development of specialty niche
markets to complement its routine business. Over the years, the Company has
expanded its specialty testing services to include:
- anatomic pathology (biopsies and pap smears)
- cellular immunology (principally geared to the AIDS testing market)
- male infertility
- tumor markers
Operations
---------The efficiency of a medical laboratory depends on three items:
- Quantity of tests
- Selection of tests performed
- Ability to automate the process
5
It is axiomatic that the initial fixed costs of testing a small number
of patients are high. Such costs include:
- cost of maintaining highly sophisticated equipment
- cost of a full support facility
- marketing
- logistical
- billing
- other administrative costs
As the patient volume increases, automated tests become progressively
expensive as the fixed costs are already in place, making the laboratory
cost efficient.
less
more
Most medical laboratory tests can be divided into three principal
categories:
- those that are highly automated and computer driven,
- those that are semi-automated requiring the use of sophisticated
equipment,
- those that are subjective and basically manually determined.
The Company considers itself a highly automated and computer driven laboratory.
The Company's couriers pick up patient specimens from physician offices,
nursing homes and hospitals in the metropolitan New York area and test results
are generally delivered back to the physician within 24 hours. Larger volume
clients receive test results by way of printers placed in their offices, thereby
accelerating test reporting. Bio-Reference furnishes its physician clients with
periodic newsletters detailing:
- advances in laboratory medicine
- new tests
- clinical commentaries
- aboratory interpretation of test results.
In addition, the Company
clients listing:
-
provides an annual Test
Compendium
to all physician
all tests offered
normal ranges
correct collection of samples
patient preparation
up to date billing information
The Company utilizes the services of eighteen full-time Client Service
Coordinators,
all of whom are fully trained in medical and laboratory
terminology. This staff is used as an interface with physicians and nurses and
augments the client support provided by the Company's sales staff. Highly
abnormal and life threatening results are immediately telephoned to the
physician in order to provide speedy medical resolution of any patient problem.
Sales and Marketing
------------------The Company presently employs 47 full and part-time sales and marketing
personnel. The sales and marketing department works closely with the Technical
Director to:
- plan new tests
- pricing
- general client support.
All sales and marketing personnel operate in a dual capacity; both in selling
and as client support representatives. This ensures that all salespersons are
intimately involved with the client, not only in selling, but in servicing the
account that they sell. Bio-Reference believes that this is unique in the
industry and is extremely helpful in client retention, providing a strong link
between the physician and the Company's staff.
Quality Assurance
----------------Medical testing is essentially one of communication and data transfer. In
order to provide accurate and precise information to the physician, it is
essential to maintain a well structured and vigorous quality assurance program.
Bio-Reference holds the required Federal and state licenses necessary to permit
its operation of a clinical laboratory at both its New Jersey and New York
facilities and to permit the servicing of its clients in Connecticut, Florida,
Louisiana, Maryland, New Jersey, New York,
6
Pennsylvania and Virginia. To fully maintain these licenses, the laboratory must
submit to vigorous sets of proficiency tests, or surveys, in all test procedures
which are performed. Such proficiency tests or surveys may be performed as many
as four to five times a year, depending upon the procedure, and results in
hundreds of proficiency tests throughout the year. In addition, the Company
performs thousands of quality control and quality assurance tests per year. The
Company is also subjected to unannounced inspections by inspectors from some of
the jurisdictions noted above who review past records, operating manuals,
quality assurance records and safety regulations.
In October 1998, the Company was notified that it had been re-accredited
by the College of American Pathologists "CAP" in its Elmwood Park, New Jersey
and Park Avenue, New York facilities. In September 1998, the Company was
notified that it had been re-accredited in its Valley Cottage, New York
facility. This accreditation by CAP, a peer review organization, involves an
intensive review by numerous experts in their specific fields, who review
technical, quality assurance, health and safety and computer documentation in
order to bestow accreditation, which is one of the most prestigious approvals
available to clinical laboratories.
The Company's Quality Assurance Committee, headed by a Quality Assurance
Coordinator and composed of supervisors from all departments, meets daily to
assess and evaluate the laboratory's quality. Based on the information received
from the committee, recommendations are made to correct conditions which have
led to errors. Management, department supervisors and members of the assurance
committee continually monitor the laboratory's quality. Depending on the test,
two or three sets of Quality Control materials are run in each analytical assay
to assure precision and accuracy. Patient population statistics are evaluated
each day. Highly abnormal samples are repeated to assure their accuracy.
It is the Company's position that all of these procedures are necessary,
not only in assuring a quality product, but also in maintaining Federal and
state licensing. The Company believes these high standards of quality are an
important factor in what management regards as an excellent rate of client
retention.
Revenue Recognition and Business Strategy
----------------------------------------Although the laboratory's clients are primarily physicians, it is usually
the individual patient,
his or her commercial insurance carrier, or a
governmental agency such as Medicare or Medicaid that pays the laboratory
charges. These third parties pay health care providers according to allowable
costs or a predetermined contractual rate rather than according to the
provider's established rates; the difference between what is paid and what is
billed is the contractual allowance. Therefore, the Company has adopted the
practice of reducing its revenues by these
allowances
or
contractual
adjustments.
Over the past years there has been an increase in the number of patients
that are covered by managed care health plans. These plans will often negotiate
with a limited number of clinical laboratories at discounted rates. Some of
these managed care health plans will contract with only a single laboratory and
pay for services on a capitation basis (meaning one price per enrollee,
regardless of how much laboratory work is performed). The effect of managed care
health plans to the laboratory industry equates to lower reimbursement rates for
laboratory services. If the laboratory is not a provider of services to the
managed care health plan, it will not be reimbursed for providing the service
and overall patient volume may be reduced. Therefore, this change has reduced
the potential market for a clinical laboratory's services if it is not a
provider to a particular managed care health plan.
In addition, Medicare as well as an increasing number of commercial
programs are requiring physicians to document the medical necessity when
ordering specific laboratory tests. Since the laboratory has a responsibility to
test a specimen when it first arrives in the laboratory, it may not be able to
wait until all applicable information is provided and there is a possibility
that a test can be performed and results provided before appropriate medical
necessity is documented. In these cases, the laboratory may not receive
reimbursement for the tests.(See "Developments Since the Beginning of Fiscal
1999" as to the status of a review concerning overpayments being conducted by
the Company's Medicare carrier) and a recent settlement of a claim against the
Company asserted by New Jersey Medicaid.
7
The following table reflects the Company's breakdown of revenue by payor
for the 12 months ended October 31, 1997, 1998 and 1999.
Years Ended October 31,
1997 1998 1999
---- ---- ---Direct Patient Billing...........
Commercial Insurance.............
Professional Billing.............
Medicare.........................
Medicaid.........................
-------- ---100% 100% 100%
Competition
-----------
17%
31%
23%
25%
4%
16%
30%
28%
22%
4%
14%
27%
34%
22%
3%
Bio-Reference's competition derives primarily from other laboratories
located in the New York metropolitan area. On a national basis, approximately
30% of this market is made up of the two largest national laboratories:
- Quest Clinical Laboratory, formerly a Division of Corning, Inc.
- Laboratory Corporation of America, Inc.
Although
the Company is
significantly
smaller than the national
laboratories and has modest financial resources, management believes it can
compete successfully because it has;
- fewer layers of staff
- a more responsive business atmosphere
- customized service.
The Company believes its response to medical consultation is faster and more
personalized than in the national laboratories. Client service staff only deal
with basic technical questions and those that have medical or scientific
significance are referred directly to other senior scientists and staff.
Government Regulation
--------------------Laboratory operations require licensure in each jurisdiction in which they
operate. Bio-Reference holds the required Federal and state licenses necessary
to permit its operation of a clinical laboratory at both its New Jersey and New
York facilities and to permit its servicing of its clients in those states where
it presently operates. Laboratory technicians and technologists must also
qualify under state regulations in order to be employed by the laboratory. All
of these licensing and certification programs set standards in areas such as
quality control, record keeping and personnel qualifications, including, in
varying measures from state to state, educational experience and licensure for
various levels of personnel responsible for testing. Compliance with these
standards is by periodic inspections by the appropriate Federal, state or local
agency. In addition, licensing and certification entail proficiency testing
which involves actual testing of specimens that have been specifically prepared
by the regulatory
authority or designated agencies for testing by the
laboratory. There can be no assurance the laboratory will maintain all necessary
licenses and in the event the laboratory loses its license in a particular
jurisdiction, it will be required to cease all activities in such jurisdiction.
There also cannot be any assurance the Company will obtain the licenses required
in a proposed jurisdiction of operation.
The Company is also subject to Federal and state regulations governing the
transportation and disposal of medical waste including bodily fluids. Federal
regulations require licensure of interstate transporters of medical waste. In
New Jersey, the Company is subject to the Comprehensive Medical Waste Management
Act, "CMWMA," which requires the Company to register as a generator of special
medical waste. CMWMA mandates the sterilization of certain medical waste and
provides a tracking system to insure disposal in an approved facility. All of
the Company's medical waste is disposed of by a licensed interstate hauler. The
hauler provides a manifest of the disposition of the waste products as well as a
certificate of incineration which is retained by the Company. These records are
audited by the State of New Jersey on a yearly basis.
Containment of health-care costs, including reimbursement for clinical
laboratory services, has been a focus of ongoing governmental activity. Omnibus
budget reconciliation legislation, designed to "reconcile" existing laws with
reductions and reimbursement required by enactment of a Congressional budget can
adversely affect clinical laboratories by reducing Medicare reimbursement for
laboratory
8
services. Although in the past, legislation has been enacted which reduced the
permitted Medicare
reimbursement for clinical
laboratory
services from
previously authorized levels, none of the reductions enacted to date has had a
material adverse effect on the Company. For many of the tests performed for
Medicare beneficiaries or Medicaid recipients, laboratories are required to bill
Medicare or Medicaid directly, and to accept Medicare or Medicaid reimbursement
as payment in full.
The Clinton Administration, Congress and various Federal agencies have
examined the rapid growth of Federal expenditures for clinical laboratory
services, and the use by the major clinical laboratories (including the Company)
of dual fee schedules ("client" fees charged to physicians,
hospitals,
institutions and companies with whom a laboratory deals on a bulk basis and
which involve relatively low administrative costs, and "patient" fees charged to
individual patients and third party payors, including Medicare, who generally
require separate bills or claims for each patient encounter and which involve
relatively high administrative costs). The permitted Medicare reimbursement rate
for clinical laboratory services has been reduced by the Federal government in a
number of instances over the past several years to a present level equal to 74%
of the national median of laboratory charges. A number of proposals for
legislation or regulation are under discussion which could have the effect of
substantially reducing Medicare reimbursements to clinical laboratories through
reduction of the present allowable percentage or through other means. In
addition, the structure and nature of Medicare reimbursement for laboratory
services is also under discussion and management is unable to predict the
outcome of these discussions or its effect on the Company. Depending upon the
nature of congressional and/or regulatory action, if any, which is taken and the
content of legislation, if any, which is adopted, the Company could experience a
significant decrease in revenues from Medicare and Medicaid, which could have a
material adverse effect on the Company. The Company is unable to predict,
however, the extent to which any such actions will be taken.
Federal and state health care and related regulations are subject to
constant change. The Company cannot now predict what changes may be enacted
which may affect its business or the manner in which its business would be
affected by such changes. Two legislative changes have occurred which portend
significant changes in the clinical laboratory market. Two Omnibus Budget
Reconciliation Acts have severely restricted physician referrals of Medicare
covered services to clinical laboratories in which the referring physician or
his immediate family has a financial relationship. The Clinical Laboratory
Improvement Amendments of 1988, "CLIA-88," acted to strengthen Federal control
of medical laboratories by regulating stricter quality assurance practices,
licensing requirements and staff qualifications.
CLIA-88
extended
Federal
licensing
requirements to all clinical
laboratories (regardless of the location, size or type of laboratory), including
those operated by physicians in their offices, based on the complexity of the
tests they perform. The legislation also substantially increased regulation of
cytology screening, most notably by requiring the Secretary of Health and Human
Services, ("HHS,") to implement regulations placing a limit on the number of
slides that a cytotechnologist may review in a twenty-four hour period. CLIA-88
also established a more stringent proficiency testing program for laboratories
and increased the range and severity of sanctions for violating Federal
licensing requirements. A number of these provisions, including those that
imposed stricter cytology standards and increased proficiency testing, have been
implemented by regulations applicable only to laboratories subject to Medicare
certification adopted under the Clinical Laboratory Improvement Act of 1967,
"CLIA-67." On February 28, 1992, HHS published three sets of regulations
implementing CLIA-88,
including quality standard regulations establishing
Federal quality standard for all clinical laboratories; application and user fee
regulations applicable to most laboratories in the United States which became
effective on March 30 1993; and enforcement procedure regulations applicable to
laboratories that are found not to meet CLIA- 88 requirements. The quality
standard regulations establish varying levels of regulatory scrutiny depending
upon the complexity of testing performed. Under these regulations, a laboratory
that performs only one or more of eight routine "waived" tests may apply for a
waiver from most requirements of CLIA-88. The Company believes that most tests
performed by physician office laboratories will fall into either the "waived" or
the "moderately complex" category. The latter category applies to simple or
automated tests and generally permits existing personnel in physicians' offices
to continue to perform testing under the implementation of systems that insure
the integrity and accurate reporting of results, establishment of quality
control systems,
proficiency testing by approved agencies, and biannual
inspection. The quality standard and enforcement procedure regulations became
effective on September 1, 1992, although certain personnel, quality control and
proficiency testing requirements will
9
be phased-in over a number of years. The laboratory has completed its first CLIA
inspection under CLIA-88 guidelines and received its certificate of compliance
effective February 7, 1996.
In October 1998, the Company was notified that it had been re-accredited
by the College of American Pathologists "CAP" in its Elmwood Park, New Jersey
and Park Avenue, New York facilities. In September 1998, the Company was
notified that it had been re-accredited in its Valley Cottage, New York
facility. This accreditation by CAP, a peer review organization, involves an
intensive review by numerous experts in their specific field, who review
technical, quality assurance, health and safety and computer documentation in
order to bestow accreditation, which is one of the most prestigious approvals
available to clinical laboratories.
The Office of Inspector General has published a Model Compliance Program
for the clinical laboratory industry.
This is a voluntary program for
laboratories to demonstrate to the Federal government that they are responsible
providers. Bio-Reference Laboratories has written and implemented a compliance
program adhering to the standards set forth in the Model Compliance Program.
Insurance
--------The Company maintains professional liability insurance of $1,000,000 per
occurrence, $3,000,000 in the aggregate. In addition, the Company maintains
excess commercial insurance of $2,000,000 per occurrence. A determination of
Company liability for uninsured or underinsured acts or omissions would have a
material adverse effect on the Company's operations.
Employees
--------At December 31, 1999, the Company had 378 full-time employees and 368
part-time employees. This includes:
- three executive officers
- Vice President of Technical Operations
- Marketing Vice-President,
- 74 full-time and 41 part-time technicians, and/or technologists
(including physicians, pathologists and Ph.D.'s)
- 260 full and part-time semi-technical employees
- 46 full and part-time marketing representatives
- 194 full and part-time clerical employees
- 107 full and part-time drivers.
None of the Company's employees are represented by a labor union. The Company
regards relations with its employees as satisfactory.
Item 2 - Properties
------------------The Company's executive offices and New Jersey processing facility occupy
approximately 56,000 square feet of leased space in two one-story brick
facilities at 481-487 Edward H. Ross Drive, Elmwood Park, New Jersey. The lease
for these facilities, which expires in February 2004, provides for a monthly
rental of $31,391. Bio-Reference's New York processing facility occupies
approximately 11,000 square feet of leased space in a two-story brick facility
at 140 Route 303, Valley Cottage, New York. The lease for this facility, which
expires in April 2002, provides for a monthly rental of $12,177. The Company's
testing equipment maintained at both of its processing facilities are in good
condition and in working order. Management believes that these facilities, as
presently
equipped,
have the capacity to generate up to approximately
$75,000,000 in annual revenues based on the type of testing now being performed
by the Company. The Company maintains fire, theft and liability insurance
coverage for this facility in what it believes are adequate amounts. The Company
also leases 55 additional relatively small draw stations throughout the New York
metropolitan area to collect specimens from physician-referred patients for
testing at both of its processing facilities.
Item 3 - Legal Proceedings
-------------------------In July 1996, the Company purchased certain assets and rights including
the Customer List related to the Renal Dialysis Testing Business conducted by
SmithKline Beecham Clinical Laboratories,
Inc. ("SBCL"), from SBCL, for
$1,800,000 including a $1,200,000 down payment pursuant to an Asset
10
Sale/Purchase Agreement (the "Asset Agreement"). In the Asset Agreement, SBCL
represented and warranted that its Renal Dialysis Testing Business was servicing
at least 60 active accounts, was conducting testing for not less than 4,600
active dialysis patients and was generating at least $3,600,00 in net revenues
on an annual basis. The parties also executed a Non-Competition Agreement (the
"Non- Competition Agreement") pursuant to which SBCL agreed to cease performing
all renal dialysis clinical laboratory testing services for a three year period
(after conclusion of a limited Transition Period).
After completion of the acquisition, the Company's management determined
that SBCL's representations and warranties concerning the Renal Dialysis Testing
Business were materially false and that the Company might only realize
approximately $1,000,000 in annual net revenues from the acquired business.
Management also determined that SBCL had fraudulently concealed that its Renal
Dialysis Testing Business had suffered certain material adverse changes and that
SBCL had breached the Non- Competition Agreement by continuing to perform renal
dialysis testing on the transferred accounts after the Transition Period despite
its assurances that it had ceased all such testing. Based upon SBCL's alleged
breaches of the Asset Agreement and the Non-Competition Agreement, the Company
did not pay any portion of the $600,000 balance of the purchase price (which was
due in 24 consecutive monthly installments of $25,000 commencing January 1,
1997).
As a result of the foregoing, the Company filed a lawsuit against SBCL in
December 1996. The lawsuit, filed in the United States District Court for the
District of New Jersey, alleged that SBCL materially and repeatedly breached its
obligations and its representations and warranties made in the Asset Agreement
and the
Non-Competition
Agreement and claimed
unspecified
amounts of
compensatory and punitive damages and related costs. In response to the
Company's lawsuit, SBCL asserted counterclaims for the $600,000 unpaid portion
of the purchase price.
During fiscal 1998, agreement was reached between the Company and SBCL to
settle and
compromise
all aspects of the lawsuit
including the SBCL
counterclaims. Pursuant to the agreement, the Company released SBCL from any
claims pursuant to the Asset Agreement and the Non-Competition Agreement and
SBCL released the Company from any claims pursuant to such agreements including
the Company's obligation to pay the $600,000 balance of the purchase price. The
settlement was subject to the consent of the Company's principal lending bank
which consent was received in January 1999.
Item 4 - Submission of Matters to a Vote of Security Holders
-----------------------------------------------------------The Company's Annual Meeting of Stockholders was held on October 21, 1999.
At the meeting, the following two individuals were elected by the following vote
to serve as Class II directors, each for a term of three years and until his
successor is duly elected and qualified.
For
---
Withheld
--------
Sam Singer
6,362,497
152,972
Frank DeVito
6,362,497
152,972
The other directors of the Company whose term continued are as follows:
Marc D. Grodman
Class I director
Howard Dubinett
Class I director
John Roglieri
Class III director
Gary Lederman
Class III director
11
PART II
PRICE RANGE OF SECURITIES
------------------------Item 5. ---------
Market for Common Stock and Related Shareholder Matters
-------------------------------------------------------
The Company's Common Stock was traded on the National Association of
Securities Dealers Automated Quotation ("NASDAQ") Small Cap System through July
13, 1992 after which it was delisted from trading on NASDAQ due to the Company's
failure to maintain shareholders' equity of at least $1,000,000. Commencing July
14, 1992, the Common Stock was quoted in the over-the-counter market on the NASD
OTC Bulletin Board. As a result of the improvement in the Company's financial
condition based upon its November 1993 public offering, the Common Stock was
readmitted for trading on the NASDAQ Small Cap System under the symbol "BRLI" on
November 24, 1993.
The following table sets forth the range of high and low bid prices for
the Common Stock for the periods indicated, as derived from reports furnished by
NASDAQ. Such quotations represent prices between dealers, do not include
mark-ups, mark-downs or commissions and may not necessarily represent actual
transactions.
Fiscal Year
----------High
----
Bid Prices
---------Low
---
1998
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
1999
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
At December 31, 1999 the closing
NASDAQ was $3.75 per share.
$1.65625
1.75
2.00
1.25
$1.875
$1.5625
$1.03125
$1.0625
sales
$1.25
1.25
1.15625
.875
$
.96875
.75
.4375
.78125
price for the Common
Stock on
At December 31, 1999 the number of record holders of the Common Stock was
630. Such number of record owners was determined from the Company's shareholder
records and does not include beneficial owners whose shares are held in nominee
accounts with brokers, dealers, banks and clearing agencies.
Dividends
The Company has not paid any dividends upon its Common Stock since its
inception and, does not contemplate or anticipate paying any dividends in the
foreseeable future. Furthermore, the Company's loan agreement with PNC Bank
prohibits the Company from paying dividends or making any distributions with
respect to any shares of its stock without the prior written consent of the
Bank.
12
Item 6. Selected Financial Data
[In thousands, except per share data]
Y e a r s
e n d e d
-------------------------------------------O c t o b e r
3 1,
-------------------------------------------1 9 9 9 1 9 9 8 1 9 9 7 1 9 9 6 1 9 9 5
------- ------- ------- ------- ------Operating Data:
Net Revenues
$ 53,856 $
Cost of Services
$ 30,850 $
Gross Profit
$ 23,006 $
General and Administrative Expenses$ 26,432 $
Income [Loss] from Operations
$ (3,426)$
Non-Recurring Gain on Sale of
Intangible Assets
$
-- $
Other Expenses - Net
$ 1,185 $
Provision for Income Tax Expense
[Benefit]
$
367 $
Net income [Loss]
$ (4,978)$
Net [Loss] Income Per Common Share $
(.68)$
Cash Dividends Per Common Share
$
-- $
Balance Sheet Data:
Total Assets
Total Long-Term Liabilities
Total Liabilities
Working Capital
Stockholders' Equity [Deficit]
46,554
25,058
21,496
20,231
1,065
$38,660
$19,339
$19,321
$17,436
$ 1,885
$
$
$
$
$
334 $ 2,026 $
841 $
850 $
(38)$
597
.08
--
(139)$
$ 3,200 $
$
.48 $
$
-- $
$ 32,318 $ 40,778 $29,095
$ 2,681 $ 3,708 $
921
$ 20,948 $ 24,555 $13,570
$ 3,452 $ 8,364 $ 9,415
$ 11,369 $ 16,223 $15,525
35,126
18,136
16,989
15,793
1,196
$
$
$
$
$
31,521
15,036
16,485
14,702
1,783
-- $
552 $
-332
52 $
592 $
.10 $
-- $
49
1,402
.23
--
$ 28,231 $ 24,201
$ 1,533 $
843
$ 16,128 $ 12,945
$ 4,072 $ 4,552
$ 12,103 $ 11,256
A number of proposals for legislation continue to be under discussion
which could substantially reduce Medicare and Medicaid reimbursements to
clinical laboratories. Depending upon the nature of regulatory action and the
content of legislation, the Company could experience a significant decrease in
revenues from Medicare and Medicaid, which could have material adverse effect on
the Company. The Company is unable to predict, however, the extent to which such
actions will be taken.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
----------------------------------------------------------------------Note Regarding Forward-Looking Statements
----------------------------------------This Annual Report on Form 10-K contains historical information as well as
forward-looking statements. Statements looking forward in time are included in
this Annual Report pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. Such statements involve known and
unknown risks and uncertainties that may cause the Company's actual results in
future periods to be materially different from any future performance suggested
herein.
OVERVIEW
-------Bio-Reference has expanded its laboratory testing capabilities and its customer
base through internal growth as well as through the completion of a series of
acquisitions of the businesses of other testing laboratories.
In April 1998, the Company acquired the assets and certain liabilities of
Medilabs, Inc. ("MLI") for a purchase price of $4,000,000 cash plus a promissory
note of $1,500,000, payable without interest, in three semi-annual installments
commencing April of 1999. Also in April, the Company entered into a note
agreement to borrow the $4,000,000 to fund this acquisition. The note is in
accordance with the Company's revolving loan agreement with the same lending
bank. The operations of MLI are included in the Company's operations commencing
April 9, 1998. MLI incurred a net loss of approximately $120,000 for the seven
month period ended October 31, 1998 and had net income of approximately $880,000
for the twelve month period ended October 31, 1999.
13
In December of 1999, the Company entered into agreements to acquire the
businesses of two companies. One company is involved in website designs and the
other company is involved in the manufacturing of health care foods.
Results of Operations
Net Income
---------The Company's net income (loss) for the years ended October 31, 1999 and 1998
was $(4,978,448) and $596,583, respectively. The main reasons for the $5,575,031
decrease in net income is the write-down of approximately $2,900,000 for
impaired assets including the additional allowance for accounts receivable
relating to the Company's end stage renal dialysis business acquired from
SmithKline Beecham of approximately $2,000,000 and an increase in general and
administrative expenses of approximately $2,000,000 in fiscal 1999. . In
addition, net revenue per patient decreased 8% during the current twelve month
period ended October 31, 1999, as compared to the twelve month period ended
October 31, 1998. Gross profit margins decreased from 46% for the twelve month
period ended October 31, 1998 to 43% for the twelve month period ended October
31, 1999. Based upon anticipated increases in patient volume, anticipated
increased testing to be performed,
reimbursement rate improvements, and
anticipated decreases in operating costs, the bulk of the effects of which are
expected to be realized in the second half of fiscal 2000, the Company projects
net income for fiscal 2000.
Net Revenues
-----------Net revenues for the year ended October 31, 1999 were $53,856,414 as compared to
$46,553,730 for the year ended October 31, 1998; this represents a 16% increase
in net revenues. MLI had net revenues of $13,706,743 or 25% of the Company's net
revenues for the fiscal year. The Company acquired MLI in April of 1998, for the
seven month period ended October 31, 1998, MLI had net revenues of $7,773,570 or
17% of the Company's net revenue for the twelve month period ended October 31,
1998.
The number of patients serviced during the fiscal year ended October 31, 1999
was 1,235,514 which was 25% greater when compared to the prior fiscal year. MLI
accounted for 35% of the patient count for the year ended October 31, 1999. Net
revenue per patient for the year ended October 31, 1998 was $47.29 compared to
net revenue per patient for the year ended October 31, 1999 of $43.59; a
reduction of $3.70 or 8%. This decrease is due to the inclusion of a full twelve
months of MLI's revenues with its associated lower revenue per patient in fiscal
year 1999. MLI's net revenue per patient was $31.71 for the twelve month period
ended October 31, 1999 compared to net revenue per patient of $33.04 in fiscal
year 1998. The Company expects an increase in net revenues in fiscal year 2000
due to a number of factors: internal growth, an estimated increase in the
contract with the New York State
Department of
Corrections,
Medicare
reimbursement for tests previously not covered, an increase in Medicare
reimbursement for other selected tests, as well as new marketing initiatives in
newer testing areas, such as drugs of abuse testing, and complimentary and
alternative medicine. In addition, the Company has identified three new business
initiatives (See Below), all of which seek to leverage off existing capabilities
the Company possesses.
The Company anticipates increasing its revenues in its next fiscal year through
internal growth and development of new marketing initiatives in laboratory
testing services outside the traditional physician market. In November 1999, the
contract to provide laboratory testing by the New York State Department of
Corrections for inmates in its facilities was renewed. This contract is valued
at approximately $6,300,000 for fiscal year 2000, an estimated increase of
approximately 10% from fiscal year 1999. The Company is seeking to market its
services to other correctional institutions.
In June 1999, the Company announced the signing of a letter of intent with
General Prescription Programs, Inc., a prescription benefit manager ("GPP") and
others, to form a new company, called PSIMedica, which will provide population
health management and medical claims processing services to third-party payors
of health related claims and benefits. The new company, principally funded by
BRLI, is expected to obtain a license to market medical management services to
GPP customers representing approximately one million lives. The license will
also provide the new company with access to GPP's claims information and
analytical software. The Company believes, through the analytical process of
interrelating laboratory, prescription and medical claims data, it can provide
critical strategies and solutions to promote population health management
primarily to ERISA funds and other payors. No
14
assurances can be given that the Company
these strategies and solutions.
will be able to
successfully
market
In 1999, the Company licensed software to allow for the grouping of the analysis
of medical claims data and has proceeded to develop its own proprietary
algorithms and enhancements to the licensed software so as to include laboratory
and prescription data. The Company is currently negotiating with two ERISA funds
which total over 60,000 lives as beta sites for its analytical tools and
programs. The Company expects to seek customers for its services by mid fiscal
year 2000.
In December 1999, the Company announced the acquisition of DoctorNY.com
(www.doctorny.com), a health portal which, with its associated domain sites and
existing physician websites, includes website development capabilities for
health care providers, together with a search engine which allows consumers to
locate physicians by region, credentials, specialty or other parameters. The
Company announced the consumer view represented by DoctorNY.com was part of its
entry into the e-health marketplace. The Company plans to further develop the
physician services offered by the system to enhance physician- patient and
physician-payor electronic communications on a secure basis (i.e., preserving
confidentiality),
including
communicating
laboratory
results,
e-mail
prescriptions, refills, payor verification and eligibility, etc. The offering of
physician CME credits through the system is also contemplated. The Company
intends to market these services to its existing physician network as well as to
other individual physicians and groups of physicians.
In December 1999, the Company acquired Right Body Foods, Inc., a manufacturer
and distributor of freshly prepared, starch free, low-calorie, low carbohydrate,
food products, located in Syosset, New York. Its products are sold through
health professionals, dieticians, nutritionists and physicians. The Company
expects to use its marketing staff and physician network to increase the
distribution of these products.
COST OF SERVICES:
----------------Cost of sales increased from $25,058,008 for the year ended October 31, 1998 to
$30,850,357 for the year ended October 31, 1999, an increase of $5,792,329 or
19%. This increase is primarily the result of the MLI acquisition. MLI's direct
operating costs were $9,347,850 for the twelve month period ended October 31,
1999, as compared to $5,639,627 for the seven month period ended October 31,
1998, an increase of $3,708,223. The optimum consolidation of laboratory
operations has not been completed and will marginally impact the Company's cost
structure until, at least, the second quarter of fiscal year 2000 when the
automated laboratory upgrade and expansion is expected to be completed. While
the automated laboratory will have a marginal impact on cost structure, the
reduction of the Company's dependence on reference laboratories is expected to
have a more favorable impact during the second half of fiscal 2000.
GROSS PROFITS:
------------Gross profit on net revenues increased from $21,495,722 for the year ended
October 31, 1998 to $23,006,077 for the year ended October 31, 1999; an increase
of $1,510,355 primarily attributable to the increase in revenues. Gross profit
margins decreased from 46% for the year ended October 31, 1998 to 43% for the
year ended October 31, 1999. Management believes that the Company's gross profit
margin will increase in fiscal 2000, due to increased revenues from internal
growth, Medicare reimbursement for tests not previously covered, increases in
reimbursement rates from Medicare on certain tests, the completion of the
automated chemistry laboratory and decrease in direct operating expenses. The
decrease in gross profit margins in fiscal 1999 is primarily attributable to the
lower net revenues per patient, the increase in direct costs associated with MLI
and the duplication of direct costs that had not been eliminated as of October
31, 1999 by an optimum consolidation of laboratory operations. The Company has
invested a large amount of time and money during fiscal 1999 to increase its
processing capacity. Management believes, that its capacity once the automated
chemistry laboratory is completed, for approximately $250,000, will be more than
adequate to handle the projected increase in patient volume.
-----------------------------------------------------------------------------Note Regarding Forward-Looking Statements
----------------------------------------This Annual Report on Form 10-K contains historical information as well as
forward-looking statements. Statements looking forward in time are included in
this Annual Report pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. Such statements involve known and
unknown risks and uncertainties that may cause the Company's actual results in
future periods to be materially different from any future performance
herein.
15
suggested
GENERAL AND ADMINISTRATIVE EXPENSES:
----------------------------------General and administrative expenses for the year ended October 31, 1999 were
$26,431,909 as compared to $20,430,757 for the year ended October 31, 1998, an
increase of approximately $6,000,000 or 29%. Approximately 48% of this increase
is the impairment charge of approximately $2,900,000 associated with the
Company's end stage renal dialysis business acquired from SmithKline Beecham. In
addition, occupancy expenses, telephone, data processing and marketing expenses
increased approximately $1,900,000 over the prior twelve month period. The
Company recorded a $227,000 expense associated with a New Jersey Medicaid
overpayment claim. Management believes that general and administrative expenses
in 2000 will increase but not at a higher percentage than the projected increase
in revenues.
INTEREST EXPENSE:
---------------Interest expense increased from $1,280,737 for the year ended October 31, 1998
to $1,465,765 for the year ended October 31, 1999, resulting from the Company's
continuing use of its revolving line of credit with PNC Bank.
Fiscal Year 1998 Compared to Fiscal Year 1997
Net Income
---------The Company's net income for the years ended October 31, 1998 and 1997 was
$596,583 and $3,199,915, respectively. The main reasons for the $2,600,000
decrease in net income is the reduction in nonrecurring gain of approximately
$1,700,000. The nonrecurring gain represents the gain in the sale of certain
assets of the Company's GenCare Division. The reduction in income from
operations resulted from a reduced gross profit percentage of approximately 4%
and an increase in general and administrative expenses.
Net Revenues
-----------On September 30, 1997, the Company completed the sale of certain assets of its
GenCare Division ("GenCare") to an unrelated third party. GenCare provided
largely cancer diagnostic testing services with relatively high revenues per
patient. The 1997 financial statements included eleven months of revenues
attributable to the GenCare division or $2,116,523. There were no revenues
realized by the GenCare Division in 1998.
Net revenues for the year ended October 31, 1998 were $46,553,730 as compared to
$38,660,184 for the year ended October 31, 1997; this represents a 20% increase
in net revenues. The Company acquired MLI in April of 1998. Since this
acquisition, for the seven month period ended October 31, 1998, MLI had net
revenues of $7,773,570 or 17% of the Company's net revenues for the year. There
were no revenues from MLI in fiscal 1997. MLI provides routine laboratory
services to physician offices,
clinics,
nursing homes and correctional
institutions, associated with lower revenues per patient.
The number of patients serviced during the year ended October 31, 1998 was
984,432 which was 35% greater when compared to the prior fiscal year. MLI
accounted for 24% of the patient count for the year ended October 31, 1998. Net
revenue per patient for the year ended October 31, 1997 was $53.08 compared to
net revenue per patient for the year ended October 31, 1998 of $47.29; a
reduction of $5.79 or 11%. MLI's net revenue per patient was $33.04 for the
seven month period ended October 31, 1998.
The Company anticipated increasing its revenues in its next fiscal year through
internal growth and development of new marketing initiatives in laboratory
testing services outside the traditional physician market. In April 1998, the
Company acquired MLI and was awarded, as of November, 1998, a contract to
provide laboratory testing by the New York State Department of Corrections for
inmates in its
-----------------------------------------------------------------------------Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K contains historical information as well as
forward-looking statements. Statements looking forward in time are included in
this Annual Report pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. Such statements involve known and
unknown risks and uncertainties that may cause the Company's actual results in
future periods to be materially different from any future performance
herein.
16
suggested
facilities. The Company is seeking to market its services to other correctional
institutions. In addition, the Company is attempting to expand its marketing
efforts in the drug testing market and has hired new marketing representatives
to specialize in this initiative.
COST OF SERVICES:
---------------Cost of sales increased from $19,339,274 for the year ended October 31, 1997 to
$25,058,008 for the year ended October 31, 1998, an increase of $5,718,734 or
30%. This increase is the result of the MLI acquisition. MLI's direct operating
costs were $5,639,627 for the seven month period ended October 31, 1998. The
optimum consolidation of laboratory operations has not been completed and will
impact the Company's cost structure until completed.
GROSS PROFITS:
------------Gross profit on net revenues increased from $19,320,910 for the year ended
October 31, 1997 to $21,495,722 for the year ended October 31, 1998; an increase
of $2,174,812, primarily attributable to the increase in revenues. Gross profit
margins decreased from 50% for the year ended October 31, 1997 to 46% for the
year ended October 31, 1998. This decrease in gross profit margins is primarily
attributable to the lower net revenues per patient, the increase in direct costs
associated with MLI and the duplication of direct costs that had not been
eliminated as of October 31, 1998 by an optimum consolidation of laboratory
operations.
GENERAL AND ADMINISTRATIVE EXPENSES:
----------------------------------General and administrative expenses for the year ended October 31, 1998 were
$20,430,757 as compared to $17,435,879 for the year ended October 31, 1997, an
increase of approximately $3,000,000 or 16%. Most of this increase was due to
the incurring of additional costs related to the MLI acquisition (approximately
$1,858,000). In addition, bad debt increased by 11%, or approximately $793,000
over the prior comparable period and was caused primarily by an increase in the
self-pay patients of Bio- Reference Laboratories resulting from legislation
passed in New Jersey which prohibited
physician billing for diagnostic
laboratory services. Self pay patients have an historical higher bad debt rate
than that of physician billing.
INTEREST EXPENSE:
---------------Interest expense increased from $1,124,432 for the year ended October 31, 1997
to $1,280,737 for the year ended October 31, 1998, resulting from the Company's
increase in asset based borrowing of approximately $4,400,000 and acquisition
debt of $4,000,000 offset by payments on existing debt of $1,000,000.
Liquidity and Capital Resources
------------------------------For the Fiscal Year Ended October 31, 1999
-----------------------------------------The Company's working capital at October 31, 1999 was approximately $3,700,000
as compared to approximately $8,400,000 at October 31, 1998, a decrease of
$4,700,000. This change is primarily the result of a decrease in accounts
receivable of approximately $2,000,000, an increase in accounts payable and
accrued expenses of approximately $600,000 and the utilization of cash to
decrease long term debt of approximately $2,200,000. The Company reduced its
debt through the utilization of its restricted certificates of deposit. This
allowed the Company to realize a cost savings on the spread between the interest
earned on these certificates of deposit and the interest expense on the monies
borrowed.
During the year ended October 31, 1999, the Company generated approximately
$1,800,000 in cash from operations, an increase of approximately $5,000,000 as
compared to the year ended October 31 1998. Each operating unit of clinical
laboratory testing services generated cash flow during the period ended
-----------------------------------------------------------------------------Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K contains historical information as well as
forward-looking statements. Statements looking forward in time are included in
this Annual Report pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. Such statements involve known and
unknown risks and uncertainties that may cause the Company's actual results in
future periods to be materially different from any future performance suggested
herein.
17
October 31, 1999. MLI, the Company's most recent laboratory acquisition
generated
approximately
$600,000 in cash from operating activities and
Bio-Reference generated approximately $7,000,000. Corporate activities (General
and Administrative Expenses) utilized approximately $6,000,000 in cash during
the twelve month period ended October 31, 1999. The Company expects cash flow
from operations to continue to improve during fiscal 2000. Overall, Management
anticipates being able to generate cash from operations in fiscal 2000 as a
result of a projected increased gross profit resulting from increased revenues
and a projected decrease in operating costs. Management believes operating costs
will be lower due to cost savings generated by the automated laboratory and cost
reductions generated by doing certain large volume laboratory tests in-house
rather than referring them to another laboratory.
