<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 14, 1996
REGISTRATION NO. 333-6323
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CEMAX-ICON, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3841 77-0103865
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
47281 MISSION FALLS COURT
FREMONT, CALIFORNIA 94539
(510) 770-8612
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
TERRY ROSS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CEMAX-ICON, INC.
47281 MISSION FALLS COURT
FREMONT, CALIFORNIA 94539
(510) 770-8612
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
MICHAEL J. O'DONNELL, ESQ. BRIAN C. CUNNINGHAM, ESQ.
MICHAEL J. DANAHER, ESQ. MATTHEW B. HEMINGTON, ESQ.
WILSON SONSINI GOODRICH & ROSATI COOLEY GODWARD CASTRO
PROFESSIONAL CORPORATION HUDDLESON & TATUM
650 PAGE MILL ROAD FIVE PALO ALTO SQUARE
PALO ALTO, CALIFORNIA 94304-1050 3000 EL CAMINO REAL
(415) 493-9300 PALO ALTO, CALIFORNIA 94306-2155
(415) 843-5000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
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PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
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Common Stock, $0.001 par value........ 3,220,000 shares $10.00 $32,200,000 $11,103.45
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</TABLE>
(1) Includes 420,000 shares which the Underwriters have the option to purchase
solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the registration
fee in accordance with Rule 457(a) under the Securities Act of 1933, as
amended.
----------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A) MAY DETERMINE.
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<PAGE> 2
CEMAX-ICON, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(6) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS OF FORM S-1
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING IN
FORM S-1 REGISTRATION STATEMENT LOCATION IN PROSPECTUS
------------------------------------------ --------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.... Facing Page of Registration Statement,
Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus............................. Inside Front Cover Page and Outside Back
Cover Page
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges........ Prospectus Summary; Risk Factors
4. Use of Proceeds........................... Use of Proceeds
5. Determination of Offering Price........... Outside Front Cover Page of Prospectus;
Underwriting
6. Dilution.................................. Dilution
7. Selling Security Holders.................. Not Applicable
8. Plan of Distribution...................... Outside Front Cover Page and Inside Front
Cover Page; Underwriting
9. Description of Securities to be
Registered................................ Outside Front Cover Page; Prospectus
Summary; Capitalization; Description of
Capital Stock
10. Interests of Named Experts and Counsel.... Legal Matters; Experts
11. Information with Respect to the
Registrant................................ Outside Front Cover Page and Inside Front
Cover Page; Prospectus Summary; Risk
Factors; Use of Proceeds; Dividend Policy;
Capitalization; Selected Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management; Certain
Transactions; Principal Stockholders;
Description of Capital Stock; Shares
Eligible for Future Sale; Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... Not Applicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES
LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 14, 1996
2,800,000 SHARES
CEMAX-ICON, INC.
COMMON STOCK
------------------------
All of the 2,800,000 shares of Common Stock offered hereby are being
offered by CEMAX-ICON, Inc. ("CEMAX-ICON" or the "Company"). Prior to this
offering, there has been no public market for the Common Stock of the Company.
It is currently anticipated that the initial public offering price of the Common
Stock will be between $8.00 and $10.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the offering price.
Application has been made to have the Common Stock of the Company approved for
quotation on the Nasdaq National Market under the symbol "CMAX."
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGES 5 THROUGH 12.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<S> <C> <C> <C>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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Per Share............................... $ $ $
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Total(3)................................ $ $ $
</TABLE>
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses, payable by the Company, estimated at $800,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
420,000 additional shares of Common Stock on the same terms and conditions
as set forth above solely to cover over-allotments, if any. If such option
is exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters as
stated herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. It is
expected that the certificates for the shares of Common Stock will be available
for delivery at the offices of Volpe, Welty & Company, One Maritime Plaza, San
Francisco, California, on or about , 1996.
------------------------
VOLPE, WELTY & COMPANY
PUNK, ZIEGEL & KNOELL
FURMAN SELZ
The date of this Prospectus is , 1996
<PAGE> 4
ArchiveManager(TM), AutoRad(TM), ClinicalView(TM), DiagnosticView(TM), ICON
Medical Systems(TM),
ImageCom(TM), ImageServer(TM), LaserLink(TM), Network Film
Server(TM), RadAccess(TM), ScanLink(TM),
TeleMax(TM) and VIP(TM), among other marks, are trademarks of the Company.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing elsewhere
in this Prospectus. Prospective investors should consider carefully the
information discussed under "Risk Factors." This Prospectus contains
forward-looking statements which involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in "Risk Factors."
THE COMPANY
CEMAX-ICON designs, manufactures and markets medical image information
systems which electronically acquire, archive, distribute and display medical
images throughout hospitals, outpatient facilities and integrated delivery
networks ("IDNs"). The Company's systems interface with virtually all
commercially available imaging modalities, including x-ray, computed tomography
("CT"), magnetic resonance imaging ("MRI"), computed radiography, ultrasound and
nuclear medicine. By automating and increasing the availability of medical
images within a healthcare facility or throughout an IDN, the Company's systems
reduce the cost and improve the management of medical care. CEMAX-ICON's systems
and modules are based on an open architecture and utilize standard hardware and
standard network protocols in order to facilitate integration with existing
image acquisition devices and healthcare information systems. CEMAX-ICON
provides complete turn-key systems as well as scalable software modules that
integrate with commercially available third party hardware.
Medical images, traditionally stored on film, are a critical component of
the patient's medical record as they are used in all stages of patient care,
including screening, diagnosis, treatment and post-treatment assessment.
Currently, film retrieval and distribution are primarily manual processes which
are inherently slow and labor-intensive. Furthermore, film is bulky, expensive
to store, frequently lost or misplaced and requires expensive chemical handling
and processing which produce environmentally hazardous by-products. Trends
toward lower cost and higher quality care in the healthcare industry are causing
changes in the management of medical images, including an emphasis on reducing
the operational costs of film management as well as the requirement that images
be accessible throughout the healthcare organization or IDN. Traditional
healthcare information systems are limited in their ability to provide
cost-effective, institution-wide access to medical images because many existing
image acquisition devices use a variety of proprietary platforms. Moreover,
digitized medical images contain enormous quantities of data which can exceed
the ability of current information systems to effectively store and transmit
such images.
Recent computing advances have made possible the creation of large-scale
networks, known as Picture Archiving and Communications Systems ("PACS"), that
digitize, transmit, store and retrieve medical images. The Company's systems,
designed in consultation with clinicians, enable healthcare providers to
reengineer the management of medical images to cost-effectively implement PACS
in order to increase the productivity of radiologists, other clinicians and
support staff, and to reduce film use and film-related expenses. In addition,
the Company's systems increase the accessibility of medical images to clinical
staff, both within an institution and at remote sites, and enable healthcare
providers to broaden their geographic service areas. The Company has developed a
large library of interfaces to provide connectivity with standard interfaces as
well as the large installed base of proprietary image acquisition devices. The
Company's systems utilize a distributed server and database architecture and
advanced image compression technology to cost-effectively store and transmit
large image data sets at clinically acceptable speeds.
CEMAX-ICON intends to maintain and enhance its position as a market leader
by leveraging its technology and its knowledge of radiology practice, increasing
its penetration of the PACS and teleradiology markets, maintaining and expanding
OEM relationships, and cross-selling its systems and services. The Company sells
its products directly to end-users as well as through OEMs, including several
leading suppliers of imaging and information systems to the healthcare industry,
including Minnesota Mining and Manufacturing Co. ("3M"), Toshiba Corporation
("Toshiba"), Lucent Technologies, Inc. (formerly a division of AT&T) ("Lucent"),
Hewlett-Packard Co.("Hewlett-Packard"), Sterling Diagnostics, Inc. (formerly a
division of DuPont) ("Sterling"), General Electric Co. ("General Electric") and
Eastman Kodak Co. ("Kodak"), as well as distributors. CEMAX-ICON's systems are
installed at over 1,500 sites worldwide.
3
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.................................... 2,800,000 Shares
Common Stock to be outstanding after the offering...................... 8,986,934 Shares(1)
Working capital and general corporate
Use of proceeds........................................................ purposes
Nasdaq National Market symbol.......................................... ICON
</TABLE>
SUMMARY OF FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
------- ------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Total revenues................................... $ 4,637 $8,314 $12,114 $16,457 $17,030 $ 8,600 $11,232
Loss from operations............................. (1,141) (809) (1,141) (2,490) (6,842) (3,186) (1,300)
Net loss......................................... (1,271) (843) (1,198) (2,578) (6,815) (3,233) (1,299)
Pro forma net loss per share(2).................. $ (1.17) $ (0.59) $ (0.21)
Shares used to compute pro forma net loss per
share(2)....................................... 5,820 5,455 6,283
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------------
ACTUAL AS ADJUSTED(3)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......................................................... $ 3,796 $ 26,432
Working capital (deficit).......................................................... (1,846) 20,790
Total assets....................................................................... 11,304 33,940
Long-term obligations, less current portion........................................ 499 499
Accumulated deficit................................................................ (32,880) (32,880)
Total stockholders' equity (deficit)............................................... (807) 21,829
</TABLE>
- ---------------
(1) Excludes as of June 30, 1996: (i) 632,481 shares of Common Stock issuable
upon exercise of outstanding stock options at a weighted average price of
$1.76 per share; (ii) warrants to purchase 202,383 shares of Common Stock at
a weighted average exercise price of $11.37 per share; and (iii) 950,000
shares reserved for future grants under the Company's 1996 Stock Plan, 1996
Employee Stock Purchase Plan, and 1996 Director Option Plan. See
"Management -- Director Compensation," "-- Stock Plans" and Notes 7 and 8 of
Notes to Financial Statements.
(2) See Note 1 of Notes to Financial Statements describing the shares used in
calculating pro forma net loss per share.
(3) Adjusted to give effect to the receipt of the estimated net proceeds from
the sale of 2,800,000 shares of Common Stock offered by the Company hereby
(at an assumed initial public offering price of $9.00 per share) and the
conversion of convertible preferred stock. See "Use of Proceeds" and
"Capitalization."
------------------------
Except as otherwise noted, all information contained in this Prospectus:
(i) gives effect to the conversion of all outstanding shares of convertible
preferred stock into 845,054 shares of Common Stock upon the closing of this
offering; and (ii) reflects a 1-for-2.35 reverse stock split of the Company's
Common Stock effected in July 1996. See "Capitalization" and "Description of
Capital Stock."
4
<PAGE> 7
RISK FACTORS
The Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including, but not limited to, those set forth in the following risk factors. In
addition to the other information in this Prospectus, the following principal
risk factors should be considered carefully in evaluating the Company and its
business before purchasing the shares of common stock offered hereby.
Lack of Profitable Operations; Significant Losses from Operations. The
Company has not been profitable since inception, has experienced significant
losses from operations, and had an accumulated deficit of approximately $32.9
million as of June 30, 1996. Such operating losses are due in part to the fact
that the Company's sales revenues have not increased in the manner originally
anticipated by the Company. There can be no assurance that the Company will be
profitable on a quarterly or annual basis in the future. As a result there can
be no assurance that revenues will increase in the future or that the net
proceeds of this offering, together with any funds provided by operations and
present capital, will be sufficient to fund the Company's ongoing operations.
The Company believes its current operating funds, along with the proceeds of
this offering, will be sufficient to finance its cash requirements at least
through 1997. If the Company has insufficient funds, there can be no assurance
that additional financing can be obtained on acceptable terms, if at all. The
insufficiency of funds, together with the absence of such financing, would have
a material adverse effect on the Company's business, including a possible
reduction in the number of employees and research, development and marketing
expenditures, potentially delaying or preventing the development and
introduction of new products, and the possible reduction or cessation of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operation."
Dependence upon Ability to Enhance and Integrate Existing Product Line and
Develop New Products. The market for the Company's systems is characterized by
changes in customer requirements and frequent new product introductions and
enhancements. The Company's future success will depend upon its ability to
enhance and integrate its current product line, to complete products currently
under development, to develop and introduce new products and to respond to
evolving customer requirements. Any failure by the Company to anticipate or
respond adequately to technological developments by its competitors or to
changes in customer requirements, or any significant delays in product
integration, development or introduction could result in a loss of
competitiveness or revenues. In addition, the Company is in the process of
integrating certain teleradiology systems acquired by the Company pursuant to
the merger with ICON Medical Systems, Inc. with the Company's other systems, but
to date such systems have not been fully integrated. The successful completion
of such integration is necessary for sales to certain customers and potential
customers of the Company. There can be no assurance that the Company will be
successful in completing its product integration efforts or in developing and
marketing new products or product enhancements on a timely or cost-effective
basis, and such failure could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Products."
Risks Related to Products Under Development. Orders for two new software
modules under development by the Company, AutoRad and Archive Manager 2.0,
constitute a substantial portion of the Company's backlog. As of June 30, 1996,
the Company has not shipped commercial versions of such new software modules
because such modules are still under development. There can be no assurance that
the Company will be able to complete development and commence shipment of these
modules and other products under development in a reasonable time frame which
will be acceptable to customers. In the past, the Company has occasionally
experienced delays in the development and introduction of new products and
product enhancements, and there can be no assurance that the Company will not
experience such delays in the future. Timeliness of delivery is of critical
importance to certain customers, and the Company's failure to successfully
develop and ship such products in a timely manner could result in cancellation
of customer orders which would have a material adverse effect on the Company's
business and results of operations.
Variability in Quarterly Operating Results. The Company's results of
operations may fluctuate significantly from quarter to quarter as a result of a
number of factors, including: (i) the volume and timing of system sales and
customer acceptances; (ii) customer purchasing patterns, long sales cycles,
order cancella-
5
<PAGE> 8
tions and rescheduling of system installations; (iii) the mix of direct and
indirect sales; and (iv) the mix of higher-margin OEM software license revenues
and lower-margin system revenues. The Company typically does not obtain
long-term volume purchase contracts from its customers, and a substantial
portion of the Company's backlog is scheduled for delivery within 90 days or
less. Customers may cancel or change the volume or timing of outstanding
purchase orders at any time without recourse. A significant portion of the
Company's operating expenses are fixed, and planned expenditures are based
primarily on sales forecasts and product development programs. If revenue does
not meet the Company's expectations in any given period, the adverse impact on
operating results may be magnified by the Company's inability to adjust
operating expenses sufficiently or quickly enough to compensate for such a
shortfall. In addition, the Company believes that revenue generated by its OEMs
are likely to vary significantly from quarter to quarter. Accordingly, the
Company's future operating results are likely to be subject to significant
variability from quarter to quarter and could be adversely affected in any
particular quarter. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Risks Related to Company Reliance upon OEMs and Principal Customers. The
Company's success is dependent on the success of its marketing and distribution
strategy which involves, to a significant degree, reliance on the Company's OEMs
to sell the Company's software modules as a component of the systems being
marketed by such OEMs. Sales through OEMs accounted for 18%, 35%, 35% and 53% of
the Company's total revenues in 1993, 1994, 1995 and the six months ended June
30, 1996, respectively. The Company's OEM agreements are subject to cancellation
by the OEMs under certain circumstances. If the Company's current or future OEMs
elect to terminate their agreements with the Company or elect not to include the
Company's software modules as components in their systems or are unsuccessful in
achieving significant sales of those systems, the Company's business, financial
condition and results of operations, would be materially and adversely effected.
A significant portion of the Company's sales revenue is derived from a
small number of customers. In 1994 and 1995 Toshiba accounted for more than 10%
of total revenues; in 1995 3M accounted for 10% of total revenues; and in the
six months ended June 30, 1996 3M, Toshiba and Lucent Technologies each
accounted for more than 10% of total revenues and in the aggregate accounted for
45% of total revenues. Large customers also accounted for a significant portion
of the Company's backlog at June 30, 1996. The Company expects to continue to
depend upon its principal customers for a significant portion of its sales.
There can be no assurance that the Company's principal customers will continue
to purchase systems and services from the Company at current levels, if at all.
The loss of one or more major customers or a change in their buying pattern
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Marketing and Sales" and
"-- Customers and Signed Sales Contracts."
Dependence on Emerging PACS and Teleradiology Markets; Uncertainty of
Market Acceptance. The Company's success is dependent on the development of the
PACS and teleradiology markets and on market acceptance of its existing systems
and products under development. Substantially all of the Company's revenues are
derived from the sale of medical image information systems for the PACS and
teleradiology markets. The market for the Company's systems is still relatively
undeveloped and may not experience material expansion in the near future, if at
all. In the event that the PACS and teleradiology markets do not develop as
anticipated by the Company, the Company's business, financial condition and
results of operations would be adversely effected.
The commercial success of the Company's systems will depend upon their
acceptance by the medical community as useful, cost-effective components of
radiological procedures. There can be no assurance that sales of the Company's
systems will continue at historical rates or that the Company will introduce new
products that achieve significant market acceptance in the future. Furthermore,
new product introductions or enhancements by the Company's competitors or the
use of other technologies could cause a decline in sales or loss of market
acceptance of the Company's systems. In addition, third-party payors, such as
governmental programs and private insurance plans, can indirectly affect the
pricing or the relative attractiveness of the Company's systems by regulating
the maximum amount of reimbursement that they will provide for the taking,
storing and interpretation of medical images. A decrease in the reimbursement
amounts for radiological procedures may decrease the amount which physicians,
clinics and hospitals are able to charge
6
<PAGE> 9
patients for such services. As a result, adoption of teleradiology and/or PACS
systems may slow as capital investment budgets are reduced, thereby
significantly reducing the demand for the Company's systems. In the event that
the Company's existing systems and products under development do not achieve
market acceptance, the Company's business, financial condition and results of
operations would be adversely effected. See "Business -- Products" and
"-- Third-Party Reimbursement."
Rapid Technological Change. The Market for the Company's systems is
subject to rapid technological advances. The Company's future success will
depend upon its ability to develop, introduce, and successfully market new
products that keep pace with technological developments. There can be no
assurance that the Company will be successful in developing and introducing new
products that keep pace with technological advances, and the failure to do so
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Long Sales and Delivery Cycle; Dependence on Future System Sales. The
decision by a healthcare provider to replace or substantially upgrade its image
information systems typically involves a major commitment of capital and an
extended review and approval process. Accordingly, the sales and delivery cycle
for the Company's systems is typically two to 12 months from initial contact to
delivery and acceptance. The time required from initial contact to contract
execution is typically one to six months. During these periods, the Company may
expend substantial time, effort and funds preparing a contract proposal and
negotiating the contract. The Company does not record revenues on systems until
they have been delivered to the customer. The length of time between contract
execution and delivery typically ranges from three to 12 months depending on the
size of the systems ordered, the products ordered and the delivery terms. At
June 30, 1996, the Company had approximately $11.5 million of signed sales
contracts for systems and services which had not yet been delivered, including
software modules still under development by the Company. This amount includes
contracts for system sales and services that may include cancellation
provisions, and contracts that are expected to result in revenues over periods
of as much as one year. Any significant or ongoing failure to identify
appropriate potential customers, to achieve signed contracts, to successfully
complete software modules under development, or to obtain customer acceptance
after expending time, effort and funds could have a material adverse effect on
the Company's business, financial conditions and results of operations. See
"Business -- Marketing and Sales" and "-- Customers and Signed Sales Contracts."
Risks Associated with Acquisitions. As part of the Company's strategy to
enhance and maintain its competitive position, the Company may from time to time
consider potential acquisitions of complementary products, technologies and
other businesses. The evaluation, negotiation and integration of any such
acquisitions may divert significant time and resources of the Company,
particularly management. There can be no assurance that any acquired product,
technology or business can be successfully integrated into the Company's
operations. The Company believes that its acquisition of ICON Medical Systems,
Inc. in June 1995 had a material adverse effect on the Company's operating
results in 1995 due to operational disruptions arising from the integration of
such business into the Company. There can be no assurance that future
acquisitions, if any, will not have a material adverse effect upon the Company,
due to operational disruptions, unexpected expenses and accounting charges which
may be associated with the integration of such acquisitions. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Competition. Competition in the market for the Company's systems is
intense. A large number of companies offer teleradiology systems which are
competitive with those of the Company. Many of the Company's competitors are
larger and more established and have substantially more financial, technical,
research and development and marketing resources than the Company. Several large
multi-national corporations, including Philips Electronics N.V. ("Philips"),
Agfa-Gevaert N.V. and Siemens Medical Systems Inc., offer competitive products
in the PACS market. Other large corporations have the technical and financial
ability to design and market competitive products, and some of them have
produced and marketed such products in the past. There can be no assurance that
such large potential competitors will not elect to reenter the market for the
Company's systems, which could have a material adverse effect on the Company's
ability to sell its systems. In the past, certain competitors have from time to
time offered PACS systems for sale at substantial discounts to prevailing
prices, or offered PACS systems to customers at no additional charge in
7
<PAGE> 10
connection with the sale of complementary products, which has had and could have
a material adverse effect on the Company's ability to sell its systems.
The Company's ability to compete successfully in the sale of its systems
will depend in large part upon its ability to implement successfully its
strategy of selling systems as a total solution as well as its ability to
attract new customers, sell new products, deliver and support product
enhancements to its existing customers, and respond effectively to continuing
technological change by developing new products. There can be no assurance that
the Company will be able to compete successfully in the future, or that future
competition for product sales will not have a material adverse effect on the
business, financial condition and results of operations of the Company. See
"Business -- Competition."
Risks Associated with Ability to Manage Projected Growth; Need for
Additional Qualified Personnel. As a result of both internal development and
planned expansion into additional applications and markets, the Company expects
a period of rapid growth. Such growth would place a significant strain on the
Company's customer service and support operations, sales, administrative
personnel and other resources. The Company's ability to manage future growth, if
any, effectively will require the Company to continue to improve its
operational, management and financial systems and controls and to train,
motivate and manage its employees. In particular, the Company will be required
in the near future to recruit a significant number of technically qualified
personnel to expand its direct sales force and customer support group. As a
result, the Company is subject to certain growth-related risks, including the
risk that it will be unable to retain the necessary personnel or acquire other
resources necessary to service such growth adequately. Further revenue growth,
if any, depends in part on the Company's ability to rapidly grow its direct
sales force and distribution channels. There can be no assurance that the
Company can expand those resources as rapidly as necessary. If the Company's
management is unable to manage future growth, if any, effectively, the Company's
business, financial condition and results of operations could be materially
adversely effected.
Dependence on Key Employees. The Company is highly dependent on certain
members of its sales and engineering staff, the loss of services of one or more
of whom could have a material adverse effect on the Company's business and
results of operations. Furthermore, recruiting and retaining qualified sales and
technical personnel will also be critical to the Company's success. There can be
no assurance that the Company will be successful in attracting and retaining
skilled technical personnel who generally are in high demand in the Company's
geographic area. The loss of certain key employees, including the Company's
Chief Technical Officer, or the Company's inability to attract and retain other
qualified employees could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Employees" and "Management -- Directors and Executive Officers."
Dependence on Single-Source Suppliers. Certain components used with the
Company's systems, including the film digitizer, are currently obtained from
single sources. The Company is not aware of a short-term alternative source of
supply of this film digitizer. The loss of the supply of such film digitizer for
an extended period of time would have a material adverse effect on the Company's
business, financial condition and results of operations.
Risks Associated with International Operations. Foreign markets may be
influenced by factors that are different from those prevailing in the United
States. The Company has limited experience in business operations outside the
United States, and there can be no assurance that the Company's systems products
will be accepted in international markets or that the Company can compete
successfully in such markets. International operations and sales are also
subject to certain political and economic risks, including political
instability, currency controls, trade restrictions, regulatory requirements,
exchange rate fluctuations and changes in import and export regulations, any of
which could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Marketing and Sales."
FDA and Other Government Regulation. The manufacturing and marketing of
the Company's systems are subject to extensive government regulation as medical
devices in the United States by the Food and Drug Administration ("FDA") and in
other countries by corresponding foreign regulatory authorities. The process of
obtaining and maintaining required regulatory clearances and approvals is
lengthy, expensive and uncertain. The Company believes that its success depends
upon commercial sales of improved versions of its systems,
8
<PAGE> 11
certain of which cannot be marketed in the United States and other regulated
markets unless and until the Company obtains clearance or approval from the FDA
and its foreign counterparts.
The FDA requires that a manufacturer seeking to market a new medical device
or an existing medical device for a new indication obtain either a premarket
notification clearance under Section 510(k) of the Federal Food, Drug and
Cosmetic Act or the approval of a premarket approval application under this Act
("PMA") prior to the introduction of such product into the market. Material
changes to existing medical devices are also subject to FDA review and clearance
or approval prior to commercialization in the United States. The Company is
currently relying on the Section 510(k) premarket notification method to obtain
governmental clearance ("510(k) clearance") to market its medical devices in the
United States. Although it is believed to be a shorter, less costly regulatory
plan than the process to obtain a PMA, the process of obtaining a 510(k)
clearance generally requires supporting data, which can be extensive and extend
the regulatory review process for a considerable length of time. All models of
the Company's systems that are commercially available have received 510(k)
clearance by the FDA. In addition, the Company recently received 510(k)
clearance for Archive Manager 2.0 and for its DICOM and AutoRad modules
currently under development. There can be no assurance that 510(k) clearance for
any future product or modifications of existing products will be granted by the
FDA within a reasonable time frame, if at all. Furthermore, the FDA may require
that a request for 510(k) clearance be supported by data from clinical trials
demonstrating substantial equivalence and the safety and effectiveness of the
device, which may prolong the Section 510(k) notification review period for a
particular device or may result in a finding that the product is not
substantially equivalent, so that a full PMA could be required.
Failure to comply with applicable regulatory requirements could result,
among other things, in warning letters, seizures of products, total or partial
suspension of production, refusal of the government to grant market clearance or
pre-market approval, withdrawal of approvals or criminal prosecution.
The Company is also required to register as a medical device manufacturer
with the FDA and the Food and Drug Branch of the California Department of Health
Services ("CDHS"). The Company will be inspected on a routine basis by both the
FDA and CDHS for compliance with the FDA's Good Manufacturing Practices ("GMP")
and other applicable regulations.
The Company is also subject to other federal, state and local laws and
regulations relating to safe working conditions and manufacturing practices. The
extent of government regulation that might result from any future legislation or
administrative action cannot be predicted. Failure to comply with regulatory
requirements could have a material adverse effect on the Company's business,
financial condition and results of operations.
Sales of the Company's systems outside the United States are subject to
foreign regulatory requirements that vary from country to country. Additional
approvals from foreign regulatory authorities may be required, and there can be
no assurance that the Company will be able to obtain foreign marketing approvals
on a timely basis or at all, or that it will not be required to incur
significant costs in obtaining or maintaining its foreign regulatory approvals.
In Europe, the Company will be required to obtain the certificates necessary to
enable the CE Mark, an international symbol of adherence to quality assurance
standards and compliance with applicable European Union Medical Device
Directives, to be affixed to the Company's systems for sales in member
countries. Failure to obtain such certifications, any necessary foreign
regulatory approvals or any other failure to comply with regulatory requirements
outside the United States could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Products" and "-- Government Regulation."
Uncertain Protection for Intellectual Property; Possible Claims of
Others. The Company generally does not rely on patent protection with respect
to its products. Instead, the Company relies on a combination of copyright and
trade secret law, employee and third-party nondisclosure agreements, and other
protective measures to protect intellectual property rights pertaining to its
products and technology. There can be no assurance that applicable copyright or
trade secret law or these agreements will provide meaningful protection of the
Company's copyrights, trade secrets, know-how or other proprietary information
in the event of any unauthorized use, misappropriation or disclosure of such
copyrights, trade secrets, know-how or other proprietary information. In
addition, the laws of certain foreign countries do not protect the Company's
9
<PAGE> 12
intellectual property rights to the same extent as do the laws of the United
States. There can be no assurance that the Company will be able to protect its
intellectual property successfully.
There can be no assurance that third parties will not assert patent,
copyright or other intellectual property infringement claims against the Company
with respect to its systems or technology or other matters. There may be
third-party patents, copyrights and other intellectual property relevant to the
Company's systems and technology which are not known to the Company. Although no
third party has asserted that the Company is infringing such third party's
patent rights, copyrights or other intellectual property, there can be no
assurance that litigation asserting such claims will not be initiated, that the
Company would prevail in any such litigation, or that the Company would be able
to obtain any necessary licenses on reasonable terms if at all. Any such claims
against the Company, with or without merit, as well as claims initiated by the
Company against third parties, can be time-consuming and expensive to defend or
prosecute and to resolve. See "Business -- Patents and Intellectual Property."
Uncertainty in Healthcare Industry; Government Healthcare Reform
Proposals. The healthcare industry is subject to changing political, economic,
and regulatory influences that may affect the procurement practices and
operations of healthcare providers. Many lawmakers have announced that they
intend to propose programs to reform the United States healthcare system. These
programs may contain proposals to increase governmental involvement in
healthcare, lower reimbursement rates and otherwise change the operating
environment. Healthcare providers may react to these proposals and the
uncertainty surrounding such proposals by curtailing or deferring investments,
including those for the Company's systems and services. Cost containment
measures instituted by healthcare providers as a result of regulatory reform or
otherwise could result in greater selectivity in the allocation of capital
funds. Such selectivity could have a material adverse effect on the Company's
ability to sell its systems and services. See "Business -- Third Party
Reimbursement."
Product Liability Risk; Limited Insurance Coverage. The manufacture and
sale of medical image information systems entail significant risk of product
liability claims. There can be no assurance that the Company's existing
insurance coverage limits are adequate to protect the Company from any
liabilities it might incur in connection with the sale of the Company's systems.
In addition, the Company may require increased product liability coverage as
additional products are commercialized. Such insurance is expensive and in the
future may not be available on acceptable terms, if at all. A successful product
liability claim or series of claims brought against the Company in excess of its
insurance coverage could have a material adverse effect on the Company's
business, financial condition and results of operations.
Adverse Impact of Shares Eligible for Future Sale. Sales of a substantial
number of shares of Common Stock in the public market or the prospect of such
sales could adversely affect its market price of the Company and could impair
the ability of the Company to raise capital through an offering of its equity
securities. Upon completion of this offering and assuming no exercise of the
Underwriters' over-allotment option, the Company will have 8,986,934 shares of
Common Stock outstanding, of which the 2,800,000 shares offered hereby will be
freely tradeable, except that shares purchased by "affiliates" of the Company,
as that term is defined in Rule 144 promulgated under the Securities Act of
1933, as amended (the "Securities Act"), may generally only be resold in
compliance with the conditions of Rule 144. In addition to the 2,800,000 shares
offered hereby, and not including shares which are subject to the restrictions
contained in the agreements not to sell described below approximately 155,156
shares will be freely tradeable immediately following the date of this offering
and 200,286 shares will be eligible for sale in the public market beginning 90
days following the date of this offering, subject to compliance with Rule 144 or
Rule 701. Holders of approximately 5,823,179 shares of Common Stock of the
Company outstanding prior to this offering are subject to lock-up agreements
under which each of the holders of such shares has agreed with the Underwriters
that it will not sell, offer, contract or grant any option or other right to
sell or otherwise dispose of any of the Company's equity securities, or
securities exchangeable or exercisable for or convertible into the Company's
equity securities, or publicly announce an intention to do any of the foregoing,
until 180 days after the date of this Prospectus, without the prior written
consent of Volpe, Welty & Company. In its sole discretion and without any prior
notice, Volpe, Welty & Company may release all or any portion of the shares
subject to lock-up agreements. In recent offerings in which it has served as
lead manager of underwriters,
10
<PAGE> 13
Volpe, Welty & Company has consented to early releases from lock-up agreements
only in a limited number of instances, after considering all circumstances that
it deemed to be relevant. Volpe, Welty & Company will, however, have complete
discretion in determining whether to consent to early releases from the lock-up
agreements delivered in connection with this offering, and no assurance can be
given that it will not consent to the early release of all or a portion of the
shares of Common Stock offered hereby and options covered by such lock-up
agreements. As soon as practicable after the closing of this offering, the
Company intends to file a registration statement on Form S-8 to register under
the Securities Act the outstanding options exercisable for 632,481 shares of
Common Stock as of June 30, 1996, 700,000 shares of Common Stock of the Company
reserved for issuance under the Company's 1996 Stock Plan, 150,000 shares of
Common Stock reserved for issuance under the Company's 1996 Employee Stock
Purchase Plan, and 100,000 shares of Common Stock reserved for issuance under
the Company's Director Option Plan. See "Management -- Stock Plans," "Shares
Eligible for Future Sale" and "Underwriting."
The holders of 4,237,623 shares of the Company's Common Stock are entitled
to certain demand and piggyback registration rights with respect to such shares.
If such holders, by exercising their demand registration rights, cause a large
number of shares to be registered and sold in the public market, such sales may
have an adverse effect on the market price of the Company's Common Stock. If the
Company is required to include in a Company-initiated registration shares held
by such holders pursuant to the exercise of the piggyback registration rights,
such sales may have an adverse effect on the Company's ability to raise needed
capital. See "Management -- Stock Plans," "Description of Capital Stock" and
"Shares Eligible for Future Sale."
No Prior Trading Market; Potential Volatility of Stock Price. Prior to
this offering, there has been no public market for the Company's Common stock.
Each of Volpe, Welty & Company, Punk, Ziegel & Knoell, L.P., and Furman Selz LLC
has advised the Company that it currently intends to make a market in the Common
Stock. No such firm is obligated to do so, however, and any market-making
activities with respect to the Company's Common Stock may be discontinued at any
time without notice. In addition, such market-making activities will be subject
to the limits imposed by the Securities Act and the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Accordingly, there can be no assurance
that an active trading market will develop or be sustained after this offering.
The initial public offering price of the shares of Common Stock offered hereby
will be determined by negotiations between the Company and the Representatives
of the Underwriters and may not be indicative of the price at which the Common
Stock will trade after this offering. See "Underwriting" for the factors to be
considered in determining the initial public offering price.
In recent years, the stock market in general, and the shares of software
technology companies in particular, have experienced extreme price fluctuations
that are often unrelated to the operating performance of such companies. These
broad market and industry fluctuations may adversely affect the market price of
the Company's Common Stock. The Company also believes that factors such as
quarterly fluctuations in its revenues or results of operations, general
conditions in the information technology service industry and announcements of
new products or services by the Company or its competitors may cause the market
price of its Common Stock to fluctuate significantly.
Concentration of Ownership. Upon completion of this offering, the
Company's executive officers and current members of the Board of Directors, and
their affiliates, will beneficially own approximately 40.7% of the Company's
outstanding Common Stock (assuming no exercise of the Underwriters'
over-allotment option). In particular, upon completion of this offering, Jeremy
B. Rubin, Vice President, Chief Technical Officer and a member of the Board of
Directors of the Company, will beneficially own approximately 20.4% of the
Company's outstanding Common Stock. As a result, certain existing stockholders,
if acting together, will have the ability to elect a majority of the Company's
Board of Directors and to determine the outcome of corporate actions requiring
stockholder approval, irrespective of how other stockholders of the Company may
vote. This concentration of ownership and voting control may have the effect of
delaying or preventing a change in control of the Company, or causing a change
in control of the Company which may not be favored by the Company's other
stockholders. There can be no assurance that these individuals' ability to
prevent or
11
<PAGE> 14
cause a change in control of the Company will not have a material adverse effect
on the market price of the Company's Common Stock. See "Management," "Certain
Transactions" and "Principal Stockholders."
Broad Management Discretion in Use of Proceeds. The Company intends to use
the net proceeds from this offering for working capital and general corporate
purposes, including expansion of its operations. Pending such uses, the Company
intends to invest the net proceeds from this offering in short-term,
investment-grade, interest-bearing securities. The Company has no other specific
uses for the proceeds of this offering, and the exact uses of such proceeds will
be subject to the discretion of management. See "Use of Proceeds."
Anti-Takeover Effects of Certificate of Incorporation, Bylaws and Delaware
Law. The Company's Board of Directors will have the authority to issue up to
5,000,000 shares of preferred stock and to determine the price, rights,
preferences and privileges of those shares without any further vote or action by
the stockholders. The rights of the holders of the Company's Common Stock will
be subject to, and may be adversely affected by, the rights of the holders of
any preferred stock that may be issued in the future. The issuance of preferred
stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding voting
stock of the Company. The Company's Certificate of Incorporation provides for
staggered elections for members of the Board of Directors and does not provide
for cumulative voting. These provisions may have the effect of delaying or
preventing changes in control of management of the Company, which could
adversely affect the market price of the Company's Common Stock. In addition,
the Company will become subject to the provisions of Section 203 of the Delaware
General Corporation Law, an anti-takeover law. See "Description of Capital
Stock."
Immediate and Substantial Dilution. The initial public offering price of
the Common Stock offered hereby will be substantially higher than the book value
per share of the Company's outstanding Common Stock. Investors purchasing shares
of Common Stock in this offering will therefore incur immediate and substantial
dilution of $6.57 per share. To the extent that outstanding options to purchase
the Company's Common Stock are exercised, there will be further dilution. See
"Dilution."
12
<PAGE> 15
THE COMPANY
CEMAX-ICON was incorporated in California in 1982 and was reincorporated in
Delaware in August 1996. Unless the context otherwise requires, "CEMAX-ICON" and
the "Company" refer to CEMAX-ICON, Inc., a Delaware corporation, and the
Delaware corporation's predecessor. The Company's executive offices are located
at 47281 Mission Falls Court, Fremont, California 94539 and its telephone number
is (510) 770-8612.
USE OF PROCEEDS
The net proceeds to the Company from the sale of 2,800,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $9.00 per
share are estimated to be approximately $22.6 million, after deducting
underwriting discounts and commissions and estimated expenses.
The Company has not designated any specific use for the net proceeds from
this offering. Rather, the Company intends to use the net proceeds of this
offering as working capital to finance the Company's planned growth, including
hiring additional personnel for customer support, direct sales and engineering,
purchasing additional capital equipment, and other general corporate purposes.
The primary purposes of this offering are to: (i) make available funds for such
uses, as well as additional funds to be held in reserve; (ii) create a public
market for the Company's Common Stock; (iii) facilitate future access to public
markets; and (iv) make available publicly traded shares in the event the Company
desires to utilize its shares in connection with acquisitions of complementary
products, technologies or businesses. Although the Company from time to time
evaluates potential acquisitions, the Company is not engaged in any on-going
negotiations concerning potential acquisitions, and currently has no agreements
or commitments with respect to any acquisition. The Company also anticipates
that, as a result of this offering, it will receive increased name recognition
and overall acceptance in the marketplace. Pending such uses, the Company
intends to invest the net proceeds from this offering in short-term,
investment-grade, interest-bearing securities. The Company believes that the net
proceeds from the sale of the Common Stock offered hereby, together with its
current cash balances and cash flow from future operations, will be sufficient
to meet its working capital and capital expenditure requirements at least
through 1997.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain its earnings to finance the
growth and development of its business and therefore does not anticipate paying
any cash dividends in the foreseeable future.
13
<PAGE> 16
CAPITALIZATION
The following table sets forth the Company's capitalization at June 30,
1996: (i) on an actual basis; (ii) on a pro forma basis after giving effect to
the conversion of all outstanding shares of convertible preferred stock into
845,054 shares of Common Stock upon the closing of this offering; and (iii) on a
pro forma as adjusted basis to give effect to the sale by the Company of
2,800,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $9.00 per share and after deducting estimated underwriters
discounts and commissions and estimated offering expenses. This table should be
read in conjunction with the Financial Statements and Notes thereto included
elsewhere in this Prospectus:
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term obligations..................................... $ 499 $ 499 $ 499
Preferred stock, $0.001 par value: 30,000,000 shares
authorized, issuable in series: 1,985,878 shares issued
and outstanding actual; 5,000,000 shares authorized, no
shares issued or outstanding, pro forma and as
adjusted................................................ 2 -- --
Common stock, $0.001 par value: 50,000,000 shares
authorized: 5,341,880 shares issued and outstanding
actual; 6,186,934 shares issued and outstanding, pro
forma; 8,986,934 shares issued and outstanding, as
adjusted(1)............................................. 5 6 9
Additional paid in capital................................ 32,485 32,486 55,119
Notes receivable from stockholders........................ (382) (382) (382)
Deferred compensation..................................... (37) (37) (37)
Accumulated deficit....................................... (32,880) (32,880) (32,880)
---------- --- ---
Total stockholders' equity (deficit).................... (807) (807) 21,829
---------- --- ---
Total capitalization.................................... $ (308) $ (308) $ 22,328
========== === ===
</TABLE>
- ---------------
(1) Excludes as of June 30, 1996: (i) 632,481 shares of Common Stock issuable
upon exercise of outstanding stock options at a weighted average exercise
price of $1.76 per share; (ii) warrants to purchase 202,383 shares of Common
Stock at a weighted average exercise price of $11.37 per share; and (iii)
950,000 shares reserved and available for future issuance under the 1996
Stock Plan, the 1996 Employee Stock Purchase Plan, and the 1996 Director
Option Plan. See "Management -- Director Compensation," "-- Stock Plans" and
Notes 7 and 8 of Notes to Financial Statements.
14
<PAGE> 17
DILUTION
The net tangible book value of the Company at June 30, 1996 was
approximately ($807,000) or $(0.13) per share of Common Stock. Net tangible book
value per share is determined by dividing the amount of total tangible assets of
the Company less total liabilities by the number of shares of Common Stock
outstanding at that date, assuming the conversion of all outstanding shares of
convertible preferred stock into 845,054 shares of Common Stock upon the closing
of this offering. After giving effect to the sale of the 2,800,000 shares of
Common Stock offered hereby (after deducting underwriting discounts and
commissions and estimated offering expenses), the pro forma net tangible book
value of the Company as of June 30, 1996 would have been approximately
$21,829,000, or $2.43 per share. This represents an immediate increase in net
tangible book value of $2.56 per share to existing stockholders and an immediate
dilution in net tangible book value of $6.57 per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $9.00
-----
Pro forma net tangible book value per share before the offering... $(0.13)
Increase per share attributable to new investors.................. 2.56
-----
Pro forma net tangible book value per share after the offering...... 2.43
-----
Dilution per share to new investors................................. $6.57
=====
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1996,
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by existing stockholders
and by the new investors at the assumed initial public offering price of $9.00
per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1).... 6,186,934 68.8% $32,241,000 56.1% $5.21
New investors............... 2,800,000 31.2 25,200,000 43.9 $9.00
--------- ------- ----------- ------- ------
Total..................... 8,986,934 100.0% $57,441,000 100.0%
======== ===== ========== =====
</TABLE>
- ---------------
(1) The foregoing computations as of June 30, 1996 exclude: (i) 632,481 shares
of Common Stock issuable upon exercise of outstanding stock options at a
weighted average exercise price of $1.76 per share; (ii) warrants to
purchase 202,383 shares of Common Stock at a weighted average exercise price
of $11.37 per share; and (iii) 950,000 shares reserved for future grants
under the Company's 1996 Stock Plan, the 1996 Employee Stock Purchase Plan,
and the 1996 Director Option Plan. To the extent that these options are
exercised and these shares of Common Stock are issued, there will be further
dilution to new investors. See "Management -- Director Compensation,"
"-- Stock Plans," "Description of Capital Stock" and Notes 7 and 8 of Notes
to Financial Statements.
15
<PAGE> 18
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and the Notes thereto included
elsewhere in this Prospectus. The statements of operations data for the years
ended December 31, 1993, 1994 and 1995 and the balance sheet data at December
31, 1994 and 1995 are derived from, and should be read in conjunction with, the
Company's financial statements and Notes thereto audited by Ernst & Young LLP,
independent accountants, included elsewhere in the Prospectus. The statements of
operations data for the years ended December 31, 1991 and 1992 and the balance
sheet data at December 31, 1991, 1992 and 1993 are derived from the Company's
unaudited financial statements not included in this Prospectus. The statements
of operations data for the six months ended June 30, 1995 and 1996 and the
balance sheet data at June 30, 1996 have been derived from unaudited interim
financial statements and include, in the opinion of management, all adjustments
(consisting of normal recurring adjustments) necessary to present fairly the
results for such periods. The operating results for the six months ended June
30, 1996 are not necessarily indicative of the results to be expected for the
full year or any future period.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Systems and licensing......................... $ 4,262 $ 7,564 $10,607 $15,017 $15,059 $ 7,785 $ 9,612
Service and maintenance....................... 375 750 1,507 1,440 1,971 815 1,620
------- ------ ------- ------- ------- ------ ------
Total revenues............................ 4,637 8,314 12,114 16,457 17,030 8,600 11,232
Cost of revenues:
Cost of systems and licensing................. 1,996 2,741 5,337 7,165 7,793 4,282 4,024
Cost of service and maintenance............... 180 360 722 1,638 2,719 1,098 1,840
------- ------ ------- ------- ------- ------ ------
Total cost of revenues.................... 2,176 3,101 6,059 8,803 10,512 5,380 5,864
------- ------ ------- ------- ------- ------ ------
Gross profit.................................... 2,461 5,213 6,055 7,654 6,518 3,220 5,368
Operating expenses:
Research and development...................... 1,709 2,171 3,249 4,134 6,501 2,748 3,344
Sales, general and administrative............. 1,893 3,851 3,947 6,010 6,235 3,034 3,324
Merger related expenses....................... -- -- -- -- 624 624 --
------- ------ ------- ------- ------- ------ ------
Total operating expenses.................. 3,602 6,022 7,196 10,144 13,360 6,406 6,668
------- ------ ------- ------- ------- ------ ------
Loss from operations............................ (1,141) (809) (1,141) (2,490) (6,842) (3,186) (1,300)
Interest and other income (expense) net......... (130) (34) (57) (88) 27 (47) 1
------- ------ ------- ------- ------- ------ ------
Net loss........................................ $(1,271) $ (843) $(1,198) $(2,578) $(6,815) $(3,233) $(1,299)
======= ====== ======= ======= ======= ====== ======
Pro forma net loss per share(1)................. $ (1.17) $ (0.59) $ (0.21)
======= ====== ======
Shares used to compute pro forma net
loss per share(1)............................. 5,820 5,455 6,283
======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------- JUNE 30,
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................... $ 614 $ 1,439 $ 1,861 $ 2,503 $ 1,775 $ 3,796
Working capital (deficit)....................... (646) 1,114 584 (50) (573) (1,846)
Total assets.................................... 1,972 3,733 5,465 7,019 9,279 11,304
Long-term obligations, less current portion..... 1,663 414 570 891 604 499
Accumulated deficit............................. (20,037) (20,880) (22,188) (24,766) (31,581) (32,880)
Total stockholders' equity (deficit)............ (1,747) 1,594 1,098 235 370 (807)
</TABLE>
- ---------------
(1) See Note 1 of Notes to Financial Statements for a description of the shares
used in calculating pro forma net loss per share.
16
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
OVERVIEW
CEMAX-ICON designs, manufactures and markets medical image information
systems for the acquisition, storage, distribution and use of medical images
throughout hospitals, outpatient facilities and emerging IDNs. The Company's
systems electronically acquire medical images produced by virtually all
commercially available imaging modalities, including x-ray, CT, MRI, computed
radiography, ultrasound and nuclear medicine. The Company was formed in 1982 and
subsequently changed its name to CEMAX-ICON in connection with the merger of
Cemax, Inc. and ICON Medical Systems, Inc. (the "Merger") in June 1995.
Revenues are derived from system sales, software licenses, development
contracts and fees from a range of services, including software maintenance,
support and training. Systems and licensing revenue is generated from software
licenses that grant the right to use the Company's software modules and hardware
products which are typically sold in conjunction with the Company's systems. In
addition to the software license typically sold as part of a system, the Company
generates revenue from sales of software licenses to its OEMs. Service and
maintenance revenue is generated from installation, training, documentation,
maintenance and support services. Fees for such services are generally charged
separately from the Company's software license fees.
Revenue from systems sales is recognized upon delivery of the system, which
typically occurs from one to six months after execution of a contract, depending
on the size and complexity of the system. Revenue from software licenses sold to
OEMs is recognized upon delivery, or upon completion of specific milestones, if
so stated. Revenue from services is recognized as these services are performed
while revenue from software maintenance is recognized ratably over the term of
the maintenance contracts. Software maintenance contracts are generally
renewable on an annual basis, although the Company occasionally negotiates
long-term maintenance contracts.
The Merger was accounted for as a pooling of interests, and, accordingly,
the recorded book values of the assets and liabilities and prior operating
results are combined retroactively. The purpose of the Merger was to expand the
Company's existing product lines to enable the Company to provide a broader
family of PACS and teleradiology products. The Merger resulted initially in a
charge to operations of $624,000, employee turnover, and other operational
inefficiencies. The Company may in the future consider the acquisition of
complementary products, technologies and businesses. Such acquisitions may
result in potentially dilutive issuances of equity securities, the incurrence of
debt, acquisition charges and amortization expenses related to goodwill and
intangible assets. There can be no assurance that any acquired product,
technology or business can be successfully integrated into the Company's
operations. In addition, there can be no assurance that any future acquisitions
will not have a material adverse effect upon the Company, due to operational
disruptions, unexpected expenses and accounting charges which may be associated
with the integration of such acquisitions.
The Company's revenue and results of operations may fluctuate significantly
from quarter to quarter as a result of a number of factors, including: (i) the
volume and timing of system sales; (ii) customer purchasing patterns, long sales
cycles, order cancellations; (iii) the mix of direct and indirect sales; and
(iv) the mix of higher-margin OEM software license revenues and lower-margin
system revenues. In addition, sales generated by OEMs have in the past, and the
Company believes will in the future, vary significantly from quarter to quarter
and, therefore, are difficult to predict accurately on a quarterly basis.
Accordingly, the Company's future operating results are likely to be subject to
significant variability from quarter to quarter and could be adversely affected
in any particular quarter. As a result, the Company believes that
period-to-period
17
<PAGE> 20
comparisons of its revenues and results of operations are not necessarily
meaningful and should not be relied upon as indicators of future performance.
Research and development expenditures are generally charged to operations
as incurred. Statement of Financial Accounting Standards No. 86, "Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,"
requires capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon completion of
a working model. Costs incurred by the Company between completion of the working
model and the point at which the product is ready for general release have been
insignificant. Through June 30, 1996, all research and development costs have
been expensed.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
operating data as a percentage of total revenues.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
----- ----- ----- ----- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Systems and licensing............................... 91.9% 91.0% 87.6% 91.2% 88.4% 90.5% 85.6%
Service and maintenance............................. 8.1 9.0 12.4 8.8 11.6 9.5 14.4
----- ----- ----- ----- ----- ----- -----
Total revenues.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Cost of systems and licensing....................... 43.0 33.0 44.0 43.5 45.7 49.8 35.8
Cost of service and maintenance..................... 3.9 4.3 6.0 10.0 16.0 12.8 16.4
----- ----- ----- ----- ----- ----- -----
Total cost of revenues.......................... 46.9 37.3 50.0 53.5 61.7 62.6 52.2
----- ----- ----- ----- ----- ----- -----
Gross profit.......................................... 53.1 62.7 50.0 46.5 38.3 37.4 47.8
Operating expenses:
Research and development............................ 36.9 26.1 26.8 25.1 38.2 32.0 29.8
Sales, general and administrative................... 40.8 46.3 32.6 36.5 36.6 35.3 29.6
Merger related expenses............................. -- -- -- -- 3.7 7.2 --
----- ----- ----- ----- ----- ----- -----
Total operating expenses........................ 77.7 72.4 59.4 61.6 78.5 74.5 59.4
----- ----- ----- ----- ----- ----- -----
Loss from operations.................................. (24.6) (9.7) (9.4) (15.1) (40.2) (37.1) (11.6)
Interest and other income (expense) net............... (2.8) (0.4) (0.5) (0.6) 0.2 (0.5) 0.0
----- ----- ----- ----- ----- ----- -----
Net loss.............................................. (27.4)% (10.1)% (9.9)% (15.7)% (40.0)% (37.6)% (11.6)%
===== ===== ===== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995
Revenues. The Company's total revenues were $11.2 million for the six
months ended June 30, 1996, compared to $8.6 million for the six months ended
June 30, 1995, an increase of $2.6 million or 30.6%. Systems and licensing
revenue was $9.6 million for the six months ended June 30, 1996 and $7.8 million
for the six months ended June 30, 1995. As a percentage of total systems and
licensing revenue, systems revenue declined and licensing revenue increased
primarily due to the timing of systems deliveries and the receipt and
recognition of an initial payment related to an OEM agreement. In the six months
ended June 30, 1996, 3M, Toshiba and Lucent Technologies each accounted for more
than 10% of the Company's total revenues. The Company expects systems revenue to
increase as a percentage of total systems and licensing revenues in future
periods. Revenue from service and maintenance was $1.6 million for the six
months ended June 30, 1996, compared to $815,000 for the six months ended June
30, 1995, an increase of $805,000 or 98.8%. This increase was due to the
expansion of the Company's service and maintenance organization and increased
marketing of these services.
18
<PAGE> 21
Cost of revenues. Total cost of revenues were $5.9 million for the six
months ended June 30, 1996 and $5.4 million for the six months ended June 30
1995. Total cost of revenues as a percentage of total revenues was 52.2% for the
first six months of 1996, compared to 62.6% for the same period in 1995. Cost of
systems and licensing revenue includes the costs of computer hardware, software
manuals, and overhead related to purchasing and testing prior to shipment. Cost
of systems and licensing revenue was $4.0 million for the six months ended June
30, 1996 compared to $4.3 million for the six months ended June 30, 1995. Cost
of systems and licensing revenue as a percentage of systems and licensing
revenue was 41.9% for the six months ended June 30, 1996, compared to 55.0% for
the six months ended June 30, 1995. This decrease results from the increase in
licensing revenue as a percentage of total systems and licensing revenue, which
typically has a lower cost of sales than systems revenue. The Company believes
systems revenue as a percentage of total systems and licensing revenue is likely
to increase in the future. Cost of service and maintenance revenue includes cost
related to pre-installation logistics, on-site installation, technical support
and spare parts. Cost of service and maintenance revenue for the six months
ended June 30, 1996 was $1.8 million compared to $1.1 million for the six months
ended June 30, 1995. This increase in total dollar spending relates directly to
increased staffing and service activities. Cost of service and maintenance
revenue as a percentage of service and maintenance revenue was 113.6% in the
first six months of 1996, compared to 134.7% for the same period in 1995. This
decrease as a percentage of total revenues reflects increased sales of service
and maintenance.
Research and development. Research and development expenses include
expenses associated with the development of new products, enhancements of
existing products and quality assurance activities, and consist principally of
personnel costs, overhead costs relating to occupancy, equipment depreciation
and supplies. Costs related to research, design and development of products are
charged to research and development expense as incurred. Research and
development expenses were $3.3 million in the six months ended June 30, 1996,
compared to $2.7 million for the six months ended June 30, 1995, an increase of
$596,000 or 21.7%. The increase was primarily due to increased engineering
personnel and activities related to development of new products. As a percentage
of total revenues, these expenses were 29.8% in the first six months of 1996,
compared to 32.0% for the six months ended June 30, 1995.
Sales, general and administrative. Sales, general and administrative
expenses consist of salaries, sales commissions, promotional expenses, legal and
travel for sales, marketing and finance staff. Sales, general and administrative
expenses were $3.3 million for the six months ended June 30, 1996 and $3.0
million for the six months ended June 30, 1995. As a percentage of total
revenues, sales, general and administrative represented 29.6% of total revenues
for the first six months of 1996, compared to 35.3% in the first six months of
1995.
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Revenues. The Company's total revenues were $17.0 million, $16.5 million
and $12.1 million in 1995, 1994 and 1993, respectively, increasing 3.5% from
1994 to 1995 and 35.9% from 1993 to 1994. Systems and licensing revenue was
$15.1 million, $15.0 million and $10.6 million in 1995, 1994 and 1993,
increasing 0.3% from 1994 to 1995 and increasing 41.6% from 1993 to 1994. This
increase from 1993 to 1994 primarily resulted from increases in licensing
revenue from OEMs. From 1994 to 1995, licensing revenue increased and systems
revenue decreased as a percentage of total systems and licensing revenue.
Systems revenue was adversely affected by the Merger and relating restructuring,
which temporarily disrupted the sales organization and sales activities. Service
and maintenance revenue was $2.0 million, $1.4 million and $1.5 million in 1995,
1994 and 1993, respectively, increasing 36.9% from 1994 to 1995 and decreasing
4.4% from 1993 to 1994. This increase from 1994 to 1995 in service and
maintenance revenue was due to increased staffing levels and management's focus
on providing increased service offerings to customers. This decrease from 1993
to 1994 relates to product transitions in 1994 whereby new customers were
initially covered by no-charge warranty. In the year ended December 31, 1995, 3M
accounted for 10% of total revenues; in the years ended December 31, 1994 and
1995 Toshiba accounted for more than 10% of the Company's total revenues.
International revenue represents revenue from customers located outside
North America, primarily Europe and Japan. International revenue, as a
percentage of total revenues, represented approximately 17%, 22% and 13% in
1995, 1994 and 1993, respectively. All sales are denominated in United States
dollars. In
19
<PAGE> 22
addition, many of the Company's domestic OEMs and distributors ship products
integrating the Company's products internationally through their own channels of
distribution.
Cost of revenues. Total cost of revenues were $10.5 million, $8.8 million,
and $6.1 million in 1995, 1994, and 1993, respectively. Cost of systems and
licensing revenue was $7.8 million, $7.2 million, and $5.3 million in 1995,
1994, and 1993, respectively. As a percentage of systems and licensing revenue,
these costs were 51.7%, 47.7% and 50.3% in 1995, 1994 and 1993, respectively.
This decrease in cost of systems and licensing revenue as a percentage of
systems and licensing revenue from 1993 to 1994 was due to an increase in OEM
licensing revenue. This increase in cost as a percentage of systems and
licensing revenue from 1994 to 1995 was due to price erosion on certain mature
products. Cost of service and maintenance revenue was $2.7 million, $1.6
million, and $722,000 in 1995, 1994, and 1993, respectively. Cost as a
percentage of service and maintenance revenue was 138.0%, 113.8%, and 47.9% in
1995, 1994, and 1993, respectively. This increase in the cost of service and
maintenance revenue across all three periods resulted from the Company's
increased investment in customer service and support.