Credit risk with respect to accounts receivable is generally diversified due to
the large number of patients comprising the client base. The Company does have
significant receivable balances with government payors and various insurance
carriers. Generally, the Company does not require collateral or other security
to support customer receivables, however, the Company continually monitors and
evaluates its client acceptance and collection procedures to minimize potential
credit risks associated with its accounts receivable. The Company establishes
and maintains an allowance for uncollectible accounts based upon collection
history and anticipated collection, and as a consequence, believes that its
accounts receivable credit risk exposure beyond such allowance is not material
to the financial statements.
A number of proposals for legislation continue to be under discussion which
could substantially reduce Medicare and Medicaid reimbursements to clinical
laboratories. Depending upon the nature of regulatory action, and the content of
legislation, the Company could experience a significant decrease in revenues
from Medicare and Medicaid, which could have a material adverse effect on the
Company. Medicare has announced that it will more than double the reimbursement
rate for Pap tests (from $7.15 to $14.60) and reimburse for PSA tests starting
January 1, 2000. The Company is unable to predict, however, the extent to which
other such actions will be taken. (See "Developments Since the Beginning of
Fiscal 1999" as to the status of a review concerning overpayments being
conducted by the Company's Medicare carrier and New Jersey Medicaid).
In January 2000, the Company commenced negotiations with New Jersey Medicaid
regarding a claim (the "Claim") made by the State in December 1999 that with
respect to certain clinical laboratory tests for which reimbursements were made
by the State to the Company, although such tests were authorized by the
physician, the underlying laboratory test requisitions did not bear the actual
signature of the physician ordering the test.
The Company believes it has been compliant with all requirements regarding
claims submitted for payment by New Jersey Medicaid and in fact require actual
physician signatures before it bills New Jersey Medicaid. However, the Company
and New Jersey Medicaid have entered into an oral agreement in January 2000 to a
settlement of approximately $227,000 to cover the claim and the Company has
accrued this settlement amount in its October 31, 1999 financial statements. The
settlement is subject to the parties' execution of a written agreement setting
forth its terms and to the approval of the Director of the Division of Medical
Assistance. Approval of the settlement is being recommended to the Director.
New Jersey Medicaid is the only payor the Company does business with that
requires an actual physician signature on every laboratory requisition. In the
fiscal year ending
October 31, 1999, New Jersey
Medicaid
represented
approximately 3% of the Company's total net revenues.
In April 1998, the Company amended its revolving loan agreement with PNC Bank.
The maximum amount of the credit line available to the Company is the lesser of
(1) $14,000,000 or (ii) 50% of the Company's qualified accounts receivable [as
defined in the agreement] plus 1% of any face amount of the certificates of
deposit, if any, pledged as collateral for this loan minus the amount of any
portion of the outstanding principal balance of the term loan which is deemed to
be collateralized by the certificates of deposit. Interest on advances which are
collateralized by certificates of deposit will be at 2% above the certificate of
deposit interest rate. Interest on other advances will be at prime plus 1.25%.
The credit line
-----------------------------------------------------------------------------Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K contains historical information as well as
forward-looking statements. Statements looking forward in time are included in
this Annual Report pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. Such statements involve known and
unknown risks and uncertainties that may cause the Company's actual results in
future periods to be materially different from any future performance suggested
herein.
18
is collateralized by substantially all of the Company's assets and the
assignment of a $4,000,000 insurance policy on the life of the president of the
Company. The line of credit is available through March 2001 and may be extended
for annual periods by mutual consent thereafter. The terms of this agreement
contain, among other provisions, requirements for maintaining defined levels of
capital expenditures and net worth, various financial ratios and insurance
coverage. As of October 31, 1998, the Company was in compliance with the
covenant provisions of this agreement and was utilizing $12,000,000 of this
credit facility. As of October 31, 1999, the Company was in default of certain
covenants, however, the Company subsequently received waivers for these defaults
on January 20, 2000. As of October 31, 1999, the Company was utilizing
$8,700,905 of this credit facility.
The Company generated approximately $5,000,000 of positive cash flow from
operating and investing activities for the year ended October 31, 1999, which
was applied toward payments totaling approximately $5,800,000 to reduce short
and long term debt and capital lease obligations.
The Company intends to expand its laboratory operations through acquisitions and
aggressive marketing while also diversifying into related medical fields through
acquisitions. These acquisitions may involve cash, notes, common stock, and/or
combinations thereof
The Company has various employment and consulting agreements of up to seven
years with commitments totaling approximately $5,700,000 [See Notes 10 and 12]
and operating leases with commitments totaling approximately $4,500,000 (of
which approximately $1,5600,000 and $1,600,000 are due during fiscal 2000) [See
Note 12].
The Company's cash balances at October 31, 1999 totaled approximately $2,100,000
as compared to $2,800,000 at October 31, 1998. The Company believes that its
cash position, the anticipated cash generated from future operations, the
availability of its credit line with PNC Bank, the utilization of certificates
of deposits maturing during the second quarter of fiscal year 2000 and the
interest due thereupon, will meet its future cash needs.
For the Fiscal Year Ended October 31, 1998
Working capital at October 31, 1998 was approximately $8,400,000 as compared to
approximately $9,400,000 at October 31, 1997, a decrease of $1,100,000 during
the twelve month period.
In fiscal year 1998, the Company utilized $3,227,601 in cash for operating
activities. This use of cash for operating activities resulted in an increase in
accounts receivable of approximately $7,200,000 offset by the increase in
accrued expenses and payables of approximately $2,600,000.
The Company utilized $4,237,998 of cash for investing activities during fiscal
year 1998. This consisted primarily of $4,000,000 of cash paid for Medilabs.
Impact of Inflation
------------------To date, inflation has not had a material effect on the Company's operations.
New Authoritative Pronouncements
-------------------------------The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 137, "Accounting for Derivative Instruments
and Hedging Activities-Deferral of Effective Date of FASB Statements No. 133."
The Statement defers for one year the effective date of FASB Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The rule now
will apply to all fiscal quarters of all fiscal years beginning after June 15,
2000. The Statement will require the Company to recognize all derivatives on the
balance sheet at fair value. Derivatives that are not hedges must be adjusted to
fair value through income. If the derivative is a hedge, depending on the value
of the hedged assets, liabilities, or firm commitments through earnings or
recognized in other
-----------------------------------------------------------------------------Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K contains historical information as well as
forward-looking statements. Statements looking forward in time are included in
this Annual Report pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. Such statements involve known and
unknown risks and uncertainties that may cause the Company's actual results in
future periods to be materially different from any future performance suggested
herein.
19
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. The adoption of SFAS No. 137 is not expected to have a
material impact on the Company's consolidated results of operation, financial
position or cash flows.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
--------------------------------------------------------Not applicable.
Item 8. - Financial Statements and Supplementary Data
------------------------------------------Financial Statements are annexed hereto
Item 9. - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
--------------------------------------------------------------------None
20
PART III
Item 10.- Directors and Executive Officers of the Registrant
-------------------------------------------------The following table sets forth certain information with respect to each of
the directors and executive officers of the Company.
Name
Age
Position
Marc D. Grodman, M.D.............48
Executive Officer and Director
Chairman of the Board, President, Chief
Howard Dubinett..................48
Officer and Director
Executive Vice President, Chief Operating
Sam Singer.......................57
Chief Accounting Officer and Director
Vice President, Chief Financial Officer,
Frank DeVito.....................77
Director
John Roglieri, M.D...............60
Director
Gary Lederman, Esq...............65
Director
Marc D. Grodman, M.D. founded the Company in December 1981 and has been
its Chairman of the Board, President, Chief Executive Officer and a Director
since its formation. Dr. Grodman is an Assistant Professor of Clinical Medicine
at Columbia University College of Physicians and Surgeons and Assistant
Attending Physician at Presbyterian Hospital, New York City. From 1980 to 1983,
Dr. Grodman attended the Kennedy School of Government at Harvard University and
was a Primary Care Clinical Fellow at Massachusetts General Hospital. From 1982
to 1984, he was a medical consultant to the Metal Trades Department of the
AFL-CIO. Dr. Grodman received a B.A. degree from the University of Pennsylvania
in 1973 and an M.D. degree from Columbia University College of Physicians and
Surgeons in 1977. Except for approximately 20 hours per month spent as Assistant
Professor of Clinical Medicine and Assistant Attending Physician at Columbia
University and Presbyterian Hospital and rendering medical services to the
Uniformed Firefighters Association of New York City, Dr. Grodman devotes all of
his working time to the business of the Company.
Howard Dubinett has been the Executive Vice-President and Chief Operating
Officer of the Company since its formation. He became a Director of the Company
in April 1986. Prior to joining the Company, Mr. Dubinett was general manager of
Union Prescription Service, Inc., a company which administered prescription drug
plans. Mr. Dubinett attended Rutgers University. Mr. Dubinett devotes all of his
working time to the business of the Company.
Sam Singer has been the Company's Vice President and Chief Financial
Officer since October 1987 and a Director since November 1989. He is responsible
for all financial activities of the Company. Prior to joining the Company, he
was Controller for Sycomm Systems Corporation, a data processing and management
consulting company, from 1981 to 1987. He received a B.A. degree from Strayer
College and an M.B.A. from Rutgers University. Mr. Singer devotes all of his
working time to the business of the Company.
Frank DeVito became a Director of the Company in April 1986. Since 1970,
Mr. DeVito has been Vice President of the New Jersey State AFL-CIO and from 1960
until December 1985 was President of AFL-CIO United Food and Commercial Workers,
Local 1245. From 1981 through December 1985 Mr. DeVito was also President of
United Food and Commercial Workers District Council of Metropolitan New York and
Northern New Jersey, which was comprised of 35 local unions with approximately
150,000 members.
John Roglieri, M.D. became a Director of the Company in September 1995. He
is an Assistant Professor of Clinical Medicine at Columbia University's College
of Physicians and Surgeons and an Assistant Attending Physician at Presbyterian
Hospital, New York City. Dr. Roglieri received a B.S.
21
degree in Chemical Engineering and a B.A. degree in Applied Sciences from Lehigh
University in 1960, an M.D. degree from Harvard Medical School in 1966, and a
Master's degree from Columbia University School of Business in 1978. From 1969
until 1971, he was a Senior Assistant Surgeon in the U.S. Public Health Service
in Washington. From 1971 until 1973 he was a Clinical and Research Fellow at
Massachusetts General Hospital. From 1973 until 1975, he was Director of the
Robert Wood Johnson Clinical Scholars program at Columbia University. In 1975 he
was appointed Vice-President Ambulatory Services at Presbyterian Hospital, a
position which he held until 1980. Since 1980, he has maintained a private
practice of internal medicine at Columbia-Presbyterian Medical Center. From 1988
until 1992, he was also Director of the Employee Health Service at Presbyterian
Hospital. Since 1992, he has been Corporate Medical Director of NYLCare, a
managed care subsidiary of New York Life. He is a member of advisory boards to
several pharmaceutical companies, a member of the Editorial Advisory Board of
the journal Managed Care and a biographee of Who's Who in America.
Gary Lederman, Esq. became a director of the Company in May 1997. He
received his B.A. from Brooklyn College in 1954 and his J.D. from NYU Law School
in 1957. He was manager of Locals 370, 491 and 662 of the U.F.C.W. International
Union from 1961 to 1985. He is retired from the unions and has been a lecturer
at Queensboro Community College in the field of insurance. He currently serves
on an institutional review board for RTL, a pharmaceutical drug testing
laboratory.
There are no family relationships between or among any directors or
executive officers of the Company. The Company's Certificate of Incorporation
provides for a staggered Board of Directors (the "Board") pursuant to which the
Board is divided into three classes of directors and the members of only one
class or one-third of the Board) are elected each year to serve a three-year
term. Officers are elected by and hold office at the discretion of the Board of
Directors.
Key Personnel and Consultants
----------------------------The following key personnel and consultants make significant contributions
to the Company's operations.
Robert Rush, Ph.D (Age 59) has been employed by the Company since July
1993 as Vice President of Technical Operations. From 1989 to 1993, Dr. Rush was
a Technical Director for National Health Laboratories, Inc., a national clinical
laboratory. From 1988 to 1989 he was the Technical Director of Maryland Medical
Laboratory and from 1975 to 1988 he was the Technical Director of Smith-Kline
Beecham Clinical Laboratories, another national clinical testing laboratory, in
Atlanta,
Georgia.
Dr. Rush also worked for the Technicon
Instruments
Corporation, a Tarrytown, New York manufacturer of laboratory equipment, from
1969 to 1972, as a Section Head in Clinical Chemistry. Dr. Rush is a registered
Clinical Laboratory Director in the states of New Jersey, New York and
Connecticut. He is board certified by the American Board of Clinical Chemistry.
Dr. Rush received a B.A. degree in Chemistry from Hunter College in 1962 and
M.S. and Ph.D. degrees in Biochemistry in 1964 and 1966 from Pennsylvania State
University.
Benita Ponda, M.D. (Age 54) has been employed by the Company since
February, 1994 as Medical Director. She is certified by the American Board of
Pathology in Clinical Pathology and Anatomical Pathology with a special
qualification in Cytopathology. She holds a New York State Department of Health
Certificate of Qualification for Laboratory Director. Dr. Ponda's professional
appointments include Chief of Cytopathology and Associate Pathologist at New
York Methodist Hospital, Brooklyn, New York (January 1992 to February, 1994);
Associate Pathologist at Flushing Hospital and Medical Center, Flushing, New
York (1981 to 1991) and Director of Laboratory at St. Mary's Hospital for
Children (1985 - to date). She received M.B.B.S. degree (equivalent to M.D. in
U.S.A.) from Bombay University, Bombay, India in 1970.
Ayad Mudarris, Ph.D. (Age 48) has been employed by the Company since
February 1996 as an Assistant Director of Technical Operation and Director of
Toxicology. Dr. Mudarris has been a consultant to the Company since October
1994. From 1992 to 1994, Dr. Mudarris was a Technical Director for National
Health Laboratories, a national clinical laboratory located in Cranford, New
Jersey. From 1988 to 1992 he was Vice President and Director of Columbia
Biomedical
Laboratory,
A SAMHSA (NIDA) certified forensic drug testing
laboratory in Columbia, South Carolina, and from 1987 to 1988 as Scientific and
Managing Director of Keystone Laboratory, a toxicology laboratory in Asheville,
North Carolina. Dr. Mudarris is a registered Clinical Laboratory Director in the
State of New
22
York. He is certified by the American Board of Bioanalysis as a Clinical
Laboratory Director and by the National Registry of Clinical chemistry as a
Clinical chemist. He received his B.S. degree in Pharmacy from Damascus
University in 1975 and M.S. degree in Medical Technology from Long Island
University in 1980 and Ph.D. degree in Biochemistry from the University of
Arkansas for Medical Sciences in 1986.
Compliance with Section 16(a) of the Exchange Act
------------------------------------------------Based solely on a review of Forms 3 and 4 and any amendments thereto
furnished to the Company pursuant to Rule 16a-3(e) under the Securities Exchange
Act of 1934, or representations that no Forms 5 were required, the Company
believes that with respect to fiscal 1999, its officers, directors and
beneficial owners of more than 10% of its equity timely complied with all
applicable Section 16(a) filing requirements.
Item 11. - Executive Compensation
---------------------The following table sets forth information concerning the compensation
paid or accrued by the Company during the year ended on October 31, 1999 to its
Chief Executive Officer and its other executive officers who were serving as
executive officers of the Company on October 31, 1999. All of the Company's
group life, health, hospitalization or medical reimbursement plans, if any, do
not discriminate in scope, terms or operation, in favor of the executive
officers or directors of the Company and are generally available to all salaried
employees.
SUMMARY COMPENSATION TABLE
Long-Term
--------Annual Compensation
-------------------
Compensation
------------
Other
All
Year
Annual Restricted
LTIP
Other
Ended
Compen- Stock
Options PayCompenName and Principal Position October 31, Salary
Bonus
sation Awards(1) (SARs) outs
sation
--------------------------------------------------------------------------------------------------Marc D. Grodman M.D.
President and Chief
Executive Officer
1999
$306,557 $125,000
$-0-0-01998
$305,653 $125,000
$-0-0-01997
$265,697
$90,000
$-0300,000 300,000(2)
$-0- $-0$-0- $-0$-0- $-0-
Howard Dubinett
Executive Vice
President and Chief
Operating Officer
1999
1998
1997
$160,004
$157,622
$148,417
$60,000
$57,750
$43,000
$-0$-0$-0-
-0-0-0-0240,000 213,334
$-0- $-0$-0- $-0$-0- $-0-
Sam Singer
Vice President and
Chief Financial and
Accounting Officer
1999
1998
1997
$158,002
$156,333
$147,455
$60,000
$57,750
$43,000
$-0$-0$-0-
-0-0-0-0200,000 116,667
$-0- $-0$-0- $-0$-0- $-0-
(1) In connection with their acceptance of the terms of new employment
agreements, the Company's board of directors on May 13, 1997 authorized the
issuance to Dr. Grodman, Mr. Dubinett and Mr. Singer of 300,000, 240,000 and
200,000 shares of Common Stock respectively. The shares are forfeitable in part
in various amounts if the employee's employment is terminated "for cause" or at
his option "without good reason" prior to May 1, 2000. See "Employment
Agreements with Executive Officers" herein.
(2) Does not include 604,078 shares of Common Stock issuable upon conversion of
604,078 shares of Senior Preferred Stock owned by Dr. Grodman, his wife and a
corporation controlled by her (collectively the "Grodman Group"). On May 13,
1997 pursuant to a recapitalization, the previously outstanding Senior Preferred
Stock owned by the Grodman Group convertible into an aggregate 604,078 shares of
Common Stock on or before April 20, 2003 at a conversion price of $1.50 per
share was retired in exchange for a new class of Senior Preferred Stock
convertible into an aggregate 604,078 shares of Common Stock on or before May 1,
2007 at a conversion price of $.75 per share. See Item 13 herein.
Employment Agreements with Executive Officers
--------------------------------------------On May 13, 1997, Dr. Grodman agreed to the terms of a new employment
agreement pursuant to which he will serve as president and chief executive
officer devoting at least 90% of his working time to the business of the
Company. The agreement provides (I) for a seven-year term commencing November 1,
1997; (ii) a minimum annual Base Compensation consisting of salary and bonus in
the aggregate amount of $395,000 subject to increases based on increases in the
Consumer Price Index as well as increases at the discretion of the board of
directors; (iii) typical health insurance coverage and an initial $2,000,000
face amount of "split dollar" life insurance insuring Dr. Grodman's life and
payable to his estate (excluding benefits required to be paid to the Company
pursuant to the split dollar plan) with $2,000,000 of additional coverage to be
applied for, which was obtained during fiscal 1999; (iv) the
23
leasing of an automobile for his use; (v) participation in fringe benefit,
bonus, pension, profit sharing, and similar plans maintained for the Company's
employees; (vi) disability benefits; (vii) certain termination benefits; and
(viii) in the event of termination due to a change in control of the Company, a
severance payment equal to 2.99 times Dr. Grodman's average annual compensation
during the preceding five years.
In consideration for Dr. Grodman's acceptance of the terms of the
employment agreement, the board of directors authorized the issuance to Dr.
Grodman of (a) 300,000 shares of the Company's Common Stock, partially subject
to forfeiture, (b) five-year incentive stock options ("ISOs") exercisable to
purchase 100,000 shares of Common Stock at $.790625 per share, and (C) ten-year
non-qualified stock options ("NQOs") exercisable to purchase 200,000 shares of
Common Stock at $.71875 per share. The ISOs are only exercisable while Dr.
Grodman is employed by the Company. The NQOs expire if Dr. Grodman's employment
agreement is terminated by the Company "For Cause" or at his option, "Without
Good Reason." See "Employee Incentive Stock Option Plan."
The 300,000 shares of Common Stock issued to Dr.
in part on the following basis if his employment
Company "For Cause" or at Dr.
Grodman's option "Without Good Reason."
Grodman are forfeitable
agreement is terminated by the
If Termination "For Cause"
or "Without Good Reason"
Occurs During the Following
Number of Shares
Periods
Forfeited
------------------------------------------------May 1, 1997 through April 30, 1998
May 1, 1998 through April 30, 1999
May 1, 1999 through April 30, 2000
225,000 shs.
150,000 shs.
75,000 shs.
Also on May 13, 1997, Mr. Dubinett agreed to the terms of a new employment
agreement pursuant to which he will serve as executive vice president and chief
operating officer of the Company. The agreement provides (I) for a five and
one-half year term commencing May 1, 1997; (ii) a minimum annual Base
Compensation commencing November 1, 1997 consisting of salary and bonus in the
aggregate amount of $220,000 subject to increases based on increases in the
Consumer Price Index as well as increases at the discretion of the board of
directors; (iii) typical health insurance coverage and $500,000 face amount of
"split dollar" life insurance insuring Mr. Dubinett's life and payable to his
estate (excluding benefits required to be paid to the Company pursuant to the
split dollar plan)which amount was increased to $1,000,000 during fiscal 1999;
(iv) the leasing of an automobile for his use; (v) participation in fringe
benefit, bonus, pension, profit sharing, and similar plans maintained for the
Company's employees;
(vi) disability benefits; (vii) certain termination
benefits; and (viii) in the event of termination due to a change in control of
the Company, a severance payment equal to 2.99 times Mr. Dubinett's average
annual compensation during the preceding five years.
In consideration for Mr. Dubinett's acceptance of the terms of the
employment agreement, the board of directors authorized the issuance to Mr.
Dubinett of (a) 240,000 shares of the Company's Common Stock, partially subject
to forfeiture and (b) ten-year ISOs exercisable to purchase 60,000 shares of
Common Stock at $.71875 per share. The ISOs are only exercisable while Mr.
Dubinett is employed by the Company.
The 240,000 shares of Common Stock issued to Mr. Dubinett. are forfeitable
in part on the following basis if his employment agreement is terminated by the
Company "For Cause" or at Mr. Dubinett's option "Without Good Reason."
24
If Termination "For Cause"
or "Without Good Reason"
Occurs During the Following
Number of Shares
Periods
Forfeited
-----------------------------------------------------May 1, 1997 through April 30, 1998
May 1, 1998 through April 30, 1999
May 1, 1999 through April 30, 2000
180,000 shs.
120,000 shs.
60,000 shs.
Also on May 13, 1997, Mr. Singer agreed to the terms of a new employment
agreement pursuant to which he will serve as vice president and chief financial
officer of the Company. The agreement provides (I) for a five and one-half year
term commencing May 1, 1997; (ii) a minimum annual Base Compensation commencing
November 1, 1997 consisting of salary and bonus in the aggregate amount of
$220,000 subject to increases based on increases in the Consumer Price Index as
well as increases at the discretion of the board of directors; (iii) typical
health insurance coverage and $400,000 face amount of "split dollar" life
insurance insuring Mr. Singer's life and payable to his estate (excluding
benefits required to be paid to the Company pursuant to the split dollar plan)
which amount was increased to $800,000 in November 1999; (iv) the leasing of an
automobile for his use; (v) participation in fringe benefit, bonus, pension,
profit sharing, and similar plans maintained for the Company's employees; (vi)
disability benefits; (vii) certain termination benefits; and (viii) in the event
of termination due to a change in control of the Company, a severance payment
equal to 2.99 times Mr. Singer's average annual compensation during the
preceding five years.
In consideration for Mr. Singer's acceptance of the terms of the
employment agreement, the board of directors authorized the issuance to Mr.
Singer of (a) 200,000 shares of the Company's Common Stock, partially subject to
forfeiture and (b) ten-year ISOs exercisable to purchase 50,000 shares of Common
Stock at $.71875 per share. The ISOs are only exercisable while Mr. Singer is
employed by the Company.
The 200,000 shares of Common Stock issued to Mr. Singer are forfeitable in
part on the following basis if his employment agreement is terminated by the
Company "For Cause" or at Mr. Singer's option "Without Good Reason."
If Termination "For Cause"
or "Without Good Reason"
Occurs During the Following
Number of Shares
Periods
Forfeited
-------------------------------------- -------------------May 1, 1997 through April 30, 1998
May 1, 1998 through April 30, 1999
May 1, 1999 through April 30, 2000
150,000 shs.
100,000 shs.
50,000 shs.
Employee Stock Option Plan
-------------------------In July 1989, the Company's Board of Directors adopted the 1989 Employees
Stock Option Plan (the "1989 Plan") which was approved by shareholders in
November 1989. The 1989 Plan provides for the grant of options to purchase up to
666,667 shares of Common Stock. Under the terms of the 1989 Plan, options
granted thereunder may be designated as options which qualify for incentive
stock option treatment ("ISOs") under Section 422 of the Code, or options which
do not so qualify ("NQOs").
The 1989 Plan also grants the Board or a Stock Option Committee designated
by the Board, the discretion to grant stock appreciation rights ("SARs") in
connection with, or independent of, any grant of options under the 1989 Plan.
SARs give the holder the right to receive from the Company upon exercise an
amount equal to the excess of the aggregate fair market value on the date of
exercise of the number of shares of Common Stock as to which SARs are being
exercised over the aggregate exercise price for those shares payable either in
cash or Common Stock in the discretion of the Board or the Stock Option
Committee.
25
The 1989 Plan is administered by the Board or by a Stock Option Committee
designated by the Board of Directors. The Board or the Stock Option Committee,
as the case may be, has the discretion to determine the eligible employees to
whom, and the times and the price at which, options will be granted; whether
such options shall be ISOs or NQOs; the periods during which options will be
exercisable; and the number of shares subject to each option. The Board or
Committee shall have full authority to interpret the 1989 Plan and to establish
and amend rules and regulations relating thereto.
Under the 1989 Plan, the exercise price of an option designated as an ISO
shall not be less than the fair market value of the Common Stock on the date the
option is granted. However, in the event an option designated as an ISO is
granted to a 10% shareholder (as defined in the 1989 Plan) such exercise price
shall be at least 110% of such fair market value. Exercise prices of NQOs
options may be less than such fair market value. The aggregate fair market value
of shares subject to options granted to a participant which are designated as
ISOs which first become exercisable in any calendar year may not exceed
$100,000.
As described above, on May 13, 1997, the Board of Directors granted
five-year ISOs under the Plan to Dr. Grodman, exercisable to purchase 100,000
shares of the Company's Common Stock at an exercise price of $.790625 per share
(equal to 110% of the last sale price for the Common Stock on NASDAQ on May 12,
1997). The board also granted ten-year ISOs under the Plan to Mr. Dubinett and
Mr. Singer exercisable to purchase 60,000 shares and 50,000 shares of Common
Stock respectively at an exercise price of $.71875 per share (equal to the last
sale price for the Common Stock on NASDAQ on May 12, 1997). In addition, the
board granted ten-year NQOs to Dr. Grodman, exercisable to purchase 200,000
shares of Common Stock at an exercise price of $.71875 per share.
At the same May 3, 1997 directors' meeting, in order to improve employee
morale, the board canceled all other outstanding ISOs exercisable to purchase an
aggregate 448,710 shares of Common Stock at exercise prices ranging from $1.3434
to $3.00 per share, and granted new ten-year ISOs under the Plan to 23 employees
exercisable to purchase an aggregate 448,710 shares of Common Stock at an
exercise price of $.71875 per share. Included in this grant were ISOs issued to
Mr. Dubinett and Mr. Singer exercisable to purchase 153,334 shares and 116,667
shares respectively. (These ISOs replaced ISOs previously granted to said two
individuals to purchase 153,334 shares and 116,667 shares respectively at
exercise prices ranging from $1.3125 to $1.50 per share.)
Also on May 13, 1997, the Board of Directors granted five-year NQOs to 31
employees, exercisable to purchase an aggregate 136,100 shares of Common Stock
at $.71875 per share but only while the optionee was employed by the Company.
On May 13, 1997, the board also issued five-year warrants to each of its
three outside directors, exercisable to purchase 10,000 shares (30,000 in the
aggregate) of Common Stock at an exercise price of $.71875 per share, but only
while serving as a director. At the same time, the board reduced the exercise
price on warrants held by one outside director, John Roglieri, exercisable to
purchase 23,334 shares ranging from $3.00 per share to $3.75 per share to
$.71875 per share and issued five-year warrants to another outside director,
Gary Lederman, exercisable to purchase 5,200 shares at $.71875 per share.
No stock options were granted during fiscal 1998. On January 19, 1999, the
Board of Directors granted five-year NQOs to 15 employees exercisable to
purchase an aggregate 286,000 shares of Common Stock at an exercise price of
$1.00 per share (the last sale price for the Common Stock on NASDAQ on the
trading day immediately preceding the meeting) but only while the optionee was
employed by the Company. On June 30, 1999, the Board ratified the grant of
five-year NQOs to three employees, exercisable to purchase an aggregate 150,000
shares of Common Stock at prices ranging from $.594 to $.719 per share but only
while the optionee was employed by the Company. The option prices were based on
the market prices for the Common Stock on the respective dates when employment
commenced for each of the three employees.
See Note 9 of Notes to the Consolidated Financial Statements.
The following table sets forth certain information concerning unexercised
options for each of the executive officers named in the "Summary Compensation
Table." No options were exercised by any of such individuals in fiscal 1999.
26
1999 Fiscal Year-End Option Values
---------------------------------Number of Unexercised Options
At 1999 Fiscal Year-End
In-The-Money
Name
Exercisable
-------------Unexercisable
------------Marc D. Grodman
200,000
100,000
-0Howard Dubinett
Sam Singer
213,334
166,667
Value of
Unexercised
Options at 10/31/99
-------------------
$
-017,813
$
50,000
-0-0-
$
$
53,333
41,667
Directors' Compensation
----------------------Directors who are not employees of the Company are also paid a $1,000 per
quarter director's fee.
Item 12. - Security Ownership of Certain Beneficial Owners and Management
-------------------------------------------------------------The following table sets forth information as of January 21, 1999 with
respect to the ownership of Common Stock by (I) each person known by the Company
to be the beneficial owner of more than 5% of its outstanding Common Stock, (ii)
each director of the Company, (iii) each executive officer of the Company, and
(iv) all directors and executive officers as a group. The percentages have been
calculated on the basis of treating as outstanding for a particular holder, all
shares of Common Stock outstanding on said date owned by such holders and all
shares of Common Stock issuable to such holder in the event of exercise or
conversion of outstanding options, warrants and convertible securities owned by
such holder at said date which are exercisable or convertible within 60 days of
such date.
Shares of
Name and Address of
Beneficial Owner
----------------
Common Stock
Beneficially Owned(1)
---------------------
Directors and Executive Officers*
Marc D. Grodman(2)...........................1,673,845
Howard Dubinett (3)............................477,001
Sam Singer(4)..................................377,667
Frank DeVito(5)................................ 10,202
John Roglieri(6)............................... 31,667
Gary Lederman (7).............................. 25,200
Executive Officers and directors.............2,595,582
as a group (six persons)(2)(3)(4)(5)(6)(7)
Percentage
Ownership
--------18.6%
5.7%
4.6%
27.5%
*
The address of all of the Company's directors and ex ecutive officers is
c/o the Company, 481 Edward H. Ross Drive, Elmwood Par k, New Jersey
07407.
27
(1)
Except otherwise noted, each holder named in the table has sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned.
(2)
Includes 608,100 shares owned directly by Dr. Grodman, 549,678 shares
issuable upon conversion of Senior Preferred Stock and 300,000 shares
issuable upon exercise of options. Also includes 121,667 shares owned
directly and 54,400 shares issuable upon conversion of Senior Preferred
Stock held by Dr. Grodman's wife, Pam Grodman, and a Company controlled by
her and 40,000 shares owned by their minor children. Dr. Grodman disclaims
beneficial ownership of these 236,067 shares.
(3)
Includes 263,667shares
exercise of options.
owned directly,
and 213,334 shares issuable upon
(4)
Includes 211,000 shares owned directly,
exercise of options.
and 166,667 shares issuable upon
(5)
Includes 202 shares
exercise of warrants.
owned
(6)
Includes 1,667 shares
exercise of warrants.
(7)
directly
owned
and
10,000
shares
issuable
upon
directly and 30,000
shares
issuable
upon
Includes 25,200 shares owned directly.
Item 13. - Certain Relationships and Related Transactions
----------------------------------------------In July 1989, the Company discontinued the operation of its Med-Mobile
Division. At such time, Dr. Grodman, as the Associated Physician, was indebted
to the Company in the amount of $235,354 in connection with the operation of
this division. Pursuant to an October 1, 1989 Settlement Agreement, Dr. Grodman
issued a $235,354 promissory note to the Company bearing interest at 10% per
annum and payable at the rate of $50,000 per annum in payment of this
indebtedness. On April 30, 1992, the Board of Directors amended this agreement,
in consideration for Dr. Grodman's
personal guarantee of the Company's
$2,500,000 financing arrangement with Towers Financial Corporation, suspending
all rental and interest charges for periods subsequent to November 1, 1991. As
of October 31, 1999, $138,518 in outstanding principal, interest and van rentals
was due from Dr. Grodman.
On April 20, 1993, in order to facilitate the Company's 1993 proposed
public offering, Dr. Grodman canceled his pro-rata option contained in his
employment contract and all other outstanding options and warrants to purchase
shares of Common Stock held by Dr. Grodman, his wife and an affiliated entity
(the "Grodman Group") exercisable to purchase an aggregate 604,078 shares of
Common Stock at prices ranging from $1.4438 to $1.50 or an average price of
$1.47 per share, in consideration for the issuance to the Grodman Group of
604,078 shares of a new class of senior preferred stock, $.10 par value per
share ("Senior Preferred Stock"). Each share of Senior Preferred Stock had the
same voting rights (one vote per share), dividend rights and liquidation rights
as each share of Common Stock and for a period of 10 years after issuance, was
convertible into one share of Common Stock upon payment of a conversion price of
$1.50 per share. The 604,078 shares of Senior Preferred Stock were issued to the
Grodman Group on August 23, 1993.
On May 13, 1997 pursuant to a recapitalization, the Senior Preferred was
retired in exchange for a new class of Senior Preferred Stock issued to the
Grodman Group. The new Senior Preferred Stock is convertible into an aggregate
604,078 shares of Common Stock on or before May 1, 2007 at a conversion price of
$.75 per share and has the same voting rights (one vote per share), dividend
rights and liquidation rights as each share of Common Stock.
28
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 10-KSB
-----------------------------------------------------------------1.
Financial Statements
The following financial statements of the Company are included in
Part II, Item 7
Page to Page
-----------Report of Independent Certified Public Accountants
F-1
Balance Sheet - October 31, 1999 and 1998
F-2..F-3
Statement of OperationsYears ended October 31, 1999, 1998 and 1997
F-4
Statement of Shareholders' Equity
Years ended October 31, 1999, 1998 and 1997
F-5
Statement of Cash Flows Years ended October 31, 1999, 1998 and 1997
F-6..F-7
Notes to Financial Statements-
F-8..F-23
Schedule II Years ended October 31, 1999, 1998 and 1997
2.
F-24.F-25
Reports on Form 8-K
No reports on Form 8-K have been filed
31, 1999.
3.
Exhibits
Exhibit
No.
during the Quarter
ended
Item
October
Incorporated by
Reference to
3.1*
Amended and Restated Certificate of Incorporation dated
November 15, 1989
(A)
3.1.1*
Amendment to Certificate of Incorporation dated
October 4, 1991 (authorizing one-for-10 reverse stock split)
(B)
3.1.2*
Amendment to Certificate of Incorporation dated
August 23, 1993 (authorizing one-for-three reverse stock split)
(C)
3.1.3
Amendment to Certificate of Incorporation dated March 23, 1998
(creating Series A Senior Preferred Stock)
3.1.4
Amendment to Certificate of Incorporation dated March 31, 1998
(creating Series A Junior Participating Preferred Stock)
3.2*
By-laws
(D)
4.1*
Form of Common Stock Certificate, $.01 par value
(C)
10.1
Lease Agreement for Elmwood Park, New Jersey Premises,
as in effect at October 31, 1999
10.2
Employment Agreement between the Company and
Marc Grodman as in effect at December 31, 1999
29
10.3
Employment Agreement between the Company and
Howard Dubinett as in effect at December 31, 1999
10.4
Employment Agreement between the Company and
Sam Singer as in effect at December 31, 1999
10.5*
The Company's 1989 Stock Option Plan
(B)
10.6*
Acquisition Agreement made as of April 9, 1998 for the
acquisition by the Company of all of the outstanding capital
stock of Medilabs, Inc.
(E)
10.7*
Rights Agreement dated as of March 31, 1998 including
Exhibits thereto between the Company and American Stock
Transfer & Trust Company as Rights Agent
(F)
10.8
Asset Sale/Purchase Agreement made as of December 2, 1999
for the acquisition by the Company of the WEB Business
of the Medical Marketing Group, Inc.
10.9
Asset/Sale Purchase Agreement made as of December 14, 1999
for the acquisition by the Company's wholly-owned BRLI No. 1
Acquisition Corp. subsidiary of the Health Ford Business of
Right Body Foods, Inc.
10.10
Employment Agreement between the Company and Rebecca
Klafter, chief executive officer of Right Body Foods, Inc.,
dated December 14, 1999
21
Subsidiaries of the Company
The following are the Company's two wholly-owned subsidiaries:
Name under which it
Name
----
State of Incorporation
----------------------
Medilabs, Inc.
BRLI No. 1 Acquisition Corp.
New York
New Jersey
Conducts Business
----------------Medilabs
Right Body Foods
The exhibits designated above with an asterisk (*) have previously been
filed with the Commission and, pursuant to 17 C.F.R. Secs. 201.24 and
240.12b-32, are incorporated by reference to the documents as indicated below.
(A)
Incorporated by reference to exhibit filed with the Company's Registration
Statement on Form S-1 (File No. 33-31360).
(B)
Incorporated by reference to exhibit filed with the
report on Form 10KSB for the year ended October 31, 1992.
Company's
annual
(C)
Incorporated by reference to exhibit filed with the Company's Registration
Statement on Form SB-2 (File No. 33-68678).
(D)
Incorporated by reference to exhibit filed with the Company's Registration
Statement on Form S-18 (File No. 33-5048-NY).
(E)
Incorporated by reference to exhibit filed with the
Form 8-K for April 22, 1998.
Company's
report on
(F)
Incorporated by reference to exhibit filed with the
Form 8-A dated March 31, 1998.
Company's
report on
30
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BIO-REFERENCE LABORATORIES, INC.
By: /S/ Marc D. Grodman
-----------------------Marc D. Grodman
Chairman of the Board, President,
Chief Executive Officer and Director
Dated:January 31, 2000
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
/S/ Marc D. Grodman
-----------------------Marc D. Grodman
Chairman of the Board, President,
Chief Executive Officer and Director
January 31, 2000
/S/ Howard Dubinett
-----------------------Howard Dubinett
Executive Vice President,
Chief Operating Officer and Director
January 31, 2000
/S/ Sam Singer
-----------------------Sam Singer
Vice President, Chief Financial Officer,
Chief Accounting Officer and Director
January 31, 2000
/S/ Frank DeVito
-----------------------Frank DeVito
Director
January 31, 2000
/S/ John Roglieri
-----------------------John Roglieri
Director
January 31, 2000
/S/ Gary Lederman
-----------------------Gary Lederman
Director
January 31, 2000
31
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
Bio-Reference Laboratories, Inc.