Research and development. Research and development expenses were $6.5
million, $4.1 million and $3.2 million in 1995, 1994 and 1993, respectively,
increasing 57.3% from 1994 to 1995 and 27.2% from 1993 to 1994. This increase
from 1993 to 1994 was attributable to increased staffing to support software
development activities. Increased expenses from 1994 to 1995 were due to
increased investment associated with integrating the product lines of Cemax,
Inc. and ICON Medical Systems, Inc. following the Merger, as well as costs
associated with developing new products. Research and development expenses as a
percentage of total revenues were 38.2%, 25.1% and 26.8% in 1995, 1994 and 1993,
respectively.
Sales, general and administrative. Sales, general and administrative
expenses were $6.2 million, $6.0 million and $3.9 million in 1995, 1994 and
1993, respectively. This increase from 1993 to 1994 was due to increased
staffing and marketing activities. This increase from 1994 to 1995 was due to
increased promotional expenses related to an industry trade show. Sales, general
and administrative expenses as a percentage of total revenues were 36.6%, 36.5%
and 32.6% in 1995, 1994 and 1993, respectively.
Income Tax. As of December 31, 1995, the Company had federal and state net
operating loss carryforwards of approximately $20.0 million and $3.8 million,
respectively. The Company also had federal research and development tax credit
carryforwards of approximately $680,000. The federal net operating loss
carryforwards will expire at various dates from 1996 through 2010, if not
utilized. The California net operating loss carryforwards will expire at various
dates from 1996 through 2000. Utilization of the net operating losses and
credits may be subject to a substantial annual limitation due to the ownership
change limitations provided by the Internal Revenue Code of 1986, as amended,
and similar state provisions. See Note 6 of Notes to Financial Statements.
QUARTERLY RESULTS
The following table sets forth a summary of the Company's quarterly
operations data for the nine quarters in the period ended June 30, 1996,
together with the percentage of total revenues represented by such data. This
information has been derived from the Company's unaudited quarterly financial
statements. In management's opinion, these quarterly results have been prepared
on a basis consistent with the audited Financial Statements contained elsewhere
herein, and include all adjustments, consisting only of normal recurring
adjustments, which the Company considers necessary for a fair presentation of
the information for the quarters presented. These data should be read in
conjunction with the Company's Financial Statements and Notes thereto appearing
elsewhere in this Prospectus. The operating results for any quarter are not
necessarily indicative of results for any future period.
20
<PAGE> 23
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1994 1994 1994 1995 1995 1995 1995 1996 1996
-------- --------- -------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Systems and licensing...... $ 3,617 $ 4,380 $ 3,860 $4,322 $ 3,463 $ 3,416 $ 3,858 $ 4,048 5,564
Service and maintenance.... 350 353 340 317 498 589 567 770 850
------ ------- ------ ------- ------- ------- ------ ------- -----
Total revenues......... 3,967 4,733 4,200 4,639 3,961 4,005 4,425 4,818 6,414
Cost of revenues:
Cost of systems and
licensing................ 1,629 2,216 1,956 1,973 2,311 1,776 1,733 1,698 2,326
Cost of service and
maintenance.............. 426 438 473 515 580 808 816 807 1,033
------ ------- ------ ------- ------- ------- ------ ----- -----
Total cost of
revenues............. 2,055 2,654 2,429 2,488 2,891 2,584 2,549 2,505 3,359
------ ------- ------ ------- ------- ------- ------ ----- -----
Gross profit................. 1,912 2,079 1,771 2,151 1,070 1,421 1,876 2,313 3,055
Operating expenses
Research & development..... 846 858 1,544 1,362 1,386 1,579 2,174 1,622 1,722
Sales, general &
administrative........... 1,409 1,445 1,939 1,513 1,521 1,739 1,462 1,507 1,817
Merger related expenses.... -- -- -- -- 624 -- -- -- --
------ ------- ------ ------- ------- ------- ------ ----- -----
Total operating
expenses............. 2,255 2,303 3,483 2,875 3,531 3,318 3,636 3,129 3,539
------ ------- ------ ------- ------- ------- ------ ----- -----
Loss from operations......... (343) (224) (1,712) (724) (2,461) (1,897) (1,760) (816) (484)
Interest and other income
(expense) net............ (14) (17) (37) (31) (16) 43 31 (3) 4
------ ------- ------ ------- ------- ------- ------ ---- ----
Net loss..................... $ (357) $ (241) $(1,749) $ (755) $(2,477) $(1,854) $(1,729) $ (819) $ (480)
====== ======= ====== ======= ======= ======= ====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1994 1994 1994 1995 1995 1995 1995 1996 1996
-------- --------- -------- -------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Systems and licensing...... 91.2% 92.5% 91.9% 93.2% 87.4% 85.3% 87.2% 84.0% 86.7%
Service and maintenance.... 8.8 7.5 8.1 6.8 12.6 14.7 12.8 16.0 13.3
-------- --------- -------- -------- -------- --------- -------- -------- --------
Total revenues......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Cost of systems and
licensing................ 41.1 46.8 46.5 42.5 58.3 44.3 39.2 35.2 36.3
Cost of service and
maintenance.............. 10.7 9.3 11.3 11.1 14.7 20.2 18.4 16.7 16.1
-------- --------- -------- -------- -------- --------- -------- -------- --------
Total cost of
revenues............. 51.8 56.1 57.8 53.6 73.0 64.5 57.6 51.9 52.4
-------- --------- -------- -------- -------- --------- -------- -------- --------
Gross profit................. 48.2 43.9 42.2 46.4 27.0 35.5 42.4 48.1 47.6
Operating expenses
Research & development..... 21.3 18.1 36.8 29.4 35.0 39.5 49.2 33.6 26.8
Sales, general &
administrative........... 35.5 30.5 46.2 32.6 38.3 43.4 33.0 31.3 28.3
Merger related expenses.... 0.0 0.0 0.0 0.0 15.8 0.0 0.0 0.0 0.0
-------- --------- -------- -------- -------- --------- -------- -------- --------
Total operating
expenses............. 56.8 48.6 83.0 62.0 89.1 82.9 82.2 64.9 55.1
-------- --------- -------- -------- -------- --------- -------- -------- --------
Loss from operations......... (8.6) (4.7) (40.8) (15.6) (62.1) (47.4) (39.8) (16.8) (7.5)
Interest and other income
(expense) net............ (0.4) (0.4) (0.9) (0.7) (0.4) 1.1 0.7 (.1) 0.0
-------- --------- -------- -------- -------- --------- -------- -------- --------
Net loss..................... (9.0)% (5.1)% (41.7)% (16.3)% (62.5)% (46.3)% (39.1)% (16.9)% (7.5)%
======= ======== ======= ======== ======= ======== ======= ======== =======
</TABLE>
The Company's quarterly revenues and results of operations have varied
significantly as a result of a number of factors, including: the volume and
timing of system sales and installations; the length and complexity of the
systems sales cycle; seasonal buying trends as a result of clients' annual
purchasing and budgeting practices; and the Company's sales commission
practices. The Company expects that these variations will continue for the
foreseeable future. The timing of revenue recognition is difficult to forecast
because the Company's systems sales depend on factors such as the size and scope
of installations and general economic conditions. During the sales cycle, the
Company commits substantial time, effort and funds to prepare a contract
proposal and negotiate the contract. In addition, the Company recognizes
revenues from development contracts based upon the achievement of milestones. As
a result, the timing of revenue
21
<PAGE> 24
recognition varies considerably and could be impeded by a number of factors,
including availability of Company personnel, the Company's need to allocate
system installation resources to other installations or to research and
development activities, availability of client personnel and other resources,
complexity of clients' needs and delays imposed by clients. Any delays in
progress toward completing a system installation under a development contract
could reduce the revenues recognized in any given period and could have a
material adverse effect on the Company's business and results of operations. The
Company typically does not obtain long-term volume purchase contracts from its
customers, and a substantial portion of the Company's backlog is scheduled for
delivery within 90 days or less. Customers may cancel orders and change volume
levels or delivery times without penalty. Quarterly revenue and operating
results therefore depend on the volume and timing of the backlog as well as
bookings received during the quarter. A significant portion of the Company's
operating expenses are fixed, and planned expenditures are based primarily on
revenue forecasts and product development programs. If revenue does not meet the
Company's expectations in any given period, the adverse impact on operating
results may be magnified by the Company's inability to adjust operating expenses
sufficiently or quickly enough to compensate for such a shortfall. Accordingly,
the Company believes that period-to-period comparisons of revenues and results
of operations are not necessarily meaningful and should not be relied upon as
indicators of future performance.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations, working
capital needs and capital expenditures primarily from private placements of
equity securities totalling approximately $32.5 million. In the six months ended
June 30, 1996, cash provided by operating activities of $2.4 million was
primarily attributable to a decrease in accounts receivable partially offset by
an increase in accrued compensation and deferred revenue. Cash used in investing
activities of $387,000 in the six months ended June 30, 1996 related to the
purchase of property and equipment. Cash flows used in financing activities of
$1,000 for the six months ended June 30, 1996 was primarily attributable to
payments on the Company's revolving line of credit partially offset by proceeds
from issuance of common stock.
Deferred revenues consist of the unrecognized portion of service and
maintenance revenue received pursuant to maintenance and support contracts and
the unrecognized portion of systems and license revenue subject to delivery of
goods or completion of services. Deferred revenue increased from $3.5 million at
December 31, 1995 to $4.9 million at June 30, 1996.
Capital expenditures have been, and future expenditures are anticipated to
be, primarily for facilities and equipment to support expansion of the Company's
operations and management information systems. While the Company currently has
no material capital commitments, the Company anticipates that its planned
purchases of capital equipment in 1996 will require additional expenditures of
approximately $500,000.
The Company expects that its requirements for office facilities and other
office equipment will grow as staffing requirements dictate. The Company's
operating lease commitments consist primarily of an office lease for the
Company's main operating facility. The Company plans to continue increasing its
professional staff during the remainder of fiscal 1996 and during fiscal 1997 to
meet anticipated sales volume and to support research and development efforts.
To the extent necessary to support increases in staffing, CEMAX-ICON may obtain
additional office space.
At June 30, 1996, the Company had cash and cash equivalents of
approximately $3.8 million and a working capital deficit of approximately $1.8
million. The Company believes that the estimated net proceeds from this offering
together with current cash and cash equivalent balances and internally generated
funds will satisfy the Company's projected working capital and capital equipment
requirements at least through 1997. Thereafter, if cash generated from
operations is insufficient to satisfy the Company's projected requirements, the
Company may be required to sell additional equity or debt securities or obtain
bank or other credit facilities. There can be no assurance that the Company will
be able to sell such securities or obtain such credit facilities on acceptable
terms in the future, if at all. The sale of additional equity or debt securities
could result in additional dilution to the Company's stockholders.
22
<PAGE> 25
BUSINESS
INTRODUCTION
CEMAX-ICON designs, manufactures and markets medical image information
systems which electronically acquire, archive, distribute and display medical
images throughout hospitals, outpatient facilities and integrated delivery
networks ("IDNs"). The Company's systems interface with virtually all
commercially available imaging modalities, including x-rays, computed tomography
("CT"), magnetic resonance imaging ("MRI"), computed radiography, ultrasound and
nuclear medicine. By automating and increasing the availability of medical
images within a healthcare facility or throughout an IDN, the Company's systems
reduce the cost and improve the management of medical care. CEMAX-ICON's systems
and modules are based on an open architecture and utilize standard hardware and
standard network protocols in order to facilitate integration with existing
image acquisition devices and healthcare information systems. CEMAX-ICON
provides complete turn-key systems as well as scalable software modules that
integrate with commercially available third-party hardware. CEMAX-ICON sells its
systems and software directly to end-users as well as through OEMs and
distributors. The Company's OEM relationships are with several leading suppliers
of imaging and information systems to the healthcare industry, including
Minnesota Mining and Manufacturing Co. ("3M"), Toshiba Corporation ("Toshiba"),
Lucent Technologies, Inc. (formerly a division of AT&T) ("Lucent"),
Hewlett-Packard Co. ("Hewlett-Packard"), Sterling Diagnostics, Inc. (formerly a
division of DuPont) ("Sterling") General Electric Co. ("General Electric"), and
Eastman Kodak Company ("Kodak"). CEMAX-ICON's systems and software are installed
at over 1,500 sites worldwide.
INDUSTRY BACKGROUND
The healthcare industry in the United States continues to change
dramatically in response to escalating healthcare costs. Reimbursement for
healthcare services has historically been based on a fee for service model of
payment. Under pressure to reduce costs, managed care organizations and other
payors are increasingly utilizing reimbursement models, including fixed fee and
capitation, that shift the financial risk of delivering healthcare from the
payors to the physicians and the institutional providers. In response to this
changing reimbursement environment, healthcare providers, including hospitals,
physician groups and laboratories, are combining horizontally and vertically to
create IDNs, and are reengineering their organizations and information systems
to achieve efficiencies wherever possible.
Healthcare providers and payors recognize that timely access to the
complete patient medical record throughout the healthcare institution or IDN can
help control healthcare costs and improve the quality of patient care. However,
until recently, information systems used by healthcare institutions focused on
automating financial, registration, scheduling, laboratory, pharmacy and
accounting departments but did not make data available throughout the entire
institution. Recent technological advances have enabled the creation of a
computerized patient record ("CPR") which integrates these disparate department
systems and data repositories throughout a single institution or across an IDN.
However, in order for a CPR to be effective in supporting care management, it
must contain all information in a patient's medical record. Medical images have
not been included in the CPR because those images are typically stored on film,
not generally accessible by computer.
Medical images from x-ray, CT, MRI, computed radiology, ultrasound and
nuclear medicine are a critical part of the patient's medical record as they are
used in all stages of patient care, including screening, diagnosis, treatment
and post-treatment assessment. As a result, medical images are viewed by, and
must be copied and manually transferred among, multiple parties involved in the
treatment of a patient within a healthcare enterprise, including the radiology,
orthopedics, surgery, oncology, emergency and other departments of a hospital,
multiple clinics, hospitals, and doctors' homes and offices. According to a 1995
report by the American College of Radiology, over 272 million radiographic and
other medical imaging procedures were performed in the United States in 1992,
producing an estimated one billion square feet of film. Recently introduced
diagnostic imaging devices such as spiral CT and interventional MRI generate
even greater numbers of images per patient exam. Currently, film retrieval and
distribution are manual processes which are
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inherently slow and labor-intensive. Furthermore, film is bulky, expensive to
store, frequently lost or misplaced and requires expensive chemical handling and
processing which produce environmentally hazardous by-products. Industry
analysts have estimated that films are lost or misplaced 10% to 20% of the time,
which increases costs and often presents complications in providing patient
care. A 1995 industry survey estimates that healthcare providers in the United
States purchased approximately one billion dollars of medical film in 1992, and
that the annual cost of processing, handling, storing and retrieving film ranges
from $3-4 billion.
Trends toward lower cost and higher quality care in the healthcare industry
are causing changes in the management of medical images. Healthcare institutions
are motivated to reengineer their management of medical images in order to
reduce the operational costs of film management, to ensure that images are
accessible throughout the healthcare organization or IDN, and to improve the
quality of patient care. Due to reductions in the reimbursement rates for
radiological interpretations, radiologists are also motivated to support the
implementation of new systems which enable them to increase the number of
interpretations they can perform on a daily basis. In addition, the ability to
access medical images remotely enables radiologists to compete for business over
larger geographic areas.
Traditional healthcare information systems are limited in their ability to
provide cost-effective, institution-wide access to medical images because many
existing image acquisition devices use a variety of proprietary platforms.
Devices utilizing proprietary platforms cannot easily communicate with each
other or be integrated into a network. As a result, the distribution of medical
images is generally a manual, labor-intensive and inefficient process. Moreover,
digitized medical images contain enormous quantities of data. For example, a
two-view chest x-ray contains eight to ten megabytes of data. More recent
healthcare information systems have improved the management of textual data, but
generally lack the storage capacity and the connectivity necessary to provide
immediate access to large databases of medical images.
Recent computing advances have made possible the creation of large-scale
networks that digitize, transmit, store and retrieve medical images. Despite
such technological advances, the broad implementation of such systems, known as
Picture Archiving and Communication Systems ("PACS"), has proven difficult. Most
PACS solutions lack some or all of the following capabilities required to be
effective in the healthcare industry: (i) networking capability that enables
connectivity with image acquisition devices that use emerging industry standard
interfaces and the many existing image acquisition devices that have proprietary
interfaces; (ii) data compression technology and communications bandwidth that
meet physician demands for immediate image display; (iii) data storage
architecture that is cost-effective and adequate to handle massive input/output
volumes and maintain continuous access to multiple medical images
simultaneously; (iv) scalability to grow as institutions consolidate to create
increasingly larger IDNs; (v) open systems architecture to allow customers to
choose from a variety of standard commercially available hardware platforms; and
(vi) user implementations that support clinicians without disrupting their
established procedures. Ideally, PACS should be able to collect and store
medical images from the various image acquisition devices, make the images
immediately available at any point in the institution or IDN, including multiple
hospitals, hospital departments and clinics as well as the doctors' offices and
homes. Furthermore, PACS should be integrated with the institution's existing
paper or document information system.
THE CEMAX-ICON SOLUTION
CEMAX-ICON's systems enable healthcare providers to cost-effectively
implement PACS within a healthcare facility or throughout an IDN. The Company's
systems, designed in consultation with clinicians, enable healthcare providers
to reengineer the management of medical images to increase the productivity of
radiologists, other clinicians and support staff. The Company's systems also
reduce film use and film-related expenses, clinical problems and costs related
to lost films, and costs of storing and accessing medical images. In addition,
the Company's systems increase the accessability of medical images to clinical
staff, both within an institution and at remote sites and enable healthcare
providers to broaden their geographic service areas.
The Company's systems are designed to address the technical challenges in
implementing PACS. The Company's systems are based on an open architecture
adhering to industry standards, allowing customers to choose from a variety of
standard commercially available hardware. For these reasons and because the
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Company's systems are modular in design, investment in early systems
implementation is preserved as the network expands. The Company's systems
acquire images from virtually all commercially available imaging modalities
including x-ray, CT, MRI, computed radiography, ultrasound and nuclear medicine.
The Company has developed a large library of interfaces to provide connectivity
with standard interfaces as well as the large installed base of proprietary
image acquisition devices. The Company's systems utilize a distributed server
and database architecture and advanced image compression technology to
cost-effectively store and transmit large image data sets at clinically
acceptable speeds.
STRATEGY
CEMAX-ICON has established itself as a leading supplier of medical image
information systems and software to the healthcare industry. The principal
elements of the Company's strategy are as follows:
Maintain Technology Leadership. The Company believes that maintaining
technology leadership in the digital collection, storage, transmission and
display of medical images is necessary to maintain its position as a leading
supplier of teleradiology systems and to increase its penetration of the high
performance PACS market. The Company's platform-independent, distributed
architecture and advanced technology provide real time image management,
optimized image compression and bandwidth, high volume storage capability, and
scalable installations which can interface with industry standard and
proprietary image acquisition devices. For example, the Company believes its
products are distinguished by their ability to provide real-time display of
multiple high resolution digitized x-ray images simultaneously on industry
standard hardware. The Company intends to continue to invest in research and
development to maintain its technology leadership.
Leverage Knowledge of Radiology Practice. The Company believes that its
expertise in the practice of radiology gives it a competitive advantage in the
marketplace where radiologists exert significant influence on the purchasing
decision for PACS and teleradiology systems. The Company has worked extensively
with radiologists and other clinicians for more than a decade in developing its
systems. In addition, the Company's Chief Technical Officer was a practicing
radiologist for several years prior to founding ICON Medical Systems, Inc. Based
on its insights into the workflow processes of radiology departments, the
Company's systems and software have been designed to enable radiologists and
other clinicians to incur minimal training and disruption to established
practice patterns. For example, the Company's AutoRad module automatically
customizes the order and manner in which images are displayed to meet the
individual radiologist's method of practice.
Leverage OEM Relationships. Strategic OEM relationships enable the Company
to access a significant number of large accounts, utilize technical knowledge of
the OEMs' product offerings to optimize the Company's own systems, allocate its
product development resources most effectively, and facilitate entrance to
international markets. The Company has established OEM relationships with
leading suppliers of imaging and information systems to the healthcare industry,
including 3M, Toshiba, Lucent, Hewlett-Packard, Sterling, General Electric and
Kodak. The Company intends to continue to enter into similar OEM relationships
with other major medical imaging and healthcare information system vendors in
the future.
Increase Penetration of PACS and Teleradiology Markets. The Company
believes that the market for PACS is likely to experience significant growth and
that those vendors obtaining early orders for initial system installations may
receive significantly larger follow-on orders for further system implementation.
The Company has previously invested heavily in research and development in order
to accelerate new product development, develop a broad product offering, and
maintain its technology leadership in the PACS market. The Company intends to
take advantage of its research and development investment, large installed base
of teleradiology systems and broad product line to expand its presence in the
PACS market and increase its significant share of the teleradiology market.
Cross-Sell Teleradiology and PACS. The Company believes that it has a
significant competitive advantage in selling teleradiology systems to customers
using the Company's PACS due to its ability to integrate certain of the
Company's teleradiology modules into its PACS. The Company also believes that
its position as a leading vendor of teleradiology systems with a large installed
base of approximately 1,300 customers increases access to potential PACS
customers. In addition, the familiarity of both the radiology
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department and the healthcare institutions' MIS department with the Company's
product offerings increases the likelihood of a successful system sale, as most
of the Company's PACS competitors do not offer their own teleradiology systems.
PRODUCTS
CEMAX-ICON's medical image information systems are primarily software-based
and consist of the following modules: (i) input modules enable the Company's
medical image information system to digitally acquire images from virtually all
commercially available imaging modalities including x-rays, CT, MRI, computed
radiology, ultrasound, and nuclear medicine; (ii) distribution and storage
modules route medical images throughout the network and save images for
immediate retrieval and long-term storage; (iii) display modules display,
process or print medical images supporting a wide range of clinical needs and
applications ranging from centralized diagnostic reading to remote clinical
review; and (iv) hardware products allow costly and specialized medical-imaging
specific functions to be performed on cost-effective PC platforms.
The following chart summarizes the various software modules comprising the
Company's systems:
LOGO
Input Modules
CEMAX-ICON's family of input modules enables the Company's medical image
information systems to interface with virtually all commercially available
medical imaging modalities. Each of these modules acquires medical images and
associated patient and study information from the imaging devices in digitized
format and distributes them to the network in compliance with the emerging
industry-standard communications protocol for an open network, DICOM (Digital
Image Communications in Medicine). The Company has developed approximately 125
ScanLink interfaces.
DICOM ScanLinks are platform-independent software modules which interface
with DICOM-compliant image acquisition devices to support sending,
querying, receiving and printing images and study information. DICOM
ScanLinks incorporate CEMAX-ICON's compression technology which allows
transmission over low bandwidth connections such as telephone lines.
Legacy ScanLinks interface with virtually all existing CT and MRI scanners
which utilize a proprietary network protocol (a standardized method to move
data over a network between two computers). Legacy ScanLinks are a
differentiating technology for CEMAX-ICON because most vendors do not have
access to the proprietary information necessary to develop interfaces for
devices other than their own. The Company has been able to obtain protocol
specifications from the majority of CT and MRI scanner vendors due to its
many and longstanding OEM relationships.
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Printer ScanLinks interface with many medical scanners which output images
to commercial medical film printers but which are not designed to interface
with any network, whether proprietary or DICOM-compliant. Printer ScanLinks
emulate the interface on these scanners to digitally send images to an open
network. For teleradiology applications, up to four scanners may share a
centralized Printer ScanLink by performing remote image acquisition using
up to four Technologist Keypads described below.
Digitizer ScanLinks digitize and route film-based medical images to an open
network. Digitizer ScanLinks support virtually all medical film digitizers.
Digitizer ScanLink software provides full control over the image
digitization process (a process of converting an analog image into a
digital image) including selection of image resolution, image grayscale
(the number of levels of gray used to display an image), image orientation,
default window/level setting (the grayscale setting used to adjust image
brightness and/or contrast) and region of interest. The software also
supports a quality-assurance function allowing technologists to review the
scanned image and make corrections prior to saving it.
CR ScanLinks interface with virtually all computed radiography devices,
allowing x-ray images to be directly input and accessible on an open
network without ever having been filmed. CR ScanLinks automatically receive
images from computed radiography devices, extract patient, study and image
information from the proprietary file format and apply proprietary image
processing as specified by parameters in the image file, for routing to
other DICOM-compliant devices.
Distribution and Storage Modules
CEMAX-ICON'S distribution and storage modules route digital images from the
Company's input modules throughout an open network and save images for immediate
and long-term storage and retrieval.
ImageServer is a distributed image database which allows users to access
specific images regardless of where the images are stored or the users are
located. The ImageServer is integrated with ClinicalView, DiagnosticView,
VIP and Network Film Server modules as described below. ImageServer may be
integrated with the Company's display modules as well as with any
DICOM-compliant devices. The distributed scalable nature of the database
provides maximum availability of information in the unlikely event any one
or more servers on an open network fail.
ImageCom provides the ability to send, receive, retrieve and track medical
imaging studies to and from remote locations. This module supports
optimized compression for transmission over low bandwidth connections as
well as transmission over a range of wide area connections including
telephone lines, T1 and Frame Relay (each a wide-area network
communications link which allows standard network protocols to move data
from one site to another) and ISDN. ImageCom provides fail-safe
telecommunications allowing it to run in an unattended mode and resume
transmission automatically after an interruption.
Network Film Server transmits images from ClinicalView, DiagnosticView or
VIP to virtually all medical film printers, including those produced by 3M,
Agfa-Gevaert N.V., E.I. DuPont Nemours & Co., Fuji Photo Film Co., Ltd.,
Kodak and Konica Corporation.
Archive Manager 1.0 provides the ability to store images to removable tape
cartridges for later retrieval and to manage the tapes as a large shelf
library. Archive Manager 1.0 is expected to be superseded by Archive
Manager 2.0.
Archive Manager 2.0, currently under development, is a scalable rules-based
medical image information warehouse that automatically stores, retrieves
and distributes medical images. Archive Manager 2.0 is a distributed
object-oriented DICOM-compliant database that supports the reliability and
volume demands of PACS and health care information systems environments.
Archive Manager 2.0 offers capabilities ranging from routine queries to
complex data mining, supporting utilization review and research
applications. Its sophisticated hierarchical storage management capability
allows it to automatically migrate images between rapid on-line storage and
lower cost jukebox media (a removable disk cartridge used for data
storage). The module supports medical-optimized compressions allowing
medical facilities to specify that archived studies be compressed in order
to lower storage costs and expand system capacity.
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Display Modules
CEMAX-ICON's display modules enable the Company's medical image information
system to support a wide range of clinical needs and applications ranging from
remote clinical review to centralized diagnostic reading. Each of these modules
allows the user to access and display specific medical images and associated
patient and study information from the Company's distribution and storage
systems.
ClinicalView is a Unix-based software module designed for use by clinical
staff to display and review patients' current and historical medical images
from an open network, regardless of where the images are stored or the
users are physically located. ClinicalView is DICOM-compliant, presents
images at medium resolution (1,500 lines) on one or two monitors and
provides a simple intuitive user interface which allows clinicians to
perform basic image manipulation and enhancement.
DiagnosticView is a Unix-based software module designed for use by
radiologists for diagnostic reading of medical images from an open network,
regardless of where the images are stored or the users are physically
located. DiagnosticView is DICOM-compliant, presents images at
high-resolution (2,000 lines) on one or two monitors, and provides access
to powerful image manipulation, enhancement and printing functions.
VIP is a Unix-based software module designed for use by radiologists
whose practice requires three dimensional ("3D") reconstruction and
visualization capability. VIP receives two dimensional CT and MRI images
and renders these as 3D images which may be viewed and manipulated
electronically. User definable protocols provide a powerful tool to
automate complex image processing and presentation functions. Additional
features include real-time monitoring of scan progress, real-time
multi-planar reconstruction, interactive tissue classification and
disarticulation and creation of spinal and dental clinical protocol
packages.
RadAccess is a Macintosh-based software display module for less
demanding imaging requirements. CEMAX-ICON's PCI display controllers enable
medium resolution (1,500 line) display capability on one or two monitors.
RadAccess provides a simple intuitive user interface which allows
clinicians to navigate the available current and historical images and to
perform basic image manipulation and enhancement.
TeleMax Display software is designed for use by radiologists and
clinical staff at home or office using their existing Windows 95 based or
Macintosh personal computers. Telemax works in conjunction with ImageCom
software which transfers medical images over telephone lines or ISDN.
TeleMax allows users to create predefined or custom annotated illustrated
reports which may be printed or faxed to referring physicians. TeleMax
software presents images at conventional PC resolution (500-1,000 lines) on
a single monitor and provides image viewing and manipulation functions.
AutoRad, currently under development, is a DICOM-compliant primary
diagnostic reading module which optimizes radiologists' clinical
productivity and enhances communications of images and results with
clinical staff. The Company currently has 12 AutoRad clinical Beta sites,
ranging in scale from a freestanding imaging center to a teaching hospital.