Elmwood Park, New Jersey
We have audited the accompanying consolidated balance sheets of
Bio-Reference Laboratories, Inc. and its subsidiary as of October 31, 1999 and
1998, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three fiscal years in the period ended
October 31, 1999. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the 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, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Bio-Reference Laboratories, Inc. and its subsidiary as of October
31, 1999 and 1998, and the consolidated results of their operations and their
cash flows for each of the three fiscal years in the period ended October 31,
1999, in conformity with generally accepted accounting principles.
MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
January 7, 2000
[Except for Note 22B as to
which the date is January 26, 2000
and Note 22C as to which the date
is January 19, 2000]
F-1
BIO-REFERENCE LABORATORIES, INC. AND SUBSIDIARY
-----------------------------------------------------------------------------CONSOLIDATED BALANCE SHEETS
-----------------------------------------------------------------------------October 31,
----------1 9 9 9
1 9 9 8
------------Assets:
Current Assets:
Cash and Cash Equivalents
Accounts Receivable - Net
Inventory
Certificates of Deposit - Restricted
Other Current Assets
Deferred Tax Asset
----------------------
2,128,474
18,615,496
572,279
-404,124
--
$ 2,784,147
20,749,696
587,101
3,646,250
1,100,867
344,000
21,720,373
29,212,061
41,740
3,466,574
1,152,599
550,554
41,740
3,263,101
429,993
508,630
Totals - At Cost
Less: Accumulated Depreciation
----------------------
5,211,467
3,039,128
4,243,464
2,022,928
Property and Equipment - Net
----------------------
2,172,339
2,220,536
-138,518
278,619
5,396,863
1,764,740
846,546
33,750
187,118
303,354
5,746,601
2,507,149
567,769
8,425,286
9,345,741
$ 32,317,998
$40,778,338
Total Current Assets
---------------------Property and Equipment:
Automobiles
Medical Equipment
Leasehold Improvements
Furniture and Fixtures
----------------------
Other:
Certificate of Deposit - Restricted
Due from Related Party
Deposits
Goodwill
Intangible Assets
Other Assets
---------------------Total Other
------------
-----------
Total Assets
============
===========
The Accompanying
Statements.
F-2
Notes are an Integral
$
Part of These
Consolidated
Financial
BIO-REFERENCE LABORATORIES, INC. AND SUBSIDIARY
-----------------------------------------------------------------------------CONSOLIDATED BALANCE SHEETS
------------------------------------------------------------------------------
October 31,
----------1 9 9 9
-------
1 9 9 8
-------
Liabilities and Shareholders' Equity:
Current Liabilities:
Accounts Payable
Accrued Salaries and Commissions
Accrued Expenses
Current Maturities of Long-Term Debt [Net of Discount]
Notes Payable - Banks
$
5,540,787
1,349,175
849,463
1,215,671
8,700,905
$ 4,379,961
1,367,785
625,814
2,071,058
12,000,000
308,251
304,098
229,232
173,962
18,268,350
20,847,812
2,000,000
680,538
3,306,617
400,975
2,680,538
3,707,592
Capitalized Lease Obligation - Short-Term Portion
Taxes Payable
---------------------Total Current Liabilities
---------------------Long-Term Liabilities:
Long-Term Debt Less Current Maturities
Capitalized Lease Obligations - Long-Term Portion
---------------------Total Long-Term Liabilities
---------------------Commitments and Contingencies
----------------------
--
Shareholders' Equity:
Preferred Stock, Par Value $.10 Per Share,
Authorized 1,062,589 Shares; None Issued
--
Series A - Senior Preferred Stock, Par Value $.10 Per
Share, Authorized, Issued and Outstanding 604,078 Shares
60,408
Series A - Junior Participating Preferred Stock, Par Value
$.10 Per Share, Authorized 3,000 Shares; None Issued
Common Stock, Par Value $.01 Per Share, Authorized
18,333,333 Shares; Issued and Outstanding 7,700,777 and
7,212,910 Shares at October 31, 1999 and 1998,
Respectively
--
-60,408
--
--
77,008
72,129
Additional Paid-in Capital
23,294,673
Accumulated [Deficit]
----------------------
(11,613,433)
(6,634,985)
Totals
Deferred Compensation
----------------------
11,818,656
(449,546)
16,495,567
(272,633)
Total Shareholders' Equity
----------------------
11,369,110
16,222,934
$ 32,317,998
$40,778,338
Total Liabilities and Shareholders' Equity
============
===========
The Accompanying
Statements.
Notes are an Integral
Part of These
Consolidated
Financial
22,998,015
F-3
BIO-REFERENCE LABORATORIES, INC. AND SUBSIDIARY
-----------------------------------------------------------------------------CONSOLIDATED STATEMENTS OF OPERATIONS
------------------------------------------------------------------------------
Y e a r s
e n d e d
----------------------------------------O c t o b e r
3 1,
----------------------------------------1 9 9 9
1 9 9 8
1 9 9 7
-------------------
Net Revenues
------------
$ 53,856,414
$ 46,553,730
856,668
14,096,914
6,974,857
8,921,898
704,293
11,675,839
5,567,394
7,110,482
390,953
8,595,078
4,777,325
5,575,918
30,850,337
25,058,008
19,339,274
23,006,077
21,495,722
19,320,910
974,529
15,677,788
6,855,221
2,924,371
935,370
13,410,446
6,084,941
--
798,365
11,346,007
5,291,507
--
Total General and Administrative Expenses
--------------------------------
26,431,909
20,430,757
17,435,879
[Loss] Income from Operations
--------------------------------
(3,425,832)
1,064,965
1,885,031
333,900
2,025,689
------------
Cost of Services:
Depreciation and Amortization
Employee Related Expenses
Reagents and Laboratory Supplies
Other Cost of Services
-------------------------------Total Cost of Services
-----------------------
----------
Gross Profit
------------
----------
------------
$38,660,184
-----------
General and Administrative Expenses:
Depreciation and Amortization
Other General and Administrative Expenses
Provision for Doubtful Accounts
Expenses of Impaired Assets
--------------------------------
Non-Recurring Gain on Sale of Intangible
Assets
-------------------------------Other [Income] Expense:
Interest Expense
Interest Income
Other Income
-----------------------
----------
Total Other Expense - Net
-----------------------
----------
--
1,465,765
(265,069)
(15,380)
[Loss] Income Before Income Taxes
Provision for Income Tax Expense [Benefit]
-------------------------------Net [Loss] Income
============
============
==========
Net [Loss] Income Per Share
============
============
==========
Net [Loss] Income Per Share - Assuming
Dilution
============
============
==========
1,280,737
(440,155)
--
1,124,432
(274,887)
--
1,185,316
840,582
849,545
(4,611,148)
558,283
3,061,175
367,300
(38,300)
$
596,583
$
$
.08
$
$ (4,978,448)
(.68)
(.68)
$
.07
(138,740)
$3,199,915
$
$
.48
.43
The Accompanying
Statements.
F-4
Notes are an Integral
Part of These
Consolidated
Financial
BIO-REFERENCE LABORATORIES, INC. AND SUBSIDIARY
-----------------------------------------------------------------------------CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
-----------------------------------------------------------------------------Series A
Additional
Total
Senior Preferred Stock Common Stock
Paid-in Accumulated
Deferred Shareholders'
Shares
Amount
Shares
Amount
Capital
[Deficit]Compensation
Equity
Balance - October 31, 1996
604,078
$60,408
6,300,280
$63,003
$22,433,297 $(10,431,483) $ (22,217) $12,103,008
Shares Issued for Deferred Compensation
--
--
815,000
8,150
337,919
--
(346,069)
--
Warrants Issued for Deferred Compensation
--
--
--
--
13,423
--
(13,423)
--
Shares Issued in Connection with an
Acquisition Agreement
--
--
54,096
541
127,320
--
--
127,861
Shares Released from Escrow
--
--
--
--
55,201
--
--
55,201
Amortization of Deferred Compensation
--
--
--
--
--
--
38,658
38,658
3,199,915
--
3,199,915
Net Income for the Year
-------- --------------Balance - October 31, 1997
-------
-------------- ------------ ---------
604,078
60,408
7,169,376
71,694
------------
22,967,160
(7,231,568)
(343,051)
15,524,643
Amortization of Deferred Compensation
--
--
--
--
--
--
70,418
70,418
Shares Issued on Exercise of Warrants
--
--
43,534
435
30,855
--
--
31,290
596,583
--
596,583
Net Income for the Year
-------- --------------Balance - October 31, 1998
-------
-------------- ------------ ---------
604,078
60,408
7,212,910
72,129
------------
22,998,015
(6,634,985)
(272,633)
Shares Issued in Lieu of Compensation
--
--
25,000
250
25,688
--
Shares Issued for Deferred Compensation
--
--
490,000
4,900
270,970
--
Escrow Shares Cancelled
--
--
(27,133)
(271)
--
--
--
Amortization of Deferred Compensation
--
--
--
--
--
98,957
--
25,938
(275,870)
98,957
604,078 $60,408
7,700,777 $77,008
$23,294,673 $(11,613,433) $(449,546) $11,369,110
=======
=========== ============ ========= ===========
F-5
Consolidated
Financial
--
(271)
Balance - October 31, 1999
======== =======
=========
Part of These
(4,978,448)
--
-------
Notes are an Integral
------------
--
Net [Loss] for the Year
-------- ---------------
The Accompanying
Statements.
-------------- ------------ ---------
16,222,934
(4,978,448)
BIO-REFERENCE LABORATORIES, INC. AND SUBSIDIARY
-----------------------------------------------------------------------------CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------
Y e a r s
e n d e d
O c t o b e r
3 1,
1 9 9 9
1 9 9 8
-------------
1 9 9 7
-------
Operating Activities:
Net [Loss] Income
-------------------------------Adjustments to Reconcile Net [Loss] Income to
Net Cash Provided by [Used for]
Operating Activities:
Depreciation and Amortization
Amortization of Deferred Compensation
Amortization of Deferred Interest
Amortization Reversal Due to Legal Settlement
Expenses of Impaired Assets
Provision for Doubtful Accounts
Other
Nonrecurring Gain on Sale of Intangible Assets
Deferred Income Taxes
Changes in Assets and Liabilities
[Net of Effects from Acquisitions]:
[Increase] Decrease in:
Accounts Receivable
Other Assets
Inventory
Other Current Assets
$ (4,978,448)
1,831,197
98,957
92,000
-2,924,371
6,855,221
25,667
-344,000
(6,721,021)
(278,777)
14,822
696,743
Increase [Decrease] in:
Accounts Payable and Accrued Expenses
Taxes Payable
-------------------------------Total Adjustments
-----------------------
Investing Activities:
Acquisition of Property and Equipment
Purchase of Certificate of Deposit - Restricted
Maturities of Certificate of Deposit - Restricted
Cash Paid for Medilabs, Inc. Acquisition
Cash Acquired During Acquisition
Reduction [Additions] of Deposits
Repayment of Related Party Receivable
Payment for Acquisition of Intangible Assets
Proceeds from Sale of Intangible Assets
-------------------------------Net Cash - Investing Activities - Forward
F-6
596,583
$3,199,915
1,639,663
70,418
53,667
(56,859)
-6,084,941
-(333,900)
(86,000)
1,189,318
38,658
---5,291,507
-(2,025,689)
(258,000)
(10,990,642)
(120,866)
117,625
636,478
(7,509,627)
(105,866)
(59,493)
142,504
740,865
130,136
(642,123)
(196,586)
(210,861)
136,030
6,754,181
(3,824,184)
(3,371,519)
----------
Net Cash - Operating Activities - Forward
--------------------------------
The Accompanying
Statements.
$
Notes are an Integral
Part of These
$
1,775,733
(3,227,601)
(171,604)
(392,102)
-3,680,000
--24,735
48,600
---
(194,558)
(3,680,000)
3,680,000
(4,000,000)
86,412
(3,985)
27,000
(152,867)
--
(143,613)
(3,680,000)
3,680,000
--6,907
20,800
(44,375)
4,600,000
3,361,233
Consolidated
$ (4,237,998)
Financial
$4,439,719
BIO-REFERENCE LABORATORIES, INC. AND SUBSIDIARY
-----------------------------------------------------------------------------CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------
Y e a r s
e n d e d
O c t o b e r
3 1,
1 9 9 9
1 9 9 8
-------------
1 9 9 7
-------
Net Cash - Operating Activities - Forwarded
--------------------------------
$
1,775,733
$ (3,227,601)
3,361,233
(4,237,998)
$4,439,719
-(2,254,004)
(239,540)
-(3,299,095)
---
4,000,000
(1,001,368)
(178,954)
(1,339)
4,386,292
852,000
31,290
-(739,895)
(216,448)
(234,390)
(2,317,031)
---
(5,792,639)
8,087,921
(3,507,764)
(655,673)
622,322
760,351
Net Cash - Investing Activities - Forwarded
-------------------------------Financing Activities:
Proceeds from Long-Term Debt
Payments of Long-Term Debt
Payments of Capital Lease Obligations
Payments of Subordinated Notes Payable
[Decrease] Increase in Revolving Line of Credit
Decrease in Restricted Cash
Proceeds from Exercise of Warrants
-------------------------------Net Cash - Financing Activities
-------------------------------Net [Decrease] Increase in Cash and Cash
Equivalents
Cash and Cash Equivalents - Beginning of Years
-------------------------------Cash and Cash Equivalents - End of Years
============
============
==========
2,784,147
$
2,128,474
Supplemental Disclosures of Cash Flow Information:
Cash paid during the years for:
Interest
$ 1,437,602
Income Taxes
$
33,736
2,161,825
$
$
$
2,784,147
1,179,533
120,407
Supplemental Schedule of Non-Cash Investing and Financing Activities:
During 1997, the Company incurred four capital lease obligations totaling
$252,279 in connection with the acquisition of medical equipment.
In fiscal 1997, the Company issued debt in the amount of $108,000 in
connection with the acquisition of a customer list related to a 1994 agreement.
During 1998, the Company incurred two capital lease obligations
$93,143 in connection with the acquisition of medical equipment.
During 1999, the Company incurred seven capital lease
$598,122 in connection with the acquisition of medical
improvements.
totaling
obligations totaling
equipment and leasehold
In May 1999, the Company recorded $625,000 in intangible
expenses related to an employment agreement.
assets and accrued
[See Notes 7, 13, 16 and 22] for additional non-cash transactions]
The Accompanying
Statements.
F-7
Notes are an Integral
Part of These
Consolidated
$ (171,604)
Financial
1,401,474
$2,161,825
$1,118,540
$
44,136
BIO-REFERENCE LABORATORIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------
[1] Organization and Business
Bio-Reference Laboratories, Inc. was incorporated on December 21, 1981 to
initially engage in the business of developing and marketing on-site medical
screening examinations. Since February 1987, its emphasis has been in clinical
laboratory operations, principally servicing the greater New York metropolitan
area and providing
specialty
services
throughout
the United
States.
Bio-Reference Laboratories, Inc. and its wholly-owned subsidiary [the "Company"]
markets its clinical laboratory testing services directly to physicians,
hospitals, clinics, and other health facilities.
[2] Summary of Significant Accounting Policies
Principles of Consolidation - The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary. All significant
intercompany accounts and transactions have been eliminated. The operations of
GenCare Biomedical Research Corporation are included in operations from January
1, 1995 through September 30, 1997 [See Note 20]. The operations of Medilabs,
Inc. are included in operations commencing April 9, 1998 [See Note 16].
Revenue Recognition - Revenues are recognized at the time the services are
performed. Revenues on the statements of operations are as follows:
Y e a r s e n d e d
---------------------------------O c t o b e r 3 1,
---------------------------------1 9 9 9
1 9 9 8
1 9 9 7
------------------Gross Revenues
------------ ------------ ----------Contractual Adjustments and Discounts:
Medicare/Medicaid Portion
Other
------------ ------------ ---------Total Contractual Adjustments and
Discounts
------------ ------------ ---------Net Revenues
------------
$125,958,897 $102,351,588 $80,462,096
38,779,145
33,323,338
72,102,483
33,064,535
22,733,323
55,797,858
23,090,659
18,711,253
41,801,912
$ 53,856,414 $ 46,553,730 $38,660,184
============ ============ ===========
Contractual Credits and Provision for Doubtful Accounts - An allowance for
contractual credits is determined based upon a review of the reimbursement
policies and subsequent collections for the different types of receivables. An
allowance for doubtful accounts is determined based upon a percentage of total
receivables. The aggregate allowance, which is shown net against accounts
receivable, was $15,312,935, $13,494,475 and $8,564,436 as of October 31, 1999,
1998 and 1997, respectively.
Inventory - Inventory is stated at the lower of cost [on a first-in,
basis] or market. Inventory consists primarily of clinical supplies.
first-out
Stock Options Issued to Employees - The Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," for
financial note disclosure purposes and continues to apply the intrinsic value
method of Accounting Principles Board ["APB"] Opinion No. 25, "Accounting for
Stock Issued to Employees," for financial reporting purposes.
Deferred Income Taxes - Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax bases of assets
and liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income.
F-8
BIO-REFERENCE LABORATORIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2
------------------------------------------------------------------------------
[2] Summary of Significant Accounting Policies [Continued]
Deferred Income Taxes [Continued] - Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable or refundable for the period plus or minus
the change during the period in deferred tax assets and liabilities.
Net
and
and
the
Income Per Share - Basic EPS is based on average common shares outstanding
diluted EPS includes the effects of potential common stock, such as, options
warrants, if dilutive. Securities that could potentially dilute earnings in
future are listed in Notes 9 and 22.
Impairment - Certain long-term assets of the Company including goodwill are
reviewed at least annually as to whether their carrying value has become
impaired, pursuant to guidance established in Statement of Financial Accounting
Standards ["SFAS"] No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of." Management considers assets to be
impaired if the carrying value exceeds the future projected cash flows from
related operations [undiscounted and without interest charges]. If impairment is
deemed to exist, the assets will be written down to fair value. Management also
re-evaluates the periods of amortization to determine whether subsequent events
and circumstances warrant revised estimates of useful lives. During the year
ended October 31, 1999, an impairment of $2,924,371 was recorded in connection
with assets acquired for the hemo-dialysis business. The breakdown of this
expense was an increase in the allowance for related accounts receivable of
approximately $2,000,000 and the write down of goodwill of approximately
$900,000 as a result of
management's
intent to no longer pursue the
hemo-dialysis business. Accordingly, the Company has made revisions to future
endeavors in this area.
Property and
Equipment - Property and
equipment are carried at cost.
Depreciation is computed by the straight-line method over the estimated useful
lives of the respective assets which range from 2 to 15 years. Leasehold
improvements are amortized over the life of the lease, which is approximately
five years.
The statements of operations reflect depreciation expense related to property
and equipment of $1,038,421, $820,226 and $419,462 for the years ended October
31, 1999, 1998 and 1997, respectively.
On sale or retirement, the asset cost and related accumulated depreciation or
amortization are removed from the accounts, and any related gain or loss is
reflected in income. Repairs and maintenance are charged to expense when
incurred.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Goodwill - Goodwill represents the excess of the cost of companies acquired over
the fair value of their net assets at dates of acquisition and is being
amortized on the straight-line method over 20 years. The statements of
operations reflect amortization expense related to goodwill for the years ended
October 31, 1999,
1998 and 1997 of $349,738,
$254,022 and
$203,490,
respectively. The balance sheet reflects accumulated amortization of $1,597,767
and $1,248,029 as of October 31, 1999 and 1998, respectively.
Intangible Assets - Intangible assets are amortized using the straight-line
method. The statements of operations reflect amortization expense related to
intangible assets of $443,038, $565,415 and $566,366 for the years ended October
31, 1999, 1998 and 1997, respectively. The balance sheet reflects accumulated
amortization of $2,271,436 and $2,173,034 as of October 31, 1999 and 1998,
respectively.
F-9
BIO-REFERENCE LABORATORIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3
-----------------------------------------------------------------------------[2] Summary of Significant Accounting Policies [Continued]
Intangible Assets [Continued] - A summary is as follows:
Accumulated Net of Accumulated
Amortization Amortization
October 31,
October 31,
Intangible Asset
Life in Years
Cost
1 9 9 9
------------------------------------Customer Lists
Covenants Not-to-Compete
Employment Agreement
Costs Related to
Acquisitions
Patent
----------- -----------
20
3 - 7.5
5 - 7
$ 1,449,202
1,020,000
1,025,000
1 - 20
17
-----------
Totals
------
Customer Lists
Covenants Not-to-Compete
Employment Agreement
Costs Related to
Acquisitions
Patent
----------- ----------Totals
------
385,969
156,005
$ 4,036,176
===========
Accumulated Net of Accumulated
Amortization Amortization
October 31,
October 31,
Intangible Asset
Life in Years
---------------------------20
3 - 7.5
5
$
578,736
977,574
444,643
870,466
42,426
580,357
140,543
130,948
$ 1,764,740
===========
1 9 9 8
-------
$ 2,469,202 $
1,200,000
400,000
1 - 20
454,976
17
156,005
-----------
$
245,426
25,057
$ 2,271,436
===========
Cost
----
1 9 9 9
-------
1 9 9 8
-------
620,143
965,279
366,669
$ 1,849,059
234,721
33,331
205,260
15,683
249,716
140,322
$ 4,680,183 $ 2,173,034
=========== ===========
$ 2,507,149
===========
Advertising Costs -Advertising costs are expensed when incurred. Advertising
costs amounted to approximately $548,000, $819,000 and, $467,000 and for the
years ended October 31, 1999, 1998 and 1997, respectively.
Cash and Cash Equivalents - Cash equivalents are comprised of certain highly
liquid investments with a maturity of three months or less when purchased. The
Company had $1,113,418 and $1,843,186 in cash equivalents at October 31, 1999
and 1998, respectively.
[3] Note Payables - Banks
In April 1998, the Company amended its revolving loan agreement with PNC Bank.
The maximum amount of the credit line available to the Company is the lesser of
(i) $14,000,000 or (ii) 50% of the Company's qualified accounts receivable [as
defined in the agreement] plus the face amount of any certificates of deposit
pledged as collateral for this loan minus the amount of the outstanding
principal balance of any term loans with the same bank. Interest on advances
which are collateralized by certificates of deposit will be at 2% above the
certificate of deposit interest rate. Interest on other advances will be at
prime plus 1.25%. The certificate of deposit interest rate was 5% through March
25, 1999. The credit line is collateralized by substantially all of the
Company's assets and the assignment of a $4,000,000 life insurance policy on the
president of the Company. The line of credit is available through March 2001 and
may be extended for annual periods by mutual consent, thereafter. The terms of
this agreement contain, among other provisions, requirements for maintaining
defined levels of capital expenditures and net worth, various financial ratios
and insurance coverage. As of October 31, 1999 and 1998, the Company was in
default of certain covenants, however, the Company subsequently received bank
waivers for these defaults [See Note 22B]. As of October 31, 1998, the Company
utilized $12,000,000 of this credit facility. As of October 31, 1999, the
Company utilized $8,700,905 of this credit facility.
Prime rate at October 31, 1999 and 1998 was 8.25% and 8.0%, respectively.
The weighted average interest rate on short-term borrowings
October 31, 1999 and 1998 was 9.22% and 8.75%, respectively.
F-10
outstanding as of
BIO-REFERENCE LABORATORIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4
------------------------------------------------------------------------------
[4] Long-Term Debt
October 31,
----------1 9 9 9
1 9 9 8
------------[A] Note Payable to LTC Service and Holdings, Inc.
Due April 2000. Interest imputed at 11.6%,
unsecured.
$
[B] Notes Payable to PNC Bank. Due April 2002.
Interest at prime plus 2% for the unsecured portion
and prime plus 1.6% for the secured portion.
415,671 $ 1,323,667
2,800,000
3,600,000
Note Payable to PNC Bank. Due October 1999.
Interest at prime plus 1.00%.
--
86,424
Notes Payable to PNC Bank. Due July 2000.
Interest at prime plus 1.00% and certificate of
deposit rate plus 2%.
--
315,259
--
52,325
Other
---------- ----------Totals
Less: Current Maturities
---------- -----------
3,215,671
1,215,671
Long-Term Debt
--------------
5,377,675
2,071,058
$2,000,000 $ 3,306,617
========== ===========
[A] On April 9, 1998, the Company acquired the assets and certain liabilities of
Medilabs, Inc. from LTC Service and Holdings, Inc. The purchase price consisted
of $4,000,000 cash plus a $1,500,000 promissory note payable without interest in
three semi-annual installments commencing April 1999. Interest was imputed at a
rate of 11.6% on this note.
[B] In April 1998, the Company entered into an agreement to borrow $4,000,000
from PNC Bank. The note is payable in forty-seven principal installments of
$66,667 commencing May 1, 1998 and one final balloon payment. The unsecured
portion of $2,000,000 bears interest at an annual rate of 10.25% to 10.5%. The
secured portion of $2,000,000 bears interest at an annual rate of 9.85% to
10.10%. This note is in accordance with the provisions of the Company's
revolving loan agreement [See Note 3] with the same lender.
Maturities
follows:
of debt at
October
2000
2001
2002
2003
2004
----------Total
-----
31,
1999 in each of the next five years are as
$ 1,215,671
800,000
1,200,000
--$ 3,215,671
===========
[5] Related Party Transactions
On October 1, 1989, an unsecured promissory note was received from Dr. Marc
Grodman ["Dr. Grodman"], president of the Company, in exchange for a receivable
in the amount of $235,354. As of October 31, 1999 and 1998, $138,518 and
$187,118 was remaining on the note. This note is non-interest bearing and has no
fixed terms.
F-11
BIO-REFERENCE LABORATORIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5
-----------------------------------------------------------------------------[6] Income Taxes
The reconciliation of income tax from continuing operations computed at the U.S.
federal statutory tax rate to the Company's effective income tax rate is as
follows:
October 31,
----------------------------1 9 9 9
1 9 9 8
1 9 9 7
------------------U.S. Federal Statutory Rate
State and Local Income Taxes, Net of U.S.
Federal Income Tax Benefit
Other
Utilization of Net Operating Loss Carryforwards
Change in Valuation Allowance
----------------Actual Rate
-----------
(34.0)%
34.0 %
34.0%
-- %
-- %
-- %
42.0 %
9.0 %
(11.1)%
(38.8)%
--%
10.0%
(7.5)%
(41.0)%
-- %
8.0 %
======
The provision for income taxes shown
operations consist of the following:
October 31,
------------------------------------1 9 9 9
1 9 9 8
1 9 9 7
------------------Current:
Federal
$
State and Local
Deferred:
Federal
State and Local
-------------------
in
the
(6.9)%
======
consolidated
-23,300
$
272,000[1]
72,000[1]
16,200
31,500
(4.5)%
=======
statements
$
(68,000)
(18,000)
of
79,947
39,313
(204,000)
(54,000)
----------
Total Provision for Income Taxes
--------------------------------
$ 367,300
==========
$ (38,300) $ (138,740)
========== ==========
[1] Increase in deferred tax valuation allowance.
For the year ended October 31, 1998, the Company utilized approximately $500,000
of net operating loss carryforwards which resulted in a tax benefit for federal
and state purposes of approximately $200,000. For the year ended October 31,
1997, the Company utilized approximately $3,600,000 of net operating loss
carryforwards which resulted in a tax benefit for federal and state purposes of
approximately $1,450,000.
At October 31, 1999, the Company had net operating loss carryforwards of
approximately $9,345,000 for federal income tax purposes, which expire in years
2006 through 2014. In addition, the Company had net operating losses for state
purposes. The Company operates in several states, however, most of its business
is conducted in the New Jersey and New York area. The following summarizes the
operating loss carryforwards by year of expiration:
Federal
New Jersey
Expiration Date
2000
2006
2007
2008
2009
2014
---------Total
----F-12
-----------
New York
Amount
Amount
Amount
$
-825,000
1,255,000
2,375,000
390,000
4,500,000
----------
$ 2,375,000
----4,500,000
$
-383,000
1,253,000
2,373,000
-4,500,000
$9,345,000
==========
$ 6,875,000
===========
$8,509,000
==========
BIO-REFERENCE LABORATORIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6
-----------------------------------------------------------------------------[6] Income Taxes [Continued]
At October 31, 1998, the Company had a deferred tax asset of approximately
$2,000,000 and a valuation allowance of approximately $1,656,000 related to the
asset, a decrease of $286,000 since October 31, 1997. The deferred tax asset
primarily relates to net operating loss carryforwards.
At October 31, 1999, the Company had a deferred tax asset of approximately
$4,000,000 and a valuation allowance of approximately $4,000,000 related to the
asset, an increase of $2,344,000 since October 31, 1998. The deferred tax asset
primarily relates to net operating loss carryforwards.
[7] Capital Transactions
[A] Preferred Stock and Common Stock - The Company is authorized to issue an
aggregate of 1,669,667 shares of preferred stock, $.10 par value. On April 20,
1993, in order to facilitate the Company's 1993 proposed public offering, Dr.
Grodman canceled his pro-rata option contained in his employment contract and
all other outstanding options and warrants to purchase shares of Common Stock
held by Dr. Grodman, his wife and an affiliated entity (the "Grodman Group")
exercisable to purchase an aggregate 604,078 shares of Common Stock at prices
ranging from $1.4438 to $1.50 or an average price of $1.47 per share, in
consideration for the issuance to the Grodman Group of 604,078 shares of a new
class of senior preferred stock, $.10 par value per share ("Senior Preferred
Stock"). Each share of Senior Preferred Stock had the same voting rights (one
vote per share), dividend rights and liquidation rights as each share of Common
Stock and for a period of 10 years after issuance, was convertible into one
share of Common Stock upon payment of a conversion price of $1.50 per share. The
604,078 shares of Senior Preferred Stock were issued to the Grodman Group on
August 23, 1993. On May 13, 1997, pursuant to a recapitalization, the Senior
Preferred Stock was retired in exchange for a new class of Series A Senior
Preferred Stock issued to the Grodman Group. The new Series A Senior Preferred
Stock is convertible into an aggregate 604,078 shares of Common Stock on or
before May 1, 2007 at a conversion price of $.75 per share and has the same
voting rights [one vote per share], dividend rights and liquidation rights as
each share of Common Stock.
Holders of the Company's Common Stock are entitled to one vote per share on
matters submitted for shareholder vote. Holders are also entitled to receive
dividends ratably, if declared. In the event of dissolution or liquidation,
holders are entitled to share ratably in all assets remaining after payment of
liabilities.
On March 31, 1998, the Company's Board of Directors adopted a Shareholder Rights
Plan and declared a dividend distribution of one Right for each outstanding
share of Common Stock and each outstanding share of Series A Senior Preferred
Stock.
Each Right entitles the registered holder to purchase one oneten-thousandth of a share of Series A Junior Participating Preferred Stock [the
"Junior Preferred Stock"] from the Company at a price of $4.00. Because of the
nature of the dividend, liquidation and voting rights of the Junior Preferred
Stock, the value of each one-ten-thousandth of a share of Junior Preferred Stock
is intended to approximate the value of one share of Common Stock. Junior
Preferred Stock purchasable upon exercise of the Rights will not be redeemable.
Each outstanding share of Junior Preferred Stock will be entitled to a minimum
preferential quarterly dividend of $.05 per share and will be entitled to an
aggregate dividend of 10,000 times the dividend declared per share of Common
Stock. In the event of liquidation, the holders of the Junior Preferred Stock
will be entitled to a minimum preferential liquidation payment of $10,000 per
share and will be entitled to an aggregate payment of 10,000 times the payment
made per share of Common Stock. Each share of Junior Preferred Stock will have
10,000 votes, voting together with the Common Stock and the Series A Senior
Preferred Stock. In the event of any merger, consolidation or other transaction
in which the Common Stock is exchanged, each share of Junior Preferred Stock
will be entitled to receive 10,000 times the amount received per share of Common
Stock. The Rights are protected by customary anti-dilution provisions. The
Rights are not exercisable unless any one of certain triggering events occur
including the acquisition by an individual or entity and their associates of 25%
or more of the outstanding shares of Common Stock. The Shareholder Rights Plan
is designed to protect the Company and its shareholders from coercive, unfair
and inadequate takeover bids and practices. The Plan is designed to strengthen
the Board of Directors' ability to deter a person or group from attempting to
gain control of the Company without offering a fair price and equal treatment to
all shareholders.
F-13
BIO-REFERENCE LABORATORIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #7
------------------------------------------------------------------------------
[7] Capital Transactions [Continued]
[B] Equity Transactions for Services - In May 1997, the Company issued 815,000
shares of common stock and warrants to purchase 58,534 shares of the Company's
common stock at a price of $.71875 in connection with employment and consulting
agreements and a two year extension on a loan agreement. Included in the 815,000
shares issued were 740,000 shares to three officers of the Company. The shares
are forfeitable in part in various amounts if the employee's employment is
terminated "for cause" or at his option "without good reason" prior to May 1,
2000.
In fiscal 1999, the Company issued 515,000 shares of common stock and options to
purchase 436,000 shares of the Company's common stock at prices ranging between
$.594 and $.719 in connection with employment and consulting agreements.
[8] Income Per Share
For the Year Ended October 31, 1999
------------------------------------Per Share
Income
Shares
Amount
Basic EPS:
[Loss] Income Available to Common
Stockholders
$(4,978,448)
Effect of Dilutive Securities:
Convertible Preferred Stock
Warrants/Options
----------- ---------Diluted EPS:
[Loss] Income Available to Common
Stockholders Plus Assumed Conversions
----------- ------------------
---
$(4,978,448)
7,357,235
$
(.68)
$
(.68)
---
7,357,235
Incentive stock options to purchase 612,041 shares of common stock and
non-incentive stock options and warrants to purchase 954,100 shares of common
stock were outstanding at October 31, 1999 but were not included in the
computation of diluted EPS because they were antidilutive. These securities
could potentially dilute earnings per share in the future.
For the Year Ended October 31, 1998
-------------------------------------Per Share
Income
Shares
Amount
Basic EPS:
Income Available to Common Stockholders $
Effect of Dilutive Securities:
Convertible Preferred Stock
Warrants/Options
-------------------Diluted EPS:
Income Available to Common Stockholders
Plus Assumed Conversions
$
-----------------------------
596,583
7,196,299
---
278,137
492,568
596,583
7,967,004
$
$
.08
.07
Warrants and options to purchase 5,448,339 shares of common stock at $3.00 to
$6.75 per share were outstanding at October 31, 1998 but were not included in
the computation of diluted EPS because the exercise price of these items was
greater than the average market price of the common shares. These securities
could potentially dilute earnings per share in the future. Warrants to purchase
5,253,339 shares of common stock expired in November 1998.
F-14
BIO-REFERENCE LABORATORIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8
-----------------------------------------------------------------------------[8] Income Per Share [Continued]
For the Year Ended October 31, 1997
-----------------------------------Per Share
Income
Shares
Amount
Basic EPS:
Income Available to Common Stockholders
Effect of Dilutive Securities:
Convertible Preferred Stock
Warrants/Options
------------------Diluted EPS:
Income Available to Common Stockholders
Plus Assumed Conversions
------------------- -----------
$3,199,915
6,685,155
---
244,108
450,650
$3,199,915
7,379,913
$
.48
$
.43
Warrants and options to purchase 5,651,673 shares of common stock at $1.50 to
$6.75 per share were outstanding at October 31, 1997 but were not included in
the computation of diluted EPS because the exercise price of these items was
greater than the average market price of the common shares. These securities
could potentially dilute earnings per share in the future.
[9] Stock Options and Warrants
[A] Employment Incentive Stock Options - In November 1989, the shareholders
approved and the Company adopted the 1989 Employee Stock Option Plan ["1989
Plan"] which provides for the granting of 666,667 shares of common stock. Under
the terms of its stock option plans, incentive stock options to purchase shares
of the Company's common stock are granted at a price not less than the fair
market value of the common stock at the date of grant. These stock options are
exercisable up to ten years from the date of grant. At October 31, 1999 and
1998, there were 12,291 shares reserved for future grants under the plan. No
stock appreciation rights have been granted. In May 1997, the Company's board of
directors approved the cancellation of all of the outstanding employee incentive
stock options for new options at an exercise price of $.71875 which reflected
fair market value. Following is a summary of transactions:
Weighted Average
Shares Under Exercise Price
Options
Per Share
Outstanding at October 31, 1996
Granted During the Year
Expired During the Year
Exercised During the Year
-------------Outstanding and Eligible for Exercise at
October 31, 1997
-----------------Granted During the Year
Expired During the Year
Exercised During the Year
-------------Outstanding and Eligible for Exercise at
October 31, 1998
----------------Granted During the Year
Expired During the Year
Exercised During the Year
-------------Outstanding and Eligible for Exercise at
October 31, 1999
-----------------F-15
482,044
210,000
(34,334)
--
$
657,710
.73
-(3,334)
(8,334)
-.72
.72
646,042
.73
-(34,001)
--
612,041
=======
.72
.76
.72
--
-.72
--
$
.73
======
BIO-REFERENCE LABORATORIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #9
------------------------------------------------------------------------------
[9] Stock Options and Warrants [Continued]
Outstanding and Exercisable Options
----------------------------------Weighted
Average
Number of
Remaining Weighted Average
Shares Under Contractual Exercise Price
Exercise Price Range
Option
------------------------$.71875 to $.790625 Per Share
612,041
Life
----
Per Share
---------
8 Years
The weighted average grant date fair value of options
ended October 31, 1997 was $.2486 per share.
granted
$
.73
during the year
The Company accounts for these stock-based compensation awards to employees
under the intrinsic value method in accordance with Accounting Principles Board
Opinion No. 25 "Accounting for Stock Issued to Employees." Total compensation
cost recognized against income for stock-based employee compensation awards was
$-0- for the years ended October 31, 1999, 1998 and 1997.
[B] Non Incentive Stock Options and Warrants - Non-incentive stock options and
warrants may be granted to employees or non-employees at fair market value or at
a price less than fair market value of the common stock at the date of grant.
The following is a summary of transactions:
Weighted
Shares Under
Average
Options
Exercise Price
and Warrants
Per Share
-------------------Outstanding and Eligible for Exercise at
October 31, 1996
----------------Granted During the Year
Expired During the Year
Exercised During the Year
--------------Outstanding and Eligible for Exercise at
October 31, 1997
-----------------Granted During the Year
Expired During the Year
Exercised During the Year
--------------Outstanding and Eligible for Exercise at
October 31, 1998
------------------Granted During the Year
Expired During the Year
Exercised During the Year
--------------Outstanding and Eligible for Exercise at
October 31, 1999
-------------------
F-16
6,022,380
$ 4.63
381,300
(584,871)
--
5,818,809
.72
1.45
--
4.71
-(206,668)
(35,200)
5,576,941
4.73
436,000
(5,058,841)
--
954,100
==========
-5.00
.72
.87
5.03
--
$ 1.37
======
BIO-REFERENCE LABORATORIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #10
-----------------------------------------------------------------------------[9] Stock Options and Warrants [Continued]
During the year ended October 31, 1997, 35,200 shares under warrants were
granted to three non- employees and 23,334 shares under warrants were canceled
for new warrants at a price of $.71875 which represents fair market value at the
time of grant. The fair value of each warrant granted was estimated on the date
of grant using the Black-Scholes option-pricing model with the following
assumptions: a weighted average risk-free interest rate of 6%, a weighted
average expected life of 1 year based on Company expectations and the required
minimum two year holding period, and a weighted average expected volatility of
84.09%. Dividends are not expected to be available to shareholders during the
expected life of the warrants. The fair value of these options issued in May of
1997 of $13,423 [$.2486 per share] has been accounted for as deferred
compensation for the year ended October 31, 1997 and is being expensed over the
term of the agreements. Total compensation expense recognized against income for
this deferred compensation was $2,848, $2,848 and $2,254, respectively, for the
years ended October 31, 1999, 1998 and 1997.
During the years ended October 31, 1999 and 1997, 436,000 and 346,100 shares,
respectively, under options were granted to employees. The Company accounts for
these options under the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees."
Total compensation cost recognized against income for employee nonincentive
stock option and warrants was $-0- for the years ended October 31, 1999, 1998
and 1997.
Outstanding and Exercisable Options and Warrants
-----------------------------------------------Weighted
Number of
Average
Shares Under Remaining Weighted Average
Options and Contractual Exercise Price
Exercise Price Range
Warrants
--------------------------Options - $.594 to $.719 Per Share
Options - $1.00 Per Share
Options - $3.00 Per Share
Options - $4.125 Per Share
----------
Life
----
Per Share
---------
498,100
5 Years
286,000
4 Years
20,000
1 Year
150,000 Expires 4/00
$
.69
$ 1.00
$ 3.00
$ 4.125
954,100
These options have weighted average remaining
The weighted average grant date fair value of
ended October 31, 1997 was $.2486 per share.
fair value of options granted during the year
per share.
contractual lives of three years.
options granted during the year
The weighted average grant date
ended October 31, 1999 was $.3485
[A] and [B] Pro Forma - Had compensation cost been determined on the basis of
fair value pursuant to SFAS No. 123, for the 612,041 shares under employee
incentive stock options and the 436,000 and 346,100 shares under employee
nonincentive stock options and warrants for the years ended October 31, 1999,
1998 and 1997, net income and earnings per share would have been as follows:
1 9 9 9
1 9 9 8
------------Net [Loss] Income:
As Reported
=========== ===========
Pro Forma
=========== ===========
1 9 9 7
------$(4,978,448) $
==========
$(5,130,411) $
==========
Basic [Loss] Earnings Per Share:
As Reported
$
==========
===========
==========
Pro Forma
$
==========
===========
==========
Diluted [Loss] Earnings Per Share:
As Reported
$
==========
===========
==========
Pro Forma
$
==========
===========
==========
596,583
$3,199,915
596,583
$2,950,000
(.68)
$
.08
$
.48
(.70)
$
.08
$
.44
(.68)
$
.07
$
.43
(.70)
$
.07
$
.40
F-17
BIO-REFERENCE LABORATORIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #11
------------------------------------------------------------------------------
[9] Stock Options and Warrants [Continued]
[B] Non Incentive Stock Options and Warrants [Continued]
The fair value used in the pro forma data was estimated by using an option
pricing model which took into account as of the grant date, the exercise price
and the expected life of the option, the current price of the underlying stock
and its expected volatility, expected dividends on the stock and the risk-free
interest rate for the expected term of the option. The following is the average
of the data used for the following items.
Risk-Free
Year Ended
October 31, 1997
October 31, 1999
Interest Rate
Expected
Expected Life
6%
6%
1 Year
1 Year
Expected
Volatility
84.09%
97.89% -104.28%
Dividends
None
None
[10] Employment Contracts and Consulting Agreements
The Company has entered into various employment contracts and consulting
agreements for periods ranging from one to seven years. At October 31, 1999, the
aggregate minimum commitment under these contracts and agreements, excluding
commissions or consumer price index increases, was approximately as follows:
October 31,
2000
2001
2002
2003
2004
Thereafter
-----------
$ 1,526,000
1,345,000
1,174,000
710,000
683,000
277,000
Total
-----
$ 5,715,000
===========
Some of these agreements provide bonuses and commissions based on a percentage
of collected revenues ranging from 1% to 10% on accounts referred by or serviced
by the employee or consultant.
In addition to the above, eight employment agreements which provide for annual
aggregate minimum commitments of approximately $630,000 have no termination
dates.
The Company pays premiums on life insurance policies for three key officers. In
the event that any of these officers leave the Company, they are required to pay
the Company back for premiums paid on their policies. In the event of death, the
benefit paid to the beneficiary is reduced by the amount of premiums paid on
behalf of the individual by the Company. At October 31, 1999 and 1998, $695,726
and $567,769 is included in other assets which represents the amount of premiums
paid to date. At October 31, 1999 and 1998, cash surrender values on these
policies were in excess of amounts receivable.
F-18
BIO-REFERENCE LABORATORIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #12
-----------------------------------------------------------------------------[11] Capitalized Lease Obligations
The Company
follows:
leases
various
assets under
capital
leases
expiring in 2004 as
October 31,
----------1 9 9 9
1 9 9 8
------------Medical Equipment
Furniture and Fixtures
-----------------
$1,325,238 $1,168,027
-11,565
Totals
Less: Accumulated Depreciation
-----------------
1,325,238
385,032
Net
---
$ 940,206
=========
1,179,592
461,259
$ 718,333
==========
Depreciation expense on assets under capital leases was $202,589, $198,280 and
$83,853 for the years ended October 31, 1999, 1998 and 1997, respectively.
Aggregate future minimum rentals under capital leases are:
Years ended
October 31,
2000
2001
2002
2003
2004
Thereafter
----------
$
Total
Less: Interest
---------Present Value of Minimum Lease Payments
---------------------------------------
430,580
331,333
232,001
185,164
87,771
--
1,266,849
278,060
$ 988,789
==========
[12] Commitments and Contingencies
The Company leases various office and laboratory facilities and equipment under
operating leases expiring from 1999 to 2006. Several of these leases contain
renewal options for three to five year periods.
Total expense for property and equipment rental for the years ended October 31,
1999, 1998 and 1997 was $2,848,225, $2,180,112 and $1,796,839, respectively.
There were no contingent rental amounts due through October 31, 1999.
Aggregate future minimum rental payments on noncancelable operating leases
(exclusive of several month to month leases aggregating approximately $1,000,000
annually) are as follows:
Property
October 31,
2000
2001
2002
2003
2004
Thereafter
---------Totals
-----F-19
Equipment
$
789,619
613,292
470,400
442,789
166,463
8,017
$
770,065
556,647
325,690
230,479
121,171
--
----------$2,490,580
==========
$ 2,004,052
===========
BIO-REFERENCE LABORATORIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #13
------------------------------------------------------------------------------
[13] Litigation
In the normal course of business, the Company is exposed to a number of asserted
and unasserted potential claims. In the opinion of management, the resolution of
these matters will not have a material adverse effect on the Company's financial
position or results of operations [See Note 22C].
The Company is being represented by counsel in connection with various reviews
being conducted by the Company's Medicare carrier.
One review involved
overpayments that occur in the normal course of business. The Company believes
the overpayment will be approximately $150,000, of which approximately $75,000
has been remitted to Medicare. Counsel representing the Company in this matter
has advised that he cannot offer any opinion or projection at this time as to
whether the anticipated liability will be resolved at $150,000 or whether it
will be increased. Counsel has advised that based upon his review of documents,
many of the claims that Medicare thought were duplicate payments were not in
fact duplicates, but rather were properly billed. Counsel also advised that in
view of the complexity of the issue, he believes the final overpayment will be
an amount negotiated between the Company and Medicare.
On December 30, 1996, the Company commenced a lawsuit against SmithKline Beecham
Clinical Laboratories ["SBCL"] alleging that SBCL materially and repeatedly
breached its obligations and its representations and warranties made in the
Asset Agreement and the Non-Competition Agreement pursuant to which the Company
purchased
certain assets from SBCL and claims
unspecified
amounts of
compensatory and punitive damages and related costs. As a result of its
allegations against SBCL, the Company did not make any payments with respect to
the $600,000 note payable. In October 1998, the Company and SBCL exchanged
general releases for this lawsuit and no executory obligations were imposed upon
the Company by the settlement agreement. Therefore, the Company cancelled the
$600,000 note payable as well as the related goodwill of approximately $550,000.
The settlement was subject to the consent of the Company's principal lending
bank which consent was received in January 1999. In addition, management decided
to no longer pursue the hemo-dialysis business and accordingly made revisions to
its future business endeavors. Accordingly, the Company recorded an impairment
of approximately $2,900,000 on related hemo-dialysis assets in fiscal 1999 of
which $2,000,000 was for related accounts receivable and $900,000 was for
goodwill [See Note 2].
[14] Insurance
The Company maintains professional liability insurance of $3,000,000 in the
aggregate, with a per occurrence limit of $1,000,000 . In addition, the Company
maintains excess commercial insurance of $2,000,000 per occurrence. The Company
believes, but cannot assure, that its insurance coverage is adequate for its
current business needs. A determination of Company liability for uninsured or
underinsured acts or omissions could have a material adverse affect on the
Company's operations.
[15] Significant Risks and Uncertainties
[A] Concentrations of Credit Risk - Cash - At October 31, 1999, the Company had
approximately $1,846,000 in cash and certificate of deposit balances at
financial institutions which were in excess of the federally insured limits.
At October 31, 1998, the Company had approximately $6,545,000 in cash and
certificate of deposit balances at financial institutions which were in excess
of the federally insured limits. Approximately $3,680,000 of this amount
represented collateral for demand loans with the same financial institution.
[See restricted certificates of deposit on consolidated balance sheet].
F-20
BIO-REFERENCE LABORATORIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #14
------------------------------------------------------------------------------
[15] Significant Risks and Uncertainties [Continued]
[B] Concentration of Credit Risk - Accounts Receivable - Credit risk with
respect to accounts receivable is generally diversified due to the large number
of patients comprising the client base. The Company does have significant
receivable balances with government payors and various insurance carriers.
Generally, the Company does not require collateral or other security to support
customer receivables, however, the Company continually monitors and evaluates
its client acceptance and collection procedures to minimize potential credit
risks associated with its accounts receivable and establishes an allowance for
uncollectible accounts and as a consequence, believes that its accounts
receivable credit risk exposure beyond such allowance is not material to the
financial statements.
A number of proposals for legislation continue to be under discussion which
could substantially reduce Medicare and Medicaid reimbursements to clinical
laboratories. Depending upon the nature of regulatory action, and the content of
legislation, the Company could experience a significant decrease in revenues
from Medicare and Medicaid, which could have a material adverse effect on the
Company. The Company is unable to predict, however, the extent to which such
actions will be taken.
[16] Acquisitions
On April 9, 1998, the Company acquired the assets and certain liabilities of
Medilabs, Inc. ["MLI"] from LTC Service and Holdings, Inc. ["Holdings"], a
wholly-owned
subsidiary of Long-Term Care Services,
Inc. ["LTC"].
The
acquisition was effective April 9, 1998 for accounting purposes and is being
accounted for under the purchase method. The operations of Medilabs, Inc. are
included in the Company's results of operations commencing April 9, 1998. In
connection with the acquisition of MLI, certain key employees signed employment
agreements with the Company for an unspecified period which included a six month
non-competition clause. In addition, LTC, Holdings, two affiliated corporations
and an employee of LTC signed non-competition agreements.
[17] Fair Value of Financial Instruments
For certain financial instruments, including cash and cash equivalents, trade
receivables, trade payables, and short-term debt, it was estimated that the
carrying amount approximated fair value for the majority of these items because
of their short maturities. The fair value of the Company's long-term debt is
estimated based on the quoted market prices for similar issues or by discounting
expected cash flows at the rates currently offered to the Company for debt of
the same remaining maturities.
O c t o b e r 3 1,
----------------------------------------1 9 9 9
1 9 9 8
-------------------- ------------------Carrying
Fair
Carrying
Fair
Amount
Value
Amount
Value
Long-Term Debt
Capitalized Lease Obligations
$2,000,000 $2,000,000
$ 680,538 $ 654,764
$3,306,617
$ 400,975
$3,306,617
$ 381,637
Due to the non-interest bearing nature and unspecified payment terms, it was not
practicable to estimate the fair value of amounts due from related parties [See
also Note 5].
[18] Health Insurance Plan
The Company has a limited self-funded health insurance plan for its employees
under which the Company pays the initial $50,000 of covered medical expenses per
person per year. The Company has a contract with an insurance carrier for any
excess. Health insurance expense for the years ended October 31, 1999, 1998 and
1997, totaled approximately $287,000, $279,000 and $232,000, respectively.
F-21
BIO-REFERENCE LABORATORIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #15
-----------------------------------------------------------------------------[19] Employee Benefit Plan
The Company sponsors the Bio-Reference Laboratories, Inc. 401(k) Profit-Sharing
Plan. Employees become eligible for participation after attaining the age of
eighteen and completing one year of service. Participants may elect to
contribute up to ten percent of their compensation, as defined in the Plan
Adoption Agreement, to a maximum allowed by the Internal Revenue Service. The
Company may choose to make a matching contribution to the plan for each
participant who has elected to make tax- deferred contributions for the plan
year, at a percentage determined each year by the Company. For the year ended
October 31, 1999, 1998 and 1997, the Company elected not to make matching
contributions to the plan. If the Company elects to match
participant
contributions in the future, the employer contribution will be fully vested
after the fifth year of service.
[20] Non-recurring Gain on Sale of Intangible Assets
On September 30, 1997, the Company entered into an agreement to sell certain
customer lists, its "GenCare" tradename and rights under two GenCare contracts
to another laboratory for $4,600,000 in cash and $1,400,000 payable in four
equal installments every six months beginning April 1, 1998, provided however
that certain target revenues are reached. If target revenues are not reached
amounts payable under the contract will be decreased up to a maximum of
$700,000. The Company and certain of its officers entered into a noncompetion
agreement with the purchaser as part of this agreement. The Company recorded a
non-recurring gain of $2,025,689 and $333,900 during October 31, 1997 and 1998,
respectively, related to this sale. The $700,000 in contingent receivables were
included in the calculation of gain on this sale for the year ended October 31,
1998 when target revenues were reached. This receivable was collected in fiscal
1999.
[21] New Authoritative Accounting Pronouncements
The Financial Accounting Standards Board ["FASB"] issued Statement of Financial
Accounting Standards ["SFAS"] No. 137, "Accounting for Derivative Instruments
and Hedging Activities-Deferral of Effective Date of FASB Statements No. 133."
The Statement defers for one year the effective date of FASB Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The rule now
will apply to all fiscal quarters of all fiscal years beginning after June 15,
2000. The Statement will require the Company to recognize all derivatives on the
balance sheet at fair value. Derivatives that are not hedges must be adjusted to
fair value through income. If the derivative is a hedge, depending on the nature
of the hedge, changes in the fair value of derivatives will either be offset
against the change in fair value of the hedged assets, liabilities, or firm
commitments through earnings or recognized in other comprehensive income until
the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
The adoption of SFAS No. 137 is not expected to have a material impact on the
Company's consolidated results of operation, financial position or cash flows.
[22] Subsequent Events
[A] Asset Purchase Agreements - On December 2, 1999, the Company entered into an
agreement to purchase certain assets utilized by a company that is engaged in
selling Internet website design and other Internet-oriented services to medical
professionals and other healthcare professionals. Bio-Reference Laboratories,
Inc. delivered 140,000 shares of its common stock in payment for the web
business along with 60,000 shares of its common stock in consideration for
related non-competition agreements. The fair value of the 200,000 shares of
common stock is approximately $200,000. The Company has also paid $10,000 to a
former executive officer of the website company and executed a one year
consulting agreement with the website company for $40,000 in the initial year
and $50,000 in any subsequent year. The Company granted the website business an
option to purchase a maximum of 100,000 shares of the Company's common stock
exercisable at $3.00 per share with certain vesting restrictions.
F-22
BIO-REFERENCE LABORATORIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #16
------------------------------------------------------------------------------
[22] Subsequent Events [Continued]
[A] Asset Purchase Agreements [Continued] - On December 14, 1999, the Company
entered into an agreement to purchase certain assets utilized by a company that
is engaged in the manufacture of certain health food products. The Company
delivered 180,000 shares of its common stock in payment for the health food
business along with 20,000 shares of its common stock in consideration for a
related non- competition agreement. The Company entered into an employment
agreement in connection with this purchase. The fair value of the 200,000 shares
of common stock is approximately $200,000. The Company also entered in an
employment agreement for an annual salary of $150,000 plus commissions and a
signing bonus of $100,000 in 24 monthly installments.
[B] Bank Waivers - On January 26, 2000, the Company obtained from PNC Bank a
waiver for the Company's October 31, 1999 default on its tangible net worth, net
worth and capital expenditure covenants.
[C] NJ Medicaid Pending Settlement - In January 2000, the Company commenced
negotiations with New Jersey Medicaid regarding a claim made against the Company
by the State of New Jersey. The alleged claim was received by the Company on
December 28, 1999. The claim alleged that the Company was reimbursed by the
State for claims submitted which, although authorized by the physician, did not
bear the physician's actual signature. The Company immediately disputed the
claim.
The Company believes it has been compliant with all requirements regarding
claims submitted for payment by New Jersey Medicaid and in fact requires actual
physician signatures before it bills New Jersey Medicaid. However, the Company
and New Jersey Medicaid entered into a compromise agreement on January 19, 2000
to a full settlement for this claim in the amount of $227,000. The Company has
accrued this settlement amount in its October 31, 1999 financials. The
settlement is subject to the parties' execution of a written agreement setting
forth its terms and to the approval of the Director of the Division of Medical
Assistance. Approval of the settlement is being recommended to the Director.
.
.
F-23
.
.
.
.
.
.
.
.
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
Bio-Reference Laboratories, Inc.
Elmwood Park, New Jersey
Our report on our audit of the basic financial statements of
Bio-Reference Laboratories, Inc. and its subsidiary appears on page F-1. That
audit was conducted for the purpose of forming an opinion on the basic financial
statements taken as a whole. The supplemental schedule II is presented for
purposes of complying with the Securities and Exchange Commissions Rules and
Regulations under the Securities Exchange Act of 1934 and is not otherwise a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements, and in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
January 7, 2000
F-24
BIO-REFERENCE LABORATORIES, INC. AND SUBSIDIARY
-----------------------------------------------------------------------------SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED OCTOBER 31,
1999, 1998 AND 1997.
------------------------------------------------------------------------------
(a)
(b)
(c)
Balance at Charged to Deductions
Balance
Beginning Cost and To Valuation
at End
Description
of Period Expenses
------------------- --------
(d)
Accounts
--------
(e)
of Period
---------
Year Ended October 31, 1999
Allowance for Doubtful
Accounts and Contractual
Credits
$13,494,475 $85,674,430 $(83,855,970) $15,312,935
=========== =========== ============ ===========
Year Ended October 31, 1998
Allowance for Doubtful
Accounts and Contractual
Credits
$ 8,564,436 $72,137,649 $(67,207,610) $13,494,475
=========== =========== ============ ===========
Year Ended October 31, 1997
Allowance for Doubtful
Accounts and Contractual
Credits
$ 5,357,096 $47,593,419 $(44,386,079) $8,564,436
=========== =========== ============ ==========
F-25
Exhibit 3.1.3
CERTIFICATE OF AMENDMENT TO THE
CERTIFICATE OF INCORPORATION OF
BIO-REFERENCE LABORATORIES, INC.
To:
The Secretary of State
State of New Jersey
Pursuant to the provisions of Section 14A:7-2(2), Corporations, General,
of the New Jersey Statutes,
the undersigned
corporation executes this
certificate of amendment to its certificate of incorporation:
1.
The name of the corporation (hereinafter called the
"Corporation") is Bio-Reference Laboratories, Inc.
2. The following resolution has been duly adopted by the Board of
Directors of the Corporation as required by Subsection 14A:7-2(3) of the New
Jersey Business Corporation Act.
RESOLVED, that pursuant to the authority vested in the Board of Directors
of this Corporation in accordance with the provisions of its Certificate
of Incorporation, the Board of Directors hereby creates a series of Series
A Preferred Stock, $.10 par value, of the Corporation, and hereby states
the designation and amount thereof and fixes the relative rights,
preferences and limitations thereof (in addition to the provisions set
forth in the Certificate of Incorporation of the Corporation, which are
applicable to the preferred stock of all classes and series) as follows,
so that ARTICLE (3) of the Corporation's Certificate of Incorporation be,
and it hereby is, amended by deleting the present Article (3)B(1) and by
inserting therein the following new paragraph B(1) immediately following
ARTICLE (3)(B), paragraph 7:
"B(1).
Series A Senior Preferred Stock.
------------------------------(a)
Designation and Amount. An aggregate of
---------------------604,078 shares of Series A Preferred Stock, $.10 par
value, of the Corporation are hereby constituted as a
1
series designated as "Series A Senior Preferred Stock" (the "Series A
Senior Preferred Stock"). Such number of shares may be increased or
decreased by resolution of the Board of Directors.
(b) Vote. Except as may otherwise be required by law, this
Certificate of Incorporation or the provisions of the resolution or
resolutions as may be adopted by the Board of Directors pursuant to
paragraph (B) of this Article THIRD, each holder of Series A Senior
Preferred Stock shall have one vote in respect of each share of Series A
Senior Preferred Stock held by such holder on each matter voted upon by
the stockholders. The holders of shares of Series A Senior Preferred Stock
and the holders of shares of Common Stock and any other capital stock of
the Corporation having general voting rights shall vote together as one
class on all matters submitted to a vote of stockholders of the
Corporation.
(c) Dividends. Holders of Series A Senior Preferred Stock shall be
entitled to be paid dividends on a per share basis equal to dividends, if
any paid on a per share basis to holders of Common Stock, at the time such
dividends are paid with respect to the Common Stock.
(d) Liquidation
Rights.
After
distribution in full of any
preferential amount (fixed in accordance with the provisions of paragraph
(B) of this Article THIRD), if any, to be distributed to the holders of
Preferred Stock in the event of voluntary or involuntary liquidation,
distribution or sale or assets, dissolution or winding-up of this
Corporation, the holders of the Series A Senior Preferred Stock together
with the holders of the Common Stock shall be entitled to receive all the
remaining assets of this Corporation, tangible and intangible, of whatever
kind available for distribution to stockholders, ratably on a per share
basis in proportion to the number of shares of the Series A Senior
Preferred Stock and the Common Stock held by each.
(e) Conversion Rights. From and after the Date of Issuance and prior
to the close of business on May 1, 2007, each share of Series A Senior
Preferred Stock shall be convertible, at the option of the holder, upon
payment of the Conversion Price, into one share of Common Stock. The
initial Conversion Price shall be $.75 per share. In the event of a stock
dividend, combination, stock split or reverse stock split, the Conversion
Price and the number of shares of Common Stock into which the Series A
2
Senior Preferred Stock may be converted shall be appropriately adjusted."
3. The foregoing resolution was duly adopted by the Board of Directors of
the Corporation on May 17, 1997, pursuant to authority granted under Section
14A:7-2(2) of the New Jersey Business Corporation Act.
4. The Certificate of Incorporation of the Corporation is amended so that
the designation and number of shares of the series of Preferred Stock acted upon
in the foregoing resolution,
and the relative rights,
preferences and
limitations of such series, are as stated in the resolution.
IN WITNESS WHEREOF, Bio-Reference Laboratories, Inc. has caused this
Certificate of Amendment to the Certificate of Incorporation to be duly executed
this 25th day of March, 1998.
BIO-REFERENCE LABORATORIES, INC.
By /s/Marc D. Grodman
------------------Marc D. Grodman, President
ATTEST:
/s/Sam Singer
Sam Singer, Secretary
3
Exhibit 3.1.4
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
of
BIO-REFERENCE LABORATORIES, INC.
To:
The Secretary of State
State of New Jersey
Pursuant to the provisions of Section 14A:7-2(2), Corporations,
of the New Jersey statutes,
the undersigned
corporation
certificate of amendment to its certificate of incorporation:
General,
executes
this
1.
The name of the corporation (hereinafter called the
"Corporation") is Bio-Reference Laboratories, Inc.
2. The following resolution has been duly adopted by the Board of
Directors of the Corporation as required by Subsection 14A:7-2(3) of the New
Jersey Business Corporation Act.
RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation in accordance with the provisions of its Certificate of
Incorporation, the Board of Directors hereby creates a series of Preferred
Stock, $.10 par value, of the Corporation, and hereby states the
designation and amount thereof and fixes the relative rights, preferences
and limitations thereof (in addition to the provisions set forth in the
Certificate of Incorporation of the Corporation, which are applicable to
the preferred stock of all classes and series) as follows, so that ARTICLE
(3) of the Corporation's Certificate of Incorporation be, and it hereby
is, amended by inserting therein the following paragraph B(2) immediately
following ARTICLE (3)(B), paragraph 7, paragraph B(1):
B(2). Series A Junior Participating Preferred Stock.
---------------------------------------------Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" and the number of
shares constituting such series shall be 3,000.
Section 2.
Dividends and Distributions. (A) Subject to
the prior and superior rights of the holders of any shares of any
series of Preferred Stock ranking prior and superior to the shares
1
of Series A Junior Participating Preferred Stock with respect to dividends, the
holders of shares of Series A Junior Participating Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors out of
funds legally available for the purpose, quarterly dividends payable in cash on
the 15th day of March, June, September and December in each year (each such date
being referred to herein as a "Quarterly Dividend Payment Date"), commencing on
the first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Junior Participating Preferred Stock, in an
amount per share (rounded to the nearest cent) equal to the greater of (a) $500
or (b) subject to the provision for adjustment hereinafter set forth, 10,000
times the aggregate per share amount of all cash dividends, and 10,000 times the
aggregate per share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock, par value $.01 per share, of the
Corporation (the "Common Stock") since the immediately preceding Quarterly
Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any share or fraction of a share of Series A
Junior Participating Preferred Stock. In the event the Corporation shall at any
time after March 31, 1998 (the "Rights Declaration Date") (i) declare any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the amount to which holders of
shares of Series A Junior
Participating
Preferred Stock were entitled
immediately prior to such event under clause (b) of the preceding sentence shall
be adjusted by multiplying such amount by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Junior Participating Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $500 per share on the
Series A Junior Participating Preferred Stock shall nevertheless be payable on
such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Junior Participating Preferred Stock from the
Dividend Payment Date next preceding the date of
2
Quarterly
issue of such shares of Series A Junior Participating Preferred Stock, unless
the date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of shares of Series A Junior Participating
Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends shall
begin to accrue and be cumulative from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest. Dividends paid on the
shares of Series A Junior Participating Preferred Stock in an amount less than
the total amount of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Series A Junior Participating
Preferred Stock entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be no more than 30 days prior to the
date fixed for the payment thereof.
Section 3.
Voting Rights. The holders of shares of Series
A Junior Participating Preferred Stock shall have the following
voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Junior Participating Preferred Stock shall entitle the
holder thereof to 10,000 votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall at any time
after the Rights Declaration Date (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of shares,
then in each such case the number of votes per share to which holders of shares
of Series A Junior Participating Preferred Stock were entitled immediately prior
to such event shall be adjusted by multiplying such number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of
shares of Series A Junior Participating Preferred Stock, the holders of shares
of Common Stock and the holders of Series A Senior Preferred Stock shall vote
together as one class on all matters submitted to a vote of stockholders of the
Corporation.
(C) (i) If at any time
dividends
on any Series A Junior
Participating Preferred Stock shall be in arrears in an amount
3
equal to six (6) quarterly dividends thereon, the occurrence of such contingency
shall mark the beginning of a period (herein called a "default period") which
shall extend until such time when all accrued and unpaid dividends for all
previous quarterly dividend periods and for the current quarterly dividend
period on all shares of Series A Junior Participating Preferred Stock then
outstanding shall have been declared and paid or set apart for payment. During
each default period, all holders of Preferred Stock (including holders of the
Series A Junior Participating Preferred Stock) with dividends thereon, voting as
a class, irrespective of series, shall have the right to elect two (2)
Directors.
(ii) During any default period, such voting right of the
holders of Series A Junior Participating Preferred Stock may be exercised
initially at a special meeting called pursuant to subparagraph (iii) of this
Section 3(C) or at any annual meeting of stockholders, and thereafter at annual
meetings of stockholders, provided that neither such voting right nor the right
of the holders of any other series of Preferred Stock, if any, to increase, in
certain cases, the authorized number of Directors shall be exercised unless the
holders of ten percent (10%) in number of shares of Preferred Stock outstanding
shall be present in person or by proxy. The absence of a quorum of the holders
of Common Stock shall not affect the exercise by the holders of Preferred Stock
of such voting right. At any meeting at which the holders of Preferred Stock
shall exercise such voting right initially during an existing default period,
they shall have the right, voting as a class, to elect Directors to fill such
vacancies, if any, in the Board of Directors as may then exist up to two (2)
Directors. If the number which may be so elected at any special meeting does not
amount to the required number, the holders of the Preferred Stock shall have the
right to make such increase in the number of Directors as shall be necessary to
permit the election by them of the required number. After the holders of the
Preferred Stock shall have exercised their right to elect Directors in any
default period and during the continuance of such period, the number of
Directors shall not be increased or decreased except by vote of the holders of
Preferred Stock as herein provided or pursuant to the rights of any equity
securities
ranking
senior to or pari passu with the Series A Junior
Participating Preferred Stock.
(iii) Unless the holders of Preferred Stock shall, during an
existing default period, have previously exercised their right to elect
Directors, the Board of Directors may order, or any stockholder or stockholders
owning in the aggregate not less than ten percent (10%) of the total number of
shares of Preferred Stock outstanding, irrespective of series, may request, the
calling of special meeting of the holders of Preferred Stock, which meeting
shall thereupon be called by the President, a Vice-President or the
4
Secretary of the Corporation. Notice of such meeting and of any annual meeting
at which holders of Preferred Stock are entitled to vote pursuant to this
paragraph (C) (iii) shall be given to each holder of record of Preferred Stock
by mailing a copy of such notice to him at his last address as the same appears
on the books of the Corporation. Such meeting shall be called for a time not
earlier than 10 days and not later than 60 days after such order or request or
in default of the calling of such meeting may be called on similar notice by any
stockholder or stockholders owning in the aggregate not less than ten percent
(10%) of the total
number of shares of Preferred
Stock
outstanding.
Notwithstanding the provisions of this paragraph (C)(iii), no such special
meeting shall be called during the period within 60 days immediately preceding
the date fixed for the next annual meeting of the stockholders.
(iv) In any default period, the holders of Common Stock, and
other classes of stock of the Corporation if applicable, shall continue to be
entitled to elect the whole number of Directors until the holders of Preferred
Stock shall have exercised their right to elect two (2) Directors voting as a
class, after the exercise of which right (x) the Directors so elected by the
holders of Preferred Stock shall continue in office until their successors shall
have been elected by such holders or until the expiration of the default period,
and (y) any vacancy in the Board of Directors may (except as provided in
paragraph (C)(ii) of this Section 3) be filled by vote of a majority of the
remaining Directors theretofore elected by holders of the class of stock which
elected the Director whose office shall have become vacant. References in this
paragraph (C) to Directors elected by the holders of a particular class of stock
shall include Directors elected by such Directors to fill vacancies as provided
in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x)
the right of the holders of Preferred Stock as a class to elect Directors shall
cease, (y) the term of any Directors elected by the holders of Preferred Stock
as a class shall terminate, and (z) the number of Directors shall be such number
as may be provided for in the certificate of incorporation or by-laws
irrespective of any increase made pursuant to the provisions of paragraph
(C)(ii) of this Section 3 (such number being subject, however, to change
thereafter in any manner provided by law or in the certificate of incorporation
or by-laws). Any vacancies in the Board of Directors effected by the provisions
of clauses (y) and (z) in the preceding sentence may be filled by a majority of
the remaining Directors.
(D) Except as set forth herein, holders of Series A Junior
Participating Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the
5
extent they are entitled to vote with
herein) for taking any corporate action.
holders
of Common
Stock as set forth
Section 4. Certain Restrictions. (A) Whenever quarterly dividends or other
dividends or distributions payable on the Series A Junior Participating
Preferred Stock as provided in Section 2 are in arrears, thereafter and until
all accrued and unpaid dividends and distributions, whether or not declared, on
shares of Series A Junior Participating Preferred Stock outstanding shall have
been paid in full, the Corporation shall not
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Junior
Participating Preferred Stock;
(ii)
declare or pay
dividends
on or make any other
distributions on any shares of stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up) with
the Series A Junior Participating Preferred Stock, except dividends
paid ratably on the Series A Junior Participating Preferred Stock
and all such parity stock on which dividends are payable or in
arrears in proportion to the total amounts to which the holders of
all such shares are then entitled;
(iii)
redeem or
purchase
or
otherwise
acquire
for
consideration shares of any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series A Junior Participating Preferred Stock, provided that the
Corporation may at any time redeem, purchase or otherwise acquire
shares of any such parity stock in exchange for shares of any stock
of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Junior
Participating Preferred Stock;
(iv) redeem or purchase or otherwise acquire for consideration
any shares of Series A Junior Participating Preferred Stock, or any
shares of stock ranking on a parity with the Series A Junior
Participating Preferred Stock, except in accordance with a purchase
offer made in writing or by publication (as determined by the Board
of Directors) to all holders of such shares upon such terms as the
Board of Directors, after consideration of the respective annual
dividend
6
rates and other relative rights and preferences of the respective
series and classes, shall determine in good faith will result in
fair and equitable treatment among the respective series or classes.
(B) The Corporation
shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any shares of Series A Junior Participating
Preferred Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
Section 6.
Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Corporation, no distribution shall be made to the holders of
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Junior Participating Preferred Stock
unless, prior thereto, the holders of shares of Series A Junior Participating
Preferred Stock shall have received $10,000 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment (the "Series A Liquidation Preference"). Following
the payment of the full amount of the Series A Liquidation Preference, no
additional distributions shall be made to the holders of shares of Series A
Junior Participating Preferred Stock unless, prior thereto, the holders of
shares of Common Stock shall have received an amount per share (the "Common
Adjustment") equal to the quotient obtained by dividing (i) the Series A
Liquidation Preference by (ii) 10,000 (as appropriately adjusted as set forth in
subparagraph C below to reflect such events as stock splits, stock dividends and
recapitalizations with respect to the Common Stock) (such number in clause (ii),
the "Adjustment Number"). Following the payment of the full amount of the Series
A Liquidation Preference and the Common Adjustment in respect of all outstanding
shares of Series A Junior Participating Preferred Stock and Common Stock,
respectively, holders of Series A Junior Participating Preferred Stock and
holders of shares of Common Stock shall receive their ratable and proportionate
share of the remaining assets to be distributed in the ratio of the Adjustment
Number to 1 with respect
7
to such Preferred Stock and Common Stock, on a per share basis,
respectively.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation Preference and
the liquidation preferences of all other series of preferred stock, if any,
which rank on a parity with the Series A Junior Participating Preferred Stock,
then such remaining assets shall be distributed ratably to the holders of such
parity shares in proportion to their respective liquidation preferences. In the
event, however, that there are not sufficient assets available to permit payment
in full of the Common Adjustment, then such remaining assets shall be
distributed ratably to the holders of Common Stock.
(C) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the Adjustment Number in effect immediately prior to such event shall be
adjusted by multiplying such Adjustment Number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Junior Participating Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share (subject to the provision
for adjustment hereinafter set forth) equal to 10,000 times the aggregate amount
of stock, securities, cash and/or any other property (payable in kind), as the
case may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series A Junior Participating Preferred Stock shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
8
Section 8.
No Redemption. The shares of Series A Junior
Participating Preferred Stock shall not be redeemable.
Section 9. Ranking. The Series A Junior Participating Preferred Stock
shall rank junior to all other series of the Corporation's Preferred Stock as to
the payment of dividends and the distribution of assets, unless the terms of any
such series shall provide otherwise.
Section 10. Amendment. The Certificate of Incorporation of the Corporation
shall not be further amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Junior
Participating Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of two-thirds of the outstanding shares of
Series A Junior Participating Preferred Stock, voting separately as a class; it
being understood that nothing in this Section 10 shall be deemed to restrict the
Corporation from designating additional shares of Series A Junior Participating
Preferred Stock if the Board of Directors determines that it is necessary to do
so in order to achieve the purposes of the Rights Agreement, dated as of March
31, 1998 between the Corporation and American Stock Transfer & Trust Company.
Section 11. Fractional Shares. Series A Junior Participating Preferred
Stock may be issued in fractions of a share which shall entitled the holder, in
proportion to such holders fractional shares, to exercise voting rights, receive
dividends, participate in distributions and to have the benefit of all other
rights of holders of Series A Junior Participating Preferred Stock.
IN WITNESS WHEREOF, Bio-Reference Laboratories, Inc. has caused this
Certificate of Amendment to the Certificate of Incorporation to be duly executed
this day of March 31, 1998.
BIO-REFERENCE LABORATORIES, INC.
By /s/Marc D. Grodman
------------------Marc D. Grodman, President
Attest:
/s/Sam Singer
Sam Singer, Secretary
9
Exhibit 10.1
FOURTH AMENDMENT TO LEASE
THIS FOURTH AMENDMENT TO LEASE made as of this 9th day of October 1998,
(hereinafter
referred to as this
"Amendment"),
between ALFRED SANZARI
ENTERPRISES, L.P., having an office c/o Alfred Sanzari Enterprises, Court Plaza
North, 25 Main Street, 6th Floor, Hackensack, new Jersey 07601 (hereinafter
referred to as "Landlord"), and BIO-REFERENCE LABORATORIES, INC., a New Jersey
corporation, having an office at 481 Edward H. Ross Drive, Elmwood Park, New
Jersey 07407 (hereinafter referred to as "Tenant").
W I T N E S S E T H:
WHEREAS, Alfred Sanzari (Landlord's predecessor-in-interest), as landlord
(hereinafter referred to as "Sanzari"), and Pharmadyne Laboratories, Inc.
(Tenant's predecessor-in-interest), as tenant (hereinafter referred to as
"Pharmadyne"), heretofore entered into a certain written Lease dated as of
November 7, 1978, wherein and whereby Landlord leased to Tenant, and Tenant
hired from Landlord, certain premises consisting of approximately thirty-one
thousand five hundred twenty-seven (31,527) square feet (hereinafter sometimes
referred to as the "Original Premises" or the "Premises"),in the building
located at 481 Edward H. Ross Drive, in the Borough of Elmwood Park, county of
Bergen and State of New Jersey (hereinafter referred to as the "Building"), as
more particularly described therein, for a term which commenced on March 1,
1979, and was scheduled to expire on February 28, 1989, at the Basic Rent and
additional rent, and upon the terms, covenants, conditions, provisions and
agreements contained in said Lease; and
WHEREAS, said Lease was modified by that certain First Amendment to Lease
dated November 1, 1979, wherein and whereby, inter alia, Landlord and Tenant
settled certain disputes; and
WHEREAS, said Lease and the interest of Pharmadyne as tenant thereunder,
was assigned to CL Laboratories of New Jersey, Inc. (hereinafter referred to as
"CL"), pursuant to that certain Assignment and Assumption of Lease Agreement
dated December 10, 1981; and
WHEREAS, said Lease was further modified by that certain Agreement dated
as of March 23, 1988, wherein and whereby, inter alia, the Lease and the
interest of CL as tenant thereunder, was assigned to Med-Mobile,
Inc.