AutoRad enables healthcare institutions to transition from film-based to
filmless reading of medical images. AutoRad displays medical images on as
many as four high-resolution monitors (2,500 lines) using CEMAX-ICON
developed graphics-accelerated PCI display controllers. It allows multiple
image files to be accessed and compared simultaneously, providing the
capability to view electronically high volumes of medical images faster
than with film. By automatically sorting and arranging current and
historical studies in accordance with each radiologist's preference,
AutoRad significantly increases the efficiency of interpretation. AutoRad
allows radiologists to annotate selected images with text notes and to
incorporate them into illustrated reports which may be printed or faxed to
referring clinicians.
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Hardware Products
The Company designs hardware products to enable its software to implement
fully functional image information networks on cost-effective industry standard
hardware. The Company's hardware products use industry standard PCI interfaces
for maximum performance and compatibility with existing PC platforms.
PCI Display Controller allows standard PCs to display high resolution
images on medical monitors up to a resolution of 2,500 x 2,000 lines. To
the Company's knowledge, PCI Display Controller is the only commercially
available controller at this resolution to drive up to two monitors from
each controller card, allowing a typical PC system to drive up to eight
monitors.
PCI Analog and Digital Printer Interfaces acquire images from
proprietary medical scanners not designed to support a network connection.
An advanced switching capability allows the operator to select among three
modes without reconfiguring the system: (i) print to the network; (ii)
print to the film printer; and (iii) print to both the network and the film
printer. This allows the users to transition to a filmless environment and
still have back-up use of the printer in the event of network failure.
Technologist Keypad is an LCD-based controller which allows
technologists to monitor and control image input and routing in conjunction
with the PCI Analog and Digital Printer Interfaces described above. This
product provides barcode input capability which eliminates the requirement
for manual entry of patient and study demographics.
Remote Workstation allows up to four remote users to have full
keyboard, mouse and monitor control over a shared central teleradiology
acquisition system. This product reduces cost in teleradiology applications
by eliminating the need to install a dedicated input computer for each
remote monitor.
LaserLink connects to the printer port on commercially available
medical film printers and allows users to print electronic medical images
to a medical film printer from any station on the network. This controller
emulates the digital printer interface found on current generation CT and
MRI scanners. It supports virtually all of the commercially available
printing protocols.
TECHNOLOGY
CEMAX-ICON's software is developed using object-oriented design methodology
and leading commercial C/C++ (standard programming languages) compilers. The
Company's core technologies have been developed using an open,
platform-independent architecture. Communications modules are compliant with
industry standard DICOM 3.0, TCP/IP and HL-7. Archive modules under development
utilize a commercially available distributed object-oriented database.
The Company's systems operate on a wide range of platforms including SUN
Sparc / Sparcstation work stations under Unix, Pentium PC's under Windows 95 and
NT, and Macintosh computers under MacOS 7.5. The Company is in the process of
porting key modules to HP Unix and NT computers. Acquisition and display
hardware products are based on PCI interfaces and support industry-standard
drivers for Windows 95, NT and Macintosh.
All CEMAX-ICON systems are designed and developed according to product
development procedures reviewed by the FDA and stringent quality assurance
procedures which meet or exceed FDA Good Manufacturing Practices.
MARKETING AND SALES
The primary market for the Company's systems includes hospitals, outpatient
facilities and IDNs. The Company currently sells its products directly through
its own sales organization and indirectly through OEMs, including 3M, Toshiba,
Lucent, Sterling, General Electric and Kodak, and six distributors. The use of
OEMs and distributors allows the Company to leverage its sales force and to
penetrate accounts which have strong customer loyalty to the OEM. The Company is
committed to expanding its market presence by expanding its direct sales force
to market directly to healthcare providers and through pursuing additional OEM
and distributor relationships.
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The Company's OEM relationships often consist of multi-year distribution
agreements providing the OEMs with the right to acquire the Company's systems at
a discount and to offer such systems to third parties under private labels. The
Company's distributor relationships consist of multi-year agreements providing
the distributors with the right to purchase the Company's systems at a discount
for resale. When working with an OEM or distributor, the Company's sales people
work as a complementary extension of their sales team. Further revenue growth
depends, in part, on the Company's ability to successfully maintain and expand
OEM and distributor relationships and rapidly grow its direct sales force.
CEMAX-ICON has entered into an international distribution agreement with 3M
in addition to its domestic OEM arrangement. This distribution agreement
provides 3M with exclusive sales rights to jointly label the Company's products
for sale in Europe through the 3M sales force and calls for minimum quarterly
purchase commitments by 3M. Other OEMs and distributors can sell private label
CEMAX-ICON products in Europe.
The Company's foreign sales totaled $2.8 million and $2.4 million for the
year ended December 31, 1995 and for the six months ended June 30, 1996,
respectively. The table below sets forth the Company's export sales data for the
year ended December 31, 1995 and for the six months ended June 30, 1996. See
Note 1 of Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------- -----------------
<S> <C> <C>
Export Sales:
Asia/Pacific Rim........................... $2,531,000 $ 931,000
Europe/Africa.............................. 291,000 1,518,000
----------------- -----------------
Total............................ 2,822,000 2,449,000
================= ==================
</TABLE>
In November 1995, the Company, Hewlett-Packard and 3M jointly announced a
cooperative effort to distribute Archive Manager 2.0 using Hewlett-Packard
hardware, 3M media and CEMAX-ICON software. This relationship is designed to
provide customers with simplified purchasing and lower costs associated with
combining the three companies' products to assemble a solution. The companies
expect to benefit through development of new channels of distribution.
The Company currently sells its products directly through seven
representatives located in Charlotte, Chicago, Kansas City, New Haven, San
Antonio and San Francisco with marketing, sales and technical support provided
through the Company's headquarters in Fremont, California.
The Company's marketing department is comprised of technical personnel
experienced in network analysis, product management, target marketing,
competitive analysis, sales support, quoting, proposals and advertising. The
Company supports these efforts by publishing articles, presenting or sponsoring
talks at professional meetings, assuming leadership positions in professional
organizations, participating in trade shows, advertising in trade magazines and
issuing frequent announcements to the trade press. Prospective clients are
identified through the marketing programs of the Company's OEMs and
distributors, as well as the Company's own direct mail and telemarketing
efforts.
The Company's success is dependent on the success of its marketing and
distribution strategy which involves, to a significant degree, reliance on the
Company's OEMs to sell the Company's software modules as a component of the
systems being marketed by such OEMs. The Company's OEM agreements are subject to
cancellation by the OEMs under certain circumstances. If the Company's current
or future OEMs elect to terminate their agreements with the Company or elect not
to include the Company's software modules as components in their systems or are
unsuccessful in achieving significant sales of those systems, the Company's
business would be materially and adversely affected. In addition, a significant
portion of the Company's total revenues are derived from a small number of
customers. In the years ended December 31, 1994 and 1995 Toshiba accounted for
more than 10% of total revenues, in the year ended December 31, 1995 3M
accounted for 10% of total revenues, and in the six months ended June 30, 1996,
3M, Toshiba, and Lucent Technologies each accounted for more than 10% of total
revenues and in the aggregate accounted for 45% of total revenues.
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The Company expects to continue to depend upon its principal customers for a
significant portion of its revenues, although there can be no assurance that the
Company's principal customers will continue to purchase systems and services
from the Company at current levels, if at all. The loss of one or more major
customers or a change in their buying pattern could have a material adverse
effect on the Company's business and results of operations. Recruiting and
retaining qualified sales, customer service and technical personnel will also be
critical to the Company's success. There can be no assurance that the Company
will be successful in attracting and retaining skilled technical personnel who
generally are in high demand in the Company's geographic area. The loss of
certain key employees or the Company's inability to attract and retain other
qualified employees could have a material adverse effect on the Company's
business.
CUSTOMERS AND SIGNED SALES CONTRACTS
The Company's customers include healthcare providers located throughout the
United States, Europe and Japan. As of June 30, 1996, the Company had over 1,500
end-user customers. The Company believes that the installed customer base of its
OEMs and distributors also represents a significant opportunity to market and
sell its systems and services.
The decision by a healthcare provider to replace or substantially upgrade
its image information systems typically involves a major commitment of capital
and an extended review and approval process. Accordingly, the sales and delivery
cycle for the Company's system is typically two to 12 months from initial
contact to delivery and acceptance. The time required from initial contact to
contract execution is typically one to six months. During these periods, the
Company may expend substantial time, effort and funds preparing a contract
proposal and negotiating the contract. Any significant or ongoing failure to
identify appropriate potential customers, to achieve signed contracts, to
successfully complete products under development, and to obtain customer
acceptance after expending time, effort and funds could have a material adverse
effect on the Company's business, financial condition and results of operations.
At June 30, 1996, the Company had approximately $11.5 million of signed
sales contracts for systems and services which had not yet been delivered but
are scheduled for delivery within the next twelve months, including products
under development. The Company adjusts the timing of an installation, which
typically requires one to six months to complete, to accommodate customers'
needs, and the Company cannot accurately predict the time it will take to
complete products under development. Consequently, the Company cannot accurately
predict the amount of revenue it expects to achieve in any particular period. A
termination or installation delay of one or more contracts, or the failure of
the Company to procure additional contracts, could have a material adverse
effect on the Company's business.
The Company's direct customers include the following purchasers of PACS
systems having a sales price of over $500,000:
Northwest Texas Hospital, Amarillo, TX
Saint Francis Hospital, Tulsa, OK
Saint Vincent Medical Center, Toledo, OH
Slagelse Central Hospital, West-Zealand County, Denmark
Stanford Health Services, Stanford, CA (1)
University of Iowa, Iowa City, IO
University of North Carolina Medical Center, Chapel Hill, NC
Turku University Central Hospital, Turku, Finland
Veteran's Administration Medical Center Oklahoma, Oklahoma City, OK
- ---------------
(1) System scheduled for installation in October 1996.
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CUSTOMER SUPPORT
The Company currently intends to continue to invest in the customer service
area by increasing headcount, build infrastructure (including a state-of-the-art
customer call handling service management system and diagnostic service and
installation tools), and develop and implement training programs for its
internal staff, customers, OEMs and distributors. Customer Support is provided
either directly from CEMAX-ICON by on-site staff visits, technical support by
phone or direct log onto the system via modem, or through the Company's OEM
relationships.
MANUFACTURING
The Company's manufacturing activities consist primarily of assembling and
testing components and subassemblies acquired from qualified vendors, and
subsequently integrating the appropriate application software programs. The
Company operates under the FDA Good Manufacturing Practices guidelines and is a
registered medical device manufacturer. The Company has recently undertaken
efforts to comply with the ISO 9000 class of standards.
The Company purchases industry-standard parts and components for the
assembly of its products, generally from multiple vendors. The Company generally
maintains good relationships with its vendors and, to date, has not experienced
any material supply problems.
COMPETITION
Competition in the market for the Company's systems is intense. A large
number of companies offer teleradiology systems which are competitive with those
of the Company. Many of the Company's competitors are larger and more
established and have substantially more financial, technical, research and
development and marketing resources than the Company. Several large
multi-national corporations, including Philips, Agfa and Siemens, offer
competitive products in the PACS market. Other large corporations have the
technical and financial ability to design and market competitive products, and
some of them have produced and marketed such products in the past. There can be
no assurance that such large potential competitors will not elect to reenter the
market for the Company's systems, which could have a material adverse effect on
the Company's ability to sell its products. In the past, certain competitors
have from time to time offered PACS for sale at substantial discounts to
prevailing prices or offered PACS to customers at no additional charge in
connection with the sale of complementary systems, which has had and could have
a material adverse effect on the Company's ability to sell its systems.
The Company's ability to compete successfully in the sale of its systems
will depend in large part upon its ability to implement successfully its
strategy of selling systems as a total solution as well as its ability to
attract new customers, sell new systems, deliver and support system enhancements
to its existing customers and respond effectively to continuing technological
change by developing new systems. There can be no assurance that the Company
will be able to compete successfully in the future, nor that future competition
for product sales will not have a material adverse effect on the business,
results of operations and financial condition of the Company.
CEMAX-ICON believes that the principal competitive factors in its market
are customer recommendations and references, company reputation, system
reliability, system features (including ease of use), technological
advancements, breadth of product line, customer service and support, the
effectiveness of marketing and sales efforts, product price and performance. In
addition, CEMAX-ICON believes that the speed with which companies in its market
can anticipate the evolving healthcare industry structure an identify unmet
needs are important competitive factors. There can be no assurance that the
Company will be able to compete successfully in the future against existing or
potential competitors.
PATENTS AND INTELLECTUAL PROPERTY
The Company generally does not rely on patent protection with respect to
its products. Instead, the Company relies on a combination of copyright and
trade secret law, employee and third-party nondisclosure
32
<PAGE> 35
agreements, and other protective measures to protect intellectual property
rights pertaining to its systems and technology. There can be no assurance,
however, that applicable copyright or trade secret law or these agreements will
provide meaningful protection of the Company's copyrights, trade secrets,
know-how or other proprietary information in the event of any unauthorized use,
misappropriation or disclosure of such copyrights, trade secrets, know-how or
other proprietary information. In addition, the laws of certain foreign
countries do not protect the Company's intellectual property rights to the same
extent as do the laws of the United States. There can be no assurance that the
Company will be able to protect its intellectual property successfully.
The Company's systems and technology incorporate subject matter that the
Company believes is in the public domain or that it otherwise has the right to
use. There can be no assurance that third parties will not assert patent,
copyright or other intellectual property infringement claims against the Company
with respect to its products or technology or other matters. There may be
third-party patents, copyrights and other intellectual property relevant to the
Company's systems and technology which are not known to the Company. Although no
third party has asserted that the Company is infringing such third party's
patent rights, copyrights or other intellectual property, there can be no
assurance that litigation asserting such claims will not be initiated, that the
Company would prevail in any such litigation, or that the Company would be able
to obtain any necessary licenses on reasonable terms if at all. Any such claims
against the Company, with or without merit, as well as claims initiated by the
Company against third parties, can be time-consuming and expensive to defend or
prosecute and to resolve.
GOVERNMENT REGULATION
The manufacturing and marketing of the Company's systems are subject to
extensive government regulation as medical devices in the United States by the
FDA and in other countries by corresponding foreign regulatory authorities. The
process of obtaining and maintaining required regulatory clearances and
approvals is lengthy, expensive and uncertain. The Company believes that its
success depends upon commercial sales of improved versions of its systems,
certain of which cannot be marketed in the United States and other regulated
markets unless and until the Company obtains clearance or approval from the FDA
and its foreign counterparts.
The FDA requires that a manufacturer seeking to market a new medical device
or an existing medical device for a new indication obtain either a premarket
notification clearance under Section 510(k) of the Federal Food, Drug and
Cosmetic Act or the approval of a premarket approval application under this Act
("PMA") prior to the introduction of such product into the market. Material
changes to existing medical devices are also subject to FDA review and clearance
or approval prior to commercialization in the United States. The Company is
currently relying on the Section 510(k) premarket notification method to obtain
governmental clearance ("510(k) clearance") to market its medical devices in the
United States. Although it is believed to be a shorter, less costly regulatory
plan than the process to obtain a PMA, the process of obtaining a 510(k)
clearance generally requires supporting data, which can be extensive and extend
the regulatory review process for a considerable length of time. All models of
the Company's systems that are commercially available have received 510(k)
clearance by the FDA. In addition, the Company recently received 510(k)
clearance for Archive Manager 2.0 and for its DICOM and AutoRad modules
currently under development. There can be no assurance that 510(k) clearance for
any future product or modifications of existing products will be granted by the
FDA within a reasonable time frame, if at all. Furthermore, the FDA may require
that a request for 510(k) clearance be supported by data from clinical trials
demonstrating substantial equivalence and the safety and effectiveness of the
device, which may prolong the Section 510(k) notification review period for a
particular device or may result in a finding that the product is not
substantially equivalent, so that a full PMA could be required.
Failure to comply with applicable regulatory requirements could result,
among other things, in warning letters, seizures of products, total or partial
suspension of production, refusal of the government to grant market clearance or
pre-market approval, withdrawal of approvals or criminal prosecution.
The Company is also required to register as a medical device manufacturer
with the FDA and the Food and Drug Branch of the California Department of Health
Services ("CDHS"). The Company will be
33
<PAGE> 36
inspected on a routine basis by both the FDA and CDHS for compliance with the
FDA's Good Manufacturing Practices and other applicable regulations.
The Company is also subject to other federal, state and local laws and
regulations relating to safe working conditions and manufacturing practices. The
extent of government regulation that might result from any future legislation or
administrative action cannot be predicted. Failure to comply with regulatory
requirements could have a material adverse effect on the Company's business,
financial condition and results of operations.
Sales of the Company's systems outside the United States are subject to
foreign regulatory requirements that vary from country to country. Additional
approvals from foreign regulatory authorities may be required, and there can be
no assurance that the Company will be able to obtain foreign marketing approvals
on a timely basis or at all, or that it will not be required to incur
significant costs in obtaining or maintaining its foreign regulatory approvals.
In Europe, the Company will be required to obtain the certificates necessary to
enable the CE Mark, an international symbol of adherence to quality assurance
standards and compliance with applicable European Union Medical Device
Directives, to be affixed to the Company's systems for sales in member
countries. Failure to obtain such certifications, any necessary foreign
regulatory approvals or any other failure to comply with regulatory requirements
outside the United States could have a material adverse effect on the Company's
business, financial condition and results of operations.
THIRD-PARTY REIMBURSEMENT
Third-party payors, such as governmental programs and private insurance
plans, can indirectly affect the pricing or the relative attractiveness of the
Company's systems by regulating the maximum amount of reimbursement that they
will provide for the acquisition, storage and interpretations of medical images.
In recent years, healthcare costs have risen substantially, and third-party
payors have come under increasing pressure to reduce such costs. In this regard,
extensive studies undertaken by the federal government, even though not
successfully translated into regulatory action, have stimulated widespread
analysis and reactions in the private sector focused on healthcare cost
reductions, which may involve reductions in reimbursement rates in radiology. A
decrease in the reimbursement amounts for radiological procedure may decrease
the amount which physicians, clinics and hospitals are able to charge patients
for such services. As a result, adoption of teleradiology and PACS may slow as
capital investment budgets are reduced, and the demand for the Company's systems
could be significantly reduced.
PRODUCT LIABILITY AND INSURANCE
The manufacture and sale of medical image information systems entail
significant risk of product liability claims. There can be no assurance that the
Company's existing insurance coverage limits are adequate to protect the Company
from any liabilities it might incur in connection with the sale of the Company's
systems. In addition, the Company may require increased product liability
coverage as additional systems are commercialized. Such insurance is expensive
and in the future may not be available on acceptable terms, if at all. A
successful product liability claim or series of claims brought against the
Company in excess of its insurance coverage could have a material adverse effect
on the Company's business, financial condition and results of operations.
EMPLOYEES
As of June 30, 1996, the Company had 110 full-time employees, including 33
employees in research and development, 47 in quality, service and support, 20 in
sales and marketing and support activities and 10 in general administration and
finance. One employee resides in Europe performing sales and technical customer
support roles. The Company also relies on several part-time employees and
consultants. None of the Company's employees is represented by a collective
bargaining agreement nor has the Company experienced a work stoppage. Management
believes that the Company's relationship with its employees is good.
FACILITIES
The Company's principal facilities are located in Fremont, California, in
an approximately 26,000 square foot facility leased through December 1998. The
Company anticipates that additional space will be required as its business
expands and believes that it will be able to obtain suitable space as needed.
34
<PAGE> 37
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The directors, executive officers and key employees of the Company and
their ages as of June 30, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- ---------------------------------------------------
<S> <C> <C>
Terry Ross.......................... 48 President, Chief Executive Officer and Director
Jeremy B. Rubin, M.D................ 40 Vice President, Chief Technical Officer and Vice
Chairman
Gregory C. Patti.................... 40 Chief Financial Officer, Vice President, Finance
and Operations
Oran E. Muduroglu................... 34 Vice President, Sales and Marketing
Jean-Luc Chatelain.................. 37 Vice President, Engineering
Grady Floyd......................... 33 Vice President, Quality and Service
David N. White, M.D.(1)............. 47 Chairman of the Board
Reid W. Dennis(1)................... 70 Director
Philip E. McCarthy(2)............... 59 Director
M. David Titus(2)................... 39 Director
</TABLE>
- ---------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
Terry Ross has served as President, Chief Executive Officer and Director of
the Company since June 1989. Mr. Ross also served as Chief Financial Officer
from October 1989 to June 1994 and as Vice President of Sales and Marketing from
December 1987 to June 1989. Prior to joining the Company, Mr. Ross was Vice
President of Sales and Marketing for Imatron, Inc. and held executive sales
positions at Picker International, Inc. and ADAC Laboratories, Inc., all of
which are medical imaging companies. Mr. Ross is currently a member of the Board
of Directors of Imatron, Inc.
Jeremy B. Rubin, M.D. joined the Company as Vice Chairman of the Board,
Vice President and Chief Technical Officer in June 1995. From November 1989
until he joined the Company, Dr. Rubin served as President and Chief Executive
Officer of ICON Medical Systems, Inc., a teleradiology company which was merged
with Cemax, Inc. in June 1995. Prior to 1989, Dr. Rubin practiced clinical
radiology for several years at Good Samaritan Hospital in San Jose, California.
Gregory C. Patti has served as Chief Financial Officer of the Company since
May 1994 and as Vice President, Finance and Operations since June 1995. From
November 1989 until he joined the Company in May 1994, Mr. Patti served as
Corporate Controller for Supermac Technology, Inc., a computer digital video
product manufacturer. Prior to that time, Mr. Patti served in senior financial
positions with a network software company and a computer workstation company and
was a practicing CPA with Price Waterhouse.
Oran E. Muduroglu joined the Company as Vice President of Sales and
Marketing in January 1992. From April 1989 until he joined the Company, Mr.
Muduroglu was a Product Manager of Toshiba America Medical Systems, Inc., a
medical imaging company. Prior to that, Mr. Muduroglu co-founded Voxel, Inc., a
company which developed holographic visualization technology for medical
imaging.
Jean-Luc Chatelain joined the Company as Director of Engineering in May
1994 and became Vice President of Engineering in February 1995. From August 1992
to April 1994, Mr. Chatelain was a Marketing Manager for ADAC Laboratories,
Inc., a medical imaging company. From August 1986 to August 1992, Mr. Chatelain
was Vice President of Engineering for Dynamic Digital Design, Inc., a medical
imaging company.
Grady Floyd joined the Company as Director of Engineering in April 1995 and
became Vice President of Service and Quality Assurance in December 1995. From
November 1993 until he joined the Company, Mr. Floyd served as Engineering
Manager for ADAC Laboratories, Inc., a medical imaging company. From
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<PAGE> 38
March 1988 to July 1993, he served as a Research and Development Project Manager
of 3D Systems, Inc., an industrial and medical imaging company.
David N. White, M.D. founded the Company in 1982 and has served as the
Chairman of the Board since its inception. Dr. White has been a practicing
reconstructive surgeon with the Palo Alto Medical Foundation since 1983.
Reid W. Dennis has served as a director of the Company since June 1986. Mr.
Dennis is a general partner of Institutional Venture Management, the general
partner of Institutional Venture Partners, a venture capital investment firm
which he founded in 1980. Mr. Dennis is a Director of Collagen Corporation, a
biomedical device company.
M. David Titus has served as a director of the Company since August 1989.
Mr. Titus also serves as Managing Director of Coronado Capital, a venture
capital investment firm which he founded in January 1993. From May 1986 through
December 1992 he held several positions, including general partner, with
Technology Funding, Inc., a venture capital investment firm. Mr. Titus is a
director of Shaman Pharmaceuticals, Inc., a biopharmaceutical company.
Philip E. McCarthy has served as a director the Company since December
1994. Mr. McCarthy has served as Managing Director of MBW Management, a venture
capital investment firm, since 1984.
BOARD COMPOSITION
The Company's Bylaws provide for a Board of Directors consisting of seven
members. The Company's Board of Directors currently has six members and one
board seat is currently vacant. In accordance with the terms of the Company's
Certificate of Incorporation, the terms of office of the Board of Directors is
divided into three classes, Class I, whose term will expire at the annual
meeting of stockholders to be held in 1997, Class II, whose term will expire at
the annual meeting of stockholders to be held in 1998, and Class III, whose term
will expire at the annual meeting of stockholders to be held in 1999. The Class
I directors are Philip E. McCarthy and Terry Ross, the Class II directors are
David N. White, M.D., and Reid W. Dennis, and the Class III directors are Jeremy
B. Rubin, M.D. and M. David Titus. After each such election, the directors in
each class will then serve in succeeding terms of three years until their
successors are duly elected and qualified. This classification of the Board of
Directors may have the effect of delaying or preventing changes in control or
management of the Company. Although directors of the Company may be removed for
cause by the affirmative vote of the holders of a majority of the Common Stock,
the Company's Certificate of Incorporation provides that holders of 66 2/3% of
the Common Stock must vote to approve the removal of a director without cause.
There are no family relationships among any of the directors, officers or
key employees of the Company.
BOARD COMMITTEES
The Board of Directors has an Audit Committee and a Compensation Committee.
The Audit Committee, currently comprised of Philip E. McCarthy and M. David
Titus, reviews the internal accounting procedures of the Company and consults
with and reviews the services provided by the Company's independent accountants.
The Compensation Committee, currently comprised of Reid W. Dennis and David N.
White, M.D., reviews and recommends to the Board the compensation and benefits
of all officers of the Company and reviews general policy relating to
compensation and benefits of employees. The Compensation Committee also
recommends to the Board the issuance of stock options and other awards under the
Company's stock plans.
DIRECTOR COMPENSATION
Directors do not currently receive any cash compensation from the Company
for their service as members of the Board of Directors, although they are
reimbursed for certain expenses in connection with attendance at Board and
Committee meetings. David N. White, M.D., Chairman of the Board of the Company,
received the amount of $24,000 during 1995 for consulting services rendered to
the Company. In addition, during 1995
36
<PAGE> 39
Dr. White was granted options to purchase an aggregate of 7,659 shares of Common
Stock under the Company's 1986 Amended Incentive Stock Plan at an exercise price
of $1.41 per share. Such options vest over four years based upon continued
service to the Company and have a ten year term.
The Company's 1996 Director Option Plan provides that options shall be
granted to non-employee directors of the Company pursuant to an automatic
non-discretionary grant mechanism. Each of the current non-employee directors,
Reid W. Dennis, Philip E. McCarthy, M. David Titus and David N. White, will
automatically be granted an option to purchase 5,000 shares of the Company's
Common Stock as of the effective date of this offering and 2,500 shares annually
thereafter on the date of each annual meeting of the stockholders following the
effective date of this offering, at an exercise price equal to the fair market
value on the date of grant. Such options vest over four years from the date of
grant based upon continued service as a director. See "Executive
Compensation -- 1996 Director Option Plan."
EXECUTIVE COMPENSATION
The following table sets forth total compensation awarded or paid by the
Company during the fiscal year ended December 31, 1995 to its Chief Executive
Officer and its other four most highly compensated executive officers
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
----------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($)(1) BONUS($) OPTIONS(#)
- ------------------------------------------------------------ ------------ -------- ------------
<S> <C> <C> <C>
Terry Ross.................................................. $180,624 $75,000 85,106
President and Chief Executive Officer
Oran E. Muduroglu........................................... 140,000 27,000 42,553
Vice President, Sales and Marketing
Gregory C. Patti............................................ 128,000 25,000 21,277
Chief Financial Officer, Vice President,
Finance and Operations
Jeremy B. Rubin, M.D........................................ 150,228 0 0
Vice President, Chief Technical Officer
Jean-Luc Chatelain.......................................... 111,110 20,000 31,915
Vice President, Engineering
</TABLE>
- ---------------
(1) Includes amounts earned but deferred at the election of the executive
officer.
STOCK PLANS
1986 Amended Incentive Stock Plan. In July 1986 the Company adopted the
1986 Amended Incentive Stock Plan (the "1986 Plan") under which an aggregate of
1,276,596 shares of Common Stock have been reserved for issuance upon exercise
of options granted to employees, officers and employee-directors of and
consultants to the Company. As of June 30, 1996, options to purchase an
aggregate of 632,481 shares of Common Stock were outstanding under the 1986
Plan. In June 1996, the Board of Directors determined that no additional options
would be granted under the 1986 Plan. The 1986 Plan terminated in July 1996.
Under the 1986 Plan, in the event of a merger or consolidation involving
the Company in which the Company is not the surviving corporation, all options
outstanding under the 1986 Plan shall terminate if not previously exercised
unless the surviving corporation agrees to either assume such options or to
substitute similar options.
37
<PAGE> 40
Former ICON Options. In June 1995, Cemax merged with ICON. Pursuant to
such merger, outstanding options exercisable for shares of ICON Common Stock
became exercisable for conversion into approximately 323,210 shares of the
Common Stock of the Company at exercise prices of $1.46 and $7.48 per share (the
"Former ICON Options"). As of June 30, 1996, options to purchase an aggregate of
182,693 shares of Common Stock were outstanding under the Former ICON Options.
1996 Stock Plan. The Company's 1996 Stock Plan (the "1996 Plan") was
adopted by the Board of Directors in June 1996 and was approved by the
stockholders at the Company's August 1996 annual stockholders' meeting. A total
of 700,000 shares of Common Stock is reserved and remains available for issuance
under the 1996 Plan to employees and consultants. The 1996 Plan allows for the
grant to employees of incentive stock options, and for the grant to employees
and consultants of nonstatutory stock options and stock purchase rights. The
1996 Plan is not qualified under Section 401(a) of the Internal Revenue Code, as
amended (the "Code") and is not subject to the Employee Retirement Income
Security Act of 1974. Unless sooner terminated by the Board of Directors the
1996 Plan will terminate automatically in June 2006.
The purpose of the 1996 Plan is to attract and retain the best possible
available personnel for positions of substantial responsibility with the
Company, to provide additional incentive to the employees and consultants of the
Company and to promote the success of the Company's business. The 1996 Plan is
administered by the Board of Directors of the Company or a committee appointed
by the Board.
The Board of Directors or a committee appointed by the Board in its
discretion selects the employees and consultants to whom options and stock
purchase rights may be granted, the time or times at which such awards may be
exercised (vest), the number of shares subject to each such award, the form of
consideration payable upon exercise and the other terms and conditions of such
grant. The 1996 Plan provides for a maximum number of 300,000 shares of Common
stock for which options or stock purchase rights may be granted to any one
participant in any fiscal year; provided that in connection with an employee's
initial employment, options or rights to purchase up to an additional 150,000
shares may be granted.
The exercise price for stock options granted under the 1996 Plan is
determined by the Board of Directors of the Company or its committee and may not
be less than 100% of the fair market value of the Common Stock on the date such
option is granted, except in the case of options granted to 10% shareholders,
the exercise price of which may not be less than 110% of such fair market value.
Options are not generally transferable by the participant other than by will or
the laws of descent or distribution, and are exercisable during the
participant's lifetime only by him, or, in the event of death of the
participant, by a person who acquires the right to exercise the options by
bequest or inheritance by reason of the death of the participant. Options
granted under the 1996 Plan generally vest (become exercisable) over a four-year
period based upon continued service to the Company and typically expire 30 days
after the date of termination of employment. Options granted under the 1996 Plan
have a maximum term of ten years from the date of grant; provided that in the
case of an option granted to a 10% stockholder, the term of the option may be no
longer than five years from the date of grant.
The 1996 Plan also allows for the grant of stock purchase rights which give
the purchaser a period of up to six months from the date of grant to purchase
shares of Common Stock. The price to be paid for the shares to be purchased
under the 1996 Plan, the form of consideration to be paid for the shares, and
the terms of payment are determined by the Board or a committee appointed by the
Board. Payment for the shares may be made in installments or at one time, as
determined by the Board, and provision may be made by the Board for aiding any
eligible person in paying for the shares by promissory note or otherwise.
The 1996 Plan provides that in the event of a merger of the Company with or
into another corporation, a sale of substantially all of the assets or a like
transaction involving the Company, each outstanding option or stock purchase
right may be assumed or an equivalent option substituted by the successor
corporation. If the outstanding options and stock purchase rights are not
assumed or substituted, the holder of such option or stock purchase right shall
be entitled to fully exercise the option or stock purchase right including
shares not otherwise exercisable.
38
<PAGE> 41
1996 Employee Stock Purchase Plan. The Company's 1996 Employee Stock
Purchase Plan (the "Purchase Plan") was adopted by the Board of Directors in
June 1996 and was approved by the stockholders at the August 1996 annual
stockholder's meeting. A total of 150,000 shares of Common Stock is reserved for
issuance under the Purchase Plan. The Purchase Plan is intended to qualify as an
employee stock purchase plan within the meaning of Section 423 of the Internal
Revenue Code. Under the Purchase Plan, the Board of Directors may authorize
participation by eligible employees, including officers, in periodic offerings
following the adoption of the Purchase Plan. The Purchase Plan is administered
over offering periods of 24 months each, with each offering period divided into
four consecutive six-month purchase periods. Unless sooner terminated by the
Board of Directors, the Purchase Plan will terminate in June 2006.
Employees are eligible to participate if they are employed by the Company
or an affiliate of the Company designated by the Board of Directors for at least
20 hours per week and are employed by the Company or a subsidiary of the Company
designated by the Board for at least five months per calendar year. Employees
who participate in an offering can have up to 15% of their earnings withheld
pursuant to the Purchase Plan. The amount withheld will then be used to purchase
shares of the Common Stock on specified dates determined by the Board of
Directors. The price of Common Stock purchased under the Purchase Plan will be
equal to 85% of the lower of the fair market value of the Common Stock on the
commencement date of each offering period or the relevant purchase date.
Employees may end their participation in the offering at any time during the
offering period, and participation ends automatically on termination of
employment with the Company.
In the event of a merger, reorganization, consolidation or liquidation
involving the Company in which the Company is not a surviving corporation, the
Board of Directors has discretion to provide that each right to purchase Common
Stock will be assumed or an equivalent right substituted by the successor
corporation, or the Board may shorten the offering period and provide for all
sums collected by payroll deductions to be applied to purchase stock immediately
prior to such merger or other transaction. The Board has the authority to amend
or terminate the Purchase Plan, subject to the limitation that no such action
may adversely affect any outstanding rights to purchase Common Stock.
1996 Director Option Plan. The Company's 1996 Director Option Plan (the
"Director Plan") was adopted by the Board of Directors in June 1996 and was
approved by the stockholders at the Company's August 1996 annual stockholders'
meeting. A total of 100,000 shares of Common Stock is reserved for issuance
under the Director Plan. The option grants under the Director Plan shall be
automatic and non-discretionary, and the exercise price of the options shall be
100% of the fair market value of the Common Stock on the grant date. The
Director Plan provides for the grant of options to purchase 5,000 shares of
Common Stock to each non-employee director of the Company upon the effectiveness
of this offering and 2,500 shares annually thereafter at each annual meeting of
the stockholders following the effective date of this offering, provided such
non-employee director has been a non-employee director of the Company for at
least six months prior to the date of such annual meeting of the stockholders.
Each new non-employee director shall automatically be granted an option to
purchase 10,000 shares of Common Stock upon the date such person joins the Board
of Directors. Any option granted to a non-employee director shall become
exercisable over a four-year period following the date of grant based upon
continued service as a member of the Board of Directors. The term of such
options is ten years. No option may be transferred by the optionee other than by
will or the laws of descent and distribution. Any optionee whose relationship
with the Company or any related corporation ceases for any reason may generally
exercise options only during a 90-day period following such cessation (unless
such options terminate or expire sooner by their terms). Upon a merger or asset
sale, all outstanding options under the Director Plan will be assumed or
replaced with an equivalent option by the successor corporation. In the event
that the successor corporation does not agree to assume the outstanding options
or substitute an equivalent option, each outstanding option shall become fully
vested and exercisable, including as to shares not otherwise exercisable. The
Director Plan will terminate in June 2006, unless sooner terminated by the Board
of Directors.
39
<PAGE> 42
401(K) PLAN
In 1990, the Company adopted a tax-qualified employee savings and
retirement plan (the "401(k) Plan") covering all of the Company's employees.
Pursuant to the 401(k) Plan, employees may elect to reduce their current
compensation up to the annual statutory limit ($9,500 in 1996) and have the
amount of such reduction contributed to the 401(k) Plan. In June 1996 the
Company amended the 401(k) Plan to provide that the Company will match up to 25%
of the employee's eligible contributions, up to a maximum of $500. The Company
may also make an additional discretionary employer matching contribution to the
401(k) Plan each year to be allocated among the participants based on each
participant's total compensation received during the 401(k) Plan year.
Contributions made by the employee and the Company are fully vested and are not
subject to forfeiture. The trustee under the 401(k) Plan invests the assets of
the 401(k) Plan in any of several investment options. The 401(k) Plan is
intended to qualify under Section 401 of the Code so that contributions by
employees to the 401(k) Plan, and income earned on plan contributions, are not
taxable to employees until withdrawn, and so that the contributions by employees
will be deductible by the Company when made.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options made during the
fiscal year ended December 31, 1995 to each of the Named Executive Officers:
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED
----------------------------------------------------------- ANNUAL RATES OF
PERCENTAGE STOCK PRICE
NUMBER OF OF TOTAL APPRECIATION
SECURITIES OPTIONS FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERMS(4)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------
NAME GRANTED(#)(1) FISCAL YEAR(%)(2) ($/SH)(3) DATE 5%($) 10%($)
- ------------------------- -------------- ----------------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Terry Ross............... 85,106 22.6 1.41 09/21/2005 75,600 190,799
Oran E. Muduroglu........ 42,553 11.3 1.41 09/21/2005 37,800 95,400
Gregory C. Patti......... 21,276 5.7 1.41 09/21/2005 18,899 47,699
Jeremy B. Rubin.......... -- -- -- -- -- --
Jean-Luc Chatelain....... 31,914 8.5 1.41 09/21/2005 28,349 71,548
</TABLE>
- ---------------
(1) All options are incentive stock options granted pursuant to the 1986 Plan.
Options granted become exercisable over a 50 month period following the date
of grant based upon continued service to the Company.
(2) Based on an aggregate of 337,340 options granted to employees of the Company
in 1995, including the Named Executive Officers.
(3) The exercise price per share of each option was equal to the fair market
value of the Common Stock on the date of grant as determined by the Board of
Directors.
(4) Options granted terminate on the earlier of 30 days after termination of
employment or ten years after date of grant. The potential realizable value
is calculated based on an assumed ten year term of the option. The 5% and
10% assumed annual rates of compounded stock price appreciation are mandated
by the rules of the Securities and Exchange Commission and do not represent
the Company's estimate or projection of the Company's future Common Stock
prices.
40
<PAGE> 43
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth for each of the Named Executive Officers the
shares acquired and the value realized on each exercise of stock options during
the fiscal year ended December 31, 1995 and the number and value of securities
underlying unexercised options held by the Named Executive Officers at December
31, 1995.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT DECEMBER 31, IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE 1995(#) DECEMBER 31, 1995($)(1)
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---------------------- ----------- -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Terry Ross............ 0 0 5,106/80,000 45,954/720,000
Gregory C. Patti...... 8,510 73,599 1,277/26,383 11,493/237,447
Oran E. Muduroglu..... 0 0 46,962/51,852 422,658/466,668
Jeremy B. Rubin....... 0 0 0 0/0
Jean-Luc Chatelain.... 0 0 11,106/46,341 99,954/417,069
</TABLE>
- ---------------
(1) Value realized and value of unexercised in-the-money options is based on a
value of $9.00 per share, the assumed initial public offering price of the
Company's Common Stock. Amounts reflected are based on the assumed value
minus the exercise price ($0.3525 per share) and do not indicate that the
optionee sold such stock.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the Delaware General Corporation Law (the "Delaware Law"),
the Company's Certificate of Incorporation provides that no director of the
Company will be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director except for liability
(i) for any breach of the director's duty of loyalty to the Company or to its
stockholders; (ii) for acts of omissions not made in good faith or which
involved intentional misconduct or a knowing violation of law; (iii) under
Section 174 of the Delaware Law, relating to prohibited dividends or
distributions or the repurchase or redemption of stock or (iv) for any
transaction from which the director derives an improper personal benefit. In
addition, the Company's Certificate of Incorporation provides that any director
or officer who was or is a party or is threatened to be made a party to any
action or proceeding by reason of his or her services to the Company will be
indemnified to the fullest extent permitted by the Delaware Law.
The Company has entered into indemnification agreements with each of its
directors and officers under which the Company has indemnified each of them
against expenses and losses incurred for claims brought against them by reason
of their being a director or officer of the Company, and the Company maintains
directors' and officers' liability insurance.
There is no pending litigation or proceeding involving a director or
officer of the Company as to which indemnification is being sought, nor is the
Company aware of any pending or threatened litigation that may result in claims
for indemnification by any director or officer.
41
<PAGE> 44
CERTAIN TRANSACTIONS
EXERCISE OF STOCK OPTIONS; OFFICER LOANS
In April 1996, Terry Ross, the Company's President and Chief Executive
Officer, executed a promissory note payable to the Company in the amount of
$120,000 in connection with the exercise of outstanding stock options to
purchase 85,106 shares of Common Stock exercised at a price of $1.41 per share.
The promissory note is secured by the underlying Common Stock, bears interest at
the rate of 5% per year and becomes due and payable on May 31, 1998. The full
principal amount of the note, plus all accrued interest, was outstanding as of
June 30, 1996. In March 1996, Terry Ross executed a promisory note payable to
the Company in the amount of $42,137 in connection with the exercise of
outstanding stock options. The promissory note is secured by the underlying
Common Stock, bears interest at the rate of 5% per year and becomes due and
payable on March 15, 2000. The full principal amount of the note, plus all
accrued interest, was outstanding as of June 30, 1996.
In October 1995, the Company loaned Terry Ross the sum of $300,000 pursuant
to a promissory note bearing interest at the prime rate plus 1%, due and payable
on October 31, 1996, secured by a pledge of 185,957 shares of Common Stock owned
by Mr. Ross. In June 1996, the Company agreed with Mr. Ross to extend the due
date of such promissory note to October 31, 1997. The full principal amount of
the note, plus all accrued interest, was outstanding as of June 30, 1996.
ACQUISITION OF ICON MEDICAL SYSTEMS, INC.
In June 1995, Cemax merged with ICON. All issued and outstanding shares of
Common Stock of ICON were converted into a total of approximately 1,879,158
shares of Common Stock of the Company. Options exercisable for shares of ICON
Common Stock became exercisable for approximately 323,211 shares of Common Stock
of the Company. Jeremy B. Rubin, M.D., was the President and CEO of ICON.
Pursuant to the merger Dr. Rubin's shares of ICON common stock were converted
into approximately 1,743,773 shares of Common Stock of the Company. Similarly,
shares of ICON common stock held by Daryl Rubin, the brother of Dr. Rubin, were
converted into approximately 20,054 shares of Common Stock of the Company. In
connection with the Merger the Company repaid in July 1995 certain loans made to
ICON by (i) Jeremy Rubin in the amounts of $95,083 and $34,921, and (ii) Darryl
Rubin, the brother of Jeremy Rubin, in the amount of $300,000. Jeremy Rubin
currently serves as Vice President, Chief Technical Officer, and Vice Chairman
of the Board of Directors of the Company.
3M TRANSACTION
In June 1995, the Company sold 845,054 shares of its Series A Preferred
Stock to 3M, a holder of more than five percent of the Company's voting
securities, at a purchase price of approximately $8.23 per share for a total of
$6,950,573 and issued to 3M a warrant (the "Warrant") exercisable for 198,837
shares of Common Stock of the Company at an exercise price of $12.93 per share.
In May 1996, the Company and 3M agreed to amend the Warrant to reduce the
exercise price to $11.47 per share and to provide that the Warrant would be
exercisable for 198,837 shares of Series A Preferred Stock. In addition, 3M
agreed to exercise the warrant in full prior to September 30, 1996.
In connection with the sale of the Series A Preferred Stock and the
issuance of the Warrant to 3M, the Company and 3M entered into a Sales Agreement
having a term of three years providing for the Company to assume service and
warranty obligations of 3M with regard to 17 PACS customer sites in exchange for
the payment by 3M to the Company of approximately $1.0 million and for 3M to
refer customer leads to the Company in exchange for a sales commission payable
to 3M based upon the revenue received by the Company from sales to such
customers. As of June 30, 1996 less than $50,000 in commissions had been paid to
3M under this Sales Agreement. Pursuant to such agreement the Company purchased
approximately $120,000 of certain products from 3M at a purchase price equal to
fair market value of such products.
In November 1994 the Company entered into an OEM Agreement with 3M granting
3M the non-exclusive right to grant licenses to the Company's software modules
in connection with the sale of 3M image management systems or otherwise to
end-users in exchange for royalties payable to the Company.
42
<PAGE> 45
PRIVATE PLACEMENT OF SECURITIES
In October 1994, the Company sold shares of Series D Preferred Stock
convertible into 212,786 shares of Common Stock at an effective price of $7.05
per share in exchange for the cancellation of certain existing indebtedness of
the Company. The purchasers of the Series D Preferred Shares included entities
affiliated with Institutional Venture Partners and with MBW Venture Partners,
holders of more than five percent (5%) of the Company's voting securities, who
purchased shares of Series D Preferred Stock convertible into 85,751 and 42,117
shares of Common Stock, respectively. All previously outstanding shares of
Series D Preferred Stock were converted to shares of Common Stock in June 1995.
The Company believes that all of the foregoing transactions were in its
best interests and were on terms no less favorable to the Company than could
have been obtained from unaffiliated third parties. All future transactions,
including loans, between the Company and its officers, directors, principal
stockholders and their affiliates will be approved by a majority of the Board of
Directors, including a majority of the independent and disinterested outside
directors and will continue to be on terms no less favorable to the Company than
could be obtained from unaffiliated third parties.
43
<PAGE> 46
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of June 30, 1996, as adjusted to
reflect the sale of the Common Stock being offered hereby (i) each stockholder
who is known by the Company to own beneficially more than 5% of the Common
Stock; (ii) each Named Executive Officer of the Company and (iii) each director
of the Company; (iv) all directors and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES
BENEFICIALLY
OWNED(2)
NUMBER OF -------------------
DIRECTORS, EXECUTIVE OFFICERS SHARES BENEFICIALLY PRIOR TO AFTER
AND 5% STOCKHOLDERS OWNED(1) OFFERING OFFERING
- -------------------------------------------------------------- ------------------- -------- --------
<S> <C> <C> <C>
Jeremy B. Rubin, M.D. ........................................ 1,743,772 28.2% 19.4%
Cemax-Icon, Inc.
47281 Mission Falls Court
Fremont, CA 94539
Minnesota Mining & Manufacturing Company(3)................... 1,043,891 16.3 11.4
3M Center
P.O. Box 33428
St. Paul, Minnesota 55133
Entities affiliated with Institutional Venture Partners(4).... 800,152 12.9 8.9
3000 Sand Hill Road
Building 2, Suite 290
Menlo Park, CA 94025
Reid W. Dennis(4)............................................. 800,152 12.9 8.9
Institutional Venture Partners
3000 Sand Hill Road
Building 2, Suite 290
Menlo Park, CA 94025
Philip E. McCarthy(5)(7)...................................... 482,859 7.8 5.4
MBW Venture Partners
365 South Street
Morristown, NJ 07960
Entities affiliated with MBW Management(5).................... 482,848 7.8 5.4
365 South Street
Morristown, NJ 07960
Entities affiliated with Technology Funding Inc.(6) .......... 325,151 5.3 3.6
2000 Alameda de las Pulgas
San Mateo, CA 94403
Terry Ross(8)................................................. 297,127 4.8 3.3
David N. White, M.D........................................... 87,785 1.4 1.0
Gregory C. Patti(10).......................................... 61,703 1.0 *
Jean-Luc Chatelain(11)........................................ 57,635 * *
Oran E. Muduroglu(9).......................................... 63,047 1.0 *
Grady Floyd................................................... 34,043 * *
M. David Titus(12)............................................ 8,935 * *
All directors and executive officers as a group (10 5,006,100 78.2 54.4
persons)(13)................................................
</TABLE>
- ---------------
* Represents beneficial ownership of less than 1%.
(1) Beneficial ownership is determined by the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Shares of Common Stock subject to stock options and
warrants currently exercisable or exercisable within 60 days of the date of
this table are deemed to be outstanding for computing the percentage
ownership of the person holding such options and the percentage ownership
of any group of which the holder is a member, but are not deemed
outstanding for computing the percentage of any other person. Except as
indicated by footnotes,
44
<PAGE> 47
and subject to community property laws where applicable, the persons named
in the table have sole voting and investment power with respect to all
shares of Common Stock shown beneficially owned by them.
(2) Applicable percentage of ownership is based on 6,186,934 shares of Common
Stock outstanding prior to this offering and 8,986,934 shares of Common
Stock outstanding upon completion of this offering.
(3) Includes 198,837 shares of Common Stock issued upon exercise of outstanding
warrants.
(4) Includes 11,986 shares held by Institutional Venture Management III, L.P.
("IVMIII") and 788,166 shares held by Institutional Venture Partners III,
L.P. ("IVPIII"). Reid W. Dennis, a director of the Company, is a general
partner of IVHIII, the general partner of IVPIII.
(5) Includes 395,935 shares held by MBW Venture Partners, L.P. and 86,913
shares held by Michigan Investment Fund, L.P. Philip E. McCarthy, a
director of the Company, is Managing Director of MBW Management, the
authorized agent of MBW Venture Partners and Michigan Investment Fund.
(6) Includes 72,264 shares held by Technology Funding Inc. TTEE Technology
Funding Partners I Liquidating Trust, 86,446 shares held by Technology
Funding Inc. TTEE Funding Partners II, and 166,441 shares held by
Technology Funding Private Reserve, L.P.
(7) Includes 11 shares held by the Philip E. McCarthy Pension Fund.
(8) Includes 4,255 shares held by Guarantee & Trust Co. Cdn Terry Ross IRA.
(9) Includes 13,856 shares issuable pursuant to options exercisable within 60
days of June 30, 1996.
(10) Includes 4,255 shares held by Guarantee & Trust Co. Cdn Gregory C. Patti.
(11) Includes 188 shares issuable pursuant to options exercisable within 60 days
of June 30, 1996 by Mr. Chatelain's wife.
(12) Includes 2,212 shares issuable pursuant to options exercisable within 60
days of June 30, 1996.
(13) Includes 16,256 shares issuable pursuant to options exercisable within 60
days of June 30, 1996.
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, the authorized capital stock of the
Company will consist of 50,000,000 shares of Common Stock, $.001 par value, and
5,000,000 shares of Preferred Stock, $.001 par value ("Preferred Stock").
COMMON STOCK
As of June 30, 1996, there were 5,341,880 shares of Common Stock issued and
outstanding held of record by approximately 300 stockholders.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. The holders of
Common Stock are entitled to receive ratably such dividends as may be declared
by the Board of Directors out of funds legally available therefor. See "Dividend
Policy." In the event of a liquidation, dissolution or winding up of the
Company, holders of the Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities. Holders of Common Stock have no
preemptive rights and no right to convert their Common Stock into any other
securities. There are no redemption or sinking fund provisions applicable to the
Common Stock. All outstanding shares of Common Stock are, and all shares of
Common Stock to be outstanding upon completion of this offering will be, fully
paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders, to issue up to 5,000,000 shares of Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences sinking fund terms and the number of shares
constituting any series or the designation of such
45
<PAGE> 48
series, without any further vote or action by stockholders. The issuance of
Preferred Stock could adversely affect the voting power of holders of Common
Stock and the likelihood that such holders will receive dividend payments and
payments upon liquidation and could have the effect of delaying, deferring or
preventing a change in control of the Company. The Company has no present plan
to issue any shares of Preferred Stock.
WARRANTS
As of June 30, 1996, there were outstanding (i) a warrant to purchase 3,546
shares of Common Stock at an exercise price of $5.88 per share (the "Bank
Warrant") and (ii) a warrant, as amended in May 1996, to purchase 198,837 shares
of Series A Preferred Stock at an exercise price of $11.47 per share (the "3M
Warrant). The Bank Warrant was issued in September 1993 pursuant to the terms of
a loan agreement with Silicon Valley Bank and is exercisable at any time before
September 23, 1996. The 3M Warrant was issued in June 1995 in connection with a
private placement of 845,054 shares of Series A Preferred Stock to 3M and
provided for the purchase of 198,837 shares of Common Stock at an exercise price
of $12.93 per share prior to June 1997. In May 1996, the 3M Warrant was amended
to provide for the purchase of 198,837 shares of Series A Preferred Stock (or
Common Stock in the event the Company has undertaken an initial public offering
of its securities) at an exercise price of $11.47 per share and 3M agreed to
exercise such warrant in full prior to September 30, 1996.
REINCORPORATION IN DELAWARE
The Company reincorporated in Delaware in August 1996. The Company believes
that Delaware law provides flexibility and the Delaware courts have particular
expertise with matters affecting public companies and their stockholders. Except
as otherwise noted, all information in the Prospectus takes into account the
reincorporation.
REGISTRATION RIGHTS
Pursuant to an agreement between the Company and the holders (or their
permitted transferees) ("Holders") of approximately 4,237,623 shares of Common
Stock, the Holders are entitled to certain rights with respect to the
registration of such shares under the Securities Act of 1933, as amended (the
"Securities Act"). If the Company proposes to register any of its securities
under the Securities Act, either for its own account or for the account of other
security holders, the Holders are entitled to notice of the registration and are
entitled to include, at the Company's expense, such shares therein, provided,
among other conditions, that the underwriters have the right to limit the number
of such shares included in the registration. In addition, certain of the Holders
may require the Company at its expense on not more than two occasions, to file a
registration statement under the Securities Act with respect to their shares of
Common Stock, and the Company is required to use its best efforts to effect the
registration, subject to certain conditions and limitations. Further, certain of
the Holders may require the Company at its expense to register their shares on
Form S-3 when such form becomes available to the Company, subject to certain
conditions and limitations.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "Delaware Law"), an anti-takeover law. In general,
the statute prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
For purposes of Section 203, a "business combination" includes a merger asset
sale or other transaction resulting in a financial benefit to the interested
stockholder, and an "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years prior, did own) 15% or
more of the corporation's voting stock.
The Company's Certificate of Incorporation and Bylaws also require that,
effective upon the closing of this offering any action required or permitted to
be taken by stockholders of the Company must be effected at a duly called annual
or special meeting of the stockholders and may not be effected by a consent in
writing. In
46
<PAGE> 49
addition, special meetings of the stockholders of the Company may be called only
by the Board of Directors, the Chairman of the Board, the Chief Executive
Officer of the Company or by any person or persons holding shares representing
more than 50% of the outstanding capital stock. The Company's Certificate of
Incorporation also provides for a classified Board and specifies that the
authorized number of directors may be changed only by resolution of the Board of
Directors. See "Management -- Directors and Executive Officers." These
provisions may have the effect of deterring hostile takeovers or delaying
changes in control or management of the Company.
TRANSFER AGENT AND REGISTRAR
Chemical Mellon Bank has been appointed as the transfer agent and registrar
for the Company's Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering and assuming no exercise of outstanding
options and no exercise of the Underwriters over-allotment option, the Company
will have outstanding 8,986,934 shares of Common Stock. Of these shares, the
2,800,000 shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act, except for any
shares held by "affiliates" of the Company as that term is defined in Rule 144
under the Securities Act ("Affiliates"), which shares will be subject to the
resale limitations of Rule 144. The remaining 6,186,934 shares of Common Stock
held by existing stockholders (the "Restricted Shares") were issued and sold by
the Company in reliance on exemptions from the registration requirements of the
Securities Act. These shares may be sold in the public market only if registered
or pursuant to an exemption from registration such as Rules 144, 144(k), or 701
under the Securities Act, which are summarized below.
In addition to the 2,800,000 shares offered hereby, and not including
shares which are subject to the restrictions contained in the agreements not to
sell described below, approximately 155,156 of these Restricted Shares will be
eligible for sale in the public market upon the date of this offering pursuant
to Rule 144(k). In the absence of the restrictions contained in the agreements
not to sell described below, approximately 200,286 additional Restricted Shares
will be eligible for sale beginning 90 days after the date of this offering
pursuant to Rule 144 and Rule 701. Holders of approximately 5,823,179 of the
Restricted Shares are subject to agreements not to sell or otherwise transfer
their shares for a certain period of time following the date of this offering
(the "Lock-up Shares"). Of such Lock-up Shares all will become available for
sale in the public market 180 days after the date of this offering although
846,217 of the Lock-up Shares will still be subject to certain volume and other
restrictions on resale under Rule 144 at the expiration of such lock-up period.
Volpe, Welty & Company may, in its sole discretion and at any time without
notice, release any or all of the holders of the Lock-up Shares from any or all
of their obligations under their respective agreements not to sell.
As of June 30, 1996, there were 632,481 shares of Common Stock issuable
upon exercise of outstanding options. The Company intends to file registration
statements under the Securities Act to register shares of Common Stock reserved
for issuance under the Option Plans, the Purchase Plan and the Directors Plan,
thus permitting the sale of such shares by non-affiliates in the public market
without restriction under the Securities Act. Such registration statement will
become effective immediately upon filing. At June 30, 1996, options to purchase
449,788 shares had been granted under the 1986 Plan, no options had been granted
under the 1996 Plan, the Purchase Plan or Directors Plan, and 182,693 options
were outstanding under Former ICON Options. Holders of all outstanding option
shares have entered into agreements not to sell any shares of Common Stock
received upon exercise of such options for 180 days following the date of this
offering. Volpe, Welty & Company, in its sole discretion and at any time without
notice, may release any or all of such option holders from any or all of their
obligations under their respective agreements not to sell.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, an Affiliate of the Company, or person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least two years, will be entitled to sell in any three-month period a number of
shares that does not exceed the greater of (i) 1% of the then outstanding shares
of the Company's Common Stock
47
<PAGE> 50
(approximately 89,870 shares immediately after this offering) or (ii) the
average weekly trading volume of the Company's Common Stock in the Nasdaq
National Market during the four calendar weeks immediately preceding the date on
which notice of the sale is filed with the Securities and Exchange Commission.