(hereinafter referred to as "Med- Mobile"), and the term of the Lease was
extended for a further period of five (5) years, commencing on March 1 1989, and
expiring on February 28, 1984; and
WHEREAS, said Lease was further modified by that Certain Second Amendment
to Lease dated as of March 23, 1988; and
WHEREAS, said Lease was modified by that Third Amendment to lease dated
January 31, 1992, wherein and whereby, inter alia, Landlord and Tenant settled
certain defaults by Tenant under the Lease and discontinued
litigation
instituted by Landlord against Tenant in connection therewith; and
WHEREAS, on or about November 15, 1989, Med-Mobile changed its
name to Tenant; and
WHEREAS, said Lease was further modified by that certain Third Amendment
to Lease dated as of February 28, 1994, wherein and whereby, inter alia, the
term of the Lease was extended for a further period of five (5) years,
commencing on March 1, 1994, and expiring on February 28, 1999; and
WHEREAS, said Lease, as so modified, and as the same may have been
otherwise amended and/or modified, is hereinafter collectively referred to as
the "Lease"; and
2
WHEREAS, Landlord and Tenant desire to further modify the Lease only in
the respects hereinafter stated.
NOW THEREFORE, in consideration of the premises demised by the Lease and
the mutual covenants hereinafter contained and for other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
parties hereto by these presents do covenant and agree as follows:
1. The recital clauses set forth above shall be deemed a part of this
Amendment as though set forth verbatim and at length herein.
2. Except as otherwise expressly set forth herein, all capitalized terms
in this Amendment shall have the meanings set forth for such terms in the Lease.
3. A. The "Term" of the Lease (as defined in Paragraph B of Schedule "C"
attached to the Lease) shall be deemed to be further extended for a period of
vive (5) years, commencing March 1, 1999, to and including February 28, 2004,
inclusive, upon the terms, covenants, conditions, provisions and agreements
contained in the Lease, as modified by this Amendment.
B. Effective as of March 1, 1999, "Basic Rent" (as defined in
Paragraph A of Schedule "C" attached to the Lease) shall be deemed to be the sum
of Two Hundred Twenty Thousand Six Hundred Eighty-Nine and 00/100 ($220,689.00)
Dollars per annum, payable in equal monthly installments of Eighteen Thousand
Three Hundred Ninety and 75/100 ($18,390.75) Dollars each.
4.
A.
(1)
Effective as of the date Landlord delivers
possession of the "Additional Space" (as hereinafter defined)
(hereinafter referred to as the "Additional Space Commencement
Date"), Landlord hereby leases to Tenant, and Tenant hereby hires
from Landlord, a portion of the building located at 487 Edward H.
3
Ross Drive, Borough of Elmwood Park, County of Bergen and State of New Jersey
(hereinafter
referred to as the
"Adjacent
Building"),
consisting
of
approximately twenty-four thousand (24,000) square feet, as shown on the plan
attached hereto and made a part hereof as Schedule "A-1" (hereinafter referred
to as the "Additional Space").
(2) The "Demised Premises" (as defined in Article 1 of the
Lease) shall be and be deemed to be: "(I) a portion of the Building, consisting
of approximately thirty-one thousand five hundred twenty-seven (31, 527) square
feet, as shown on Schedule "A" attached to the Lease; and (ii) a portion of the
Adjacent Building, consisting of approximately twenty-four thousand (24,000)
square feet, as shown on Schedule "A-1" attached hereto."
B.
Effective as of the Additional Space Commencement
Date, the following shall be applicable solely with respect to the
Additional space:
(1) "Basic Rent" (as defined in Paragraph A of Schedule "C"
attached to the Lease) shall be deemed to be the sum of One Hundred Fifty-Six
Thousand and 00/100 ($156,000.00) Dollars per annum, payable in equal monthly
installments of Thirteen Thousand and 00/100 ($13,000.00) Dollars each.
(2) "Proportionate Share' (as defined in Paragraph E of
Schedule "C" attached to the Lease) shall be deemed to be "twenty-five (25%)(
percent/"
(3) The number of parking spaces provided in Paragraph 4 of
the Third Amendment to Lease dated as of February 28, 1994, shall be deemed to
be "twenty (20)", a shown on the plan attached hereto and made a part hereof as
Schedule "A-2."
4
(4) Wherever in the Lease reference is made to the "Building"
or the "building," same shall be deemed to be the Adjacent Building.
(C) (1) Tenant has examined and inspected the Additional Space and
agrees to accept the same in the condition in which it exists on the Additional
Space Commencement Date. Tenant hereby acknowledges and agrees that no materials
whatsoever are to be furnished by Landlord and no work whatever is to be
performed by Landlord in connection with said Additional Space or any part
thereof.
(2) (I) Tenant agrees, at Tenant's sole cost and expense, to perform
all work in accordance with plans and specifications to be prepared by Tenant,
at Tenant's sole cost and expense, and thereafter, delivered to Landlord for
Landlord's approval,
which approval shall not be unreasonably
withheld
(hereinafter referred to as "Tenant's Additional Space Work").
(ii) Tenant's Additional Space Work shall be performed in
accordance with all applicable laws and in good and workmanlike manner,
utilizing new and first-class materials. Tenant shall obtain and deliver to
Landlord all "sign-offs" and approvals in connection therewith, including,
without limitation, a certificate of occupance.
(iii) (a) Tenant acknowledges and agrees that Landlord shall
have the right to submit a bid for the performance of Tenant's Additional Space
Work.
(b)
In the event Tenant selects Landlord
to perform Tenant's Additional Space Work, Tenant agrees to pay Landlord, the
total cost of Tenant's Additional Space work, as follows: (x) twenty-five (25%)
percent shall be paid by Tenant to Landlord upon commencement of Tenant's
Additional Space Work, as
5
additional rent, upon demand therefor; (y) twenty-five (25%) percent shall be
paid by Tenant to Landlord upon completion of Tenant's Additional Space Work, as
additional rent, upon demand therefor; and (z) fifty (50%) percent shall be paid
by Tenant to Landlord, by increasing the Basic Rent reserved and covenanted to
be paid by Tenant to Landlord under the Leae, as modified by this Amendment, by
the annual amount required to fully amortize such amount over sixty (60) months,
plus interest, at the rate of ten (10%) percent per annum, in which event,
Landlord and Tenant shall execute and deliver to each other an agreement
modifying the Lease (including this Amendment), setting forth the increased
Basic Rent, but such increase shall nevertheless be effective even if such
agreement is not executed and delivered.
(iv) Tenant shall be required to utilize
Landlord or the contractors designated by Landlord with respect to any work
which involves penetrating or altering the exterior, facade, floor slab, roof or
structure of the Building which Tenant desires to perform in connection with
Tenant's Additional Space Work (or any other work in and to the Demised
Premises), provided that the cost charged by Landlord or the contractor
designated by Landlord is not greater than ten 910%) percent of the lowest bid
received by Tenant in a competitive bid for the same scope of work. In the event
the cost charged by Landlord or the contractor designated by Landlord is greater
than ten (10%) percent of the lowest bid received by Tenant as aforesaid, then
Tenant shall be entitled to retain its own contractors to perform which work,
subject to the prior written approval of Landlord, which approval shall not be
unreasonably withheld or delayed.
(3)
(I)
Landlord shall be liable and responsible
for the costs of compliance with any environmental laws [including,
6
without limitation, the Industrial Site Recovery Act, N.J.S.A. 13:1k-6 ET SEQ.,
and the regulations promulgated thereunder (hereinafter collectively referred to
as "ISRA")] for spills or discharges of "hazardous substances" or "hazardous
wastes" (as such terms are defined under such environmental laws) which occurred
in or to the Additional Space prior to the Additional Space Term Commencement
Date and which were not caused in whole or in part, by Tenant or its agents,
servants, employees, contractors or representatives.
(ii) Landlord shall indemnify and hold Tenant
harmless from and against any and all claims and liabilities (including, but not
limited to, reasonable attorneys' fees) which may be incurred by Tenant in
connection with, or arising out of Landlord's obligations contained in (I)
hereof.
5.
Effective as of the date hereof:
A.
Article 40 of the Lease shall be deemed to be
deleted, and the following inserted in its place:
"40. RENEWAL OPTION:
--------------A. Subject to the provisions set forth below, Tenant shall have the
option to renew this Lease for an additional term of five (5) years
(hereinafter referred to as the "Renewal Term"), which Renewal Term
shall commence upon the expiration of the term of this Lease
(hereinafter referred to as the "Initial Term"). All of the terms,
covenants and conditions of this Lease shall govern the Renewal
Term, except as otherwise specifically set forth hereinafter or if
APPLICABLE thereto:
(1) The Annual Basic Rent shall be the greater of: (I)
the "Market Rent" (as defined in subsection (2) hereof); or (ii) the
Basic Rent and additional rent which was in effect during the last
year of the Initial Term.
(2) "Market Rent" shall mean the
fair market rent for the Premises for the
Renewal Term, determined as of the date one
7
hundred eighty (180) days prior to the expiration of the Initial
Term (hereinafter referred to as the "Determination Date"), based
upon the rents generally in effect for comparable condition in
Bergen County, New Jersey. Market Rent (for the purposes of
determining the Basic Rent only during the commonly known as a "net"
basis; that is, in computing Market Rent it shall be assumed that
all real estate taxes and customary services are excluded from such
Basic Rent.
(3) Landlord shall notify Tenant (hereinafter referred
to as "Landlord's Determination Notice") of Landlord's Determination
Notice") of Landlord's determination of the Market Rent within sixty
(60) days of the Determination Date. If Tenant disagrees with
Landlord's determination, Tenant shall notify Landlord (hereinafter
referred to as "Tenant's Notice of Disagreement") within thirty (30)
days of receipt of Landlord's Determination Notice. Time shall be of
the essence with respect to Tenant's Notice of Disagreement, and the
failure of Tenant to give such notice within the time period set
forth above shall conclusively be deemed an acceptance by Tenant of
the Market Rent as determined by Landlord and a waiver by Tenant of
any right to dispute such Market Rent. If Tenant timely gives its
Tenant's Notice of disagreement, then the Market Rent shall be
determined as follows: Landlord and Tenant shall, within thirty (30
days of the date on which Tenant's Notice of Disagreement was given,
each appoint "Appraiser" (as hereinafter defined) for the purpose of
determining the Market Rent. An "Appraiser" shall mean either: (1) a
duly qualified impartial real estate appraiser who is a member of
the American Institute of Real Estate Appraisers and who has at
least ten (1) years experience in appraising the rental value of
industrial/warehouse properties comparable to the Building and
located in Northern New Jersey; or (ii) a New Jersey licensed real
estate broker for a period in excess of ten (1) years and who has at
least ten 91) years experience in leasing industrial/warehouse space
in buildings comparable to the Building located in Northern New
Jersey. In the event that the two 92) Appraisers so appointed fail
to agree ass to the Market Rent within a period of thirty (3) days
after the appointment of the second Appraiser, such two 92)
Appraisers shall forthwith appoint a third Appraiser who shall make
a determination in the manner hereinafter described within thirty
93) days thereafter.
8
If such two (2) Appraisers fail to agree upon such third Appraiser
within ten (1) days following the last thirty 93) day period, such
third Appraiser shall be appointed by the Bergen County Assignment
Judge of the New Jersey Superior Court. Such two (2) Appraisers or
the third Appraiser, as the case may be, shall proceed with all
reasonable dispatch to determine the Market Rent. Within fifteen
915) days following the appointment of the third Appraiser, each
party shall submit to the third Appraiser a written report setting
forth its determination of the market Rent, together with such
information on comparable rentals, or such other evidence as such
party shall deem relevant. The third Appraiser shall, within thirty
(30) days following the submission of such written reports render
its decision by selecting the determination of Market Rent submitted
by either the Appraiser selected by Landlord or the Appraise
selected by Tenant which, in the judgement of the third Appraiser,
most nearly reflects the Market Rent. It is expressly understood
that such third Appraiser shall have no power or authority to select
any Market Rent other than a Market Rent submitted by the Appraiser
selected by Landlord or the Appraiser selected by Tenant, and the
decision of such third Appraiser shall be final and binding upon the
parties hereto. The decision of such Appraisers shall be final, and
such decision shall be in writing and a copy shall be delivered
simultaneously to Landlord and to Tenant. If such Appraisers fail to
deliver their decision as set forth above prior to the commencement
of the Renewal Term, Tenant shall pay Landlord the Basic Rent which
was in effect as of the last day of the Initial Term, until such
decision is so delivered. If the Market Rent as determined above is
in excess of the actual rent paid, then Tenant, upon demand, shall
pay to Landlord the difference between the actual rent paid and the
Market Rent from the commencement of the Renewal Term. Landlord and
Tenant shall each be responsible for and shall pay the fee of the
Appraiser appointed by them respectively, and Landlord and Tenant
shall share equally the fee of the third Appraiser.
B.
Tenant's option to renew, as
provided in subparagraph A hereof, shall be
conditioned upon and subject to each of the
following:
(1) Tenant shall notify Landlord in
exercise of its option to renew at least
more than
9
writing of its
twelve (12) months but not
fifteen (15) months prior to the expiration of
the Initial Term;
(2) At the time Landlord receives Tenant's notice as
provided in subsection 91) hereof and at the commencement of the
Renewal Term: (I) Tenant shall not be in default under the terms of
provisions of this Lease; and (ii) Tenant shall not have subleased
fifty (50%) percent or more of the Premises, exclusive of subleases
to any parent, subsidiary or affiliate of Tenant;
(3) Tenant shall have no further renewal option other
than the option to renew this Lease for the one (1) Renewal
set forth in subparagraph A hereof;
Term as
(4) This option to renew shall be deemed personal to
Tenant and may not be assigned or transferred, except in connection
with an assignment effectuated in accordance with the provisions of
Article 12 hereof; and
(5) Landlord shall have no obligation to do any work or
perform any services for the Renewal Term with respect to the
premises, which Tenant agrees to accept in its then "as is"
condition)"
B.
The following paragraphs shall be deemed to be
added to the Lease as Articles 41 through 44 thereof:
"41. NO MONEY DAMAGES: If in this Lease it is provided that
Landlord's consent or approval as to any matter will not be
unreasonably withheld, and it is established by a court or body
having final
jurisdiction there over that Landlord has been
unreasonable, then Landlord shall be deemed to have given its
consent or approval and, in addition thereto, shall be liable to
Tenant for money damages [excluding, however, consequential damages
(e.g., lost profits or loss of business)] by reason of withholding
its consent, if such court or body specifically determined that
landlord has acted in bad faith or maliciously (the burden of which
shall be Landlord's responsibility to prove that landlord has not
acted in bad fair or maliciously), subject nevertheless to the
provisions of Article 36 hereof."
"42. HOLDING OVER:
If Tenant retains
-----------possession of the Premises or any part
thereof, after the termination of the term by
lapse of time or otherwise, without prior
written approval of Landlord, Tenant shall pay
10
Landlord, two 92) times the monthly Basic Rent payable by Tenant
during the last full month of the term, together with additional
rent and other charges as provided herein, for the time Tenant thus
remains in possession, and, in addition thereto, shall pay Landlord
all damages, consequential as well as direct, sustained by reason of
Tenant's retention of possession. If Tenant remains in possession of
the Premises or any part thereof, after the termination of the term
by lapse of time or otherwise, such holding over shall, at the
election of Landlord expressed in a written notice to Tenant and not
otherwise, constitute an extension of this lease on a month-to-month
basis, at two (2) times the monthly Basic Rent payable by Tenant
during the lat full month of the term, together with additional rent
and other charges as provided herein. The provision of this Article
do not exclude Landlord rights of re-entry or any other right
hereunder."
"43. RIGHT OF FIRST OFFER:
-------------------A. So long as: (I) Tenant is not in default under this Lease;
(ii) this Lease is in full force and effect; and (iii) Tenant and
any parent, subsidiary or affiliate of Tenant is occupying the
entire Premises for the purpose of conducting its business, then
Landlord agrees that, in the event any space in Elmwood Corporate
Park which is then owned by Landlord (hereinafter called the "Offer
Space"), shall become "available for leasing" (as hereinafter
define), at any time and from time to time after the commencement
date of this Lease, before offering to lease such Offer Space to any
third party, Landlord will first offer to Tenant in writing (such
offer by Landlord to Tenant being hereinafter called "Landlord's
Offer") the right to include such Offer Space within the Premises as
of the date specified by Landlord in Landlord's Offer (hereinafter
called the "Availability Date"). The Availability Date shall be the
date that the Offer Space which is the subject of Landlord's offer
is reasonably expected to become available for leasing. Landlord
shall specify in Landlord's Offer, the terms and conditions upon
which Landlord is willing to lease such Offer Space to Tenant
(hereinafter collectively called "Landlord's Terms"), including,
without limitation:
(1)
the Availability Date of such
Offer Space;
11
(2)
the amount of square footage
contained in such Offer Space;
(3)
Tenant's Proportionate Share;
(4)
the amount of Basic Rent and
additional rent;
(5)
the term of the leasing of such
Offer Space which may be for period longer
than the Term);
(6)
the location and configuration
of such Offer Space; and
(7) such other terms and conditions upon which Landlord
is willing to lease the Offer Space to Tenant.
B. Tenant shall have the right to accept Landlord's Offer with
respect to such Offer Space within
fifteen (15) days after
Landlord's Offer. Time shall be of the essence with respect to
Tenant's acceptance of Landlord's Offer. If Tenant does not duly and
timely accept Landlord's Offer with respect to the Offer Space: (I)
landlord shall be under no further obligation to Tenant with respect
thereto, and Landlord may then lease the Offer Space contained in
Landlord's Offer (or any part or parts thereof) to others, on such
terms and conditions (including rent and additional rent) as
Landlord then elects in its sole discretion.
C.
if Tenant duly and timely accepts
Landlord's Offer, such Offer Space shall be
added to the Premises on Landlord's Terms, and
upon the following further terms and
conditions, effective as of the Availability
Date:
(1) Landlord shall have no obligation to do any work or
perform any services with respect to the Offer Space, which Tenant
agrees to accept in its then "as is" condition;
(2)
the Premises shall be the space
originally demised by this Lease, plus the
Offer Space; and
(3) any other changes which are required to reflect the
addition of such Offer Space shall be appropriately made to this
Lease.
D.
Except as expressly set forth
hereinabove, the leasing of such Offer Space
12
shall be subject to and in accordance with all of the other terms,
covenants and provisions of this Lease.
E. Notwithstanding the foregoing, the Offer Space shall not be
"available for leasing," if: (I) the Offer Space is subject to a
right or option or a renewal right or option contained in any other
lease entered into by Landlord prior to the date hereof; or (ii))
the Offers Space remains occupied by the tenant to whom the Offer
Space is presently leased (whether by renewal or extension or
otherwise), or is offered for re-letting to a subtenant or assignees
of such present tenant; or (iii) if another party desires to lease
more space in Elmwood Corporate Park than Tenant, which space
includes the Offer space.
F.
The right of first offer set forth
in this Article, is personal to Tenant named
herein and may not be assigned or transferred.
G. Upon request of Landlord, Tenant shall execute and deliver
an agreement setting forth the terms and condition sunder which any
such Offer Space is added to the premises; it being understood and
agreed that such terms and conditions shall
nevertheless be
effective
regardless if such
agreement is not executed and
delivered.
H. Tenant acknowledges and agrees that landlord shall be
obligated to make Landlord's Offer to Tenant only at such time as
each Offer Space initially becomes "available for leasing;" it being
understood and agreed by Tenant, the right of first offer contained
herein is a one 91) time right only with respect to each Offer
Space."
"44. TENANT'S RIGHT OF SELF-HELP:
--------------------------A. If Landlord fails to make any repairs or do any work
required of Landlord solely with respect to the roof of the
Building, in accordance with the provisions of this Leae, and any
such failure continues for period of five 95) days after notice
thereof is given by Tenant to Landlord, or, if such failure require
more than ten (10) days to cure in the exercise of due diligence,
unless Landlord commences to cure same within said ten (10) day
period an d thereafter diligently prosecute the same to completion,
then Tenant, in addition to such other rights and remedies as may be
available to Tenant hereunder, may, but shall not be obligated to,
make such repairs or perform such work in accordance
13
with the provision of this Lease, at Tenants
sole cost and expense.
B. In the event Tenant makes such repairs or performs such
work, Tenant shall use only those contractors utilized by Landlord
in the Building for such work unless such contractors are unwilling
or unable to perform such work, in which event Tenant may utilize
the services of any other qualified contractor which normally and
regularly performs similar work in comparable building in the
vicinity of the Building, and provided that: (I) any such contractor
does not void or limit any warranty or guaranty procured by Landlord
regarding the roof; (ii) such work is performed by Tenant in
accordance with the provision of this Leae; and (iii)) Tenant
indemnifies and holds Landlord harmless from and against any and all
claims, damages and losses incurred by Landlord an/or any other
tenant or occupant in the Building as a result of the making of such
repairs or the performance of such work."
C.
The address "90 West Franklin Street, Hackensack,
new Jersey, 07601" contained in Article 28 of the lease, shall be
deemed to be deleted, and the address "c/o Alfred Sanzari
Enterprises, P.O. Box 2187, South Hackensack, New Jersey 076062187, with a copy to Cole, Schotz, Meisel, Forman and Leonard,
P.A., Court Plaza North, 25 Main Street, P.O. Box 800, Hackensack,
New Jersey 07602-0800, Attention: Edward M. Schotz, Esq." inserted
in its place.
D. The following shall be deemed to be inserted after the third
sentence in Article 12 of the Lease; "In the event Landlord withholds its
consent to the subletting or assignment as provided herein, Landlord agrees that
it will so notify Tenant in writing within the aforesaid ten (10) day period,
specifying therein, in reasonable detail, the reason(s) for the withholding of
such consent."
6.
A.
Tenant understands and agrees that: (I) the remises
contiguous to the Original Premises, consisting of approximately
14
thirty-one thousand seven hundred forty-four (31,74) square feet (hereinafter
referred to as the "Contiguous Space"), is currently leased to, and occupied by
CTX Termination, inc. (hereinafter referred to as "CTX"); and (ii) CTX exercised
its option to renew the term of its lease which now expires March 21, 2004
(hereinafter referred to as the "CTX Lease").
B. So long as (I) Tenant is not in default under the Lease, as
modified by this Amendment; (ii) the Lease, as modified by this Amendment, is in
full force and effect; and (iii) Tenant is occupying the entire Premises for the
purpose of conducing its business, then, provided Tenant, at its sole cost and
expense, secures the early termination of the CTX Lease, or CTX vacates the
Contiguous Space or the CTX Lease is terminated prior to the expiration of the
term thereof, landlord shall give Tenant the right to relocate from the
Additional Space to the Contiguous Space, upon not less than six (6) months'
prior written notice given at any time prior to February 29, 2000 (hereinafter
referred to as the "Relocation Notice").
C. In the event Tenant duly and timely exercise the right to
relocate as provided herein, the Contiguous Space shall be substituted for the
Additional Space as of the effective date of such relocation, upon all of the
terms, covenants, conditions, provisions and agreements contained in the Lease,
as modified by this Amendment, except that:
(1) "Basic Rent" (on a per square foot per annum basis) and
additional rent shall be deemed to be the amounts then payable to Tenant to
Landlord with respect to the Original Premises;
15
(2)
"Proportionate Share" shall be deemed to be
"one hundred (100%) percent";
(3) The number of parking spaces provided in Paragraph 4 of
the Third Amendment to Lease dated as of February 28, 1994, shall be deemed to
be "thirty-six (36)";
(4)
The reference to "Adjacent Building" shall be
deemed to be deleted;
(5) At the time Landlord receives the Relocation Notice and
upon the effective date of such relocation, Tenant shall not be in default under
this Lease;
(6) Tenant pays to
Landlord,
simultaneously
with the
Relocation Notice, a sum equal to four (4) months' Basic Rent and additional
rent then payable by Tenant to landlord under the Lease, as modified by this
Amendment, as consideration fro Tenant's exercise of its right to relocate to
the Contiguous Space;
(7) Tenant provides
Landlord,
simultaneously
with the
Relocation Notice, any documents which evidence the early termination of the CTX
Lease, if applicable; and
(8) Tenant shall be liable and responsible for restoring the
Contiguous Space to the condition which existed as of the effective date of such
relocation.
D. In the event Tenant does not duly and timely exercise the right
to relocate as provided herein, the provisions of this Paragraph shall be null
and void and of no further force or effect and Tenant shall have no further
right to relocate to the Contiguous Space.
E. The right to relocate as provided herein, is personal to Tenant
named herein and may not be assigned or transferred.
16
F. Upon request of Landlord, Tenant shall execute and deliver an
agreement setting forth the terms and conditions under which the Contiguous
Space is substituted for the Additional Space; it being understood and agreed
that such terms and conditions shall nevertheless be effective regardless if
such agreement is not executed and delivered.
7. Notwithstanding anything to the contrary contained herein, Landlord
hereby approves the following work which may be performed by Tenant, at its sole
cost and expense, subject nevertheless to all of the other terms, covenants,
conditions, provisions and agreements of the Lease, as modified by this
Amendment (including, without limitation, article 22 thereof):
A. the conversion of approximately five thousand (5,000) square feet
of warehouse space currently existing in the Original Premises as of the date
hereof, to space to be utilized for production; and
B. the conversion of approximately
feet of warehouse space currently
dat hereof, to office space.
eleven thousand (11,000) square
existing gin the Additional Space as of the
8. Tenant hereby affirms that security in the amount of One Hundred Two
thousand four Hundred Sixty-Two and 72/100 ($102,462.72) Dollars has heretofore
been deposited by Tenant to Landlord under the lease.
9. Tenant hereby represents and warrants to Landlord, that Tenant has not
dealt with any real estate agent or broker in connection with this Amendment
and/or the Additional Space, that this Amendment was not brought about or
procured through the use or instrumentality of any agent or broker, and that all
negotiations with respect to the term of this Amendment were conducted between
17
landlord, and Tenant. Tenant hereby covenants and agrees to indemnify and hold
Landlord harmless from and against any and all claims for commissions and other
compensation made by any agent or agents and/or any broker or brokers based on
any dealings between Tenant and any agent or agents and/or broker or brokers,
together with all costs and expenses incurred by Landlord in resisting such
claim s(including, without limitation, attorney's fees and disbursements).
10. A. Except as expressly modified by this Amendment, the Lease and all
the terms, covenants, conditions, provisions and agreements thereof, are hereby
in all respects, ratified, confirmed and approved.
B. Tenant hereby affirms that, as of the date hereof, no breach or
default by Landlord has occurred, and that the Lease and all of its terms,
covenants, conditions, provisions and agreements, except as modified by this
Amendment, are in full force and effect, with no defenses or offsets thereto.
C. Tenant hereby releases Landlord of and from all liabilities,
claims controversies, causes of action an other matters of every nature which,
through the date hereof, have or might have arisen out of or in any way in
connection with the Lease and/or the Demised Premises.
11. This Amendment and the Lease contain the entire understanding between
the parties with respect to the matters contained herein. No representations,
warranties, covenants or agreements have been made concerning or affecting the
subject matter of this amendment, except as are expressly contained herein.
12. This Amendment may not be changed orally, but only by an agreement in
writing by the party against whom
enforcement of any waiver,
change,
modification or discharge is sought.
18
13. This Amendment shall be binding upon, an enure to the benefit of the
parties hereto, their respective legal representatives, successors, and, except
as otherwise provided I the Lease, as modified by his amendment, their
respective assigns.
14. The submission of this Amendment to Tenant shall not be construed as
an offer, nor shall Tenant have any rights with respect hereto, unless and until
Landlord shall execute a copy of this Amendment an unconditionally deliver the
same to Tenant.
15. Tenant hereby represents and warrants to landlord that: (I) the
execution, performance and delivery by Tenant of this Amendment does not violate
any provisions of its Charter or By- Laws, and has been fully and validly
authorized and approved by any required corporate action of Tenant; (ii) the
obligations of Tenant under this Amendment are legal, valid, binding and
enforceable against Tenant in accordance with its terms; and (iii)) the person
executing this Amendment has the authority to so execute, perform and deliver
this Amendment on behalf of Tenant.
16. Tenant hereby acknowledges and agrees that this Amendment is the
result of extensive negotiations between the parties. This Amendment shall be
construed without regard to any presumption or other rule requiring construction
against the party causing this Amendment to be drafted or prepared.
17. A determination that any provision of this Amendment is void
unenforceable or invalid shall not affect the enforceability of validity of any
other provision, and any determination that the application of any provision of
this Amendment to any person or to particular circumstance sis illegal or
unenforceable shall not affect the enforceability or validity of such provision
as it may apply to other person or circumstances.
19
18. This Amendment may be executed in one or more counterparts, each of
which, when so executed and delivered, shall be deemed original, but all of
which taken together shall constitute but one and the same instrument.
19. The validity, performance and enforcement of this Amendment shall be
governed by and construed in accordance with the laws of the State of new
Jersey.
IN WITNESS WHEREOF, the parties hereto have respectively executed this
Fourth Amendment to Lease as of the day and year first written above.
Witness for Landlord:
L.P.
ALFRED SANZARI ENTERPRISES,
By:
Alfred Sanzari
Enterprises, Inc., its
General Partner
By:
------------------------------Name: David Sanzari
Title: President
Attest for Tenant:
INC.
BIO-REFERENCE LABORATORIES,
By:
---------------------------Name:
-----------------------Title:
Secretary
-------------
By:
20
Name:
Title:
-------------
President
Exhibit 10.2
EMPLOYMENT AGREEMENT
This Employment Agreement dated as of the 1st day of November, 1997
between Bio-Reference Laboratories, Inc., a New Jersey corporation with its
principal place of business at 481 Edward H. Ross Drive, Elmwood Park, New
Jersey 07407 (the "Company") and Marc Grodman, residing at RD 1, P.O. Box 309,
Califon, New Jersey 07830 (the "Employee").
W I T N E S S E T H :
WHEREAS, the Company is primarily engaged in the operation of a clinical
laboratory in northern New Jersey, and
WHEREAS, the Company desires to avail itself of the Employee's knowledge
and experience and to employ the Employee as its President and Chief Executive
Officer on the terms and conditions hereinafter set forth, and
WHEREAS, the Employee desires to be so employed by the Company on the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties agree as follows:
1. Terms of Employment. The Company agrees to employ the Employee as its
President and Chief Executive Officer, or in such other position of comparable
status and responsibility as the Company may from time to time direct and/or
desire, and the Employee agrees to accept such employment with the Company, for
a term commencing as of November 1, 1997 (the "Commencement Date") and
continuing until October 31, 2004 (the "Expiration Date"), unless sooner
terminated as provided in this Agreement (the "Employment Period"). As used in
this Agreement, the term "Employment Period" shall also include any periods for
which this Agreement is renewed pursuant to Section 2 hereof.
2. Renewal. This Agreement shall be automatically renewable for additional
three year periods; provided, that either the Company or the Employee may elect
not to renew this Agreement upon written notice to the other party no less than
three (3) months before the Expiration Date or any subsequent extension thereof
pursuant to this Section 2.
3.
Duties.
-----(a) During the Employment Period, the Employee shall perform such
duties and exercise such powers relating to the Company as are commensurate with
the office of President and Chief Executive Officer and shall have such other
duties and powers as the Board of Directors shall from time to time assign to
him, including by way of example but not limitation, duties with respect to any
of the Company's associated companies. As used in this Agreement, the term
"Associated Companies" shall mean any company (i) of which not less than fifty
(50%) percent of the equity is beneficially owned by the Company or (ii) any
subsidiary of such company, if any.
(b) During the Employment Period, the Employee shall devote at least
90% of his working time during normal business hours and his best efforts and
ability to the business of the Company, shall faithfully and diligently perform
the duties of his employment with the Company and shall do all reasonably in his
power to promote, develop and extend the business of the Company.
(c) During the Employment period, the Employee shall not, except as
a representative of the Company or with the written consent of the Company, be
directly or indirectly engaged, concerned or interested in the conduct of any
other business competing or likely to compete with the Company; provided, that
notwithstanding anything contained in this Agreement to the
2
contrary, the Employee shall not be precluded from devoting a reasonable amount
of his time to:
(i) serving with the prior written approval of the Company as a
director or member of a committee of any organization involving no
conflict of interest with the business of the Company; and
(ii) managing his personal investments;
provided,
activities shall not materially interfere with the
performance of his duties hereunder; and
that such
Employee's
(iii) participating in such courses of instruction and rendering
such services as shall be consistent with the maintenance of his
skills as a medical doctor; and
(iv) performance as an Assistant Professor of Clinical Medicine and
assistant
attending
physician at Columbia University and at
Presbyterian Hospital, respectively, or the performance of similar
services at any similar institutions; and
(v) rendering medical services to the Uniform Firefighters of New
York City similar to the services presently rendered by the Employee
pursuant to a contract presently in force.
(d) The Employee shall be employed at the offices of the Company
located in Elmwood Park, New Jersey; provided that the Employee acknowledges and
agrees that the proper performance of these duties may make it necessary to
spend reasonable periods of time in other parts of the country.
4.
Compensation.
(a) During the Employment Period, the Company shall pay the Employee
as compensation for his services under this Agreement, a minimum annual Base
Compensation consisting of salary and bonus in the aggregate amount of Three
Hundred Ninety Five Thousand ($395,000) Dollars (the "Base Compensation"). The
Base Compensation shall be payable in equal installments in accordance with the
regular payroll procedures established by the Company. In October of each fiscal
year during the Employment Period, the Company's Board of Directors will
consider increasing the Employee's Compensation under this Agreement, based upon
the performance of
3
the Company and of the Employee during the fiscal year then ending with such
increase, if granted, taking effect as of the immediately following November 1.
(b) The Company shall pay for (excluding the P.S. 58 costs) and
maintain "Split Dollar" Life Insurance in the face amount of Four Million
($4,000,000) Dollars (including Two Million ($2,000,000) Dollars of such
insurance which it presently maintains), insuring the life of the Employee. The
proceeds of such insurance shall be payable to the estate of the Employee
(excluding benefits required to be paid to the Company pursuant to the split
dollar plan for the premiums paid).
(c) The Company shall lease and insure, under the Company's policy,
an automobile for the benefit of the Employee. The Company shall be responsible
for maintenance, gasoline, repair and all other such costs but only to the
extent such expenses relate to business use of the automobile. At the end of the
lease term, or in the event of the termination of this Agreement for any reason,
including non-renewal, the Employee shall have the following options:
(i) surrender the automobile to the Company,
(ii) assume the Company's lease payment obligation; or
(iii) exercise the purchase option of the lease, if any.
(d) The Company shall promptly pay or reimburse the Employee
for all expenses incurred by the Employee in the performance of his duties
under this Agreement. Such expenses shall be limited to the reasonable
out-of-pocket expenses necessarily and actually incurred by the Employee in the
performance of his duties; provided that (i) the expenses have been detailed on
a form acceptable to the Company and submitted to the Company for review
4
and approval and (ii) appropriate supporting documentation is submitted together
with the approved expense form.
(e) The Employee shall be entitled to participate in any fringe
benefit and bonus plans available to the Company's employees as in effect from
time to time, to the extent that the Employee may be eligible to do so under the
applicable provisions of the plans including but not limited to pension, profit
sharing, stock option and similar plans and life and medical insurance plans or
coverage maintained by the Company for senior personnel and/or all personnel.
(f) The Employee shall be entitled to such vacation, personal time
and holidays as he is eligible for under the Company's Employment and Personnel
Policy as the same presently exists or may hereinafter be amended.
(g) Notwithstanding the provisions of subparagraph (a) of this
Section 4, the Employee shall also be entitled to a percentage increase in his
Base Compensation as in effect on June 30 of each year that this Agreement is in
effect, equal to the percentage increase in the Consumer Price Index - All Items
for the New York metropolitan area (or any successor index) for such month of
June as compared to such Consumer Price Index for the month of June in the
immediately preceding year. Any such increase shall be effective on the
immediately following November 1. No adjustments shall be made for decreases in
such Index.
5.
Issuances of Stock and Options. In further consideration
-----------------------------for his employment, the Company agreed on May 13, 1997 to the
following issuances of its Common Stock and options to the
Employee.
(a) Forfeitable Stock -- The Company has issued 300,000 shares of
its Common Stock to the Employee subject to forefiture.
5
If the Employee's employment agreement is terminated by the Company "For Cause"
or at the Employee's option, without "Good Reason" (but not due to a "Change in
Control"), all as herein defined, the Employee will forfeit such shares on the
following basis.
If Termination "For
Cause" or "Without Good
Reason" Occurs during the
Number of Shares
Following Periods
Forfeited
--------------------------------May 1, 1997 through April 30, 1998
225,000 shs.
May 1, 1998 through April 30, 1999
150,000 shs.
May 1, 1999 through April 30, 2000
75,000 shs.
(b) Stock Options -- The Company has issued five-year incentive
stock options ("ISOs) to the Employee exercisable to purchase 100,000 shares of
the Common Stock at $.790625 per share. These ISOs are subject to the terms and
conditions of the Company's 1989 Employees' Stock Option Plan. In addition, the
Company has issued ten-year non-qualified options ("NQOs") to the Employee
exercisable to purchase 200,000 shares of its Common Stock at $.71875 per share.
The NQOs to the extent not exercised shall terminate if this employment
agreement is terminated by the Company "For Cause" or at the Employee's option
without "Good Reason" (but not due to a "Change in Control").
6. Disability. If during the Employment Period, the Employee shall incur a
Total Disability then, subject to the earlier termination of this Agreement or
the earlier termination of the disability, the Company shall compensate the
Employee as provided in subparagraphs (a), (b), (c) and (d) of this Section 6.
(a) For the month in which the Employee incurs the total disability,
and for the following twelve (12) months of the disability, the Company shall
compensate the Employee at a rate equal to his then current Base Compensation.
6
(b) For a period of three (3) months commencing upon the termination
of the period described in subparagraph (a), the Company shall not pay Employee
any portion of his Base Compensation and Employee shall be on an unpaid leave of
absence.
(c) If the Employee's disability shall terminate at any time prior
to the expiration of the period described in subparagraph (b) of this Section 6,
then the Employee shall return to full and active employment with the Company
under the terms of this Agreement; provided that if he shall again become
disabled within a period of three (3) months after such return, and such
disability is related to his original disability, then the Employee shall be
deemed to have been continuously disabled from the date he incurred his original
disability.
(d) Upon expiration of the three (3) month period described in
subparagraph (b) of this Section 6, the employment of the Employee shall
terminate, unless an additional leave of absence is granted by the Company, in
which event the employment of the Employee shall terminate upon the expiration
of the additional leave of absence.
(e) In the event the Employee shall incur a Partial Disability then
during the period of the Partial Disability, the Employee's Base Compensation
shall be equitably adjusted according to the time that he is able to devote to
the affairs of the Company.
(f) In addition to the foregoing, the Employee shall be entitled to
receive the amounts, if any, as may be payable to him by reason of his
disability under policies of insurance maintained by the Company.
(g) As used in this Agreement, the term "Total Disability" shall
mean a disability such that, for physical or
7
mental reasons, the Employee is unable to perform any of his usual duties to the
Company on a full-time basis. As used in this Agreement, the term "Partial
Disability" shall mean a disability, other than a total disability, such that
for physical or mental reasons, the Employee is unable to perform all of his
usual duties to the Company on a full-time basis.
7.
Termination.
(a) Termination by Death. If the Employee dies during the Employment
Period, the Company's obligations under this Agreement shall terminate six (6)
months after the date of death and the Employee's estate shall be entitled to
all arrearages of Base Compensation and expenses. In addition, the Employee's
estate (or such other named beneficiary) shall be entitled to the amounts, if
any, as may be payable to his estate or beneficiaries under policies of
insurance maintained by the Company.
(b) Termination for Cause. This Agreement and the Employee's
employment with the Company may be terminated for Cause at any time in
accordance with subparagraph (d) of this Section 7. In the event this Agreement
is terminated for Cause, the Employee shall be entitled to all arrearages of
Base Compensation and expenses through the Date of Termination but shall not be
entitled to further compensation. As used in this Agreement, and without
limitation, the term "Cause" shall mean:
(i) an act or acts of dishonesty constituting criminal acts by the
Employee resulting or intended to result directly or indirectly in gain to or
personal enrichment of the Employee at the Company's expense;
(ii) the commission of any crime involving fraud,
or theft by the Employee against the Company;
8
embezzlement
(iii) engaging in competition with the Company, including taking a
management position with, or control of, a business engaged in the manufacture,
sale or distribution of a class of products or service which constituted 15% or
more of the sales or gross income of the Company and its associated companies
during the fiscal year of the Company immediately preceding the termination of
the Employee's employment.
(c) Termination at the Option of the Employee. This Agreement and
the Employee's employment with the Company may be terminated at any time, at the
election of the Employee, for Good Reason in accordance with subparagraph (d) of
this Section 7. In the event this Agreement is terminated for Good Reason, the
Employee shall be paid during the remainder of the Employment Period (computed
without giving effect to the earlier termination
hereunder),
his Base
Compensation (other than due to Partial Disability) at the rate in effect as of
the Date of Termination, and shall continue to be entitled to employee benefits
as if he were still employed by the Company, until completion of such Employment
Period (computed without giving effect to the earlier termination hereunder). As
used in this Agreement, and without limitation, the term "Good Reason" shall
mean:
(i) the assignment to the Employee of duties inconsistent with the
office of President and Chief Executive Officer of the Company or his then
current office, the removal of the Employee from such office or substantial
reduction
in the
nature
or status of the
Employee's
then
current
responsibilities;
(ii) the reduction of the Employee's then current Base
(other than due to Partial Disability) ;
Compensation
(iii) the relocation of the Company's principal executive offices to
a location more than fifty (50) miles from the Company's
9
current principal executive offices or the transfer of the Employee to a place
other than the Company's principal executive offices (excepting required travel
on the Company's business in a manner substantially similar to the Employee's
then current business travel obligations); and
(iv) the failure by the Company to continue to provide the Employee
with benefits at least as favorable as those in which the Employee was then
participating.
(d) Notice of Termination.
Any purported termination of the
Employee's employment shall be communicated by a written notice of termination
to the other party hereto and specify the Date of Termination (the "Notice of
Termination"). Such notice shall indicate a specific terminated provision in
this Agreement which is relied upon, recite the facts and circumstances claimed
to provide the basis for such termination and specify the Date of Termination.
As used in this Agreement, the term "Date of Termination" shall mean the date
specified in the Notice of Termination, which date shall not be less than thirty
(30) nor more than sixty (60) days from the date the Notice of Termination is
given. If within thirty (30) days from the date the Notice of Termination is
given, the party receiving such notice notifies the other party that a dispute
exists concerning such termination, the Date of Termination shall be the date on
which the dispute is finally resolved. The Date of Termination shall be extended
by a notice of dispute only if such notice is given in good faith and the party
giving such notice pursues the resolution of such dispute with reasonable
diligence. Notwithstanding the pendency of any such dispute, the Company will
continue to pay the Employee his full Base Compensation in effect as of the date
of the Notice of Termination and continue the Employee as a participant in all
compensation, benefit and
10
insurance plans in which he was participating at such date, until the dispute is
finally resolved. Amounts paid under this subparagraph (d) are in addition to
all other amounts due under this Agreement and shall not be offset against or
reduce any other amounts due under this Agreement.
8. Change in Control. In the event of a Change in Control and, as a result
of such Change in Control, the Employee is terminated without Cause or the
Employee elects to terminate his employment for any reason as a result thereof,
then the Employee shall receive the following benefits:
(a) The Company shall pay to the Employee his full Base Compensation
at the rate in effect at the time of the Notice of Termination through the Date
of Termination.
(b) In lieu of any further Base Compensation payments for periods
subsequent to the Date of Termination, the Company shall pay to the Employee as
severance pay not later than the fifth day following the Date of Termination, a
lump sum payment (the "Severance Payment") equal to 2.99 times the average of
the annual Compensation which was payable to the Employee by the Company and
includible in the Employee's gross income for federal income tax purposes for
the five (5) calendar years, or for the portion of such period during which the
Employee was actually employed by the Company if the Employee has been employed
by the Company for less than five (5) calendar years preceding the earlier of
the calendar year in which a Change in Control occurred or the calendar year of
the Date of Termination (the "Base Period"). Such average shall be determined in
accordance with the provisions of Section 280G(d) of the Internal Revenue Code
of 1986 as amended (the "Code"). As used in this Agreement, the term
"Compensation" shall mean and include every type and form of compensation
includible in the Employee's
11
gross income in respect of his employment by the Company including compensation
income recognized as a result of the exercise of stock options or sale of the
stock so acquired, except to the extent otherwise provided in Congressional or
Joint Committee Reports or temporary or final regulations interpreting Section
280G(d) of the Code.
(c) The Severance Payment shall be reduced by the amount of any
other payment or the value of any benefit received or to be received by the
Employee in connection with the termination of his employment or contingent upon
a Change in Control (whether payable pursuant to the terms of this Agreement,
any other plan, agreement or arrangement with the Company) unless (i) the
Employee shall have effectively waived his receipt or enjoyment of such payment
or benefit prior to the date of payment of the Severance Payment, (ii) in the
opinion of tax counsel selected by the Company such other payment or benefit
does not constitute a "parachute payment" within the meaning of Section
280G(b)(2) of the Code, or (iii) in the opinion of such tax counsel, the
Severance Payment (in its full amount or as partially reduced, as the case may
be) plus all other payments or benefits which constitute "parachute payments"
within the meaning of Section 280G(b)(2) of the Code are reasonable compensation
file services actually rendered, within the meaning of Section 280G(b)(4) of the
Code, and such payments are deductible by the Company. The value of any non-cash
benefit or any deferred cash payment shall be determined by the Company in
accordance with the principles of Section 280G(d)(3) and (4) of the Code.
(d) Except to the extent that Congressional or Joint Committee
Reports or temporary or final regulations interpreting Section 280G of the Code
specify that such payments would result,
12
under subsection (c) above, in a reduction in the Severance Payment:
(i) The Company shall pay to the Employee, not later than the fifth
day following the Date of Termination, a lump sum amount equal to the sum of (x)
any bonus compensation which has been allocated or awarded for a fiscal year
preceding the Date of Termination but has not yet been paid, and (y) a pro rata
portion of any bonus compensation which the Employee has earned for the fiscal
year in which the Date of Termination occurs determined by multiplying the
Employee's prior years' bonus compensation by a fraction equal to the number of
full calendar months in the fiscal year prior to the Date of Termination over
twelve.
(ii) The Company shall also pay all legal fees and expenses incurred
by the Employee as a result of such termination (including all such fees and
expenses, if any, incurred in contesting or disputing any such termination or in
seeking to obtain or enforce any right or benefit provided by this Agreement).
(e) If it is established pursuant to a final determination of a
court or an Internal Revenue Service proceeding that, notwithstanding the good
faith of the Employee and the Company in applying the terms of this Section 8,
the aggregate "parachute payments" paid are in an amount that would result in
any portion of such "parachute payments" not being deductible by the Company by
reason of Section 280G of the Code, then the Employee shall have an obligation
to pay the Company upon demand an amount equal to the sum of (i) the portion of
the aggregate "parachute payments" paid that would not be deductible by reason
of Section 280G of the Code and (ii) interest on the amount set forth in clause
(i) of this sentence at the applicable Federal rate (as
13
defined in Section 1274(d) of the Code) from the date of receipt of such excess
until the date of such payment.
(f) As used in the Agreement, the term "Change in Control" shall
mean a change in control of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A issued under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") as in effect as
of the date hereof (regardless of whether or not a Proxy Statement is being
filed pursuant to such Regulation at such time), or if Item 6(e) is no longer in
effect, any subsequent regulation issued under the Exchange Act for a similar
purpose, whether or not the Company is subject to such reporting requirements;
provided, that without limitation, such a change in control shall be deemed to
have occurred if:
(i) any "person" other than the Employee is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 25% or more of the
combined voting power of the Company's then outstanding securities;
(ii) during any period of two consecutive years (not including any
period prior to the date of the Agreement), individuals who at the beginning of
such period constitute the Board of Directors, and any new director, whose
election by the Board or nomination for election by the Company's stockholders
was approved by a vote of at least two-thirds of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for elections was previously approved, cease for any
reason to constitute a majority of the Board; or
14
(iii) the business of the Company is disposed of by the Company
pursuant to a liquidation, sale of assets of the Company, or otherwise.
9. Confidential Information. The Employee acknowledges an obligation of
confidentiality to the Company and shall not divulge, disclose or communicate
any trade secret, private or confidential information or other proprietary
knowledge of the Company or its associated companies obtained or acquired by him
while so employed. This restriction shall apply after the termination of the
Employee's employment without limit in point of time but shall cease to apply to
information or knowledge which may come into the public domain or whose
disclosure may be required by law or court order or pursuant to the written
consent of the Corporation.
10. Return of Information. Upon termination of employment, the Employee
agrees to not take with him and to deliver to the Company all records, notes,
data, memoranda, models, equipment, blueprints, drawings, manuals, letters,
reports and all other materials of a secret or confidential nature relating to
the business of the Company which are in possession or control of the Employee.
11.
General Provisions.
(a) This Agreement contains the entire transaction between the
parties, and there are no other representations, warranties, conditions or
agreements relating to the subject matter of this Agreement.
(b) The waiver by any party of any breach or default of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
(c) This Agreement may not be changed orally but only by an
Agreement in writing duly executed on behalf of the party
15
against which enforcement of any waiver, change, modification, consent or
discharge is sought.
(d) This Agreement shall be binding upon and be enforceable against
the Company and its successors and assigns. Insofar as the Employee is
concerned, this Agreement is personal and cannot be assigned.
(e) This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
(f) This Agreement shall be construed pursuant to and in accordance
with the laws of the State of New Jersey.
(g) If any term or provision of this Agreement is held or deemed to
be invalid or unenforceable, in whole or in part, by a court of competent
jurisdiction, this Agreement shall be ineffective to the extent of such
invalidity or unenforceability without rendering invalid or unenforceable the
remaining terms and provisions of this Agreement.
(h) Any dispute, grievance or controversy arising under or in
connection with this Agreement shall be referred to the Board of Directors of
the Company and shall be dealt with by personal discussion, and if not
satisfactorily resolved, shall be submitted to arbitration under the Rules of
the American Arbitration Association in New York City.
(i) Any consent of the Company required under this Agreement shall
not be unreasonably withheld or delayed.
16
IN WITNESS WHEREOF,
first above written.
COMPANY:
the parties have executed this Agreement on the date
Bio-Reference Laboratories, Inc.
By /s/Howard Dubinett
Its Executive Vice President
Duly Authorized
EMPLOYEE:
/s/Marc Grodman
Marc Grodman
17
Exhibit 10.3
EMPLOYMENT AGREEMENT
This Employment Agreement dated as of the 1st day of May, 1997 between
Bio-Reference Laboratories, Inc., a New Jersey corporation with its principal
place of business at 481 Edward H. Ross Drive, Elmwood Park, New Jersey 07407
(the "Company") and Howard Dubinett, residing at 195 Little Falls Road, Cedar
Grove, New Jersey 07009 (the "Employee").
W I T N E S S E T H :
WHEREAS, the Company is primarily engaged in the operation of
a clinical laboratory in northern New Jersey, and
WHEREAS, the Company desires to avail itself of the Employee's knowledge
and experience and to employ the Employee as its Executive Vice President and
Chief Operating Officer on the terms and conditions hereinafter set forth, and
WHEREAS, the Employee desires to be so employed by the Company on the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties agree as follows:
1. Terms of Employment. The Company agrees to employ the Employee as its
Executive Vice President and Chief Operating Officer, or in such other position
of comparable status and responsibility as the Company may from time to time
direct and/or desire, and the Employee agrees to accept such employment with the
Company, for a term commencing as of May 1, 1997 (the "Commencement Date") and
continuing until October 31, 2002 (the "Expiration Date"), unless sooner
terminated as provided in this Agreement (the
"Employment Period"). As used in this Agreement, the term "Employment Period"
shall also include any periods for which this Agreement is renewed pursuant to
Section 2 hereof.
2. Renewal. This Agreement shall be automatically renewable for additional
one year periods; provided, that either the Company or the Employee may elect
not to renew this Agreement upon written notice to the other party no less than
one (1) month before the Expiration Date or any subsequent extension thereof
pursuant to this Section 2.
3.
Duties.
-----(a) During the Employment Period, the Employee shall perform such
duties and exercise such powers relating to the Company as are commensurate with
the office of Executive Vice President and Chief Operating Officer and shall
have such other duties and powers as the Board of Directors shall from time to
time assign to him, including by way of example but not limitation, duties with
respect to any of the Company's associated companies. As used in this Agreement,
the term "Associated Companies" shall mean any company (i) of which not less
than fifty (50%) percent of the equity is beneficially owned by the Company or
(ii) any subsidiary of such company, if any.
(b) During the Employment Period, the Employee shall devote all of
his working time during normal business hours and his best efforts and ability
to the business of the Company, shall faithfully and diligently perform the
duties of his employment with
2
the Company and shall do all reasonably in his power to promote,
develop and extend the business of the Company.
(c) During the Employment period, the Employee shall not, except as
a representative of the Company or with the written consent of the Company, be
directly or indirectly engaged, concerned or interested in the conduct of any
other business competing or likely to compete with the Company; provided, that
notwithstanding anything contained in this Agreement to the contrary, the
Employee shall not be precluded from devoting a reasonable amount of his time
to:
(i) serving with the prior written approval of the Company as a
director or member of a committee of any organization involving no
conflict of interest with the business of the Company; and
(ii) managing his personal investments;
provided,
activities shall not materially interfere with the
performance of his duties hereunder.
that such
Employee's
(d) The Employee shall be employed at the offices of the Company
located in Elmwood Park, New Jersey; provided that the Employee acknowledges and
agrees that the proper performance of these duties may make it necessary to
spend reasonable periods of time in other parts of the country.
4.
Compensation.
(a) During the Employment Period, the Company shall pay the Employee
as compensation for his services under this Agreement,
a minimum Base
Compensation at an annual rate of One Hundred Ninety One Thousand Four Hundred
($191,400) Dollars through October 31, 1997, and thereafter a minimum annual
Base Compensation consisting
3
of salary and bonus in the aggregate amount of Two Hundred Twenty Thousand
($220,000) Dollars (the "Base Compensation"). The Base Compensation shall be
payable in equal installments in accordance with the regular payroll procedures
established by the Company. In October of each fiscal year during the Employment
Period, the Company's Board of Directors will consider increasing the Employee's
Compensation under this Agreement, based upon the performance of the Company and
of the Employee during the fiscal year then ending with such increase, if
granted, taking effect as of the immediately following November 1.
(b) The Company shall pay for (excluding the P.S. 58 costs) and
maintain "Split Dollar" Life Insurance in the face amount of Five Hundred Fifty
Thousand ($550,000) Dollars, insuring the life of the Employee. The proceeds of
such insurance shall be payable to the estate of the Employee (excluding
benefits required to be paid to the Company pursuant to the split dollar plan
for the premiums paid). Once such insurance is fully paid, the Company will
apply for an additional aggregate Five Hundred Fifty Thousand ($550,000) Dollars
of similar "Split Dollar" Life Insurance insuring the Employee's life and will
maintain such additional insurance during his employment by the Company.
(c) The Company shall lease and insure, under the Company's policy,
an automobile for the benefit of the Employee. The Company shall be responsible
for maintenance, gasoline, repair and all other such costs but only to the
extent such expenses relate to business use of the automobile. At the end of the
lease
4
term, or in the event of the termination of this Agreement for any reason,
including non-renewal, the Employee shall have the following options:
(i) surrender the automobile to the Company,
(ii) assume the Company's lease payment obligation; or
(iii) exercise the purchase option of the lease, if any.
(d)
The Company shall promptly pay or reimburse the
Employee for all expenses incurred by the Employee in the performance of his
duties under this Agreement. Such expenses shall be limited to the reasonable
out-of-pocket expenses necessarily and actually incurred by the Employee in the
performance of his duties; provided that (i) the expenses have been detailed on
a form acceptable to the Company and submitted to the Company for review and
approval and (ii) appropriate supporting documentation is submitted together
with the approved expense form.
(e) The Employee shall be entitled to participate in any fringe
benefit and bonus plans available to the Company's employees as in effect from
time to time, to the extent that the Employee may be eligible to do so under the
applicable provisions of the plans including but not limited to pension, profit
sharing, stock option and similar plans and life and medical insurance plans or
coverage maintained by the Company for senior personnel and/or all personnel.
(f)
The Employee shall be entitled to such vacation,
personal time and holidays as he is eligible for under the
5
Company's Employment and Personnel Policy as the same presently exists or may
hereinafter be amended.
(g) Notwithstanding the provisions of subparagraph (a) of this
Section 4, the Employee shall also be entitled to a percentage increase in his
Base Compensation as in effect on June 30 of each year that this Agreement is in
effect, equal to the percentage increase in the Consumer Price Index - All Items
for the New York metropolitan area (or any successor index) for such month of
June as compared to such Consumer Price Index for the month of June in the
immediately preceding year. Any such increase shall be effective on the
immediately following November 1. No adjustments shall be made for decreases in
such Index.
5.
Issuances of Stock and Options. In further consideration
-----------------------------for his employment, the Company agreed on May 13, 1997 to the
following issuances of its Common Stock and options to the
Employee.
(a) Forfeitable Stock -- The Company has issued 240,000 shares of
its Common Stock to the Employee subject to forfeiture. If the Employee's
employment agreement is terminated by the Company "For Cause" or at the
Employee's option, without "Good Reason" (but not due to a "Change in Control"),
all as herein defined, the Employee will forfeit such shares on the following
basis. If Termination "For Cause" or "Without Good Reason" Occurs during the
Number of Shares Following Periods Forfeited May 1, 1997 through April 30, 1998
180,000 shs. May 1, 1998 through April 30, 1999 120,000 shs. May 1, 1999 through
April 30, 2000 60,000 shs.
6
(b) Stock Options -- The Company has issued ten-year incentive stock
options ("ISOs") to the Employee exercisable to purchase 60,000 shares of its
Common Stock at $.71875 per share. These ISOs are subject to the terms and
conditions of the Company's 1989 Employees' Stock Option Plan.
6. Disability. If during the Employment Period, the Employee shall incur a
Total Disability then, subject to the earlier termination of this Agreement or
the earlier termination of the disability, the Company shall compensate the
Employee as provided in subparagraphs (a), (b), (c) and (d) of this Section 6.
(a) For the month in which the Employee incurs the total disability,
and for the following twelve (12) months of the disability, the Company shall
compensate the Employee at a rate equal to his then current Base Compensation.
(b) For a period of three (3) months commencing upon the termination
of the period described in subparagraph (a), the Company shall not pay Employee
any portion of his Base Compensation and Employee shall be on an unpaid leave of
absence.
(c) If the Employee's disability shall terminate at any time prior
to the expiration of the period described in subparagraph (b) of this Section 6,
then the Employee shall return to full and active employment with the Company
under the terms of this Agreement; provided that if he shall again become
disabled within a period of three (3) months after such return, and such
disability is related to his original disability, then the Employee
7
shall be deemed to have been continuously disabled from the date he incurred his
original disability.
(d) Upon expiration of the three (3) month period described in
subparagraph (b) of this Section 6, the employment of the Employee shall
terminate, unless an additional leave of absence is granted by the Company, in
which event the employment of the Employee shall terminate upon the expiration
of the additional leave of absence.
(e) In the event the Employee shall incur a Partial Disability then
during the period of the Partial Disability, the Employee's Base Compensation
shall be equitably adjusted according to the time that he is able to devote to
the affairs of the Company.
(f) In addition to the foregoing, the Employee shall be entitled to
receive the amounts, if any, as may be payable to him by reason of his
disability under policies of insurance maintained by the Company.
(g) As used in this Agreement, the term "Total Disability" shall
mean a disability such that, for physical or mental reasons, the Employee is
unable to perform any of his usual duties to the Company on a full-time basis.
As used in this Agreement, the term "Partial Disability" shall mean a
disability, other than a total disability, such that for physical or mental
reasons, the Employee is unable to perform all of his usual duties to the
Company on a full-time basis.
7.
Termination.
8
(a) Termination by Death. If the Employee dies during the Employment
Period, the Company's obligations under this Agreement shall terminate six (6)
months after the date of death and the Employee's estate shall be entitled to
all arrearages of Base Compensation and expenses. In addition, the Employee's
estate (or such other named beneficiary) shall be entitled to the amounts, if
any, as may be payable to his estate or beneficiaries under policies of
insurance maintained by the Company.
(b) Termination for Cause. This Agreement and the Employee's
employment with the Company may be terminated for Cause at any time in
accordance with subparagraph (d) of this Section 7. In the event this Agreement
is terminated for Cause, the Employee shall be entitled to all arrearages of
Base Compensation and expenses through the Date of Termination but shall not be
entitled to further compensation. As used in this Agreement, and without
limitation, the term "Cause" shall mean:
(i) an act or acts of dishonesty constituting criminal acts by the
Employee resulting or intended to result directly or indirectly in gain to or
personal enrichment of the Employee at the Company's expense;
(ii) the commission of any crime involving fraud,
embezzlement or theft by the Employee against the Company;
(iii) engaging in competition with the Company, including taking a
management position with, or control of, a business engaged in the manufacture,
sale or distribution of a class of products or service which constituted 15% or
more of the sales or
9
gross income of the Company and its associated companies during the fiscal year
of the Company immediately
preceding the termination of the Employee's
employment.
(c) Termination at the Option of the Employee. This Agreement and
the Employee's employment with the Company may be terminated at any time, at the
election of the Employee, for Good Reason in accordance with subparagraph (d) of
this Section 7. In the event this Agreement is terminated for Good Reason, the
Employee shall be paid during the remainder of the Employment Period (computed
without giving effect to the earlier termination
hereunder),
his Base
Compensation (other than due to Partial Disability) at the rate in effect as of
the Date of Termination, and shall continue to be entitled to employee benefits
as if he were still employed by the Company, until completion of such Employment
Period (computed without giving effect to the earlier termination hereunder). As
used in this Agreement, and without limitation, the term "Good Reason" shall
mean:
(i) the assignment to the Employee of duties inconsistent with the
office of Executive Vice President and Chief Operating Officer of the Company or
his then current office, the removal of the Employee from such office or
substantial reduction in the nature or status of the Employee's then current
responsibilities;
(ii) the reduction of the Employee's then current Base
Compensation (other than due to Partial Disability) ;
(iii) the relocation of the Company's principal executive offices to
a location more than fifty (50) miles from the Company's
10
current principal executive offices or the transfer of the Employee to a place
other than the Company's principal executive offices (excepting required travel
on the Company's business in a manner substantially similar to the Employee's
then current business travel obligations); and
(iv) the failure by the Company to continue to provide the Employee
with benefits at least as favorable as those in which the Employee was then
participating.
(d) Notice of Termination.
Any purported termination of the
Employee's employment shall be communicated by a written notice of termination
to the other party hereto and specify the Date of Termination (the "Notice of
Termination"). Such notice shall indicate a specific terminated provision in
this Agreement which is relied upon, recite the facts and circumstances claimed
to provide the basis for such termination and specify the Date of Termination.
As used in this Agreement, the term "Date of Termination" shall mean the date
specified in the Notice of Termination, which date shall not be less than thirty
(30) nor more than sixty (60) days from the date the Notice of Termination is
given. If within thirty (30) days from the date the Notice of Termination is
given, the party receiving such notice notifies the other party that a dispute
exists concerning such termination, the Date of Termination shall be the date on
which the dispute is finally resolved. The Date of Termination shall be extended
by a notice of dispute only if such notice is given in good faith and the party
giving such notice pursues the resolution of such dispute with reasonable
diligence.
11
Notwithstanding the pendency of any such dispute, the Company will continue to
pay the Employee his full Base Compensation in effect as of the date of the
Notice of Termination and continue the Employee as a participant in all
compensation, benefit and insurance plans in which he was participating at such
date, until the dispute is finally
resolved.
Amounts paid under this
subparagraph (d) are in addition to all other amounts due under this Agreement
and shall not be offset against or reduce any other amounts due under this
Agreement.
8. Change in Control. In the event of a Change in Control and, as a result
of such Change in Control, the Employee is terminated without Cause or the
Employee elects to terminate his employment for any reason as a result thereof,
then the Employee shall receive the following benefits:
(a) The Company shall pay to the Employee his full Base Compensation
at the rate in effect at the time of the Notice of Termination through the Date
of Termination.
(b) In lieu of any further Base Compensation payments for periods
subsequent to the Date of Termination, the Company shall pay to the Employee as
severance pay not later than the fifth day following the Date of Termination, a
lump sum payment (the "Severance Payment") equal to 2.99 times the average of
the annual Compensation which was payable to the Employee by the Company and
includible in the Employee's gross income for federal income tax purposes for
the five (5) calendar years, or for the portion of such period during which the
Employee was actually employed by the
12
Company if the Employee has been employed by the Company for less than five (5)
calendar years preceding the earlier of the calendar year in which a Change in
Control occurred or the calendar year of the Date of Termination (the "Base
Period"). Such average shall be determined in accordance with the provisions of
Section 280G(d) of the Internal Revenue Code of 1986 as amended (the "Code"). As
used in this Agreement, the term "Compensation" shall mean and include every
type and form of compensation includible in the Employee's gross income in
respect of his employment by the Company including
compensation income
recognized as a result of the exercise of stock options or sale of the stock so
acquired, except to the extent otherwise provided in Congressional or Joint
Committee Reports or temporary or final regulations interpreting Section 280G(d)
of the Code.
(c) The Severance Payment shall be reduced by the amount of any
other payment or the value of any benefit received or to be received by the
Employee in connection with the termination of his employment or contingent upon
a Change in Control (whether payable pursuant to the terms of this Agreement,
any other plan, agreement or arrangement with the Company) unless (i) the
Employee shall have effectively waived his receipt or enjoyment of such payment
or benefit prior to the date of payment of the Severance Payment, (ii) in the
opinion of tax counsel selected by the Company such other payment or benefit
does not constitute a "parachute payment" within the meaning of Section
280G(b)(2) of the Code, or (iii) in the opinion of such tax counsel, the
Severance Payment (in its full
13
amount or as partially reduced, as the case may be) plus all other payments or
benefits which constitute "parachute payments" within the meaning of Section
280G(b)(2) of the Code are reasonable compensation file services actually
rendered, within the meaning of Section 280G(b)(4) of the Code, and such
payments are deductible by the Company. The value of any non-cash benefit or any
deferred cash payment shall be determined by the Company in accordance with the
principles of Section 280G(d)(3) and (4) of the Code.
(d) Except to the extent that Congressional or Joint Committee
Reports or temporary or final regulations interpreting Section 280G of the Code
specify that such payments would result, under subsection (c) above, in a
reduction in the Severance Payment:
(i) The Company shall pay to the Employee, not later than the fifth
day following the Date of Termination, a lump sum amount equal to the sum of (x)
any bonus compensation which has been allocated or awarded for a fiscal year
preceding the Date of Termination but has not yet been paid, and (y) a pro rata
portion of any bonus compensation which the Employee has earned for the fiscal
year in which the Date of Termination occurs determined by multiplying the
Employee's prior years' bonus compensation by a fraction equal to the number of
full calendar months in the fiscal year prior to the Date of Termination over
twelve.
(ii) The Company shall also pay all legal fees and expenses incurred
by the Employee as a result of such termination (including all such fees and
expenses, if any, incurred in
14
contesting or disputing any such termination or in seeking to obtain or enforce
any right or benefit provided by this Agreement).
(e) If it is established pursuant to a final determination of a
court or an Internal Revenue Service proceeding that, notwithstanding the good
faith of the Employee and the Company in applying the terms of this Section 8,
the aggregate "parachute payments" paid are in an amount that would result in
any portion of such "parachute payments" not being deductible by the Company by
reason of Section 280G of the Code, then the Employee shall have an obligation
to pay the Company upon demand an amount equal to the sum of (i) the portion of
the aggregate "parachute payments" paid that would not be deductible by reason
of Section 280G of the Code and (ii) interest on the amount set forth in clause
(i) of this sentence at the applicable Federal rate (as defined in Section
1274(d) of the Code) from the date of receipt of such excess until the date of
such payment.
(f) As used in the Agreement, the term "Change in Control" shall
mean a change in control of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A issued under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") as in effect as
of the date hereof (regardless of whether or not a Proxy Statement is being
filed pursuant to such Regulation at such time), or if Item 6(e) is no longer in
effect, any subsequent regulation issued under the Exchange Act for a similar
purpose, whether or not the Company is subject to such reporting requirements;
provided, that without
15
limitation, such a change in control shall be deemed to have
occurred if:
(i) any "person" other than the Employee is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 25% or more of the
combined voting power of the Company's then outstanding securities;
(ii) during any period of two consecutive years (not including any
period prior to the date of the Agreement), individuals who at the beginning of
such period constitute the Board of Directors, and any new director, whose
election by the Board or nomination for election by the Company's stockholders
was approved by a vote of at least two-thirds of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for elections was previously approved, cease for any
reason to constitute a majority of the Board; or
(iii) the business of the Company is disposed of by the Company
pursuant to a liquidation, sale of assets of the Company, or otherwise.
9.
Confidential Information. The Employee acknowledges an
-----------------------obligation of confidentiality to the Company and shall not divulge,
disclose or communicate any trade secret, private or confidential
information or other proprietary knowledge of the Company or its
associated companies obtained or acquired by him while so employed.
This restriction shall apply after the termination of the
16
Employee's employment without limit in point of time but shall cease to apply to
information or knowledge which may come into the public domain or whose
disclosure may be required by law or court order or pursuant to the written
consent of the Corporation.
10. Return of Information. Upon termination of employment, the Employee
agrees to not take with him and to deliver to the Company all records, notes,
data, memoranda, models, equipment, blueprints, drawings, manuals, letters,
reports and all other materials of a secret or confidential nature relating to
the business of the Company which are in possession or control of the Employee.
11.
General Provisions.
(a) This Agreement contains the entire transaction between the
parties, and there are no other representations, warranties, conditions or
agreements relating to the subject matter of this Agreement.
(b) The waiver by any party of any breach or default of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
(c) This Agreement may not be changed orally but only by an
Agreement in writing duly executed on behalf of the party against which
enforcement of any waiver, change, modification, consent or discharge is sought.
(d) This Agreement shall be binding upon and be enforceable against
the Company and its successors and assigns.
17
Insofar as the Employee is concerned, this Agreement is personal and cannot be
assigned.
(e) This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
(f) This Agreement shall be construed pursuant to and in accordance
with the laws of the State of New Jersey.
(g) If any term or provision of this Agreement is held or deemed to
be invalid or unenforceable, in whole or in part, by a court of competent
jurisdiction, this Agreement shall be ineffective to the extent of such
invalidity or unenforceability without rendering invalid or unenforceable the
remaining terms and provisions of this Agreement.
(h) Any dispute, grievance or controversy arising under or in
connection with this Agreement shall be referred to the Board of Directors of
the Company and shall be dealt with by personal discussion, and if not
satisfactorily resolved, shall be submitted to arbitration under the Rules of
the American Arbitration Association in New York City.
(i) Any consent of the Company required under this Agreement shall
not be unreasonably withheld or delayed.
18
IN WITNESS WHEREOF,
first above written.
COMPANY:
the parties have executed this Agreement on the date
Bio-Reference Laboratories, Inc.
By /s/Marc D. Grodman
President
Duly Authorized
EMPLOYEE:
/s/Howard Dubinett
Howard Dubinett
19
Exhibit 10.4
EMPLOYMENT AGREEMENT
This Employment Agreement dated as of the 1st day of May, 1997 between
Bio-Reference Laboratories, Inc., a New Jersey corporation with its principal
place of business at 481 Edward H. Ross Drive, Elmwood Park, New Jersey 07407
(the "Company") and Sam Singer, residing at 10 Heritage Drive, Edison, New
Jersey 08820 (the "Employee").
W I T N E S S E T H :
WHEREAS, the Company is primarily engaged in the operation of
a clinical laboratory in northern New Jersey, and
WHEREAS, the Company desires to avail itself of the Employee's knowledge
and experience and to employ the Employee as its Vice President and Chief
Financial Officer on the terms and conditions hereinafter set forth, and
WHEREAS, the Employee desires to be so employed by the Company on the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties agree as follows:
1. Terms of Employment. The Company agrees to employ the Employee as its
Vice President and Chief Financial Officer, or in such other position of
comparable status and responsibility as the Company may from time to time direct
and/or desire, and the Employee agrees to accept such employment with the
Company, for a term commencing as of May 1, 1997 (the "Commencement Date") and
continuing until October 31, 2002 (the "Expiration Date"), unless sooner
terminated as provided in this Agreement (the "Employment
Period"). As used in this Agreement, the term "Employment Period" shall also
include any periods for which this Agreement is renewed pursuant to Section 2
hereof.
2. Renewal. This Agreement shall be automatically renewable for additional
one year periods; provided, that either the Company or the Employee may elect
not to renew this Agreement upon written notice to the other party no less than
one (1) month before the Expiration Date or any subsequent extension thereof
pursuant to this Section 2.
3.
Duties.
-----(a) During the Employment Period, the Employee shall perform such
duties and exercise such powers relating to the Company as are commensurate with
the office of Vice President and Chief Financial Officer and shall have such
other duties and powers as the Board of Directors shall from time to time assign
to him, including by way of example but not limitation, duties with respect to
any of the Company's associated companies. As used in this Agreement, the term
"Associated Companies" shall mean any company (i) of which not less than fifty
(50%) percent of the equity is beneficially owned by the Company or (ii) any
subsidiary of such company, if any.
(b) During the Employment Period, the Employee shall devote all of
his working time during normal business hours and his best efforts and ability
to the business of the Company, shall faithfully and diligently perform the
duties of his employment with
2
the Company and shall do all reasonably in his power to promote,
develop and extend the business of the Company.
(c) During the Employment period, the Employee shall not, except as
a representative of the Company or with the written consent of the Company, be
directly or indirectly engaged, concerned or interested in the conduct of any
other business competing or likely to compete with the Company; provided, that
notwithstanding anything contained in this Agreement to the contrary, the
Employee shall not be precluded from devoting a reasonable amount of his time
to:
(i) serving with the prior written approval of the Company as a
director or member of a committee of any organization involving no
conflict of interest with the business of the Company; and
(ii) managing his personal investments;
provided,
activities shall not materially interfere with the
performance of his duties hereunder.
that such
Employee's
(d) The Employee shall be employed at the offices of the Company
located in Elmwood Park, New Jersey; provided that the Employee acknowledges and
agrees that the proper performance of these duties may make it necessary to
spend reasonable periods of time in other parts of the country.
3
4.
Compensation.
(a) During the Employment Period, the Company shall pay the Employee
as compensation for his services under this Agreement,
a minimum Base
Compensation at an annual rate of One Hundred Ninety Thousand Five Hundred
($190,500) Dollars through October 31, 1997, and thereafter a minimum annual
Base Compensation consisting of salary and bonus in the aggregate amount of Two
Hundred Twenty Thousand ($220,000) Dollars (the "Base Compensation"). The Base
Compensation shall be payable in equal installments in accordance with the
regular payroll procedures established by the Company. In October of each fiscal
year during the Employment Period, the Company's Board of Directors will
consider increasing the Employee's Compensation under this Agreement, based upon
the performance of the Company and of the Employee during the fiscal year then
ending with such increase, if granted, taking effect as of the immediately
following November 1.
(b) The Company shall pay for (excluding the P.S. 58 costs) and
maintain "Split Dollar" Life Insurance in the face amount of Four Hundred
Thousand ($400,000) Dollars, insuring the life of the Employee. The proceeds of
such insurance shall be payable to the estate of the Employee (excluding
benefits required to be paid to the Company pursuant to the split dollar plan
for the premiums paid). Once such insurance is fully paid, the Company will
apply for an additional aggregate Four Hundred Thousand ($400,000) Dollars of
similar "Split Dollar" Life Insurance
4
insuring the Employee's life and will maintain such additional insurance during
his employment by the Company.
(c) The Company shall lease and insure, under the Company's policy,
an automobile for the benefit of the Employee. The Company shall be responsible
for maintenance, gasoline, repair and all other such costs but only to the
extent such expenses relate to business use of the automobile. At the end of the
lease term, or in the event of the termination of this Agreement for any reason,
including non-renewal, the Employee shall have the following options:
(i) surrender the automobile to the Company,
(ii) assume the Company's lease payment obligation; or
(iii) exercise the purchase option of the lease, if any.
(d)
The Company shall promptly pay or reimburse the
Employee for all expenses incurred by the Employee in the performance of his
duties under this Agreement. Such expenses shall be limited to the reasonable
out-of-pocket expenses necessarily and actually incurred by the Employee in the
performance of his duties; provided that (i) the expenses have been detailed on
a form acceptable to the Company and submitted to the Company for review and
approval and (ii) appropriate supporting documentation is submitted together
with the approved expense form.
(e) The Employee shall be entitled to participate in any fringe
benefit and bonus plans available to the Company's employees as in effect from
time to time, to the extent that the Employee may be eligible to do so under the
applicable provisions of the plans
5
including but not limited to pension, profit sharing, stock option and similar
plans and life and medical insurance plans or coverage maintained by the Company
for senior personnel and/or all personnel.
(f) The Employee shall be entitled to such vacation, personal time
and holidays as he is eligible for under the Company's Employment and Personnel
Policy as the same presently exists or may hereinafter be amended.
(g) Notwithstanding the provisions of subparagraph (a) of this
Section 4, the Employee shall also be entitled to a percentage increase in his
Base Compensation as in effect on June 30 of each year that this Agreement is in
effect, equal to the percentage increase in the Consumer Price Index - All Items
for the New York metropolitan area (or any successor index) for such month of
June as compared to such Consumer Price Index for the month of June in the
immediately preceding year. Any such increase shall be effective on the
immediately following November 1. No adjustments shall be made for decreases in
such Index.
5.
Issuances of Stock and Options. In further consideration
-----------------------------for his employment, the Company agreed on May 13, 1997 to the
following issuances of its Common Stock and options to the
Employee.