Sales pursuant to Rule 144 are subject to certain requirements relating to
manner of sale, notice and availability of current public information about the
Company. A person (or person whose shares are aggregated) who is not deemed to
have been an Affiliate of the Company at any time during the 90 days immediately
preceding the sale and who has beneficially owned Restricted Shares for at least
three years is entitled to sell such shares pursuant to Rule 144(k) without
regard to the limitations described above.
An employee, officer or director of or consultant to the Company who
purchased or was awarded shares or options to purchase shares pursuant to a
written compensatory plan or contract is entitled to rely on the resale
provisions of Rule 701 under the Securities Act which permits Affiliates and
non-Affiliates to sell their Rule 701 shares without having to comply with Rule
144's holding period restrictions, in each case commencing 90 days after the
date of this Prospectus. In addition, non-Affiliates may sell Rule 701 shares
without complying with the public information, volume and notice provisions of
Rule 144.
Prior to this offering there has been no public market for the Common
Stock. Future sales of substantial amounts of Common Stock in the public market
could adversely affect market prices prevailing from time to time. As described
herein, only a limited number of shares will be available for sale shortly after
this offering because of certain contractual and legal restrictions on resale.
Sales of substantial amounts of Common Stock of the Company in the public market
after the restrictions lapse could adversely affect the prevailing market price
and the ability of the Company to raise equity capital in the future.
48
<PAGE> 51
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their Representatives, Volpe, Welty & Company,
Punk, Ziegel & Knoell, L.P. and Furman Selz LLC, have severally agreed to
purchase from the Company the following respective number of shares of Common
Stock:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Volpe, Welty & Company....................................................
Punk, Ziegel & Knoell, L.P. ..............................................
Furman Selz LLC...........................................................
---------
Total........................................................... 2,800,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company, its counsel and its
independent accountants. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if any
of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to
the public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow and such dealers may
allow a concession not in excess of $ per share to certain other
dealers. After the initial public offering of the shares, the offering price and
other selling terms may be changed by the Representatives of the Underwriters.
The Company has granted the Underwriters an option for 30 days after the
date of this Prospectus to purchase, at the initial public offering price less
the underwriting discounts and commissions as set forth on the cover page of
this Prospectus, up to 420,000 additional shares of Common Stock, solely to
cover over-allotments, if any. If the Underwriters exercise their over-allotment
option, the Underwriters have severally agreed, subject to certain conditions,
to purchase approximately the same percentage thereof that the number of shares
of Common Stock to be purchased by each of them, as shown in the foregoing
table, bears to the 2,800,000 shares of Common Stock offered hereby. The
Underwriters may exercise such option only to cover the over-allotment in
connection with the sale of the 2,800,000 shares of Common Stock offered hereby.
Certain stockholders of the Company, including the executive officers and
directors, have agreed that they will not, without the prior written consent of
Volpe, Welty & Company, offer, sell or otherwise dispose of any shares of Common
Stock, options or warrants to acquire shares of Common Stock or securities
exchangeable for or convertible into shares of Common Stock owned by them during
the 180-day period following the date of the Prospectus. The Company has agreed
that it will not, without the prior written consent of Volpe, Welty & Company,
offer, sell or otherwise dispose of any shares of Common Stock, options or
warrants to acquire shares of Common Stock or securities exchangeable for or
convertible into shares of Common Stock during the 180-day period following the
date of this Prospectus, except that the Company may issue shares upon the
exercise of options granted prior to the date hereof, and may grant additional
options under its stock option plans, provided that, without the prior written
consent of Volpe, Welty & Company, such additional options shall not be
exercisable during such period.
49
<PAGE> 52
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act and to contribute to
payments the Underwriters may be required to make in respect thereof.
Prior to the offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be determined
by negotiation among the Company and the Representatives. Among the factors to
be considered in determining the initial public offering price are prevailing
market and economic conditions, revenues and earnings of the Company, market
valuations of other companies engaged in activities similar to the Company,
estimates of the business potential and prospects of the Company, the present
state of the Company's business operations, the Company's management and other
factors deemed relevant. The estimated initial public offering price range set
forth on the cover or the preliminary Prospectus is subject to change as a
result of market conditions and other factors.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, Palo Alto, California. Certain
legal matters in connection with this offering will be passed upon for the
Underwriters by Cooley Godward Castro Huddleson & Tatum Palo Alto, California.
As of the date of this Prospectus, attorneys of Wilson Sonsini Goodrich & Rosati
beneficially own 163 shares and hold an option to purchase 4,255 shares of
Common Stock of the Company.
EXPERTS
The financial statements and schedule of the Company as of December 31,
1994 and 1995, and for each of the three years in the period ended December 31,
1995, appearing in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their reports
thereon appearing elsewhere herein, and are included in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1, including amendments thereto,
relating to the Common Stock offered hereby has been filed by the Company with
the Securities and Exchange Commission (the "Commission"), Washington, D.C. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. Statements contained in this
Prospectus as to the contents of any contract or other document referred to are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement each such statement being qualified in all respects by such reference.
For further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement and the exhibits and
schedules thereto. A copy of the Registration Statement may be inspected by
anyone without charge at the public reference facilities maintained by the
Commission, at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C., 20549, or at its regional offices located at CitiCorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, Suite 1300, New York, New York 10048 and copies of all or any part
thereof may be obtained from such offices of the Commission, upon payment of
certain fees prescribed by the Commission.
50
<PAGE> 53
CEMAX-ICON, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors...................................... F-2
Balance Sheets......................................................................... F-3
Statements of Operations............................................................... F-4
Statements of Stockholders' Equity (Net Capital Deficiency)............................ F-5
Statements of Cash Flows............................................................... F-6
Notes to Financial Statements.......................................................... F-7
</TABLE>
F-1
<PAGE> 54
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
CEMAX-ICON, Inc.
We have audited the accompanying balance sheets of CEMAX-ICON, Inc. as of
December 31, 1994 and 1995, and the related statements of operations,
stockholders' equity (net capital deficiency) and cash flows for each of the
three years in the period ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CEMAX-ICON, Inc. at December
31, 1994 and 1995, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
Palo Alto, California
March 8, 1996, except for Note 7,
as to which the date is July 23, 1996
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon completion of
the 1-for-2.35 reverse stock split and reincorporation in Delaware described in
Note 7 to the financial statements.
Palo Alto, California
August 13, 1996
ERNST & YOUNG LLP
F-2
<PAGE> 55
CEMAX-ICON, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
UNAUDITED
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
------------------- JUNE 30, JUNE 30,
1994 1995 1996 1996 (NOTE 7)
-------- -------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 2,503 $ 1,775 $ 3,796
Accounts receivable, less allowance for doubtful accounts of
$484, $773 and $827 in 1994, 1995 and 1996, respectively... 1,726 3,510 3,275
Note receivable from related party............................ -- 300 300
Inventories................................................... 1,455 2,005 2,187
Other current assets.......................................... 159 142 208
-------- -------- --------
Total current assets....................................... 5,843 7,732 9,766
Property and equipment, net..................................... 1,140 1,512 1,520
Other assets.................................................... 36 35 18
-------- -------- --------
$ 7,019 $ 9,279 $ 11,304
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable.............................................. $ 1,882 $ 2,479 $ 3,222
Accrued compensation.......................................... 467 796 1,507
Other accrued liabilities..................................... 585 699 1,174
Sales tax accrual............................................. 600 600 600
Deferred revenue.............................................. 2,001 3,520 4,894
Long-term debt, current portion............................... 358 211 215
-------- -------- --------
Total current liabilities.................................. 5,893 8,305 11,612
Accrued rent.................................................... 49 53 50
Long-term debt, less current portion............................ 842 551 449
Commitments
Stockholders' equity (net capital deficiency):
Convertible preferred stock, $0.001 par value: 30,000,000
shares authorized: 10,841,508, 1,985,878 and 1,985,878
shares issued and outstanding at December 31, 1994, 1995
and June 30, 1996, respectively; aggregate liquidation
preference $7,944 at December 31, 1995 (5,000,000 shares
authorized, none issued and outstanding, pro forma)........ 11 2 2 $ --
Common stock, $0.001 par value: 50,000,000 shares authorized:
2,527,914, 4,877,325 and 5,341,880 shares issued and
outstanding at December 31, 1994, 1995 and June 30, 1996,
respectively, 6,186,934 shares issued and outstanding, pro
forma)..................................................... 3 5 5 6
Additional paid-in capital.................................... 24,987 31,974 32,485 32,486
Notes receivable from stockholders............................ -- -- (382) (382)
Deferred compensation......................................... -- (30) (37) (37)
Accumulated deficit........................................... (24,766) (31,581) (32,880) (32,880)
-------- -------- -------- --------
Total stockholders' equity (net capital deficiency)............. 235 370 (807) $ (807)
========
-------- -------- --------
$ 7,019 $ 9,279 $ 11,304
======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 56
CEMAX-ICON, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- -------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Systems and licensing.................. $10,607 $15,017 $15,059 $ 7,785 $ 9,612
Service and maintenance................ 1,507 1,440 1,971 815 1,620
------- ------- ------- ------ ------
Total revenues.................... 12,114 16,457 17,030 8,600 11,232
Costs of revenues:
Cost of systems and licensing.......... 5,337 7,165 7,793 4,282 4,024
Cost of service and maintenance........ 722 1,638 2,719 1,098 1,840
------- ------- ------- ------ ------
Total cost of revenues............ 6,059 8,803 10,512 5,380 5,864
------- ------- ------- ------ ------
Gross profit............................. 6,055 7,654 6,518 3,220 5,368
Operating expenses:
Research and development............... 3,249 4,134 6,501 2,748 3,344
Sales, general and administrative...... 3,947 6,010 6,235 3,034 3,324
Merger related expense................. -- -- 624 624 --
------- ------- ------- ------ ------
Total operating expenses.......... 7,196 10,144 13,360 6,406 6,668
------- ------- ------- ------ ------
Loss from operations..................... (1,141) (2,490) (6,842) (3,186) (1,300)
Interest and other income................ 27 45 142 46 45
Interest and other expense............... (84) (133) (115) (93) (44)
------- ------- ------- ------ ------
Net loss................................. $(1,198) $(2,578) $(6,815) $(3,233) $(1,299)
======= ======= ======= ====== ======
Pro forma net loss per share............. $ (1.17) $ (0.59) $ (0.21)
======= ====== ======
Shares used in computing pro forma
net loss per share..................... 5,820 5,455 6,283
======= ====== ======
</TABLE>
See accompanying notes.
F-4
<PAGE> 57
CEMAX-ICON, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NOTES
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE
-------------------- ------------------- PAID-IN FROM DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION
----------- ------ ---------- ------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1992.............. 10,341,460 $ 10 1,836,650 $ 2 $ 22,385 $ -- $ --
Issuance of common stock in conjunction
with the acquisition of Virtual Imaging
Inc..................................... -- -- 277,043 -- 98 -- --
Issuance of common stock upon the exercise
of stock options........................ -- -- 82,743 -- 603 -- --
Net loss.................................. -- -- -- -- -- -- --
Net transactions of Icon during eliminated
period from December 1, 1993 to December
31, 1993(2)............................. -- -- 25,283 -- 188 -- --
----------- --- ---------- --- ------- --- --
Balances at December 31, 1993.............. 10,341,460 10 2,221,719 2 23,274 -- --
Issuance of Series D preferred stock in
June 1994 for cancellation of
subordinated convertible notes with
principal of $1,464 and accrued interest
of $36, net of issuance costs ($9)...... 500,048 1 -- -- 1,490 -- --
Issuance of common stock for cash and
conversion of notes payable............. -- -- 20,053 -- 150 -- --
Issuance of common stock upon the exercise
of stock options........................ -- -- 286,142 1 73 -- --
Net loss.................................. -- -- -- -- -- -- --
----------- --- ---------- --- ------- --- --
Balances at December 31, 1994.............. 10,841,508 11 2,527,914 3 24,987 -- --
Conversion of Series A, B, C and D
preferred stock in June 1995 to common
stock................................... (10,841,508) (11) 2,305,907 2 9 -- --
Issuance of Series A preferred stock in
June of 1995 for cash investment and
conversion of bridge note, net of
issuance costs ($13).................... 1,985,878 2 -- -- 6,930 -- --
Issuance of common stock upon the exercise
of stock options........................ -- -- 43,504 -- 18 -- --
Deferred compensation related to issuance
of certain stock options................ -- -- -- -- 30 -- (30)
Net loss.................................. -- -- -- -- -- -- --
----------- --- ---------- --- ------- --- --
Balances at December 31, 1995.............. 1,985,878 2 4,877,325 5 31,974 -- (30)
Issuance of common stock upon the exercise
of stock options (unaudited)............ -- -- 89,661 -- 116 -- --
Issuance of common stock in exchange for
notes receivable from stockholders
(unaudited)............................. -- -- 374,894 -- 366 (382) --
Deferred compensation related to issuance
of certain stock options (unaudited).... -- -- -- -- 29 -- (29)
Amortization of deferred compensation
(unaudited)............................. -- -- -- -- -- -- 22
Net loss (unaudited)...................... -- -- -- -- -- -- --
----------- --- ---------- --- ------- --- --
Balances at June 30, 1996 (unaudited)...... 1,985,878 $ 2 5,341,880 $ 5 $ 32,485 $ (382) $(37)
=========== === ========== === ======= === ==
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY (NET
ACCUMULATED CAPITAL
DEFICIT DEFICIENCY)
----------- ---------------
<S> <C> <C>
Balances at December 31, 1992.............. $ (20,880) $ 1,517
Issuance of common stock in conjunction
with the acquisition of Virtual Imaging
Inc..................................... -- 98
Issuance of common stock upon the exercise
of stock options........................ -- 603
Net loss.................................. (1,198) (1,198)
Net transactions of Icon during eliminated
period from December 1, 1993 to December
31, 1993(2)............................. (110) 78
-------- -------
Balances at December 31, 1993.............. (22,188) 1,098
Issuance of Series D preferred stock in
June 1994 for cancellation of
subordinated convertible notes with
principal of $1,464 and accrued interest
of $36, net of issuance costs ($9)...... -- 1,491
Issuance of common stock for cash and
conversion of notes payable............. -- 150
Issuance of common stock upon the exercise
of stock options........................ -- 74
Net loss.................................. (2,578) (2,578)
-------- -------
Balances at December 31, 1994.............. (24,766) 235
Conversion of Series A, B, C and D
preferred stock in June 1995 to common
stock................................... -- --
Issuance of Series A preferred stock in
June of 1995 for cash investment and
conversion of bridge note, net of
issuance costs ($13).................... -- 6,932
Issuance of common stock upon the exercise
of stock options........................ -- 18
Deferred compensation related to issuance
of certain stock options................ -- --
Net loss.................................. (6,815) (6,815)
-------- -------
Balances at December 31, 1995.............. (31,581) 370
Issuance of common stock upon the exercise
of stock options (unaudited)............ -- 116
Issuance of common stock in exchange for
notes receivable from stockholders
(unaudited)............................. -- (16)
Deferred compensation related to issuance
of certain stock options (unaudited).... -- --
Amortization of deferred compensation
(unaudited)............................. -- 22
Net loss (unaudited)...................... (1,299) (1,299)
-------- -------
Balances at June 30, 1996 (unaudited)...... $ (32,880) $ (807)
======== =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 58
CEMAX-ICON, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------- -------------------
1993 1994 1995 1995 1996
---------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.......................................................... $ (1,198) $(2,578) $(6,815) $(3,233) $(1,299)
Adjustments to reconcile net loss to net cash (used in) provided
by operating activities:
Depreciation and amortization................................. 418 761 662 329 402
Loss on disposal of property and equipment.................... 40 -- 342 -- --
Changes in assets and liabilities:
Accounts receivable......................................... (442) (429) (1,784) (211) 235
Note receivable from related party.......................... -- -- (300) -- --
Inventories................................................. (344) (424) (550) (167) (181)
Other current assets........................................ 7 (74) 17 31 (51)
Other assets................................................ 81 (5) 1 -- --
Accounts payable............................................ 189 960 597 13 742
Accrued compensation........................................ 57 215 329 183 711
Other accrued liabilities................................... (110) 1,086 127 905 475
Deferred revenue............................................ 62 1,277 1,519 168 1,375
------- ------- ------- ------ -------
Net cash (used in) provided by operating activities............... (1,240) 789 (5,855) (1,982) 2,409
------- ------- ------- ------ -------
Cash flows from investing activities:
Acquisition of property and equipment........................... (682) (913) (1,376) (323) (387)
Proceeds from sale of property and equipment.................... 4 -- -- -- --
Net increase in cash and cash equivalents of ICON for
the period December 1, 1993 to December 31, 1993.............. 116 -- -- -- --
------- ------- ------- ------ -------
Net cash used for investing activities.......................... (562) (913) (1,376) (323) (387)
------- ------- ------- ------ -------
Cash flows from financing activities:
Proceeds from long-term debt.................................... -- 250 575 -- --
Repayment of long-term debt..................................... (36) (206) (708) (756) (101)
Proceeds from convertible subordinated notes.................... 1,464 -- -- -- --
Net proceeds from revolving line of credit...................... -- 232 (314) 751 --
Proceeds from note payable...................................... 309 300 -- -- --
Notes receivable from stockholders.............................. -- -- -- -- (16)
Proceeds from issuance of preferred stock....................... -- -- 6,932 6,930 --
Proceeds from issuance of common stock.......................... 603 74 18 10 116
------- ------- ------- ------ -------
Net cash provided by (used for) financing activities............ 2,340 650 6,503 6,935 (1)
------- ------- ------- ------ -------
Net increase (decrease) in cash and cash equivalents............ 538 526 (728) 4,630 2,021
Cash and cash equivalents at beginning of year.................. 1,439 1,977 2,503 2,503 1,775
------- ------- ------- ------ -------
Cash and cash equivalents at end of year........................ $ 1,977 $ 2,503 $ 1,775 $ 7,133 $ 3,796
======= ======= ======= ====== =======
Supplemental disclosure of cash flow information:
Interest paid................................................... $ 24 $ 46 $ 114 $ 49 $ 44
======= ======= ======= ====== =======
Supplemental schedule of noncash investing and financing
activities:
Property and equipment acquired under capital leases............ $ -- $ 16 $ -- $ -- $ --
======= ======= ======= ====== =======
Net liabilities assumed in acquisition.......................... 98 -- -- -- --
======= ======= ======= ====== =======
Conversion of subordinated convertible notes and accrued
interest into Series D preferred stock, net of issuance
costs......................................................... -- 1,491 -- -- --
======= ======= ======= ====== =======
Issuance of common stock for conversion of note payable......... -- 150 -- -- --
======= ======= ======= ====== =======
Conversion of Series A, B, C, and D preferred stock into common
stock......................................................... -- -- 7,749 -- --
======= ======= ======= ====== =======
Exercise of common stock options in exchange for notes
receivable from stockholders.................................. $ -- $ -- $ -- $ -- $ 382
======= ======= ======= ====== =======
</TABLE>
See accompanying notes.
F-6
<PAGE> 59
CEMAX-ICON, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AT JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND
1996 IS UNAUDITED.)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Description of Business
CEMAX-ICON, Inc. (the "Company") formerly Cemax, Inc. ("Cemax") and ICON
Medical Systems, Inc. ("ICON"), designs, manufactures and markets picture
archiving and communication systems ("PACS") and teleradiology systems which are
used primarily by medical imaging providers and users. The Company's software
products provide image management solutions using advanced technology to assist
radiology departments reduce operating expenses and improve efficiency. The
Company markets its medical imaging software to both Original Equipment
Manufacturers ("OEMs") and end users.
At June 30, 1996, the Company had an accumulated deficit of approximately
$32.9 million. Substantially all of these losses have been financed through
private placements of equity interests. If the Company has insufficient funds,
there can be no assurance that additional financing can be obtained on
acceptable terms, if at all.
Business Combinations
On June 14, 1995, Cemax completed its merger with ICON, a teleradiology
company located in Campbell, California. In accordance with the agreement, the
exchange ratio for each share of ICON common stock and common stock option was
0.641999 of a share of Cemax common stock and common stock option, respectively
(total of 1,879,157 shares of Cemax common stock and 323,211 options to purchase
Cemax common stock). In conjunction with the offering, 10,841,508 shares of
Cemax preferred stock converted to 2,305,907 shares of common stock. The merger
was accounted for as a pooling of interests and, accordingly, the recorded book
values of the assets and liabilities and prior operating results are combined
retroactively. The Company incurred costs in connection with the merger and
consolidation of operations. Included in the accompanying statements of
operations for the year ended December 31, 1995 are merger-related expenses of
$624,000 consisting primarily of charges for transaction and professional fees,
personnel severance costs, and elimination of duplicate facilities.
Prior to 1994, ICON's fiscal year end was November 30. The financial
statements for 1993 have not been restated for the change in fiscal year. The
results of operations for 1993 include Cemax's results of operations for the
year ended December 31, 1993 and ICON's results of operations for the year ended
November 30, 1993.
F-7
<PAGE> 60
CEMAX-ICON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Separate results of operations for the periods prior to the merger are as
follows (in thousands):
<TABLE>
<CAPTION>
MERGER
RELATED
CEMAX- ICON CEMAX ICON EXPENSES COMBINED
---------- ------ ------- -------- --------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Total revenues................ $ 9,510(1) $4,178(2) $ 3,342(2) $ -- $17,030
Net loss...................... $ (4,388)(1) $ (316)(2) $(1,487)(2) $ (624) $(6,815 )
Year ended December 31, 1994:
Total revenues................ -- $8,711 $ 7,746 -- $16,457
Net income (loss)............. -- $ 34 $(2,612) -- $(2,578 )
Year ended December 31, 1993:
(Icon as of November 30, 1993)
Total revenues................ -- $6,224 $ 5,890 -- $12,114
Net loss...................... -- $ (78) $(1,120) -- $(1,198 )
</TABLE>
- ---------------
(1) For the period from June 1, 1995 through December 31, 1995.
(2) For the period from January 1, 1995 through May 31, 1995.
In February 1993, Cemax acquired the business of Virtual Imaging, Inc., a
software company located in Sunnyvale, California. Cemax exchanged 277,043
shares of its common stock in return for all the outstanding stock of Virtual
Imaging. The acquisition was accounted for using the purchase method;
accordingly, the assets and liabilities of the acquired enterprise have been
recorded at their estimated fair values as of the date of acquisition. Virtual
Imaging's results of operations have been included in Cemax's results of
operations since the date of purchase.
Interim Financial Information
The financial information at June 30, 1996 and for the six months ended
June 30, 1995 and 1996, are unaudited but include all adjustments (consisting
only of normal recurring adjustments) which the Company considers necessary for
a fair presentation of the financial position at such date and of the operating
results and cash flows for those periods. Results of the 1996 period are not
necessarily indicative of results expected for the entire year.
Uses of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents are held in United States banks. Cash equivalents
consist of financial investments with original maturities of 90 days or less at
time of acquisition that are readily convertible into cash and have
insignificant interest rate risk.
As of January 1, 1995, the Company adopted Statement of Financial
Accounting Standard No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." The Company classifies its investments as
available-for-sale. As of December 31, 1995, the Company's investments consisted
of money market funds. Investments are recorded at market value. In 1995, the
Company did not realize any material gains or losses. There was no difference
between cost and market value at December 31, 1995.
F-8
<PAGE> 61
CEMAX-ICON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Inventories at December 31, 1994 and 1995 and June 30, 1996 consist of
the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1994 1995 1996
------ ------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Raw materials............................................ $ 429 $ 522 $ 927
Work in process.......................................... 87 -- --
Finished goods, services and marketing inventory......... 939 1,483 1,260
------ ------ ------
$1,455 $2,005 $2,187
====== ====== ======
</TABLE>
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed on the
straight line method using useful lives of three to five years.
Property and equipment at December 31, 1994 and 1995 and June 30, 1996 are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1994 1995 1996
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Machinery and equipment............................... $ 547 $ 569 $ 165
Computer equipment.................................... 3,194 3,680 2,252
Furniture and fixtures................................ 76 96 57
Leasehold improvements................................ 23 95 107
------- ------- -------
3,840 4,440 2,581
Less accumulated depreciation and amortization........ (2,700) (2,928) (1,061)
------- ------- -------
$ 1,140 $ 1,512 $ 1,520
======= ======= =======
</TABLE>
Property and equipment includes assets under capitalized leases at December
31, 1994 and 1995 and June 30, 1996 of approximately $75,000, $43,000 and $0,
respectively. Accumulated amortization related to leased assets was
approximately $47,000, $43,000 and $0, respectively.
Revenue Recognition
Revenues are derived from system sales, software licenses, development
contracts and fees from a range of services, including software maintenance,
support and training. Systems and licensing revenue is generated from software
licenses that grant the right to use the Company's software modules and hardware
products which are typically sold in conjunction with the Company's systems. In
addition to the software license typically sold as part of a system, the Company
generates revenue from sales of software licenses to its OEMs. Service and
maintenance revenue is generated from installation, training, documentation,
maintenance and support services. Fees for such services are generally charged
separately from the Company's software license fees.
Revenue from systems sales is recognized upon delivery of the system, which
typically occurs from one to six months after execution of a contract, depending
on the size and complexity of the system if no significant vendor obligations
remain and collection of the resulting receivable is deemed probable. Revenue
from software licenses sold to OEMs is recognized upon delivery, or upon
completion of specific milestones, if so
F-9
<PAGE> 62
CEMAX-ICON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
stated. Delivery may be delayed in certain contracts where delivery of the
master or first copy of a noncancelable product license has limited software
reproduction rights. Revenue from services is recognized as these services are
performed while revenue from software maintenance is recognized ratably over the
term of maintenance contracts. Software maintenance contracts are generally
renewable on an annual basis, although the Company occasionally negotiates
long-term maintenance contracts. The Company recognizes revenue on development
contracts based on the achievement of certain milestones. Amounts received prior
to the attainment of these milestones are deferred. Costs incurred under
development contracts are charged to research and development expense as
incurred.
Research and Development
Research and development expenditures are charged to operations as
incurred. Statement of Financial Accounting Standard No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed," requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility.
Based on the Company's product development process, technological
feasibility is established upon completion of a working model. Costs incurred by
the Company between completion of the working model and the point at which the
product is ready for general release have been insignificant. Through June 30,
1996, all research and development and software development costs have been
expensed.
Concentration of Credit Risk
The Company sells its processing workstations and software to customers in
the medical and health care industries primarily in North America, Europe and
Asia. The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. The Company maintains reserves for
potential credit losses and such losses have been within management's
expectations. No customer accounted for more than 10% of total revenues in 1993,
one customer accounted for 10% of total revenues in 1994, two customers
accounted for 13% and 10% of total revenues in 1995 and three customers
accounted for 14%, 17% and 15% of total revenues, respectively in the six months
ended June 30, 1996. Export sales, primarily to Japan, for fiscal 1993, 1994 and
1995 and for the six months ended June 30, 1996 were 13%, 22%, 17% and 21% of
total revenues, respectively.
Accounting for Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), which is effective for the Company's December 31,
1996 financial statements. SFAS 123 allows companies to either measure and
account for stock-based compensation under the new provisions of SFAS 123 or
continue to use the measurement and accounting provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") with pro forma disclosure in the notes to the financial statements as
if the measurement provision of SFAS 123 had been adopted. The Company intends
to continue accounting for its stock-based compensation in accordance with the
provisions of APB 25. As such, the adoption of SFAS 123 will not impact the
financial position or the results of operations of the Company.
Deferred Compensation
The Company recorded deferred compensation expense for the difference
between the exercise price and the deemed fair value for financial statement
presentation purposes of the Company's common stock for certain options granted
from August 1995 through June 1996. Such options were granted at exercise prices
ranging from $1.41 to $7.64 per share with deemed fair values ranging from $0.87
to $6.58 per share. This
F-10
<PAGE> 63
CEMAX-ICON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
deferred compensation expense totaled approximately $59,000, which is being
amortized over the vesting period of the options. Amortization of deferred
compensation expense of approximately $22,000 was recorded in the six months
ended June 30, 1996.
Net Loss Per Share
Except as noted below, historical net loss per share is computed using the
weighted average number of common shares outstanding. Common equivalent shares
from stock options, convertible preferred stock and warrants are excluded from
the computation as their effect is antidilutive, except that, pursuant to the
Securities and Exchange Commission ("SEC") Staff Accounting Bulletins, common
and common equivalent shares issued during the period beginning 12 months prior
to the initial filing of the proposed public offering at prices substantially
below the assumed public offering price have been included in the calculation as
if they were outstanding for all periods presented (using the treasury stock
method and the assumed public offering price for stock options and warrants and
the if-converted method for convertible preferred stock).
Historical net loss per share information is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------- -----------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss per share.................... $(0.48) $(0.92) $(1.56) $(0.95) $(0.24)
===== ===== ===== ===== =====
Shares used in computing historical
net loss per share (in thousands)... 2,500 2,817 4,365 3,390 5,438
===== ===== ===== ===== =====
</TABLE>
Pro forma net loss per share has been computed as described above and also
gives effect, pursuant to SEC Staff policy, to the conversion of convertible
preferred shares that will automatically convert upon completion of the
Company's initial public offering (using the if-converted method) from the
original date of issuance.
2. LINE OF CREDIT
In December 1995, the Company established an equipment purchase line of
credit for $575,000 which expires in December 1999. Borrowings bear interest at
12.16% per annum and are secured by property and equipment. As of December 31,
1995, $575,000 was outstanding against this line and was payable in 48
installments of approximately $15,000 including interest and principal beginning
January 1, 1996. The fair value of the line of credit at December 31, 1995,
approximated the carrying value. The fair value is estimated using discounted
cash flow analyses, based on the Company's current incremental borrowing rates
for similar types of borrowing arrangements.
During 1994, the Company borrowed $250,000 on a bank equipment purchase
line of credit which expired in December 1994. Borrowings are at the bank's
prime rate plus 1.75% (10.25% as of December 31, 1995) and are secured by
property and equipment. As of December 31, 1995, $166,666 was outstanding and
was payable to the bank in 24 installments of approximately $8,000 including
interest and principal.
F-11
<PAGE> 64
CEMAX-ICON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. LEASE AND RENTAL COMMITMENTS
The Company leases facilities and equipment under noncancelable operating
leases. As of December 31, 1995, future minimum lease commitments are as
follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
(IN THOUSANDS)
<S> <C> <C>
Year ended December 31,
1996............................................................ $ 280 $11
1997............................................................ 202 5
1998............................................................ 169 5
1999............................................................ -- 3
---- ---
Total minimum payments required................................... $ 651 24
====
Less amount representing interest................................. (4)
---
Present value of minimum lease payment............................ 20
Less current portion of capital lease obligations................. (9)
---
Long term portion of capital lease obligations.................... $11
===
</TABLE>
Rent expense for operating leases was approximately $359,000, $350,000,
$267,500, $105,000 and $115,000 for the years ended December 31, 1993, 1994 and
1995 and the six months ended June 30, 1995 and 1996.
4. NOTE RECEIVABLE FROM RELATED PARTY
During the period ended December 31, 1995, the Company made a loan totaling
$300,000 to an officer of the Company. The loan bears interest at a rate of
prime plus 1% (9.5% at December 31, 1995). In June 1996, the note was amended to
allow for repayment of principal and accrued interest on October 31, 1997.
5. INCOME TAXES
As of December 31, 1995, the Company had federal and state net operating
loss carryforwards of approximately $20,000,000 and $3,800,000, respectively.
The Company also had federal research and development tax credit carryforwards
of approximately $680,000. The federal net operating loss carryforwards will
expire at various dates beginning in 1996 through 2010, if not utilized. The
California net operating loss carryforwards will expire at various dates from
1996 through 2000.
Utilization of the net operating losses and credits is subject to a
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.
As of December 31, 1994 and 1995, the Company had deferred tax assets of
approximately $9,100,000 and $11,400,000 respectively. The net deferred tax
asset has been fully offset by a valuation allowance. The valuation allowance
increased by $575,000, $950,000 and $2,300,000 during the years ended December
31, 1993, 1994 and 1995, respectively. Deferred tax assets relate primarily to
net operating losses, research credits, certain accrued expenses and reserves
that are not currently deductible for income tax purposes, and capitalized
research and development costs.
F-12
<PAGE> 65
CEMAX-ICON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. STOCKHOLDERS' EQUITY
Preferred stock
Preferred stock authorized and outstanding at December 31, 1995 is as
follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
-------------------------- AGGREGATE
ISSUED AND LIQUIDATION
AUTHORIZED OUTSTANDING AMOUNT PREFERENCE
---------- ----------- ------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Designated Series A convertible
(all convertible).................... 1,985,878 1,985,878 $6,945 $ 7,944
========= ====== ======
Undesignated........................... 28,014,122
----------
30,000,000
==========
</TABLE>
Series A preferred stock entitles the holder to receive noncumulative
dividends of $0.32 per share if declared by the board of directors. The Series A
preferred stock is convertible at the option of the holder, or automatically
upon a public offering with aggregate proceeds greater than $5,000,000 at the
rate of one share of common stock for each 2.35 shares of preferred stock
(subject to anti-dilution provisions). The holders of these shares are entitled
to one vote for each share of common stock into which such shares can be
converted. The terms of the agreement also limit the number of future shares
which may be granted as incentive options or stock purchase rights to 500,000
shares, as amended. As of December 31, 1995 there were 199,143 shares available
for grant. The Company has reserved 845,054 shares of common stock in the event
of conversion of the outstanding convertible preferred stock.
At any time after January 1, 2000, the Company may redeem, at the option of
the board of directors, all outstanding shares of Series A preferred stock at
the redemption price of $4.00 per share plus any declared and unpaid dividends.
Upon liquidation of the Company, Series A preferred stock shall have a
liquidation preference of $4.00 per share, plus all declared but unpaid
dividends. If the assets and funds of the Company are insufficient to pay the
preferential amounts in full, such assets and funds shall be distributed to the
holders of preferred stock in proportion to the full amount to which each holder
is entitled. After such payments, the holders of common shares are entitled to
receive all remaining assets of the Company.
If certain conditions are met, additional shares of Series A preferred
stock may be issued in conjunction with the next round of capital financing. In
addition the Company issued a stock warrant to purchase 198,837 shares of common
stock exercisable at $11.47 per share through June 1997.
Stock Option and Employee Incentive Plans
In 1986, the Company established the 1986 Amended Incentive Stock Plan. As
amended, there are 1,276,596 shares of common stock reserved for issuance under
this plan.
Options, which may be either incentive stock options or nonstatutory stock
options, may be granted at prices greater than or equal to the fair value of the
stock on the date of grant, as determined by the board of directors. Generally,
options may be exercised at any time, vest over four years and expire five to
ten years from the date of grant.
F-13
<PAGE> 66
CEMAX-ICON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. STOCKHOLDERS' EQUITY -- (CONTINUED)
Stock option activity including the stock option activity under the former
Icon stock option plan is summarized below:
<TABLE>
<CAPTION>
SHARES
---------------------------
INCENTIVE NONSTATUTORY OPTION PRICE
OPTIONS OPTIONS PER SHARE
---------- ------------ ------------
<S> <C> <C> <C>
Options outstanding at December 31, 1993..... 889,197 53,540 $0.09-$11.75
Granted.................................... 241,884 14,681 0.35- 7.47
Exercised.................................. (263,389) (22,752) 0.09- 1.46
Canceled................................... (141,096) (1,595) 0.35- 11.75
--------- ------- -----------
Options outstanding at December 31, 1994..... 726,596 43,874 0.09- 11.75
Granted.................................... 393,034 -- 1.06- 7.47
Exercised.................................. (39,249) (4,255) 0.09- 7.47
Canceled................................... (79,411) -- 0.35- 7.47
--------- ------- -----------
Options outstanding at December 31, 1995..... 1,000,970 39,619 0.09- 11.75
Granted (unaudited)........................ 74,895 -- 1.76- 7.64
Exercised (unaudited)...................... (464,555) -- 0.35- 1.41
Canceled (unaudited)....................... (18,448) -- 0.35- 1.41
--------- ------- -----------
Options outstanding at June 30, 1996
(unaudited)................................ 592,862 39,619 $0.09-$11.75
========= ======= ===========
</TABLE>
At June 30, 1996, options to purchase 340,937 shares of common stock were
exercisable. Options exercised prior to the vesting date are subject to stock
purchase agreements that allow the Company to repurchase, at the original
issuance price, unvested shares upon termination of employment. Vesting of such
shares is generally ratable over a four year period, as determined by the board
of directors. As of December 31, 1995, 38,283 shares (185,567 shares as of June
30, 1996) were subject to this repurchase provision at the original price
($0.35-$0.71).
In September 1993, in connection with a bank line of credit, the Company
issued a warrant to purchase 3,546 shares of Common Stock at an exercise price
of $5.88 per share.
Unaudited Pro Forma Stockholders' Equity
Unaudited pro forma stockholders' equity at June 30, 1996 gives effect to
the conversion of 1,985,878 shares of convertible preferred stock into 845,054
shares of common stock upon the close of the Company's initial public offering.
7. SUBSEQUENT EVENTS
On June 13, 1996, the Board of Directors authorized management of the
Company to file a registration statement with the SEC permitting the Company to
sell shares of its common stock to the public. If the initial public offering is
consummated under the terms presently anticipated, all of the preferred stock
outstanding will automatically convert into 845,054 shares of common stock.
Unaudited pro forma stockholders' equity, as adjusted for the assumed conversion
of the preferred stock into shares of common stock, is set forth on the
accompanying balance sheet.
On June 13, 1996, the Board of Directors of the Company authorized the
reincorporation of the Company in the State of Delaware to be effective
immediately prior to the effectiveness of the Offering and a reverse stock
split, subject to stockholder approval, in which each 2.35 shares of common
stock are split into one share
F-14
<PAGE> 67
CEMAX-ICON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. SUBSEQUENT EVENTS -- (CONTINUED)
of preferred stock and common stock, respectively. All the share and per share
data in the accompanying financial statements has been adjusted retroactively to
give effect to the reverse stock split.
On June 13, 1996, the Board of Directors of the Company adopted, subject to
shareholder approval, the 1996 Stock Plan which authorized the issuance of
700,000 shares of common stock, the 1996 Employee Stock Purchase Plan which
authorized the issuance of 150,000 shares of common stock and the 1996 Director
Option Plan which authorized the issuance of 100,000 shares of common stock.
F-15
<PAGE> 68
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, ANY UNDERWRITER OR BY ANY OTHER PERSON.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, ANY SECURITIES OTHER THAN THE SHARES OF COMMON STOCK OFFERED
HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION
IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 5
The Company........................... 13
Use of Proceeds....................... 13
Dividend Policy....................... 13
Capitalization........................ 14
Dilution.............................. 15
Selected Financial Data............... 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
Business.............................. 23
Management............................ 35
Certain Transactions.................. 42
Principal Stockholders................ 44
Description of Capital Stock.......... 45
Shares Eligible for Future Sale....... 47
Underwriting.......................... 49
Legal Matters......................... 50
Experts............................... 50
Additional Information................ 50
Index to Financial Statements......... F-1
</TABLE>
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
2,800,000 SHARES
CEMAX LOGO
COMMON STOCK
------------------------
PROSPECTUS
, 1996
------------------------
VOLPE, WELTY & COMPANY
PUNK, ZIEGEL & KNOELL
FURMAN SELZ
------------------------------------------------------
------------------------------------------------------
<PAGE> 69
APPENDIX -- DESCRIPTION OF GRAPHIC IMAGES
INSIDE FRONT COVER PAGE
[Caption: Cemax-Icon Medical Image Information Systems Electronically
acquire, archive, distribute and display medical images throughout a healthcare
facility or Integrated Delivery Network.]
[Narrative description: Graphic representation of how the Company's medical
image information system electronically acquires, archives, distributes and
displays medical images throughout a healthcare facility or Integrated Delivery
Network.]
PAGE 26 -- PRODUCTS SECTION
[Caption: Supporting hardware products include: PCI Display Controller, PCI
Analog and Digital Printer Interfaces, Technologist Keypad, Remote Workstation
and LaserLink.TM]
[Narrative description: Graphic representation of how the each of Company's
input modules, distribution and storage modules and display modules interact
with acquisition modalities to form an integrated medical image information
system.]
<PAGE> 70
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting commission, payable by the Registrant in connection with the sale
of Common Stock being registered. All amounts are estimates except the SEC
Registration Fee, the NASD Filing Fee and the Nasdaq National Market Application
Fee.
<TABLE>
<S> <C>
SEC Registration Fee...................................................... $ 11,103
NASD Filing Fee........................................................... 5,000
Nasdaq National Market Application Fee.................................... 10,000
Blue Sky Qualification Fees and Expenses.................................. 15,000
Printing and Engraving Expenses........................................... 125,000
Legal Fees and Expenses................................................... 250,000
Accounting Fees and Expenses.............................................. 150,000
Transfer Agent and Registrar Fees......................................... 10,000
Directors and Officers Liability Insurance................................ 150,000
Miscellaneous Expenses.................................................... 73,897
--
Total........................................................... $800,000
==
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a corporation
to indemnify its directors, officers, employees and other agents in terms
sufficiently broad to permit indemnification (including reimbursement for
expenses) under certain circumstances for liabilities arising under the
Securities Act of 1933, as amended (the "Act"). The Registrant's Certificate of
Incorporation and Bylaws contain provisions covering indemnification of
corporate directors, officers and other agents against certain liabilities and
expenses incurred as a result of proceedings involving such persons in their
capacities as directors, officers, employees or agents, including proceedings
under the Act or the Securities Exchange Act of 1934, as amended.
The Registrant's Certificate of Incorporation provides for the
indemnification of directors to the fullest extent permissible under Delaware
law.
The Registrant's Bylaws provides for the indemnification of officers,
directors and third parties acting on behalf of the corporation if such person
acted in good faith and in a manner reasonably believed to be in and not opposed
to the best interest of the corporation, and, with respect to any criminal
action or proceeding, the indemnified party had not reason to believe his
conduct was unlawful.
The Registrant has entered into indemnification agreements with its
directors and executive officers, in addition to indemnification provided for
the Registrant's Bylaws, and intends to enter into indemnification agreements
with any new directors and executive officers in the future.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Act, or
otherwise.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or other agent of the Registrant in which
indemnification is being sought, nor is the Registrant aware of any threatened
litigation that may result in a claim for indemnification by any director,
officer, employee or other agent of the Registrant.
II-1
<PAGE> 71
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since June 30, 1993, the Registrant has sold and issued the following
securities which were not registered under the Act.
1. From June 30, 1993 to June 30, 1996, the Company sold and issued an
aggregate of 789,261 shares of Common Stock to employees, consultants, founders
and directors for consideration in the aggregate amount of $542,726.
In particular, these sales consisted of (i) four stock option exercises
from June 1993 through December 1993 (a total of 1,075 shares for an aggregate
purchase price of $376); (ii) thirteen stock option exercises (270,866 shares
for an aggregate price of $65,185), and two stock purchases (8,529 shares for an
aggregate price of $6,054) during 1994; (iii) fifteen stock option exercises
(44,227 shares for an aggregate price of $16,940) during 1995; and (iv) thirty
option exercises including seven by officers and/or directors of the Company
(464,564 shares for an aggregate price of $454,171) from January 1 through June
30, 1996.
2. In November 1993, the Company issued subordinated notes in the amount of
$1,464,000 to certain institutional investors. In October 1994, the Company
issued shares of Series D Preferred Stock convertible into 212,786 shares of
Common Stock to the holders of the subordinated notes in exchange for
cancellation of the notes together with accrued interest thereon in the
aggregate amount of $1,500,114.
3. In June 1995, the Company sold and issued 845,054 shares of Series A
Preferred Stock at a purchase price of $8.23 per share, together with a warrant
to purchase up to 198,837 shares of Common Stock at $12.93 per share to
Minnesota Mining and Manufacturing Company. Such warrant was subsequently
amended to provide that it is exercisable for up to 198,837 shares of Series A
Preferred Stock at a price of $11.47 per share.
4. In June 1995, pursuant to an Agreement and Plan of Reorganization and a
related Agreement and Plan of Merger, ICON Medical Systems, Inc., a California
corporation ("ICON"), was merged into the Company which was the surviving
corporation. The issued and outstanding common shares of ICON were converted and
exchanged into a total of approximately 1,879,158 shares of Common Stock of the
Company. In addition, 1,393,134 options exercisable for shares of ICON common
stock became exercisable for conversion into approximately 323,210 shares of the
Company at prices of $1.46 and $7.48 per share.
The sales and issuances of securities in the above transactions described
in paragraph (1) above were deemed to be exempt from registration under the Act
by virtue of Rule 701 promulgated thereunder.
The sales and issuances of securities in the transactions described in
paragraphs (2) and (3) above were deemed to be exempt from registration under
the Act by virtue of Section 4(2) adopted thereunder as transactions by an
issuer not involving a public offering.
The issuance of securities in the transaction described in paragraph (4)
above were deemed to be exempt from registration under the Act by virtue of
Section 3 (a)(10) adopted thereunder.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
1.1** Form of Underwriting Agreement
3.1** Articles of Incorporation of CEMAX-ICON, Inc., a California corporation, as
amended and in effect prior to the Registrant's reincorporation in Delaware.
3.2* Certificate of Incorporation of CEMAX-ICON, Inc., a Delaware corporation, as in
effect immediately following the Registrant's reincorporation in Delaware.
3.3* Bylaws of the Registrant, as in effect prior to the Registrant's
reincorporation in Delaware.
3.4* Bylaws of the Registrant, as in effect immediately following the Registrant's
reincorporation in Delaware.
4.1* Form of Lock-Up Agreement.
4.2** Form of Common Stock Certificate.
</TABLE>
II-2
<PAGE> 72
<TABLE>
<C> <S>
4.3* Form of warrant issued to existing warrant holders.
4.4* Restated Registration Rights Agreement dated December 23, 1995 among the
Registrant and certain shareholders of the Registrant.
5.1** Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1* 1986 Amended Incentive Stock Plan.
10.2* 1996 Stock Plan.
10.3 1996 Director Option Plan.
10.4* 1996 Employee Stock Purchase Plan.
10.5* Employees' 401(k) Savings Plan and Trust.
10.6*+ Supply Agreement dated December 28, 1995 by and between Registrant and Eastman
Kodak Company.
10.7*+ Sales Agreement dated June 13, 1995 by and between the Registrant and Minnesota
Mining and Manufacturing Company ("3M").
10.8*+ Cooperation Agreement dated September 28, 1995 by and between the Registrant
and Hewlett-Packard Company.
10.9*+ Agreement LGC950D for the License, Sublicense, and Maintenance of Software
dated September 14, 1994 by and between CEMAX, Inc. and AT&T, Corp.
10.10* Light Industrial Lease dated July 16, 1993 by and between the Registrant and
Teachers Insurance and Annuity Association of America.
10.11*+ Purchase Agreement No. 900000 dated May 15, 1995, by and between GE Medical
Systems and CEMAX, Inc.
10.12*+ OEM Purchase Agreement dated November 22, 1994 by and between the Registrant
and 3M.
10.13*+ Loan and Security Agreement dated December 28, 1995 between the Registrant and
DVI Capital Company.
10.14+ License Agreement dated November 30, 1992, as amended, by and between
Registrant and Toshiba Corporation.
10.15+ European Distribution Agreement dated June 18, 1996 by and between the
Registrant and 3M.
11.1 Computation of net loss per share.
23.1 Consent of Ernst & Young LLP.
23.2** Consent of Wilson Sonsini Goodrich & Rosati (Included in Exhibit 5.1).
24.1 Power of attorney (Refer to II-5).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
+ Confidential treatment requested.
(b) Financial Statement Schedules
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
Financial Statements or Notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 14 or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such
II-3
<PAGE> 73
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and
(2) For purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such new securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 74
SIGNATURE
Pursuant to the requirements of the Act, the Registrant has duly caused
this Amendment No. 1 to Registrant Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Fremont, State of
California, on the 14th day of August, 1996.
CEMAX-ICON, INC.
By: /s/ TERRY ROSS
Terry Ross,
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints, jointly and severally, Terry Ross,
Gregory C. Patti and Jeremy B. Rubin, M.D., and each of them, individually and
without the other, his attorney-in-fact, each with the power of substitution,
for him in any and all capacities, to sign any and all amendments to this
Registration Statement (including post effective amendments and registration
statements filed pursuant to Rule 462), and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE ACT, THIS AMENDMENT NO. 1 TO
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ----------------------------- ----------------
<S> <C> <C>
/s/ TERRY ROSS President, Chief Executive August 14, 1996
- ------------------------------------------ Officer and Director
Terry Ross (Principal Executive Officer)
JEREMY B. RUBIN* Vice President, Chief August 14, 1996
- ------------------------------------------ Technical Officer and Vice
Jeremy B. Rubin, M.D. Chairman of the Board
GREGORY C. PATTI* Chief Financial Officer August 14, 1996
- ------------------------------------------ (Principal Financial and
Gregory C. Patti Accounting Officer)
DAVID N. WHITE* Chairman of the Board August 14, 1996
- ------------------------------------------
David N. White, M.D.
REID W. DENNIS* Director August 14, 1996
- ------------------------------------------
Reid W. Dennis
M. DAVID TITUS* Director August 14, 1996
- ------------------------------------------
M. David Titus
PHILIP E. MCCARTHY* Director August 14, 1996
- ------------------------------------------
Philip E. McCarthy
*By /s/ TERRY ROSS
-------------------------------------
Terry Ross, Attorney-in-fact
</TABLE>
II-5
<PAGE> 75
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGES TO
BEGINNING COST AND BALANCE
OF PERIOD EXPENSES DEDUCTIONS AT END OF PERIOD
---------- ---------- ---------- ----------------
<S> <C> <C> <C> <C>
Year ended December 31, 1993.............. $ 70 $120 -$- $190
Year ended December 31, 1994.............. 190 294 -- 484
Year ended December 31, 1995.............. 484 289 -- 773
Six months ended June 30, 1996............ 773 56 2 827
</TABLE>
<PAGE> 76
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBITS PAGE
- ------------ -----------------------------------------------------------------------
<C> <S> <C>
1.1** Form of Underwriting Agreement
3.1** Articles of Incorporation of CEMAX-ICON, Inc., a California
corporation, as amended and in effect prior to the Registrant's
reincorporation in Delaware.
3.2* Certificate of Incorporation of CEMAX-ICON, Inc., a Delaware
corporation, as in effect immediately following the Registrant's
reincorporation in Delaware.
3.3* Bylaws of the Registrant, as in effect prior to the Registrant's
reincorporation in Delaware.
3.4* Bylaws of the Registrant, as in effect immediately following the
Registrant's reincorporation in Delaware.
4.1* Form of Lock-Up Agreement.
4.2** Form of Common Stock Certificate.
4.3* Form of warrant issued to existing warrant holders.
4.4* Restated Registration Rights Agreement dated December 23, 1995 among
the Registrant and certain shareholders of the Registrant.
5.1** Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1* 1986 Amended Incentive Stock Plan.
10.2* 1996 Stock Plan.
10.3 1996 Director Option Plan.
10.4* 1996 Employee Stock Purchase Plan.
10.5* Employees' 401(k) Savings Plan and Trust.
10.6*+ Supply Agreement dated December 28, 1995 by and between Registrant and
Eastman Kodak Company.
10.7*+ Sales Agreement dated June 13, 1995 by and between the Registrant and
Minnesota Mining and Manufacturing Company ("3M").
10.8*+ Cooperation Agreement dated September 28, 1995 by and between the
Registrant and Hewlett-Packard Company.
10.9*+ Agreement LGC950D for the License, Sublicense, and Maintenance of
Software dated September 14, 1994 by and between CEMAX, Inc. and AT&T,
Corp.
10.10* Light Industrial Lease dated July 16, 1993 by and between the
Registrant and Teachers Insurance and Annuity Association of America.
10.11*+ Purchase Agreement No. 900000 dated May 15, 1995, by and between GE
Medical Systems and CEMAX, Inc..
10.12*+ OEM Purchase Agreement dated November 22, 1994 by and between the
Registrant and 3M.
10.13*+ Loan and Security Agreement dated December 28, 1995 between the
Registrant and DVI Capital Company.
10.14+ License Agreement dated November 30, 1992, as amended, by and between
Registrant and Toshiba Corporation.
10.15+ European Distribution Agreement dated June 18, 1996 by and between the
Registrant and 3M.
11.1 Computation of net loss per share.
23.1 Consent of Ernst & Young LLP.
23.2** Consent of Wilson Sonsini Goodrich & Rosati (Included in Exhibit 5.1).
24.1 Power of attorney (Refer to II-5).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
+ Confidential treatment requested.
<PAGE> 1
EXHIBIT 10.3
CEMAX-ICON, INC.
1996 DIRECTOR OPTION PLAN
1. Purposes of the Plan. The purposes of this 1996 Director Option Plan
are to attract and retain the best available personnel for service as Outside
Directors (as defined herein) of the Company, to provide additional incentive to
the Outside Directors of the Company to serve as Directors, and to encourage
their continued service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" means the Common Stock of the Company.
(d) "Company" means Cemax-ICON, Inc.
(e) "Director" means a member of the Board.
(f) "Employee" means any person, including officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(h) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the date of
<PAGE> 2
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable,
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board, or;
(iv) For the purposes of the First Options granted upon the
Effective Date of the Plan, the Fair Market Value of the Common Stock shall be
the price to public as set forth in the final prospectus included within the
Registration Statement on Form S-1 filed with the Securities and Exchange
Commission for the initial public offering of the Common Stock.
(i) "Inside Director" means a Director who is an Employee.
(j) "Option" means a stock option granted pursuant to the Plan.
(k) "Optioned Stock" means the Common Stock subject to an Option.
(l) "Optionee" means a Director who holds an Option.
(m) "Outside Director" means a Director who is not an Employee.
(n) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(o) "Plan" means this 1996 Director Option Plan.
(p) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
(q) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of
1986.
3. Stock Subject to the Plan. Subject to the provisions of Section 10
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is one hundred thousand (100,000) Shares of Common Stock
(the "Pool"). The Shares may be authorized, but unissued, or reacquired Common
Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
-2-
<PAGE> 3
4. Administration and Grants of Options under the Plan.
(a) Procedure for Grants. The provisions set forth in this Section
4(a) shall not be amended more than once every six months, other than to comport
with changes in the Code, the Employee Retirement Income Security Act of 1974,
as amended, or the rules thereunder. All grants of Options to Outside Directors
under this Plan shall be automatic and nondiscretionary and shall be made
strictly in accordance with the following provisions:
(i) No person shall have any discretion to select which
Outside Directors shall be granted Options or to determine the number of Shares
to be covered by Options granted to Outside Directors.
(ii) Each Outside Director shall be automatically granted an
Option to purchase five thousand (5,000) Shares (the "First Option") on the date
on which the later of the following events occurs: (A) the effective date of
this Plan, as determined in accordance with Sec tion 6 hereof, or (B) the date
on which such person first becomes an Outside Director, whether through election
by the shareholders of the Company or appointment by the Board to fill a
vacancy; provided, however, that an Inside Director who ceases to be an Inside
Director but who remains a Director shall not receive a First Option.
(iii) Each Outside Director shall be automatically granted an
Option to purchase (A) five thousand Shares (an "IPO Option") on the effective
date of the initial public offering of the Company's securities, and (B) two
thousand five hundred (2,500) Shares (a "Subsequent Option") on July 1 of each
year provided he or she is then an Outside Director and if as of such date, he
or she shall have served on the Board for at least the preceding six (6) months.
(iv) The terms of a First Option granted hereunder shall be as
follows:
(A) the term of the First Option shall be ten (10) years.
(B) the First Option shall be exercisable only while the
Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the First Option. In the event
that the date of grant of the First Option is not a trading day, the exercise
price per Share shall be the Fair Market Value on the next trading day
immediately following the date of grant of the First Option.
(D) subject to Section 10 hereof, the First Option shall
become exercisable as to twenty-five percent (25%) of the Shares subject to the
First Option on each anniversary of its date of grant, provided that the
Optionee continues to serve as a Director on such dates.
-3-
<PAGE> 4
(v) The terms of an IPO Option granted hereunder shall be as
follows:
(A) the term of the IPO Option shall be ten (10) years.
(B) the IPO Option shall be exercisable only while the
Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the
Fair Market Value per Share on the date of grant of the IPO Option. In the event
that the date of grant of the IPO Option is not a trading day, the exercise
price per Share shall be the Fair Market Value on the next trading day
immediately following the date of grant of the IPO Option.
(D) subject to Section 10 hereof, the IPO Option shall
become exercisable as to twenty-five percent (25%) of the Shares subject to the
IPO Option on each anniversary of its date of grant, provided that the Optionee
continues to serve as a Director on such dates.
(vi) The terms of a Subsequent Option granted hereunder shall
be as follows:
(A) the term of the Subsequent Option shall be ten (10)
years.
(B) the Subsequent Option shall be exercisable only while
the Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.
(C) the exercise price per Share shall be one hundred
percent (100%) of the Fair Market Value per Share on the date of grant of the
Subsequent Option. In the event that the date of grant of the Subsequent Option
is not a trading day, the exercise price per Share shall be the Fair Market
Value on the next trading day immediately following the date of grant of the
Subsequent Option.
(D) subject to Section 10 hereof, the Subsequent Option
shall become exercisable as to twenty-five percent (25%) of the Shares subject
to the Subsequent Option on each anniversary of its date of grant, provided
that the Optionee continues to serve as a Director on such dates.
(vi) In the event that any Option granted under the Plan would
cause the number of Shares subject to outstanding Options plus the number of
Shares previously purchased under Options to exceed the Pool, then the remaining
Shares available for Option grant shall be granted under Options to the Outside
Directors on a pro rata basis. No further grants shall be made until such time,
if any, as additional Shares become available for grant under the Plan through
action of the Board or the shareholders to increase the number of Shares which
may be issued under the Plan or through cancellation or expiration of Options
previously granted hereunder.