(a) Forfeitable Stock -- The Company has issued 200,000 shares of
its Common Stock to the Employee subject to forefiture. If the Employee's
employment agreement is terminated by the Company "For Cause" or at the
Employee's option, without "Good Reason" (but
6
not due to a "Change in Control"), all as herein defined, the
Employee will forfeit such shares on the following basis.
If Termination "For
Cause" or "Without Good
Reason" Occurs during the
Number of Shares
Following Periods
Forfeited
-----------------------------------May 1, 1997 through April 30, 1998
150,000 shs.
May 1, 1998 through April 30, 1999
100,000 shs.
May 1, 1999 through April 30, 2000
50,000 shs.
(b) Stock Options -- The Company has issued ten-year incentive stock
options ("ISOs")to the Employee exercisable to purchase 50,000 shares of its
Common Stock at $.71875 per share. These ISOs are subject to the terms and
conditions of the Company's 1989 Employees' Stock Option Plan.
6. Disability. If during the Employment Period, the Employee shall incur a
Total Disability then, subject to the earlier termination of this Agreement or
the earlier termination of the disability, the Company shall compensate the
Employee as provided in subparagraphs (a), (b), (c) and (d) of this Section 6.
(a) For the month in which the Employee incurs the total disability,
and for the following twelve (12) months of the disability, the Company shall
compensate the Employee at a rate equal to his then current Base Compensation.
(b) For a period of three (3) months commencing upon the termination
of the period described in subparagraph (a), the Company shall not pay Employee
any portion of his Base Compensation and Employee shall be on an unpaid leave of
absence.
7
(c) If the Employee's disability shall terminate at any time prior
to the expiration of the period described in subparagraph (b) of this Section 6,
then the Employee shall return to full and active employment with the Company
under the terms of this Agreement; provided that if he shall again become
disabled within a period of three (3) months after such return, and such
disability is related to his original disability, then the Employee shall be
deemed to have been continuously disabled from the date he incurred his original
disability.
(d) Upon expiration of the three (3) month period described in
subparagraph (b) of this Section 6, the employment of the Employee shall
terminate, unless an additional leave of absence is granted by the Company, in
which event the employment of the Employee shall terminate upon the expiration
of the additional leave of absence.
(e) In the event the Employee shall incur a Partial Disability then
during the period of the Partial Disability, the Employee's Base Compensation
shall be equitably adjusted according to the time that he is able to devote to
the affairs of the Company.
(f) In addition to the foregoing, the Employee shall be entitled to
receive the amounts, if any, as may be payable to him by reason of his
disability under policies of insurance maintained by the Company.
(g)
As used in this Agreement, the term "Total
Disability" shall mean a disability such that, for physical or
8
mental reasons, the Employee is unable to perform any of his usual duties to the
Company on a full-time basis. As used in this Agreement, the term "Partial
Disability" shall mean a disability, other than a total disability, such that
for physical or mental reasons, the Employee is unable to perform all of his
usual duties to the Company on a full-time basis.
7.
Termination.
(a) Termination by Death. If the Employee dies during the Employment
Period, the Company's obligations under this Agreement shall terminate six (6)
months after the date of death and the Employee's estate shall be entitled to
all arrearages of Base Compensation and expenses. In addition, the Employee's
estate (or such other named beneficiary) shall be entitled to the amounts, if
any, as may be payable to his estate or beneficiaries under policies of
insurance maintained by the Company.
(b) Termination for Cause. This Agreement and the Employee's
employment with the Company may be terminated for Cause at any time in
accordance with subparagraph (d) of this Section 7. In the event this Agreement
is terminated for Cause, the Employee shall be entitled to all arrearages of
Base Compensation and expenses through the Date of Termination but shall not be
entitled to further compensation. As used in this Agreement, and without
limitation, the term "Cause" shall mean:
(i) an act or acts of dishonesty constituting criminal
acts by the Employee resulting or intended to result directly or
9
indirectly in gain to or personal enrichment of the Employee at the
Company's expense;
(ii) the commission of any crime involving fraud,
embezzlement or theft by the Employee against the Company;
(iii) engaging in competition with the Company, including taking a
management position with, or control of, a business engaged in the manufacture,
sale or distribution of a class of products or service which constituted 15% or
more of the sales or gross income of the Company and its associated companies
during the fiscal year of the Company immediately preceding the termination of
the Employee's employment.
(c) Termination at the Option of the Employee. This Agreement and
the Employee's employment with the Company may be terminated at any time, at the
election of the Employee, for Good Reason in accordance with subparagraph (d) of
this Section 7. In the event this Agreement is terminated for Good Reason, the
Employee shall be paid during the remainder of the Employment Period (computed
without giving effect to the earlier termination
hereunder),
his Base
Compensation (other than due to Partial Disability) at the rate in effect as of
the Date of Termination, and shall continue to be entitled to employee benefits
as if he were still employed by the Company, until completion of such Employment
Period (computed without giving effect to the earlier termination hereunder). As
used in this Agreement, and without limitation, the term "Good Reason" shall
mean:
10
(i) the assignment to the Employee of duties inconsistent with the
office of Vice President and Chief Financial Officer of the Company or his then
current office, the removal of the Employee from such office or substantial
reduction
in the
nature
or status of the
Employee's
then
current
responsibilities;
(ii) the reduction of the Employee's then current Base
Compensation (other than due to Partial Disability) ;
(iii) the relocation of the Company's principal executive offices to
a location more than fifty (50) miles from the Company's current principal
executive offices or the transfer of the Employee to a place other than the
Company's
principal executive offices (excepting required travel on the
Company's business in a manner substantially similar to the Employee's then
current business travel obligations); and
(iv) the failure by the Company to continue to provide the Employee
with benefits at least as favorable as those in which the Employee was then
participating.
(d) Notice of Termination.
Any purported termination of the
Employee's employment shall be communicated by a written notice of termination
to the other party hereto and specify the Date of Termination (the "Notice of
Termination"). Such notice shall indicate a specific terminated provision in
this Agreement which is relied upon, recite the facts and circumstances claimed
to provide the basis for such termination and specify the Date of Termination.
As used in this Agreement, the term "Date of Termination" shall mean the date
specified in the Notice of Termination, which date
11
shall not be less than thirty (30) nor more than sixty (60) days from the date
the Notice of Termination is given. If within thirty (30) days from the date the
Notice of Termination is given, the party receiving such notice notifies the
other party that a dispute exists concerning such termination, the Date of
Termination shall be the date on which the dispute is finally resolved. The Date
of Termination shall be extended by a notice of dispute only if such notice is
given in good faith and the party giving such notice pursues the resolution of
such dispute with reasonable diligence. Notwithstanding the pendency of any such
dispute,
the Company will continue to pay the Employee his full Base
Compensation in effect as of the date of the Notice of Termination and continue
the Employee as a participant in all compensation, benefit and insurance plans
in which he was participating at such date, until the dispute is finally
resolved. Amounts paid under this subparagraph (d) are in addition to all other
amounts due under this Agreement and shall not be offset against or reduce any
other amounts due under this Agreement.
8. Change in Control. In the event of a Change in Control and, as a result
of such Change in Control, the Employee is terminated without Cause or the
Employee elects to terminate his employment for any reason as a result thereof,
then the Employee shall receive the following benefits:
(a) The Company shall pay to the Employee his full Base Compensation
at the rate in effect at the time of the Notice of Termination through the Date
of Termination.
12
(b) In lieu of any further Base Compensation payments for periods
subsequent to the Date of Termination, the Company shall pay to the Employee as
severance pay not later than the fifth day following the Date of Termination, a
lump sum payment (the "Severance Payment") equal to 2.99 times the average of
the annual Compensation which was payable to the Employee by the Company and
includible in the Employee's gross income for federal income tax purposes for
the five (5) calendar years, or for the portion of such period during which the
Employee was actually employed by the Company if the Employee has been employed
by the Company for less than five (5) calendar years preceding the earlier of
the calendar year in which a Change in Control occurred or the calendar year of
the Date of Termination (the "Base Period"). Such average shall be determined in
accordance with the provisions of Section 280G(d) of the Internal Revenue Code
of 1986 as amended (the "Code"). As used in this Agreement, the term
"Compensation" shall mean and include every type and form of compensation
includible in the Employee's gross income in respect of his employment by the
Company including compensation income recognized as a result of the exercise of
stock options or sale of the stock so acquired, except to the extent otherwise
provided in Congressional or Joint Committee Reports or temporary or final
regulations interpreting Section 280G(d) of the Code.
(c) The Severance Payment shall be reduced by the amount of any
other payment or the value of any benefit received or to be received by the
Employee in connection with the termination of his
13
employment or contingent upon a Change in Control (whether payable pursuant to
the terms of this Agreement, any other plan, agreement or arrangement with the
Company) unless (i) the Employee shall have effectively waived his receipt or
enjoyment of such payment or benefit prior to the date of payment of the
Severance Payment, (ii) in the opinion of tax counsel selected by the Company
such other payment or benefit does not constitute a "parachute payment" within
the meaning of Section 280G(b)(2) of the Code, or (iii) in the opinion of such
tax counsel, the Severance Payment (in its full amount or as partially reduced,
as the case may be) plus all other payments or benefits which constitute
"parachute payments" within the meaning of Section 280G(b)(2) of the Code are
reasonable compensation file services actually rendered, within the meaning of
Section 280G(b)(4) of the Code, and such payments are deductible by the Company.
The value of any non-cash benefit or any deferred cash payment shall be
determined by the Company in accordance with the principles of Section
280G(d)(3) and (4) of the Code.
(d) Except to the extent that Congressional or Joint Committee
Reports or temporary or final regulations interpreting Section 280G of the Code
specify that such payments would result, under subsection (c) above, in a
reduction in the Severance Payment:
(i) The Company shall pay to the Employee, not later than the fifth
day following the Date of Termination, a lump sum amount equal to the sum of (x)
any bonus compensation which has been allocated or awarded for a fiscal year
preceding the Date of
14
Termination but has not yet been paid, and (y) a pro rata portion of any bonus
compensation which the Employee has earned for the fiscal year in which the Date
of Termination occurs determined by multiplying the Employee's prior years'
bonus compensation by a fraction equal to the number of full calendar months in
the fiscal year prior to the Date of Termination over twelve.
(ii) The Company shall also pay all legal fees and expenses incurred
by the Employee as a result of such termination (including all such fees and
expenses, if any, incurred in contesting or disputing any such termination or in
seeking to obtain or enforce any right or benefit provided by this Agreement).
(e) If it is established pursuant to a final determination of a
court or an Internal Revenue Service proceeding that, notwithstanding the good
faith of the Employee and the Company in applying the terms of this Section 8,
the aggregate "parachute payments" paid are in an amount that would result in
any portion of such "parachute payments" not being deductible by the Company by
reason of Section 280G of the Code, then the Employee shall have an obligation
to pay the Company upon demand an amount equal to the sum of (i) the portion of
the aggregate "parachute payments" paid that would not be deductible by reason
of Section 280G of the Code and (ii) interest on the amount set forth in clause
(i) of this sentence at the applicable Federal rate (as defined in Section
1274(d) of the Code) from the date of receipt of such excess until the date of
such payment.
15
(f) As used in the Agreement, the term "Change in Control" shall
mean a change in control of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A issued under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") as in effect as
of the date hereof (regardless of whether or not a Proxy Statement is being
filed pursuant to such Regulation at such time), or if Item 6(e) is no longer in
effect, any subsequent regulation issued under the Exchange Act for a similar
purpose, whether or not the Company is subject to such reporting requirements;
provided, that without limitation, such a change in control shall be deemed to
have occurred if:
(i) any "person" other than the Employee is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 25% or more of the
combined voting power of the Company's then outstanding securities;
(ii) during any period of two consecutive years (not including any
period prior to the date of the Agreement), individuals who at the beginning of
such period constitute the Board of Directors, and any new director, whose
election by the Board or nomination for election by the Company's stockholders
was approved by a vote of at least two-thirds of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for elections was previously
16
approved, cease for any reason to constitute a majority of the
Board; or
(iii) the business of the Company is disposed of by the Company
pursuant to a liquidation, sale of assets of the Company, or otherwise.
9. Confidential Information. The Employee acknowledges an obligation of
confidentiality to the Company and shall not divulge, disclose or communicate
any trade secret, private or confidential information or other proprietary
knowledge of the Company or its associated companies obtained or acquired by him
while so employed. This restriction shall apply after the termination of the
Employee's employment without limit in point of time but shall cease to apply to
information or knowledge which may come into the public domain or whose
disclosure may be required by law or court order or pursuant to the written
consent of the Corporation.
10. Return of Information. Upon termination of employment, the Employee
agrees to not take with him and to deliver to the Company all records, notes,
data, memoranda, models, equipment, blueprints, drawings, manuals, letters,
reports and all other materials of a secret or confidential nature relating to
the business of the Company which are in possession or control of the Employee.
11.
General Provisions.
(a)
This Agreement contains the entire transaction
between the parties, and there are no other representations,
17
warranties, conditions or agreements relating to the subject matter
of this Agreement.
(b) The waiver by any party of any breach or default of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
(c) This Agreement may not be changed orally but only by an
Agreement in writing duly executed on behalf of the party against which
enforcement of any waiver, change, modification, consent or discharge is sought.
(d) This Agreement shall be binding upon and be enforceable against
the Company and its successors and assigns. Insofar as the Employee is
concerned, this Agreement is personal and cannot be assigned.
(e) This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
(f) This Agreement shall be construed pursuant to and in accordance
with the laws of the State of New Jersey.
(g) If any term or provision of this Agreement is held or deemed to
be invalid or unenforceable, in whole or in part, by a court of competent
jurisdiction, this Agreement shall be ineffective to the extent of such
invalidity or unenforceability without rendering invalid or unenforceable the
remaining terms and provisions of this Agreement.
(h)
Any dispute, grievance or controversy arising under
or in connection with this Agreement shall be referred to the Board
18
of Directors of the Company and shall be dealt with by personal discussion, and
if not satisfactorily resolved, shall be submitted to arbitration under the
Rules of the American Arbitration Association in New York City.
(i) Any consent of the Company required under this Agreement shall
not be unreasonably withheld or delayed.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
COMPANY:
Bio-Reference Laboratories, Inc.
By /s/Marc D. Grodman
President
Duly Authorized
EMPLOYEE:
/s/Sam Singer
Sam Singer
19
Exhibit 10.8
ASSET SALE/PURCHASE AGREEMENT
AGREEMENT made as of the 2nd day of December 1999 by and among The Medical
Marketing Group, Inc., a New York corporation with a principal place of business
at 401 Columbus Avenue, Valhalla, New York 10595 ("MMGI") and Craig Allison
residing at 1 Newton Court, Croton-on-Hudson, New York 10520 ("Allison") on the
one hand and Bio-Reference Laboratories, Inc., a New Jersey corporation with its
principal place of business at 481 Edward H. Ross Drive, Elmwood Park, New
Jersey 07407 ("BRLI") on the other hand.
W I T N E S S E T H :
------------------WHEREAS, Allison is the president, chief executive officer and having
acquired Dean Steinman's ("Steinman") approximately 48% capital stock interest,
is now the owner of approximately 93% of the outstanding capital stock of MMGI,
and
WHEREAS, MMGI, among other activities, is engaged in selling Internet
website design and other Internet-oriented services to medical professionals and
other healthcare
professionals
including individual and group physician
practices, hospitals, medical groups, medical societies, health centers and
healthcare facilities (referred to at times as the "WEB Business") and in
connection therewith, is the owner of the domain names listed in Exhibit A
hereto (the "Domain Names"), and
WHEREAS, MMGI has created certain algorithms for placement on commercial
search engines associated with the Domain Names, and
WHEREAS, MMGI has entered into formal and informal agreements with the
healthcare clients set forth on Exhibit B attached hereto to provide website as
well as non-website services, and
WHEREAS, MMGI and Allison desire that MMGI sell and BRLI desires to
purchase certain assets utilized by MMGI in the operation of the WEB Business as
well as MMGI's rights under its agreements and arrangements with the healthcare
clients set forth in Exhibit B to the extent they relate to website services, on
the terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt whereof
and sufficiency of which are hereby acknowledged, it is hereby agreed as
follows:
1.
Sale and Transfer of the WEB Business
Based upon the representations and warranties herein contained
and subject to the terms and conditions hereinafter set forth;
(A) MMGI shall sell, transfer, assign and deliver to BRLI all of its
right, title and interest in the WEB Business including all of its right, title
and interest to any and all assets utilized or capable of being utilized by MMGI
in the WEB Business including but not limited to the Domain Names, software
applications, search engines, database engines, data, HTML pages, search engine
designs and algorithms for inclusion in other Internet-based search engines,
software and database licenses, custom software and custom applications with
associated source and data, licenses, lists, links and authorizations for links,
banners and agreements for banners and associated
advertising revenues,
advertising, advertising contracts and agreements, and listing contracts with
associated revenues as well as any and all custom programs, applications or
solutions that MMGI has developed itself or hired others to produce for it if
any of those programs, applications or solutions are useful and/or appropriate
to the operation of the WEB Business (such assets being collectively referred to
as the "WEB Assets") and all of its right, title and interest to all websitebased agreements, partial agreements or arrangements with the healthcare clients
set forth on Exhibit B hereto as well as its rights to all future revenues
therefrom (collectively the "WEB Business Agreements").
(B) BRLI shall issue and deliver 140,000 shares of its authorized but
unissued common stock in payment for the WEB Business including the WEB Assets
and the WEB Business Agreements, as hereinafter described (with an additional
60,000 of such shares to be issued and delivered in consideration for the
Non-Competition Agreements hereinafter described).
2.
Closing
(A) The closing of such sale and purchase (the "Closing") shall take place
at the offices of BRLI at 481 Edward H. Ross Drive, Elmwood Park, New Jersey
07407 at 9:00 o'clock A.M. (EST) on Thursday, December 2, 1999 or at such place,
date and time thereafter as the parties hereto shall mutually agree, in a
writing executed by BRLI on the one hand and by MMGI on the other. The date of
the closing is hereinafter referred to as the "Closing Date."
(B) At the Closing, MMGI shall execute and deliver a bill of sale to BRLI,
in the form of Exhibit C hereto (the "Bill of Sale") and such other good and
sufficient duly executed instruments of transfer and conveyance, including any
and all required
2
authorizations, assignments and consents, satisfactory in form and content to
BRLI, as shall vest in BRLI, all of MMGI's right, title and interest in and to
the WEB Assets and the WEB Business Agreements, free and clear of all liens and
encumbrances, and as shall enable BRLI to operate the WEB Business as currently
operated by MMGI, without impediment.
(C) At the Closing, BRLI on the one hand and MMGI, Allison and Steinman on
the other will each execute and deliver to each other, Non-Competition
Agreements substantially in the form of Exhibits D-1, D-2 and D-3 attached
hereto.
(D) At the Closing, BRLI on the one hand and MMGI and Allison on the other
will execute and deliver to each other an Advertising Consulting Agreement
substantially in the form of Exhibit E attached hereto.
(E) (1) At the Closing, BRLI shall issue and deliver an aggregate 140,000
shares of its authorized but unissued common stock in full payment for the WEB
Business (including the WEB Assets and the WEB Business Agreements), registered
in the names of the persons and entities designated by MMGI as set forth in
Exhibit F hereto, in the amounts set forth opposite their respective names,
against receipt of appropriate investment letters prepared by BRLI and duly
executed by each such proposed stockholder.
(2) At the Closing, BRLI shall execute and deliver an aggregate
60,000 shares of its authorized but unissued common stock to MMGI and Allison
and a cash payment of $10,000 to Steinman in consideration for the three
Non-Competition Agreements, in the amounts therein set forth.
(3) All of the said 200,000 shares of common stock will not be
registered under the Securities Act of 1933; each of the stock certificates will
contain a restrictive legend and transfer stops will be placed against the
shares of stock.
(F) At the Closing, BRLI shall deliver its check in the sum of $15,000
payable to MMGI, to MMGI, in accordance with the Advertising Consulting
Agreement, representing the initial retainer thereunder.
(G) At the Closing, BRLI shall execute and deliver an Option Agreement to
MMGI,
substantially in the form of Exhibit G hereto, granting options
exercisable to purchase a maximum 100,000 shares of BRLI authorized but issued
common stock on the terms and conditions therein set forth.
3.
Representations and Warranties Concerning MMGI and the WEB
---------------------------------------------------------Business
3
(A) As an inducement to BRLI to enter into this Asset Sale/Purchase
Agreement (the "Agreement") and the MMGI Non- Competition Agreement, the
Advertising Consulting Agreement and the Option Agreement (collectively the
"Subsidiary Agreements") as well as the Non-Competition Agreement with Allison
and to effectuate the transactions contemplated hereby and thereby, MMGI on an
absolute basis and Allison to his actual knowledge and belief, hereby severally
represent and warrant to BRLI that:
(1) MMGI is a corporation duly organized, validly existing and in
good standing under the laws of the State of New York and has all requisite
corporate power and authority to enter into this Agreement and the Subsidiary
Agreements, to consummate the transactions herein and therein contemplated, to
own, lease and operate its properties and to carry on its business including the
WEB Business as it is now being conducted.
(2) The execution and delivery of this Agreement and the Subsidiary
Agreements, the consummation of the transactions herein and therein contemplated
and the performance, observance and fulfillment by MMGI of all of the terms and
conditions hereof and thereof on its part to be performed, observed, and
fulfilled, (a) have all been approved and effectively authorized by MMGI's board
of directors and by the vote of its stockholders and no other proceedings on the
part of MMGI or its stockholders are necessary to authorize this Agreement and
the Subsidiary Agreements, or the consummation of the transactions contemplated
hereby and thereby, (b) do not and will not (either immediately or with the
lapse of time, or with notice, or both) (i) conflict with any of the provisions
of the Certificate of Incorporation or by-laws of MMGI, (ii) violate any
provisions of any judicial or administrative order, award, judgment, decree,
statute, rule or regulation applicable to MMGI or any of its properties, (iii)
conflict with or result in a breach of, constitute a default under, contravene,
result in a forfeiture of a right under, or result in the acceleration of
payment or performance under, any note, bond, mortgage, indenture, deed, trust,
license, lease, agreement, or other instrument or obligation to which MMGI is a
party or by which MMGI or any of the WEB Assets or any of the WEB Business
Agreements may be bound or affected, or (iv) result in the creation or
imposition of any lien, security interest, charge or other encumbrance against
any of the WEB Assets or any of the WEB Business Agreements.
(3) This Agreement and each of the Subsidiary Agreements, has been
duly and validly executed and delivered by MMGI and constitute valid, binding
and enforceable
obligations of MMGI. Although an involuntary bankruptcy
proceeding was initiated by creditors against MMGI on July 22, 1999 in the
United States Bankruptcy Court for the Southern District of New York (Docket No.
4
99B-21772), such proceeding was dismissed with prejudice on or about November
19, 1999. With the exception of such dismissed proceeding, no petition in
bankruptcy has been filed by or against MMGI. Furthermore, no petition in
bankruptcy has been filed by or against Allison. MMGI has the right, power,
legal capacity and authority to enter into and perform its obligations under
this Agreement and each of the Subsidiary Agreements and no consent of any third
party is necessary with respect thereto which has not been obtained.
(4) Except as described in Exhibit H hereto, there is no material
action, dispute, claim, litigation, arbitration,
investigation, or other
proceeding, at law or in equity or by or before any court or governmental or
administrative body (U.S. or foreign), pending or threatened against MMGI, its
business or properties, or with respect to the transactions contemplated by this
Agreement and each of the Subsidiary Agreements, and MMGI is not subject to any
adverse judicial, governmental or agency judgment, decree or order, nor does
MMGI or Allison know of any basis for any such action, dispute, claim,
litigation, arbitration, investigation or other proceeding.
(5) MMGI has made adequate provision for, and is not in default of
any current or long-term liabilities (including contingent liabilities),
or obligations, contractual or otherwise.
debts
(6) MMGI has paid, or made adequate provision for the payment of,
any and all outstanding tax (income,
employment, sales and all other)
liabilities and MMGI has properly prepared and duly filed all tax returns
required to be filed by it through the date hereof.
(7) MMGI has no subsidiary nor does it own or control any stock of
or have any proprietary interest in any other entity.
(8) The assets being sold to BRLI
substantially all of MMGI's assets.
hereunder
do not
constitute
(9) Upon completion of the Closing as described in Section 2 herein,
BRLI will be vested in and will own all of MMGI's right, title and interest in
and to the WEB Assets and the WEB Business Agreements free of all liens and
encumbrances and there shall be no impediment to BRLI operating the WEB Business
as currently operated by MMGI.
(B) The foregoing representations and warranties are made with the
knowledge and expectation that BRLI is placing complete reliance thereon.
5
4.
Representations and Warranties of BRLI
(A) As an inducement to MMGI to enter into this
Subsidiary Agreements and consummate the transactions
thereby, BRLI represents and warrants:
Agreement and the
contemplated hereby and
(1) BRLI is a corporation duly organized, validly existing and in
good standing under the laws of the State of New Jersey and has all requisite
corporate power and authority to enter into this Agreement and the Subsidiary
Agreements, to consummate the transactions herein and therein contemplated, to
own, lease and operate its properties and to carry on its business as it is now
being conducted, and is duly licensed, authorized and qualified to do business
and is in good standing in all jurisdictions in which the conduct of its
business or the ownership or leasing of its properties requires it to be so
qualified, authorized or licensed.
(2) The execution and delivery of this Agreement and the Subsidiary
Agreements, the consummation of the transactions herein and therein contemplated
and the performance, observance and fulfillment by BRLI of all of the terms and
conditions hereof and thereof, on its part to be performed, observed, and
fulfilled, (a) have all been approved and effectively authorized by BRLI's board
of directors and no other proceedings on the part of BRLI are necessary to
authorize execution and delivery of this Agreement and the Subsidiary Agreements
or the consummation of the transactions contemplated hereby and thereby, (b) do
not and will not (either immediately or with the lapse of time, or with notice,
or both) (i) conflict with any of the
provisions of the Articles of
Incorporation or by-laws of BRLI, violate any provisions of any judicial or
administrative order, award, judgment, decree, statute, rule or regulation
applicable to BRLI or any of its properties, (iii) conflict with or result in a
breach of, constitute a default under, contravene, result in a forfeiture of a
right under, or result in the acceleration of payment or performance under, any
note, bond, mortgage, indenture, deed, trust, license, lease, agreement, or
other instrument or obligation to which BRLI is a party or by which BRLI or any
of its properties may be bound or affected, or (iv) result in the creation or
imposition of any lien, security interest, charge or other encumbrance against
any properties of BRLI.
(3) This Agreement and the Subsidiary Agreements have been duly and
validly executed and delivered by BRLI and constitute valid, binding and
enforceable obligations of BRLI. BRLI has the right, power, legal capacity and
authority to enter into and perform its obligations under this Agreement and the
Subsidiary Agreements and no consent of any third party is necessary with
respect thereto.
6
(4) There is no material action, dispute, claim, litigation,
arbitration, investigation, or other proceeding, at law or in equity or by or
before any court or governmental or administrative body (U.S. or foreign),
pending or threatened against BRLI, its business or properties, or with respect
to the transactions contemplated by this Agreement and/or the Subsidiary
Agreements, and BRLI is not subject to any adverse judicial, governmental or
agency judgment, decree or order, nor does BRLI know of any basis for any such
action, dispute, claim, litigation,
arbitration,
investigation or other
proceeding.
(5) All of the shares of BRLI common stock issuable pursuant to this
Agreement and the Subsidiary Agreements are duly authorized and will, when
issued, be validly issued, fully paid (assuming delivery of the Bill of Sale and
MMGI and Allison's Non- Competition Agreements and payment in full of the Option
Exercise Price) and non-assessable, and none of such shares will have been
issued in violation of the pre-emptive rights of any BRLI shareholder.
(B) The foregoing representations and warranties are made with the
knowledge and expectation that MMGI and Allison are placing complete reliance
thereon.
5.
Indemnification
(A) Provided that the representations made by BRLI in this Agreement and
the Subsidiary Agreements are accurate and BRLI is in compliance with its
obligations under this Agreement, MMGI and Allison and each of them, severally
hereby agree to indemnify and hold harmless BRLI against and in respect of:
(1) all liabilities and obligations of, or claims against BRLI based
on liabilities and obligations of MMGI unless same shall result from the acts or
omissions of BRLI;
(2) any damage resulting from any material misrepresentation, or
nonfulfillment of any agreement on the part of MMGI or Allison or either of them
under this Agreement and/or any of the Subsidiary Agreements or from any
material misrepresentation in or omission from any certificate or other
instrument furnished or to be furnished to BRLI under this Agreement and the
Subsidiary Agreements; (provided that with respect to indemnification based on
material
misrepresentations,
Allison's
indemnification
is
limited
to
indemnification for damages resulting from a violation of those representations
and warranties which are deemed made upon his actual knowledge and belief); and
7
(3) all actions,
suits,
proceedings,
demands,
assessments,
judgments, costs and expenses incident to any of the foregoing.
(B) Provided that the representations made by MMGI and Allison in this
Agreement and the Subsidiary Agreements are accurate and MMGI and Allison are in
compliance with its and his obligations under this Agreement and the Subsidiary
Agreements, BRLI hereby agrees to indemnify and hold harmless MMGI and Allison
and each of them against and in respect of:
(1) all liabilities and obligations of, or claims against MMGI and
Allison or any of them with respect to the operation of the WEB Business, for
periods after the Closing as a result of BRLI's purchase of the WEB Business
hereunder or BRLI's operation of the WEB Business thereafter unless same shall
result from the intentional or grossly negligent acts or omissions of MMGI and
Allison or either of them;
(2) any damage or
deficiency
resulting
from any
material
misrepresentation, breach of warranty, or nonfulfillment of any agreement on the
part of BRLI under this Agreement and the Subsidiary Agreements or from any
material misrepresentation in or omission from any certificate or other
instrument furnished or to be furnished by BRLI under this Agreement and the
Subsidiary Agreements; and
(3) all actions,
suits,
proceedings,
demands,
assessments,
judgments, costs and expenses incident to any of the foregoing.
6.
Conditions to BRLI's Obligation to Close
The obligation of BRLI to consummate
each of the following conditions:
this
Agreement
shall be subject to
(A) Each of the representations and warranties made by MMGI and Allison
and each of them herein shall be true and accurate as of the date hereof except
as affected by the transactions expressly contemplated by this Agreement.
(B) Each and every covenant, agreement and condition required by this
Agreement to be performed or complied with by MMGI or its affiliates and/or by
Allison at or prior to the Closing shall have been performed or complied with at
or prior to the Closing hereunder.
(C) MMGI and Allison and each of them shall have delivered to BRLI all of
the executed agreements, instruments, certificates and other documents referred
to hereinabove required to be delivered by
8
it and/or him at or prior to the Closing including the Bill
Non-Competition Agreements and Advertising Consulting Agreement.
of
Sale,
(D) Each of the individuals and entities set forth in Exhibit F hereto
shall have delivered to BRLI executed investment letters satisfactory in form to
BRLI's securities counsel.
(E) MMGI shall have delivered its written agreement to BRLI that it will,
within five (5) business days after the Closing, in a letter approved by BRLI
(which
approval shall not be
unreasonably
withheld),
provide written
notification to each of the healthcare clients listed in Exhibit B hereto of its
transfer to BRLI of the WEB Business and that it will use its best efforts to
obtain each such client's consent to the transfer and continuation as a client
of BRLI. In addition, MMGI shall promptly deliver to BRLI all executed consents
which it is able to obtain using its best efforts, to the assignment to BRLI of
each of the WEB Business Agreements as well as executed authorizations which it
has been able to obtain using its best efforts, from each of the service
providers to the WEB Business permitting BRLI to utilize the same services and
service providers in BRLI's operation of the WEB Business as are currently
utilized by MMGI, and at the same rates.
(F) No suit or action, no investigation or inquiry by any administrative
agency or governmental body, and no legal or administrative proceeding shall
have been instituted or threatened which in any way questions the validity or
legality of this Agreement or the transactions contemplated thereby, at or prior
to the Closing.
(G) Each and every one of the transactions required herein to occur at the
Closing shall have been completed.
7.
Conditions to MMGI's Obligation to Close
The obligation of MMGI to consummate
each of the following conditions:
this
Agreement
shall be subject to
(A) Each of the representations and warranties made by BRLI herein shall
be true and accurate as of the date hereof except as affected by
transactions expressly contemplated by this Agreement.
the
(B) Each and every covenant, agreement and condition required by this
Agreement to be performed or complied with by BRLI at or prior to the Closing
shall have been performed or complied with at or prior to the Closing hereunder.
9
(C) BRLI shall have delivered to MMGI and Allison and each of them, all of
the executed agreements, instruments, certificates and other documents referred
to hereinabove required to be delivered by it at or prior to the Closing
including the Non-Competition Agreements, the Advertising Consulting Agreement
and the Option Agreement.
(D) Each of the individuals and entities set forth in Exhibit F hereto
shall have received that number of shares of BRLI common stock registered in his
or its name as are set forth opposite their respective names in Exhibit F
(aggregating 140,000 shares).
(E) MMGI and Allison shall have received an aggregate 60,000 shares of
BRLI common stock registered in their respective names pursuant to
Non-Competition Agreements.
the
(F) No suit or action, no investigation or inquiry by any administrative
agency or governmental body, and no legal or administrative proceeding shall
have been instituted or threatened which in any way questions the validity or
legality of this Agreement or the transactions contemplated thereby, at or prior
to the Closing.
(G) Each and every one of the transactions required herein to occur at the
Closing shall have been completed.
8.
Further Covenants and Agreements of MMGI and BRLI
------------------------------------------------(A) Within seven (7) business days after the Closing, MMGI will provide
BRLI with all written information necessary to enable BRLI to acquire, license
or take over MMGI's interest in all custom software utilized by MMGI in
operating the WEB Business. MMGI represents and warrants to BRLI that it will
use its best efforts to obtain transfers by consent or through licenses to BRLI
of all of such software products which are not standard, commercially available,
over-the-counter software products. MMGI agrees to fully cooperate with BRLI on
a timely basis in order to enable BRLI to acquire such software products.
(B) BRLI agrees that after the Closing,
website-design services and other Internet
as well as non-Internet website services
clients, free and clear of any right, title
MMGI may continue to provide
services for non-healthcare clients,
for healthcare and non-healthcare
or interest therein by BRLI.
(C) MMGI covenants and agrees that immediately after the Closing, except
as provided in paragraph (D) of this Section 8, MMGI shall terminate and cease
the conduct of any and all Internet website business of any kind for any and all
healthcare or healthcare-related Internet website design, development,
10
implementation, programming maintenance, linking, search engine development,
revenue or non-revenue producing activities for individual or group physician
practices, hospitals, clinics, laboratories, medical groups, medical societies,
health centers and healthcare facilities of any kind whatsoever (collectively
"Healthcare and Healthcare-Related Businesses"), during the one (1) year term of
the Advertising Consulting Agreement plus any renewals (up to three (3) years
thereof), and for an additional one (1) year period after termination of the
Advertising Consulting Agreement (i.e., a maximum five (5) year period).
(D)
Anything to the contrary herein contained
notwithstanding, MMGI shall have the right;
(1) to submit sites hosted by BRLI to Internet Search Engines for
purposes of increasing traffic to the site or sites hosted by BRLI. In the event
that BRLI shall wish to utilize the website design services of MMGI at any time,
MMGI agrees to provide such services to BRLI upon BRLI's written request at the
rates as set forth in Exhibit "I," attached hereto and made a part hereof. This
provision is a substantial part of the consideration for this Agreement and
shall remain in effect for five (5) years from the Closing. BRLI shall pay a
commission to MMGI for web-design services sold on behalf of BRLI by MMGI
pursuant to BRLI's written request during such five (5) year period in the sum
of 40% of net revenues received by BRLI from the customer for such services when
received by BRLI;
(2) to provide Internet website design services to Healthcare and
Healthcare-Related Businesses whose facilities are located in Westchester and
New York counties in the State of New York during the one (1) year period
commencing at the Closing, provided that such services are limited solely to the
actual design, content, programming and off-net site development of the website
and not to the hosting and worldwide hosting aspects of the site; that the
healthcare or healthcare-related site excepted is hosted on a BRLI website; that
regardless of any fee arrangements that may otherwise be entered into, the said
healthcare or healthcare-related client must be charged a website design fee
payable to BRLI pursuant to the fee schedule attached hereto and made a part
hereof as Exhibit "J"; and that the fee to BRLI must be paid to BRLI as an
initial fee before any other Internet website- related fees are paid to MMGI.
The said healthcare client shall be required to pay monthly or annual fees to
BRLI for website hosting on standard terms and conditions for all BRLI Internet
Websites. All website maintenance fees shall be paid by the client to BRLI for
maintenance to the on-line website in accordance with standard terms and
conditions of all BRLI Internet Websites.
(E) MMGI agrees and covenants with BRLI to provide a maximum 50 hours of
technical training related to the WEB Business during
11
the 90-day period commencing at the Closing, and to provide a maximum 100 hours
of sales training and/or support related to the WEB Business during the 180-day
period commencing at the Closing. Such training shall be without charge to BRLI
and shall be provided to BRLI's designated employees and agents. Any additional
training shall be at such additional times and on such terms as the parties may
mutually agree upon as necessary and reasonable.
(F) MMGI agrees during the period that the Advertising Consulting
Agreement is in full force and effect (the "Measuring Period") to market
Internet-oriented services to Healthcare and Healthcare-Related Businesses for
linkage to and participation in the WEB Business conducted by BRLI. Any customer
unaffiliated with the healthcare clients set forth in Exhibit B hereto who
executes a contract for such services during the Measuring Period on terms
acceptable to BRLI in its sole and absolute discretion shall be deemed an
"Additional Customer." Upon delivery by MMGI through its sales efforts of the
1,000th Additional Customer during the Measuring Period, BRLI agrees and
covenants to pay a commission to MMGI equal to fifteen percent (15%) of the
recurring Internet access and website fees paid to BRLI pursuant to the initial
contract with such Additional Customer (provided that said contract shall not
exceed three (3) years in duration and is on terms acceptable to BRLI). Such
commission shall be payable to MMGI solely with respect to any Additional
Customers after the 1,000th Additional Customer, solely with respect to
contracts executed during the Measuring Period and only with respect to each
payment after it has actually been received by BRLI.
9.
Expenses
Each of the parties shall pay its own expenses (including without
limitation, the fees and expenses of the agents, representatives, counsel and
accountants) incidental to the preparation and consummation of this Agreement
and the Subsidiary Agreements.
10.
Brokerage
Each party shall indemnify and hold the other free and harmless from all
losses, damages, costs, and expenses (including attorney's fees) that may be
suffered as a result of claims brought by any broker or finder seeking
compensation on account of this transaction arising out of the actions of such
party.
11.
Survival of Representations, Warranties, Agreements and
Covenants
12
The parties agree that the representations, warranties, agreements, and
covenants contained in this Agreement, the Subsidiary Agreements or in any other
documents delivered in accordance with or by virtue of this Agreement and the
Subsidiary Agreements shall survive the execution and delivery of this Agreement
and the Subsidiary Agreements and all other instruments in connection herewith
or therewith.
12.
Notices
All notices and other documents required or permitted to be given pursuant
to this Agreement shall be in writing and shall be deemed to have been given if
delivered by hand with an acknowledgement of receipt therefor or mailed or
forwarded by registered or certified mail or by Federal Express to the parties
at the addresses provided above (or such other address for a party as shall be
specified by notice given pursuant to this paragraph).
13.
Binding Effect and Assignability
This Agreement and the Subsidiary Agreements shall be binding upon and
shall inure to the benefit of the parties hereto and thereto and their
respective successors and assigns. BRLI shall be permitted to assign its rights
(but not its obligations) hereunder to a wholly-owned subsidiary.
14.
Governing Law and Jurisdiction
This Agreement and the Subsidiary Agreements shall be construed and
enforced in accordance with the laws of the State of New Jersey without regard
to the principle of the conflict of laws. The parties hereto consent to the in
personam jurisdiction of the courts of the State of New Jersey and further agree
that any action with respect to this Agreement and the Subsidiary Agreements
shall be commenced and prosecuted only in such courts. The parties hereby waive
trial by jury in any action or proceeding arising under this Agreement and the
Subsidiary Agreements.
15.
Remedies
No remedy herein conferred upon or reserved to a party is intended to be
exclusive of any other available remedy, but each and every such remedy shall be
cumulative and in addition to every other remedy given under this Agreement and
the Subsidiary Agreements or in connection with this Agreement and the
Subsidiary Agreements and now or hereafter existing at law or in equity.
13
16.
Entire Agreement
This Agreement and the Subsidiary Agreements referred to herein constitute
the entire agreement among the parties with respect to the subject matter
contained
herein and therein and
supersede all prior
agreements
and
understandings, oral or written. This Agreement and the Subsidiary Agreements
may not be amended or modified except in writing executed by each of the parties
hereto.
IN WITNESS WHEREOF, the parties have executed this
and year first above written.
THE MEDICAL MARKETING GROUP, INC.
By /s/Craig Allison
Title Craig Allison, President
/s/Craig Allison
---------------Craig Allison (Individually)
BIO-REFERENCE LABORATORIES, INC.
By /s/Marc D. Grodman
Title Marc D. Grodman, President
14
Agreement on the day
Exhibit 10.9
ASSET SALE/PURCHASE AGREEMENT
AGREEMENT made as of the 14th day of December 1999 by and between Right
Body Foods Inc., a New York corporation with its principal place of business at
118 Jackson Avenue, Syosset, Long Island, New York 11791 ("RBF") and Rebecca
Klafter residing at 102 Bristol Drive, Woodbury, New York 11797 ("Klafter"), the
chief executive officer and sole stockholder of RBF (Klafter and RBF being at
times collectively referred to as the "Sellers") on the one hand, and
Bio-Reference Laboratories, Inc., a New Jersey corporation ("BRLI") and its
wholly-owned subsidiary, BRLI No. 1 Acquisition Corp., a New Jersey corporation
(the "Purchaser"), each with its principal place of business at 481 Edward H.
Ross Drive, Elmwood Park, New Jersey 07407.
W I T N E S S E T H :
WHEREAS RBF is engaged in the manufacture of certain health food products
at its leased facility at 118 Jackson Avenue, Syosset, Long Island, New York
11791 and in the distribution of such products under the name "Right Body Foods"
in the greater New York metropolitan area (the "Health Food Business"); and
WHEREAS the Sellers desire to sell and Purchaser desires to purchase
certain assets used by RBF in its operation of the Health Food Business so as to
enable Purchaser to operate the Health Food Business; and
WHEREAS Purchaser is unwilling to effect such purchase unless it is able
to employ Klafter to serve as Director of the Health Food Business operations
and to obtain Klafter's agreement not to compete with Purchaser and/or BRLI in
its operation of the Health Food Business.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained and other good and valuable consideration, the receipt
whereof and sufficiency of which are hereby acknowledged, it is hereby agreed as
follows:
1.
Purchase and Sale
(a) At the Closing (hereinafter defined) Sellers will sell, transfer,
convey, grant, relinquish, release, assign, and deliver to Purchaser, and
Purchaser will purchase and acquire from Sellers, on the terms and subject to
the conditions set forth in this Agreement, certain assets and rights of Sellers
related to the Health Food Business as they exist as of the Closing including
Sellers' rights to the tradename "Right Body Foods Inc." and to all other
registered or unregistered patents, trademarks and/or tradenames, licenses,
recipes, labels, artwork, food ingredients,
supplies, certain equipment,
leaseholds, customer lists and
associated goodwill used in the operation of the Health Food Business and
certain other assets, all of which are specifically enumerated on Schedule A
hereto and are hereafter referred to as the "Assets."
(b) At the Closing, BRLI shall issue an aggregate 180,000 shares of its
authorized but unissued common stock and deliver same to Purchaser, registered
in the name of RBF, or if RBF so designates, in the name of Klafter, which upon
delivery to the registered owner together with BRLI and the Purchaser's
assumption of the liabilities enumerated in Schedule B hereto, shall constitute
full payment for the Assets.
(c) Excluded from this sale and purchase are any and all liabilities
(including but not limited to tax liabilities of the Sellers) except for those
liabilities specifically enumerated on Schedule B hereto which shall be assumed
by the Purchaser.
(d) At the Closing, BRLI shall issue an aggregate 20,000 additional shares
of its authorized but unissued common stock and deliver same to Purchaser,
registered in Klafter's name, for delivery to Klafter in full payment for her
non-competition agreement.
2.
The Closing
(a) The closing of the sale and purchase (the "Closing") shall take place
at the principal offices of the Purchaser on Tuesday, December 14, 1999 or at
such date and time thereafter as the parties hereto shall mutually agree in
writing (the "Closing Date").
(b) At the Closing, Sellers shall deliver or cause to be
delivered to the Purchaser;
(i) a duly executed bill of sale substantially in the form of
Schedule C hereto ("Bill of Sale") and other good and sufficient instruments of
transfer and conveyance, including assignments if appropriate, as shall vest in
Purchaser all of Sellers' rights, title and interest in and to the Assets, free
from all encumbrances;
(ii) a duly executed assignment to Purchaser of the exclusive right
to use of all of Sellers' registered and unregistered patents, trademarks and
tradenames including the right to the name "Right Body Foods";
(iii) an employment agreement (the "Employment
Agreement") in the form of Schedule D hereto, duly executed by
Klafter;
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(iv) a non-competition agreement (the "Non-Competition
Agreement") in the form of Schedule E hereto, duly executed by
Klafter;
(v) a duly executed assignment of the lease of the Premises in
Syosset, Long Island, New York utilized by RBF in the operation of the Health
Food Business to Purchaser and a duly executed consent from the Landlord with
respect to such assignment;
(vi) an investment representation letter substantially in the form
of Schedule F hereto, with respect to the shares of BRLI common stock to be
issued at the Closing, duly executed by the recipient(s) of such shares; and
(vii) all such other duly executed assignments and consents,
satisfactory in form and content to the Purchaser, as the Purchaser may
reasonably require in order to effectuate transfer of the Assets to the
Purchaser.
(c) At the Closing, the Purchaser shall deliver or cause to be
delivered to RBF and/or Klafter, as the case may be;
(i) a duly executed assumption of certain liabilities agreement
substantially in the form of Schedule G hereto ("Assumption of Certain
Liabilities Agreement") as shall be binding upon both BRLI and the Purchaser
with respect to those liabilities of RBF specifically enumerated on Schedule B;
(ii) an aggregate 180,000 shares of BRLI's authorized but unissued
common stock to RBF, or if RBF so designates in writing, to Klafter, registered
in the recipient's name, in full payment (together with the Assumption of
Certain Liabilities Agreement) for the Assets;
(iii) the Employment Agreement, duly executed by BRLI;
(iv) the Non-Competition Agreement, duly executed by BRLI
and the Purchaser;
(v) an aggregate 20,000 shares of BRLI's authorized but unissued
common stock to Klafter, registered in Klafter's name, in full payment for her
execution and delivery of the Non-Competition Agreement;
(vi) an assumption by Purchaser of the lease for the Premises in
Syosset, Long Island, New York and a guarantee of the Purchaser's obligations
thereunder executed by BRLI; and
(vii) all such other duly executed consents and
assumptions satisfactory in form and content to the Sellers, as the
3
Sellers may reasonably require in order to consummate the transactions described
herein.
3.
Representations and Warranties of Sellers
(a) As an inducement to Purchaser to enter into this Agreement and
consummate the transactions contemplated hereby, the Sellers, and each of them,
jointly and severally, represent and warrant to BRLI and the Purchaser that:
(i) RBF is a corporation duly organized, validly existing and in
good standing under the laws of the State of New York and has all requisite
power and authority to enter into this Agreement, to consummate the transactions
herein contemplated, and to own, lease and operate its properties. They have no
actual knowledge of any impairment of RBF's power and authority to carry on the
Health Food business as it is now being conducted.
(ii) The execution and delivery of this Agreement, the consummation
of the transactions herein contemplated and the performance, observance and
fulfillment by RBF of all of the terms and conditions hereof on its part to be
performed, observed, and fulfilled, (a) have been duly approved and effectively
authorized by the Board of Directors and by the sole stockholder of RBF and no
other proceedings are necessary to authorize this Agreement or the consummation
of the transactions contemplated hereby, (b) do not and will not (either
immediately or with the lapse of time, or with notice, or both) (1) violate any
provisions of any judicial or administrative order, award, judgment, decree,
statute, rule or regulation applicable to RBF or any of its properties, (2)
conflict with or result in a breach of, constitute a default under, contravene,
result in a forfeiture of a right under, or result in the acceleration of
payment or performance under, any note, bond, mortgage, indenture, deed, trust,
license, lease, agreement, or other instrument or obligation to which RBF is a
party or by which RBF or any of the Assets may be bound or affected, or (3)
result in the creation or imposition of any lien, security interest, charge or
other encumbrance against any of the Assets.
(iii) This Agreement has been duly and validly executed and
delivered by the Sellers and upon execution and delivery, will constitute valid,
binding and enforceable obligations of the Sellers subject to bankruptcy,
insolvency and similar laws affecting creditors rights generally and subject to
general principles of equity. No petition in bankruptcy has been filed by or
against either of the Sellers. The Sellers have the right, power, legal capacity
and authority to enter into and perform their obligations under this Agreement
(and with respect to Klafter, her obligations under the Employment Agreement and
the Non-Competition Agreement) and no consent of any third party is necessary
with respect thereto which has not been obtained.
4
(iv) There is no material action, dispute, claim, litigation,
arbitration, investigation, or other proceeding, at law or in equity or by or
before any court or governmental or administrative body (U.S. or foreign),
pending or threatened against RBF, its business or properties, or with respect
to the transactions contemplated by this Agreement, and RBF is not subject to
any adverse judicial, governmental or agency judgment, decree or order, nor do
the Sellers know of any basis for any such action, dispute, claim, litigation,
arbitration, investigation or other proceeding.
(v) RBF has made, and will continue to make, adequate provision for
payment of its obligations, and RBF is not in default of and will not with the
passage of time or otherwise become in default of, any current or long-term
liabilities
(including
contingent
liabilities),
debts or
obligations,
contractual or otherwise.
(vi) Immediately after the Closing, RBF will cease all operations
relating to the Health Food Business and will engage solely in collecting any
receivables outstanding on the Closing Date and paying all payables and other
obligations which are not expressly assumed hereunder by BRLI and the Purchaser.
RBF shall be permitted to maintain a bank account for such
purposes.
Furthermore, RBF will not engage in any facet of the Health Food Business
anywhere in the continental United States east of the Mississippi River for a
period of five (5) years after the Closing.
(vii) Annexed
hereto as Schedule H is a copy of the sole
governmental license which RBF has obtained in connection with its operation of
the Health Food Business. Sellers have no actual knowledge that said license is
not in full force and effect.
(viii) Annexed hereto as Schedule I is a schedule listing each and
every inspection or other visit to RBF's premises by any federal, state or local
governmental organization or authority which is or was related to the Health
Food Business including (a) the date of such inspection or visit; (b) the name
of the organization or authority; (c) the substance of the communication from
the organization or authority after such visit; and (d) the responsive action
(if any) taken by RBF.
(ix) Since its inception, the food products sold and/or distributed
by RBF in its operation of the Health Food Business have been tested for quality
by independent testing entities and RBF has not received any negative reports
concerning such tests.
(x) From August 31, 1999 through the date hereof, there has been no
material adverse change in RBF's financial condition, operating
business, and no sale or distribution of
5
results or
assets and no incurrence of liabilities or indebtedness, except in each case, in
the ordinary course of its business.
(xi) As soon as possible after the Closing but no later than two (2)
weeks after the Closing, RBF will file a duly executed amendment to its
certificate of incorporation with the New York Department of State, changing its
name from "Right Body Foods, Inc."
(b) The foregoing representations and warranties are made with the
knowledge and expectation that the Purchaser is placing complete reliance
thereon.
4.
Representations and Warranties of BRLI and Purchaser
---------------------------------------------------(a) As an inducement to the Sellers to enter into this Agreement and
consummate the transactions contemplated hereby, BRLI and Purchaser, and each of
them, represent and warrant:
(i) BRLI and Purchaser are each corporations duly organized, validly
existing and in good standing under the laws of the State of New Jersey and each
has all requisite corporate power and authority to enter into this Agreement, to
consummate the transactions herein contemplated, to own, lease and operate its
properties and to carry on its business as it is now being conducted, and each
is duly licensed, authorized and qualified to do business and is in good
standing in all jurisdictions in which the conduct of its business or the
ownership or leasing of its properties requires it to be so qualified,
authorized or licensed.
(ii) The execution and delivery of this Agreement, the consummation
of the transactions herein and therein contemplated and the performance,
observance and fulfillment by BRLI and by Purchaser of all of the terms and
conditions hereof and thereof, on each of their parts to be performed, observed,
and fulfilled, (A) have all been approved and effectively authorized by BRLI and
by Purchaser's boards of directors and no other proceedings on the part of BRLI
or of Purchaser are necessary to authorize this Agreement or the consummation of
the transactions contemplated hereby and thereby, (B) do not and will not
(either immediately or with the lapse of time, or with notice, or both) (1)
conflict with any of the provisions of the Articles of Incorporation or by-laws
of BRLI or of
Purchaser,
violate any
provisions of any judicial or
administrative order, award, judgment, decree, statute, rule or regulation
applicable to BRLI or Purchaser or any of their properties, (2) conflict with or
result in a breach of, constitute a default under, contravene, result in a
forfeiture of a right under, or result in the acceleration of payment or
performance under, any note, bond, mortgage, indenture, deed, trust, license,
lease, agreement, or other instrument or obligation to which BRLI or Purchaser
is a party or by which BRLI or Purchaser or any of
6
their properties may be bound or affected, or (3) result in the creation or
imposition of any lien, security interest, charge or other encumbrance against
any properties of BRLI or Purchaser.
(iii) This Agreement has been duly and validly executed and
delivered by BRLI and by Purchaser and upon execution and delivery, will
constitute valid, binding and enforceable obligations of BRLI and Purchaser.
BRLI and the Purchaser each has the right, power, legal capacity and authority
to enter into and perform its obligations under this Agreement and no consent of
any third party is necessary with respect thereto, which has not been obtained.
No petition in bankruptcy has been filed by or against or is contemplated to be
filed by BRLI or the Purchaser.
(iv) There is no material action, dispute, claim, litigation,
arbitration, investigation, or other proceeding, at law or in equity or by or
before any court or governmental or administrative body (U.S. or foreign),
pending or threatened against BRLI or the Purchaser, or against their businesses
or properties, or with respect to the transactions contemplated by this
Agreement, and neither BRLI nor the Purchaser is subject to any adverse
judicial, governmental or agency judgment, decree or order, nor does BRLI or the
Purchaser know of any basis for any such action, dispute, claim, litigation,
arbitration, investigation or other proceeding.
(v) At the Closing Date, BRLI will have not more than 8,000,000
shares of its common stock, $.01 par value, issued and outstanding, each share
of which is entitled to one vote on all matters on which stockholders are
entitled to vote. In addition, at such date, the only other outstanding class of
BRLI capital stock will be Series A Senior Preferred Stock, $.10 par value
("Senior Preferred Stock") of which 604,078 shares were issued and outstanding.
Each share of Senior Preferred Stock is entitled to one vote on all matters on
which stockholders are entitled to vote. Furthermore, each share of Senior
Preferred Stock is convertible into one share of common stock at a conversion
price of $.75.
(b) The foregoing representations and warranties are made with the
knowledge and expectation that the Sellers are placing complete reliance
thereon.
5.
Indemnification
(a) Provided that the representations made by BRLI and by Purchaser in
this Agreement are accurate and BRLI and Purchaser are in compliance with their
obligations under this Agreement, the Sellers and each of them, jointly and
severally hereby agree to indemnify and hold harmless BRLI and Purchaser, and
each of them, against and in respect of:
7
(i) all liabilities and obligations of, or claims against BRLI
and/or the Purchaser based on liabilities and obligations of RBF or the
individual Seller in connection with the operation up to the Closing Date of the
Health Food Business, including but not limited to liabilities (if any) based on
alleged violations of food processing, licensing and/or labeling laws as well as
liabilities for income, employment, sales and all other taxes as well as
penalties and interest thereon (if any); unless same shall result from the acts
or omissions of BRLI and/or the Purchaser or are liabilities of RBF expressly
assumed hereunder by BRLI and/or the Purchaser;
(ii) any damage
misrepresentation,
part of any of
misrepresentation
furnished or to be
or
deficiency
resulting
from any material
breach of warranty or nonfulfillment of any agreement on the
the Sellers under this Agreement or from any material
in or omission from any certificate or other instrument
furnished to Purchaser under this Agreement; and
(iii) all actions, suits, proceedings,
demands,
assessments,
judgments, costs and expenses incident to any of the foregoing.
(b) Provided that the representations made by the Sellers in this
Agreement are accurate and each Seller is in compliance with its and her
obligations under this Agreement, BRLI and the Purchaser, and each of them
hereby agrees to indemnify and hold harmless the Sellers and each of them,
against and in respect of:
(i) all liabilities and obligations of, or claims against the
Sellers or any of them with respect to the Assets, for periods after the Closing
as a result of Purchaser's purchase of the Assets hereunder unless same shall
result from the acts or omissions of Sellers;
(ii) any damage or
deficiency
resulting
from any material
misrepresentation, breach of warranty, or nonfulfillment of any agreement on the
part of Purchaser under this Agreement or from any material misrepresentation in
or omission from any certificate or other instrument furnished or to be
furnished to Sellers under this Agreement; and
(iii) all actions, suits, proceedings,
demands,
assessments,
judgments, costs and expenses incident to any of the foregoing.
(c) In the event that any parties hereunder (the "Indemnitees") elect to
assert their rights pursuant to this Section 5 to indemnification against the
other parties hereto (the "Indemnitors"), prior to settling or defending against
any claim as to which they may seek indemnification hereunder, the Indemnitees
8
shall give notice to the Indemnitors of such election and the claim with respect
to which indemnification is sought. The Indemnitors shall have the right within
seven (7) days after such notice, time being of the essence, to give notice to
the Indemnitees that they elect to contest such claim and thereupon, upon
posting reasonably adequate security with the Indemnitees, will be entitled at
their own expense, to contest same. In the event they so elect to contest the
claim, the Indemnitors will also have the right to settle same at their own
expense with the Indemnitees' consent, which consent will not be unreasonably
withheld.
6.
Expenses
Each of the parties shall pay its or her own expenses (including without
limitation, the fees and expenses of the agents, representatives, counsel and
accountants) incidental to the preparation and consummation of this Agreement.
7.
Brokerage
Each party shall indemnify and hold the other parties free and harmless
from all losses, damages, costs, and expenses (including attorney's fees) that
may be suffered as a result of claims brought by any broker or finder seeking
compensation on account of this transaction arising out of the actions of such
party.
8.
Survival of Representations and Warranties
The parties agree that the representations, warranties, agreements, and
covenants contained in this Agreement or in any other documents delivered in
accordance with or by virtue of this Agreement shall survive the execution and
delivery of this Agreement and all other instruments in connection herewith or
therewith.
9.
Notices
All notices and other documents required or permitted to be given pursuant
to this Agreement shall be in writing and shall be deemed to have been given if
delivered by hand with an acknowledgement of receipt therefor or mailed by
registered or certified mail, return receipt requested, to the parties at the
addresses provided above (or such other address for a party as shall be
specified by notice given pursuant to this paragraph) with a copy by certified
mail, return receipt requested, to the attorneys for the respective parties at
the following addresses: for Sellers - Vitale & Levitt, 445 Broadhollow Road,
Suite 124, Melville, New York 11747 and for BRLI and the Purchaser - Tolins &
Lowenfels, A Professional Corporation, 12 East 49th Street, New York, New York
10017.
9
10.
Binding Effect and Assignability
This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors, heirs and assigns.
11.
Governing Law and Jurisdiction
This Agreement shall be construed and enforced in accordance with the laws
of the State of New Jersey without regard to the principle of the conflict of
laws. The parties hereto consent to the in personam jurisdiction of the courts
of the State of New Jersey and further agree that any action with respect to
this Agreement shall be commenced and prosecuted only in such courts. The
parties hereby waive trial by jury in any action or proceeding arising under
this Agreement.
12.
Remedies
No remedy herein conferred upon or reserved to a party is intended to be
exclusive of any other available remedy, but each and every such remedy shall be
cumulative and in addition to every other remedy given under this Agreement or
in connection with this Agreement and now or hereafter existing at law or in
equity.
13.
Entire Agreement
This Agreement,
the Employment Agreement and the Non- Competition
Agreement constitute the entire agreement among the parties with respect to the
subject matter contained herein and therein and supersedes all prior agreements
and understandings, oral or written. This Agreement and such other Agreements
may not be amended or modified except in writing executed by each of the parties
hereto and thereto.
14.
Confidentiality of Agreement and Disclosure
The parties agree that the terms of this Agreement and the transactions
contemplated hereby will be kept confidential and not publicly disclosed until
such time and in such manner as shall be determined by the Purchaser, although
Klafter shall be permitted to disclose the terms of the transaction to members
of her immediate family and her professional advisors.
10
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written.
/s/Rebecca Klafter
-----------------Rebecca Klafter (individually)
Right Body Foods Inc.
By /s/Rebecca Klafter
Rebecca Klafter, President
Bio-Reference Laboratories, Inc.
By /s/Howard Dubinett
Howard Dubinett, Executive Vice President
BRLI No. 1 Acquisition Corp.
By /s/Howard Dubinett
Howard Dubinett, Executive Vice President
11
Exhibit 10.10
EMPLOYMENT AGREEMENT
AGREEMENT made this 14th day of December 1999, by and between Rebecca
Klafter having an address at 102 Bristol Drive, Woodbury, New York 11797
(hereinafter referred to as the "Employee") and Bio- Reference Laboratories,
Inc., a New Jersey corporation with principal offices located at 481 Edward H.
Ross Drive, Elmwood Park, New Jersey 07407 (hereinafter referred to as the
"Company").
WITNESSETH:
WHEREAS, the Company is a New Jersey Corporation
laboratory business; and
engaged in the clinical
WHEREAS, the Employee is the chief executive officer and sole stockholder
of Right Body Foods Inc., a New York corporation engaged in the manufacture of
certain health food products at its facility at 118 Jackson Avenue, Syosset,
Long Island, New York 11791 ("RBF") and the distribution of such products in the
greater New York metropolitan area (the "Health Food Business"); and
WHEREAS, the Company has agreed through its wholly-owned subsidiary, BRLI
No. 1 Acquisition Corp. ("BRLI Acq. Corp.") to purchase certain assets used by
RBF in its operation of the Health Food Business so as to enable BRLI Acq. Corp.
to operate the Health Food Business; and
WHEREAS, the Company is unwilling to effect such purchase unless it is
able to employ the Employee to serve as Director of the Health Food Business
operations of BRLI Acq. Corp. and to obtain the Employee's agreement not to
compete with the Company and/or BRLI Acq. Corp. in the operation of the Health
Food Business; and
WHEREAS, the Employee desires to commence employment with the Company,
pursuant to the terms and conditions herein set forth, superseding any and all
prior agreements, express or implied, between the Company, its subsidiaries
and/or predecessors and the Employee;
NOW THEREFORE,
follows:
it is mutually agreed by and between the parties hereto as
ARTICLE I
EMPLOYMENT
Subject to and upon the terms and conditions of this Agreement, the
Company hereby employs the Employee, and the Employee hereby accepts such
employment in her capacity as Director of the Health Food Business operations of
BRLI Acq. Corp. The Company agrees that during the term of her employment
hereunder, the Employee will be consulted with by the president and/or the
2
executive vice president of the Company with regard to and will be provided with
the opportunity to review each recipe as well as each proposed change in recipe
with respect to each food product manufactured and distributed by the Health
Food Business.
Employee
represents and warrants that there is no restriction or
impediment, contractual or otherwise to her accepting such employment as
provided for herein, and that she is not in breach or violation of any covenant
or agreement with any party relating to her employment. Employee represents and
warrants, and covenants and agrees that in entering into employment with the
Company and in the performance of her duties that she is not utilizing any
secret or confidential information of any other person.
ARTICLE II
DUTIES
(A) The Employee shall, during the continuation of her employment with the
Company, and subject to the direction and control of the Company's Chief
Executive Officer and Chief Operating Officer, perform such executive and
marketing duties and functions as she may be called upon to perform by such
executive officers during the terms of this Agreement principally on Long Island
in the State of New York but also in the State of New Jersey.
(B) During the continuation of her employment, the Employee agrees to
devote her full time to the performance of her duties for the Company and to
render such services for any subsidiary or
3
affiliate corporation of the Company including BRLI Acq. Corp. provided that
from the date hereof through December 31, 1999, the Employee shall be permitted
to render her services hereunder on a part-time basis provided that she devotes
a minimum of 25 hours per five-day week (pro-rated for partial weeks) to the
performance of her duties hereunder.
(C) The Employee shall perform to the best of her ability the following
services and duties for the Company and its
subsidiary
and affiliate
corporations (by way of example, and not by way of limitation):
(i) Those duties attendant to the position with the Company and BRLI Acq.
Corp. for which she is being hired, including the establishment, supervision of
manufacturing and marketing of products for the Health Food Business;
(ii) Assisting the Company and BRLI Acq. Corp. in the planning and
implementation of all sales promotion, advertising, public relations, personnel
and product development programs for the Health Food Business;
(iii) Promotion of the relationships of the Company and its subsidiary and
affiliate
corporations
including BRLI Acq. Corp. with their respective
employees, customers, suppliers and others in the business community.
(iv) Working with the Company's and BRLI Acq. Corp.'s professional staff
toward the development of special programs to offer Health Food Business
products and services to physicians and healthcare facilities.
4
ARTICLE III
COMPENSATION
Solely during the time that this Employment Agreement is in full force and
effect, the Company shall make the following payments to the Employee and shall
provide her with the following benefits as compensation for all of her services
rendered hereunder.
(A) Salary - initially at the rate of $150,000 per annum (the "Annual Base
Salary"), payable in weekly installments or pursuant to the Company's regular
pay periods. For each successive twelve- month period that this Agreement is in
effect beginning with the twelve-month period commencing November 1, 2000, the
Annual Base Salary in effect immediately prior to such November 1 date shall be
increased (but never decreased) by the same percentage increase as that of the
percentage increase in the Consumer Price Index -- All Items for the New York
metropolitan area for the month of November in the successive period over the
first month of the twelve-month or shorter fiscal period then ended.
(B) Signing Bonus - in the aggregate amount of $100,000 paid in 24
consecutive
equal monthly
installments of $4,166.67,
without interest,
commencing February 1, 2000.
(C) Commission Bonus and Bonus Guarantee - The Employee will be paid a
"Commission Bonus" in an amount equal to the following percentages of the net
cash receipts (net of required credits and refunds) during the period commencing
on the date hereof and ending
5
on October 31, 2000 and during each successive twelve-month period, actually
collected by the division or subsidiary of the Company organized to operate the
Health Food Business, which receipts are attributable to such business:
Collected Cash Receipts
In excess of
------------$ 1,000,000
$ 5,000,000
$10,000,000
Not more than
------------$ 1,000,000
$ 5,000,000
$10,000,000
$20,000,000
Bonus-Percentage of the
Collected Net Cash Receipts
------------------------None
5%
2%
1%
By way of example, if the net cash receipts (net of required credits and
refunds) of the Health Food Business actually collected during an applicable
period totalled $7,500,000, the Commission Bonus with respect to such period
would be $250,000 ($0 + $200,000 + $50,000) subject to offset by the Bonus
Guarantee hereinafter described. No net cash receipts collected during one
period shall be carried back or forward to a prior or subsequent period for
purposes of computing the Commission Bonus with respect to such prior or
subsequent period. Each Commission Bonus shall be paid within 60 days after the
close of each such period. The Company agrees that the Health Food Business will
be operated through BRLI Acq. Corp. The Company agrees to provide the Employee
and her agents with access to the books and records of the Health Food Business
on a quarterly basis during normal business hours in order to verify the
"Collected Cash Receipts" of the Health Food Business.
6
With respect to the initial period only commencing on the date hereof and
ending on October 31, 2000 (the "First Bonus Period"), the Employee shall also
be paid a $50,000 non-refundable "Bonus Guarantee" against her Commission Bonus.
Such Bonus Guarantee shall be paid in twelve consecutive equal monthly
installments of $4,166.66, without interest, commencing February 1, 2000 but
shall be credited solely against the Employee's Commission Bonus earned with
respect to the First Bonus Period. By way of example, if the net cash receipts
of the Health Food Business actually collected during the First Bonus Period
totalled $1,800,000, the Employee will be entitled to retain her entire Bonus
Guarantee of $50,000 as it is non-refundable but would not be paid any
Commission Bonus with respect to such period as the $50,000 Bonus Guarantee
exceeds the $40,000 Commission Bonus to which she would otherwise be entitled.
If such net cash receipts during the First Bonus Period totalled $5,500,000, the
Employee would be paid a $160,000 Commission Bonus ($210,000 Commission Bonus
less $50,000 Bonus Guarantee) but would also be entitled to retain her entire
Bonus Guarantee of $50,000 as it is non-refundable.
(D) Other Benefits - The Company will provide the Employee with three
weeks of paid vacation for each approximately 12 month period ending October 31
commencing with the period ending October 31, 2000, on such dates as she may
elect, as well as participation on an equitable basis in any medical, health
benefit or other employee benefit plan established for senior management of the
Company. The Company will provide the Employee with a $500 per
7
month automobile allowance towards lease or purchase and insurance coverage
costs and will reimburse the Employee upon presentation of the appropriate
vouchers for business and travel expenses incurred by the Employee on behalf of
the Company as well as for reasonable maintenance and repairs of the automobile
used by the Employee in connection with the Health Food Business.
(E) Key-Man Life Insurance - In the event the Company wishes to obtain
"Key-Man" Life Insurance on the life of the Employee, Employee agrees to
cooperate with the Company in completing any applications necessary to obtain
such insurance and to promptly submit to such physical examinations and furnish
such information as any proposed insurance carrier may request, providing
Employee is insurable.
ARTICLE IV
TERM AND TERMINATION
The term of this Agreement shall be for a period of approximately five (5)
years commencing on the date hereof and terminating on October 31, 2004.
The Company, at its option, exercised in writing not less than 30 days
prior to the end of such term (the "Initial Term"), may elect to extend the term
of this Agreement for an additional twelve-month period terminating on October
31, 2005 (the "First Extension Year"). In the event of such election, all of the
terms and conditions of this Agreement shall remain in full force and effect
except that (a) the Employee's Annual Salary in effect at
8
the end of the Initial Term shall be increased by 10% but shall not be modified
by changes in the Consumer Price Index; (b) the Employee shall not be entitled
to an additional Signing Bonus or a Bonus Guarantee; but (c) the terms of the
Commission Bonus shall remain in full force and effect.
If the Company so extends the Initial Term for a First Extension Year, it
may at its option, exercised not less than 30 days prior to the end of the First
Extension Year, extend the term of this Agreement for a second additional
twelve-month period terminating on October 31, 2006 (the "Second Extension
Year"). In the event of such election, all of the terms and conditions of this
Agreement shall remain in full force and effect except that (a) the Employee's
Annual Salary during the Second Extension Year shall remain the same as her
Annual Salary in effect during the First Extension Year and shall not be
modified by changes in the Consumer Price Index; (b) the Employee shall not be
entitled to an additional Signing Bonus or a Bonus Guarantee; but (c) the terms
of the Commission Bonus shall remain in full force and effect.
The Company shall have the right to terminate this Agreement upon twenty
(20) days prior written notice to the Employee for "cause," defined as gross
dereliction of duty, gross negligence affecting
Employee's
performance,
conviction of a "crime," or substantial violation of the terms of this Agreement
provided that prior to the expiration of such twenty (20) day period, if the
Employee is able to and cures such "cause," such termination will not be
effective. For purposes of this Agreement, "crime" is
9
defined as a felony or a crime of high moral turpitude, but in no event shall a
traffic offense or an offense which is considered to be a disorderly person
offense or a misdemeanor be deemed a "crime" permitting termination. In the
event of termination of this Agreement "for cause," no unpaid or future payments
required hereunder including payments of Annual Salary, the Signing Bonus, the
Commission Bonus and/or the Bonus Guarantee shall be required to be paid to the
Employee after such termination date.
ARTICLE V
NON-DISCLOSURE OF INFORMATION AND TRADE SECRETS
Employee acknowledges that BRLI Acq. Corp. has purchased certain secret
information relating to the Health Food Business including business plans and
programs, marketing plans, contractual arrangements with others, formulations,
recipes and customer lists and that in the course of her duties hereunder, the
Company and/or BRLI Acq. Corp. will make available to her and she may also
develop additional secret information of like nature relating to the Health Food
Business. All of such secret information whether purchased by BRLI Acq. Corp. or
developed during the course of her employment is hereinafter collectively
referred to as the "Proprietary Information." Employee waives any and all rights
to the Proprietary Information and agrees that all such rights shall be vested
solely in the Company and BRLI Acq. Corp. even after termination of her
employment. Upon the termination of employment, Employee shall promptly deliver
all correspondence, notes, reports, programs,
10
proposals, formulations, recipes, customer lists and books and records, or any
other documents, and all copies thereof, relating to the Health Food Business,
to BRLI Acq. Corp. (The Company and BRLI Acq. Corp. have entered into a separate
Non-Competition Agreement with the Employee as of the date hereof.)
ARTICLE VI
SEVERABILITY
If any provision of the Agreement shall be held invalid and unenforceable,
the remainder of this Agreement shall remain in full force and effect. If any
provision is held invalid or
unenforceable
with respect to particular
circumstances,
it shall remain in full force and effect in all other
circumstances.
ARTICLE VII
NOTICES
All notices required to be given under the terms of this Agreement shall
be in writing and shall be deemed to have been duly given only if delivered to
the addressee in person or mailed by certified mail, return receipt requested,
as follows:
IF TO COMPANY:
Bio-Reference Laboratories, Inc. (or BRLI Acq.
Corp.)
AND/OR TO
481 Edward H. Ross Drive
BRLI ACQ. CORP.
Elmwood Park, New Jersey 07407
Attn: Howard Dubinett, Executive Vice President
WITH COPY TO:
Roger Tolins, Esq.
Tolins and Lowenfels
12 East 49th St - 21st Floor
New York, New York 10017
11
IF TO EMPLOYEE:
Rebecca Klafter
102 Bristol Drive
Woodbury, New York 11797
WITH COPY TO:
Paul Levitt, Esq.
Vitale & Levitt
445 Broadhollow Road, Suite 124
Melville, New York 11747
or such other additional address as the party to receive the notice shall advise
by due notice in accordance with this paragraph.
ARTICLE VIII
BENEFIT
This agreement shall inure to, and be binding upon, the parties
the successors and assigns of the Company, and the heirs
representatives of the Employee.
hereto,
and personal
ARTICLE IX
WAIVER
The waiver by either party of any breach or violation of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach of construction and validity.
ARTICLE X
GOVERNING LAW
This Agreement shall be construed and enforced in accordance with the laws
of the State of New Jersey without regard to the principle of the conflict of
laws. The parties hereto consent to the in personam jurisdiction of the courts
of the State of New
12
Jersey and further agree that any action with respect to this Agreement shall be
commenced and prosecuted only in such courts. The parties hereby waive trial by
jury in any action or proceeding arising under this Agreement.
ARTICLE XI
JURISDICTION
In case any provision of this Agreement shall be invalid under the laws of
any county, state or jurisdiction, such invalidity shall not affect any other
provisions of this Agreement.
ARTICLE XII
REMEDIES
No remedy herein conferred upon or reserved to a party is intended to be
exclusive of any other available remedy, but each and every such remedy shall be
cumulative and in addition to every other remedy given under this Agreement or
in connection with this Agreement and now or hereafter existing at law or in
equity.
ARTICLE XIII
ENTIRE AGREEMENT
This Agreement, the Non-Competition Agreement and the Asset/Sale Purchase
Agreement constitute the entire agreement among the parties with respect to the
subject matter contained herein and therein and supersedes all prior agreements
and understandings, oral or written. This Agreement and such other Agreements
may not
13
be amended or modified except in writing
and thereto.
executed by each of the parties hereto
IN WITNESS WHEREOF, the parties have hereto set their hands and seals the
day and year written below their names.
Signed, sealed and delivered in the presence of:
WITNESS:
Bio-Reference Laboratories, Inc.
/s/Roger Tolins
-------------------------Howard Dubinett, Executive
Vice President
Date: December 14, 1999
By /s/Howard Dubinett
-------------------
WITNESS:
/s/Paul Levitt
-------------Rebecca Klafter
Date: December 14, 1999
14
/s/Rebecca Klafter
------------------
<ARTICLE>
5
<LEGEND>
This Schedule contains summary financial information extracted from (a) the
Balance Sheet and Statement of Operations filed as part of the Quarterly Report
on Form 10-Q and is qualified in its entirety by reference to such (b) Report on
Form 10-Q.
</LEGEND>
<PERIOD-TYPE>
<FISCAL-YEAR-END>
<PERIOD-END>
<CASH>
<SECURITIES>
<RECEIVABLES>
<ALLOWANCES>
<INVENTORY>
<CURRENT-ASSETS>
<PP
<DEPRECIATION>
<TOTAL-ASSETS>
<CURRENT-LIABILITIES>
<BONDS>
<PREFERRED-MANDATORY>
<PREFERRED>
<COMMON>
<OTHER-SE>
<TOTAL-LIABILITY-AND-EQUITY>
<SALES>
<TOTAL-REVENUES>
<CGS>
<TOTAL-COSTS>
<OTHER-EXPENSES>
<LOSS-PROVISION>
<INTEREST-EXPENSE>
<INCOME-PRETAX>
<INCOME-TAX>
<INCOME-CONTINUING>
<DISCONTINUED>
<EXTRAORDINARY>
<CHANGES>
<NET-INCOME>
<EPS-BASIC>
<EPS-DILUTED>
Year
OCT-31-1999
OCT-31-1999
2,128,274
0
18,615,496
15,312,935
572,279
21,720,373
5,211,467
3,039,128
32,317,998
18,268,350
12,905,365
0
60,408
77,008
23,294,673
32,317,998
53,856,414
53,856,414
30,850,337
57,282,246
1,185,316
6,855,221
1,465,765
(4,611,148)
367,300
(4,978,448)
0
0
0
(4,978,448)
(.68)
(.68)