5. Eligibility. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4 hereof.
The Plan shall not confer upon any Optionee any right with respect
to continuation of service as a Director or nomination to serve as a Director,
nor shall it interfere in any way with any rights which the Director or the
Company may have to terminate the Director's relationship with the Company at
any time.
6. Term of Plan. The Plan shall become effective upon the date on which
the Company's registration statement on Form S-1 is declared effective by the
Securities and Exchange Commission. It shall continue in effect for a term of
ten (10) years unless sooner terminated under Section 11 of the Plan.
-4-
<PAGE> 5
7. Form of Consideration. The consideration to be paid for the Shares
to be issued upon exercise of an Option, including the method of payment, shall
consist of (i) cash, (ii) check, (iii) other shares which (x) in the case of
Shares acquired either directly or indirectly from the Company, have been owned
by the Optionee for more than six (6) months on the date of surrender, and (y)
have a Fair Market Value on the date of surrender equal to the aggregate
exercise price of the Shares as to which said Option shall be exercised, (iv)
delivery of a properly executed exercise notice together with such other
documentation as the Company and the broker, if applicable, shall require to
effect an exercise of the Option and delivery to the Company of the sale or loan
proceeds required to pay the exercise price, or (v) any combination of the
foregoing methods of payment.
8. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times as are set forth in Section
4 hereof; provided, however, that no Options shall be exercisable until
shareholder approval of the Plan in accordance with Section 16 hereof has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date the stock certificate is issued, except as provided in Section 10 of
the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Continuous Status as a Director. Subject to
Section 10 hereof, in the event an Optionee's status as a Director terminates
(other than upon the Optionee's death or total and permanent disability (as
defined in Section 22(e)(3) of the Code)), the Optionee may exercise his or her
Option, but only within three (3) months following the date of such termination,
and only to the extent that the Optionee was entitled to exercise it on the date
of such termination (but in no event later than the expiration of its ten (10)
year term). To the extent that
-5-
<PAGE> 6
the Optionee was not entitled to exercise an Option on the date of such
termination, and to the extent that the Optionee does not exercise such Option
(to the extent otherwise so entitled) within the time specified herein, the
Option shall terminate.
(c) Disability of Optionee. In the event Optionee's status as a
Director terminates as a result of total and permanent disability (as defined in
Section 22(e)(3) of the Code), the Optionee may exercise his or her Option, but
only within twelve (12) months following the date of such ter mination, and only
to the extent that the Optionee was entitled to exercise it on the date of such
termination (but in no event later than the expiration of its ten (10) year
term). To the extent that the Optionee was not entitled to exercise an Option on
the date of termination, or if he or she does not exercise such Option (to the
extent otherwise so entitled) within the time specified herein, the Option shall
terminate.
(d) Death of Optionee. In the event of an Optionee's death, the
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the Optionee was
entitled to exercise it on the date of death (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of death, and to the extent that the
Optionee's estate or a person who acquired the right to exercise such Option
does not exercise such Option (to the extent otherwise so entitled) within the
time specified herein, the Option shall terminate.
9. Non-Transferability of Options. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
10. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of Shares covered by each outstanding
Option, the number of Shares which have been authorized for issuance under the
Plan but as to which no Options have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option, as well as
the price per Share covered by each such outstanding Option, and the number of
Shares issuable pursuant to the automatic grant provisions of Section 4 hereof
shall be proportionately adjusted for any increase or decrease in the number of
issued Shares resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
-6-
<PAGE> 7
adjustment by reason thereof shall be made with respect to, the number or price
of Shares subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it shall terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation or the sale of substantially all of the assets
of the Company, outstanding Options may be assumed or equivalent options may be
substituted by the successor corporation or a Parent or Subsidiary thereof (the
"Successor Corporation"). If an Option is assumed or substituted for, the Option
or equivalent option shall continue to be exercisable as provided in Section 4
hereof for so long as the Optionee serves as a Director or a director of the
Successor Corporation. Following such assumption or substitution, if the
Optionee's status as a Director or director of the Successor Corporation, as
applicable, is terminated other than upon a voluntary resignation by the
Optionee, the Option or option shall become fully exercisable, including as to
Shares for which it would not otherwise be exercisable. Thereafter, the Option
or option shall remain exercisable in accordance with Sections 8(c) through (e)
above.
If the Successor Corporation does not assume an outstanding Option or
substitute for it an equivalent option, the Option shall become fully vested and
exercisable, including as to Shares for which it would not otherwise be
exercisable. In such event the Board shall notify the Optionee that the Option
shall be fully exercisable for a period of thirty (30) days from the date of
such notice, and upon the expiration of such period the Option shall terminate.
For the purposes of this Section 10(c), an Option shall be considered
assumed if, following the merger or sale of assets, the Option confers the right
to purchase or receive, for each Share of Optioned Stock subject to the Option
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares).
If such consideration received in the merger or sale of assets is not solely
common stock of the successor corporation or its Parent, the Administrator may,
with the consent of the successor corporation, provide for the consideration to
be received upon the exercise of the Option, for each Share of Optioned Stock
subject to the Option, to be solely common stock of the successor corporation or
its Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
11. Amendment and Termination of the Plan.
(a) Amendment and Termination. Except as set forth in Section 4, the
Board may at any time amend, alter, suspend, or discontinue the Plan, but no
amendment, alteration,
-7-
<PAGE> 8
suspension, or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4 hereof.
13. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated there
under, state securities laws, and the requirements of any stock exchange upon
which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
14. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written option
agreements.
16. Shareholder Approval. The adoption of the Plan shall be subject to
approval by the shareholders of the Company. Such shareholder approval shall be
obtained in the degree and manner required under applicable state and federal
law.
-8-
<PAGE> 9
CEMAX-ICON, INC.
1996 DIRECTOR OPTION PLAN
DIRECTOR OPTION AGREEMENT
INITIAL GRANT
Cemax-ICON, Inc. (the "Company"), has granted to ____________________
(the "Optionee"), an option to purchase a total of five thousand (5,000) shares
of the Company's Common Stock (the "Optioned Stock"), at the price determined as
provided herein, and in all respects subject to the terms, definitions and
provisions of the Company's 1996 Director Option Plan (the "Plan") adopted by
the Company which is incorporated herein by reference. The terms defined in the
Plan shall have the same defined meanings herein.
1. Nature of the Option. This Option is a nonstatutory option and is not
intended to qualify for any special tax benefits to the Optionee.
2. Exercise Price. The exercise price is $_______ for each share of Common
Stock.
3. Exercise of Option. This Option shall be exercisable during its term in
accordance with the provisions of Section 8 of the Plan as follows:
a. Right to Exercise.
i. This Option shall become exercisable in installments
cumulatively with respect to twenty-five percent (25%) of the
Optioned Stock one year after the date of grant, and as to an
additional twenty-five percent (25%) of the Optioned Stock on
each anniversary of the date of grant, so that one hundred
percent (100%) of the Optioned Stock shall be exercisable four
years after the date of grant.
ii. This Option may not be exercised for a fraction of a share.
iii. In the event of Optionee's death, disability or other
termination of service as a Director, the exercisability of
the Option is governed by Section 8 of the Plan.
b. Method of Exercise. This Option shall be exercisable by written
notice which shall state the election to exercise the Option and the number of
Shares in respect of which the Option is being exercised. Such written notice,
in the form attached hereto as Exhibit A, shall be signed by the Optionee and
shall be delivered in person or by certified mail to the Secretary of the
Company. The written notice shall be accompanied by payment of the exercise
price.
4. Method of Payment. Payment of the exercise price shall be by any of the
following, or a combination thereof, at the election of the Optionee:
a. cash;
<PAGE> 10
b. check; or
c.surrender of other shares which (x) in the case of Shares acquired either
directly or indirectly from the Company, have been owned by the Optionee for
more than six (6) months on the date of surrender, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised; or
d.delivery of a properly executed exercise notice together with such other
documentation as the Company and the broker, if applicable, shall require to
effect an exercise of the Option and delivery to the Company of the sale or loan
proceeds required to pay the exercise price.
5. Restrictions on Exercise. This Option may not be exercised if the issuance of
such Shares upon such exercise or the method of payment of consideration for
such shares would constitute a violation of any applicable federal or state
securities or other law or regulations, or if such issuance would not comply
with the requirements of any stock exchange upon which the Shares may then be
listed. As a condition to the exercise of this Option, the Company may require
Optionee to make any representation and warranty to the Company as may be
required by any applicable law or regulation.
6. Non-Transferability of Option. This Option may not be transferred in any
manner otherwise than by will or by the laws of descent or distribution and may
be exercised during the lifetime of Optionee only by the Optionee. The terms of
this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
7. Term of Option. This Option may not be exercised more than ten (10) years
from the date of grant of this Option, and may be exercised during such period
only in accordance with the Plan and the terms of this Option.
8. Taxation Upon Exercise of Option. Optionee understands that, upon exercise of
this Option, he or she will recognize income for tax purposes in an amount equal
to the excess of the then Fair Market Value of the Shares purchased over the
exercise price paid for such Shares. Since the Optionee is subject to Section
16(b) of the Securities Exchange Act of 1934, as amended, under certain limited
circumstances the measurement and timing of such income (and the commencement of
any capital gain holding period) may be deferred, and the Optionee is advised to
contact a tax advisor concerning the application of Section 83 in general and
the availability a Section 83(b) election in particular in connection with the
exercise of the Option. Upon a resale of such Shares by the Optionee, any
difference between the sale price and the Fair Market Value of the Shares on the
date of exercise of the Option, to the extent not included in income as
described above, will be treated as capital gain or loss.
-2-
<PAGE> 11
DATE OF GRANT: _____________________
CEMAX-ICON, INC.
By: _________________________________
Optionee acknowledges receipt of a copy of the Plan, a copy of which is
attached hereto, and represents that he or she is familiar with the terms and
provisions thereof, and hereby accepts this Option subject to all of the terms
and provisions thereof. Optionee hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Board upon any questions
arising under the Plan.
Dated: ________________________
_____________________________________
Optionee
-3-
<PAGE> 12
EXHIBIT A
DIRECTOR OPTION EXERCISE NOTICE
Cemax-ICON, Inc.
Attention: Stock Option Administrator
1. Exercise of Option. The undersigned ("Optionee") hereby elects to
exercise Optionee's option to purchase ______ shares of the Common Stock (the
"Shares") of Cemax-ICON, Inc. (the "Company") under and pursuant to the
Company's 1996 Director Option Plan and the Director Option Agreement dated
_______________ (the "Agreement").
2. Representations of Optionee. Optionee acknowledges that Optionee has
received, read and understood the Agreement.
3. Federal Restrictions on Transfer. Optionee understands that the
Shares must be held indefinitely unless they are registered under the Securities
Act of 1933, as amended (the "1933 Act"), or unless an exemption from such
registration is available, and that the certificate(s) representing the Shares
may bear a legend to that effect. Optionee understands that the Company is under
no obligation to register the Shares and that an exemption may not be available
or may not permit Optionee to transfer Shares in the amounts or at the times
proposed by Optionee.
4. Tax Consequences. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultant(s) Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
5. Delivery of Payment. Optionee herewith delivers to the Company the
aggregate purchase price for the Shares that Optionee has elected to purchase
and has made provision for the payment of any federal or state withholding taxes
required to be paid or withheld by the Company.
6. Entire Agreement. The Agreement is incorporated herein by reference.
This Exercise Notice and the Agreement constitute the entire agreement of the
parties and supersede in their entirety all prior undertakings and agreements of
the Company and Optionee with respect to the subject matter hereof. This
Exercise Notice and the Agreement are governed by California law except for that
body of law pertaining to conflict of laws.
<PAGE> 13
Submitted by: Accepted by:
OPTIONEE: CEMAX-ICON, INC.
_________________________ By:______________________________
Its:_____________________________
Address:
Dated:___________________ Dated:___________________________
-2-
<PAGE> 14
CEMAX-ICON, INC.
1996 DIRECTOR OPTION PLAN
DIRECTOR OPTION AGREEMENT
SUBSEQUENT GRANT
Cemax-ICON, Inc. (the "Company"), has granted
to_________________________________ (the "Optionee"), an option to purchase a
total of two thousand five hundred(2,500) shares of the Company's Common Stock
(the "Optioned Stock"), at the price determined as provided herein, and in all
respects subject to the terms, definitions and provisions of the Company's 1996
Director Option Plan (the "Plan") adopted by the Company which is incorporated
herein by reference. The terms defined in the Plan shall have the same defined
meanings herein.
1. 1. Nature of the Option. This Option is a nonstatutory option and is not
intended to qualify for any special tax benefits to the Optionee.
2. 2. Exercise Price. The exercise price is $_______ for each share of Common
Stock.
3. 3. Exercise of Option. This Option shall be exercisable during its term in
accordance with the provisions of Section 8 of the Plan as follows:
4. Right to Exercise.
(a) This Option shall become exercisable in installments cumulatively
with respect to twenty-five percent (25%) of the Optioned Stock one year after
the date of grant, and as to an additional twenty-five percent (25%) of the
Optioned Stock on each anniversary of the date of grant, so that one hundred
percent (100%) of the Optioned Stock shall be exercisable four years after the
date of grant.
(b) This Option may not be exercised for a fraction of a share.
(c) In the event of Optionee's death, disability or other termination of
service as a Director, the exercisability of the Option is governed by Section 8
of the Plan.
(d) Method of Exercise. This Option shall be exercisable by written
notice which shall state the election to exercise the Option and the number of
Shares in respect of which the Option is being exercised. Such written notice,
in the form attached hereto as Exhibit A, shall be signed by the Optionee and
shall be delivered in person or by certified mail to the Secretary of the
Company. The written notice shall be accompanied by payment of the exercise
price.
4. 5. Method of Payment. Payment of the exercise price shall be by any of the
following, or a combination thereof, at the election of the Optionee:
(a) cash;
(b) check; or
<PAGE> 15
(c) surrender of other shares which (x) in the case of Shares acquired
either directly or indirectly from the Company, have been owned by the Optionee
for more than six (6) months on the date of surrender, and (y) have a Fair
Market Value on the date of surrender equal to the aggregate exercise price of
the Shares as to which said Option shall be exercised; or
(d) delivery of a properly executed exercise notice together with such
other documentation as the Company and the broker, if applicable, shall require
to effect an exercise of the Option and delivery to the Company of the sale or
loan proceeds required to pay the exercise price.
5. 6. Restrictions on Exercise. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any
applicable federal or state securities or other law or regulations, or if
such issuance would not comply with the requirements of any stock exchange
upon which the Shares may then be listed. As a condition to the exercise of
this Option, the Company may require Optionee to make any representation
and warranty to the Company as may be required by any applicable law or
regulation.
6. 7. Non-Transferability of Option. This Option may not be transferred in any
manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by the Optionee. The
terms of this Option shall be binding upon the executors, administrators,
heirs, successors and assigns of the Optionee.
8. Term of Option. This Option may not be exercised more than ten (10) years
from the date of grant of this Option, and may be exercised during such period
only in accordance with the Plan and the terms of this Option.
9. Taxation Upon Exercise of Option. Optionee understands that, upon exercise
of this Option, he or she will recognize income for tax purposes in an amount
equal to the excess of the then Fair Market Value of the Shares purchased over
the exercise price paid for such Shares. Since the Optionee is subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended, under certain
limited circumstances the measurement and timing of such income (and the
commencement of any capital gain holding period) may be deferred, and the
Optionee is advised to contact a tax advisor concerning the application of
Section 83 in general and the availability a Section 83(b) election in
particular in connection with the exercise of the Option. Upon a resale of such
Shares by the Optionee, any difference between the sale price and the Fair
Market Value of the Shares on the date of exercise of the Option, to the extent
not included in income as described above, will be treated as capital gain or
loss.
-2-
<PAGE> 16
DATE OF GRANT: _____________________
CEMAX-ICON, INC.
By: ______________________________
Optionee acknowledges receipt of a copy of the Plan, a copy of which is
attached hereto, and represents that he or she is familiar with the terms and
provisions thereof, and hereby accepts this Option subject to all of the terms
and provisions thereof. Optionee hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Board upon any questions
arising under the Plan.
Dated: ________________________
__________________________________
Optionee
-3-
<PAGE> 17
CEMAX-ICON, INC.
1996 DIRECTOR OPTION PLAN
DIRECTOR OPTION AGREEMENT
INITIAL PUBLIC OFFERING GRANT
Cemax-ICON, Inc. (the "Company"), has granted to _____________________
(the "Optionee"), an option to purchase a total of five thousand (5,000) shares
of the Company's Common Stock (the "Optioned Stock"), at the price determined as
provided herein, and in all respects subject to the terms, definitions and
provisions of the Company's 1996 Director Option Plan (the "Plan") adopted by
the Company which is incorporated herein by reference. The terms defined in the
Plan shall have the same defined meanings herein.
1. Nature of the Option. This Option is a nonstatutory option and is not
intended to qualify for any special tax benefits to the Optionee.
2. Exercise Price. The exercise price is $_______ for each share of Common
Stock.
3. Exercise of Option. This Option shall be exercisable during its term in
accordance with the provisions of Section 8 of the Plan as follows:
4. Right to Exercise.
i. This Option shall become exercisable in installments cumulatively
with respect to twenty-five percent (25%) of the Optioned Stock one year after
the date of grant, and as to an additional twenty-five percent (25%) of the
Optioned Stock on each anniversary of the date of grant, so that one hundred
percent (100%) of the Optioned Stock shall be exercisable four years after the
date of grant.
ii. This Option may not be exercised for a fraction of a share.
iii. In the event of Optionee's death, disability or other termination
of service as a Director, the exercisability of the Option is governed by
Section 8 of the Plan.
iv. Method of Exercise. This Option shall be exercisable by written
notice which shall state the election to exercise the Option and the number of
Shares in respect of which the Option is being exercised. Such written notice,
in the form attached hereto as Exhibit A, shall be signed by the Optionee and
shall be delivered in person or by certified mail to the Secretary of the
Company. The written notice shall be accompanied by payment of the exercise
price.
5. Method of Payment. Payment of the exercise price shall be by any of the
following, or a combination thereof, at the election of the Optionee:
i. cash;
ii. check; or
<PAGE> 18
iii. surrender of other shares which (x) in the case of Shares acquired
either directly or indirectly from the Company, have been owned by the Optionee
for more than six (6) months on the date of surrender, and (y) have a Fair
Market Value on the date of surrender equal to the aggregate exercise price of
the Shares as to which said Option shall be exercised; or
iv. delivery of a properly executed exercise notice together with such
other documentation as the Company and the broker, if applicable, shall require
to effect an exercise of the Option and delivery to the Company of the sale or
loan proceeds required to pay the exercise price.
6. Restrictions on Exercise. This Option may not be exercised if the issuance of
such Shares upon such exercise or the method of payment of consideration for
such shares would constitute a violation of any applicable federal or state
securities or other law or regulations, or if such issuance would not comply
with the requirements of any stock exchange upon which the Shares may then be
listed. As a condition to the exercise of this Option, the Company may require
Optionee to make any representation and warranty to the Company as may be
required by any applicable law or regulation.
7. Non-Transferability of Option. This Option may not be transferred in any
manner otherwise than by will or by the laws of descent or distribution and may
be exercised during the lifetime of Optionee only by the Optionee. The terms of
this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
8. Term of Option. This Option may not be exercised more than ten (10) years
from the date of grant of this Option, and may be exercised during such period
only in accordance with the Plan and the terms of this Option.
9. Taxation Upon Exercise of Option. Optionee understands that, upon exercise of
this Option, he or she will recognize income for tax purposes in an amount equal
to the excess of the then Fair Market Value of the Shares purchased over the
exercise price paid for such Shares. Since the Optionee is subject to Section
16(b) of the Securities Exchange Act of 1934, as amended, under certain limited
circumstances the measurement and timing of such income (and the commencement of
any capital gain holding period) may be deferred, and the Optionee is advised to
contact a tax advisor concerning the application of Section 83 in general and
the availability a Section 83(b) election in particular in connection with the
exercise of the Option. Upon a resale of such Shares by the Optionee, any
difference between the sale price and the Fair Market Value of the Shares on the
date of exercise of the Option, to the extent not included in income as
described above, will be treated as capital gain or loss.
-2-
<PAGE> 19
DATE OF GRANT: _____________________
CEMAX-ICON, INC.
By: ____________________________
Optionee acknowledges receipt of a copy of the Plan, a copy of which is
attached hereto, and represents that he or she is familiar with the terms and
provisions thereof, and hereby accepts this Option subject to all of the terms
and provisions thereof. Optionee hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Board upon any questions
arising under the Plan.
Dated: ________________________
________________________________
Optionee
-3-
<PAGE> 1
EX 10.14
AGREEMENT
This Agreement is made and entered into on this 30th day of November 1992, by
and between TOSHIBA CORPORATION, ("TOSHIBA"), a Japanese corporation with its
principal place of business at 1.1, Shibaura, 1-chome, Minato-ku, Tokyo 105,
Japan, and CEMAX, INC. ("CEMAX"), a California corporation with its principal
place of business at 46750 Fremont Boulevard, Suite 207, Fremont, California,
94538. The term of this agreement shall be for five (5) years from the
effective date above. This agreement is renewable thereafter on a year-to-year
basis unless a prior termination 6 months advance notice is given by one party
to the other.
RECITALS
WHEREAS, CEMAX has developed certain software listed on Exhibit "A"
attached hereto (the "SOFTWARE").
WHEREAS, TOSHIBA and CEMAX are desirous that CEMAX support the
development of a direct digital connection ("DIGITAL CONNECTION") between the
workstation consisting of the Sun Microsystems' SPARCstation computer system,
the SOFTWARE, and TOSHIBA's 900/600 series and "X" series CT scanners.
WHEREAS, TOSHIBA is desirous of obtaining, and CEMAX is willing to
grant TOSHIBA, a non-exclusive license to use, copy for resale, and sell the
SOFTWARE for use on the TOSHIBA workstation referred to as "Xtension".
WHEREAS, the parties are desirous of establishing the terms and
conditions under which CEMAX is to provide TOSHIBA with a non-exclusive license
for the SOFTWARE and support development of the Xtension, and other rights and
obligations.
NOW THEREFORE, the parties hereto hereby agree as follows:
LICENSE, COMPETITIVE PRODUCTS.
(a) LICENSE. CEMAX hereby grants TOSHIBA a non-exclusive, license
("LICENSE") for the entire world to use, copy for resale,
and sub-license the SOFTWARE and DIGITAL CONNECTION (in object
code form only) for a period of five years from the data of
this AGREEMENT but only in connection with TOSHIBA medical
imaging equipment.
(b) LICENSE EXTENSION. TOSHIBA may extend to its subsidiary the
rights and licenses granted to TOSHIBA under this Agreement.
"Subsidiary" shall mean a company in which more than fifty
percent of the stock entitled to vote for the election of
directors is now or hereafter owned and controlled by, but only
(i) so long as such ownership and control exists; (ii) if the
subsidiary expressly agrees in writing to assume all the
obligations this Agreement imposes on TOSHIBA. TOSHIBA AMERICA
MEDICAL SYSTEMS, INC. ("TAMS") shall be extended the rights
and licenses of TOSHIBA hereunder and the rights and
obligations of TAMS shall be expressly provided herein.
Revised October 21, 1992 Page 1 Toshiba Agreement 10/5/92
<PAGE> 2
(c) REQUIRED PROVISIONS OF SUBLICENSE. Each sublicense
(""Sublicense'') granted by TOSHIBA or TAMS must be in the form
of a written agreement. CEMAX and TOSHIBA shall agree on a
standard form of agreement to be used in granting Sublicenses.
TOSHIBA shall provide CEMAX with a copy of the current version
and subsequent versions of such standard agreement before its
use in granting Sublicenses. TOSHIBA may make reasonable
amendments to its Sublicense agreement in order to meet the
requirements of its Sublicenses, provided that every Sublicense
includes, at a minimum, terms and conditions equivalent to
the limitations of warranty and liability set forth in this
AGREEMENT.
(d) PAYMENTS. As consideration for the LICENSE granted herein
TOSHIBA or TAMS shall pay CEMAX the amounts stated in Exhibit
"B" or "C" respectively during the initial TOSHIBA fiscal year
of this Agreement, for each copy of the SOFTWARE furnished to
TOSHIBA or TAMS. Thereafter, the amounts stated in Exhibit "B"
and "C" shall be subject to [ *
* ] between the parties hereto, [ *
* ] unless otherwise agreed to between the parties
hereto.
The above payments include any income tax imposed by the
Government of Japan on CEMAX's income under this AGREEMENT.
TOSHIBA shall [ *
* ] CEMAX under this AGREEMENT and shall
pay such [ * * ] on
behalf of CEMAX. TOSHIBA shall send to CEMAX [ *
* ] after it is
issued by such tax authorities.
(e) TERMS OF PAYMENT. TOSHIBA/TAMS shall pay total amounts for
copies of SOFTWARE received by TOSHIBA from CEMAX or copied by
TOSHIBA/TAMS under this AGREEMENT [ *
* ]
With such payment, TOSHIBA/TAMS shall deliver to CEMAX a written
statement setting forth the amount due and the number of copies
received or copied during such quarter. The payment by TOSHIBA
hereunder shall be made in United States Dollars by wire
transfer to the bank account to be designated by CEMAX.
(f) QUANTITY. The quantities set forth in Exhibit "B" and "C" are
estimates only and TOSHIBA/TAMS shall be under no obligation to
pay for any specific number of copies of the SOFTWARE during any
specific period, other than as set forth in Section 3 below.
2. DEVELOPMENT OF INTERFACE; CEMAX LICENSE. While TOSHIBA and TAMS
continue to buy [ * * ] copies during any
fiscal year period CEMAX shall exercise its reasonable best
efforts to support development of the DIGITAL CONNECTION, and
TOSHIBA shall reasonably cooperate with CEMAX in such regard.
CEMAX shall exercise its reasonable best efforts to support
development of updates and upgrades to the DIGITAL CONNECTION
throughout the term of this Agreement. All rights, title, and
interest, including, without limitation, any rights to any
patents, copyrights, and other proprietary information
(including without limitation, the source code) relating to any
and all invention for the DIGITAL CONNECTION (including updates
and upgrades to it made by CEMAX) shall belong to CEMAX. CEMAX
shall not use or register any mark identical to or similar with
"Xtension". All rights to the name "Xtension" shall belong to
TOSHIBA. In the case where [ *
* ] during a fiscal period a good faith negotiation will
take place to compensate CEMAX for the updates and upgrades to
the DIGITAL CONNECTION.
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
Revised November 24, 1992 Page 2 Toshiba Agreement 10/5/92
<PAGE> 3
3. CEMAX LICENSE
(a) In the event that TOSHIBA and TAMS shall fail to pay CEMAX for
a minimum of twenty-one (21) copies of the SOFTWARE modules in
any fiscal year period, then effective as of the end of
such period and for the next succeeding fiscal year, CEMAX shall
have the right and license to use, copy, and sublicense the
DIGITAL CONNECTION, as improved, modified, or enhanced from time
to time, including any and all patents, copyrights, and other
proprietary information (but excluding any source code and
trademarks) relating to the DIGITAL CONNECTION, in connection
with the sale of the SOFTWARE, but only for the purposes set
forth in Subsection 3(b) below, CEMAX must provide TOSHIBA
thirty (30) days written advance notice prior to receiving the
rights detailed in this paragraph.
(b) In the event that any potential end-user of the SOFTWARE shall
then operate CEMAX SOFTWARE and a Toshiba CT scanner, or such
end-user shall desire, for whatsoever reason, to purchase CEMAX
SOFTWARE to be used with the Toshiba CT scanner, then CEMAX
shall have the right and license to use, copy, and sublicense
the DIGITAL CONNECTION, without payment of any fees to TOSHIBA,
as improved, modified, or enhanced from time to time, including
any and all patents, copyrights, and other proprietary
information (but excluding any source code and trademarks)
relating to the DIGITAL CONNECTION, in connection with the sale
of the SOFTWARE to such end user, but only for the periods of
time set forth in Subsection 3(a) above and only of the purpose
of establishing an interface between the CEMAX workstation and
the TOSHIBA CT scanner.
4. WARRANTY: LIMITATION OF LIABILITY.
(a) TERMS. CEMAX hereby warrants that each copy of the SOFTWARE
and DIGITAL CONNECTION purchased by TOSHIBA OR TAMS hereunder
(whether pursuant to the LICENSE or otherwise), when delivered
and for a period of one year thereafter, will be capable of
performing to TOSHIBA's reasonable satisfaction, reasonably free
from errors, the functions described in the applicable
specifications for such SOFTWARE and DIGITAL CONNECTION. If
TOSHIBA finds what it believes to be errors or failure of the
SOFTWARE and DIGITAL CONNECTION to meet specifications, as
TOSHIBA's sole remedy under this Section 4(a), CEMAX will use
its best reasonable efforts to correct promptly, at no cost to
TOSHIBA any such errors. This warranty shall be for the benefit
of TOSHIBA and its customers.
(b) WARRANTY EXCLUSION. THE WARRANTIES STATED HEREIN ARE EXCLUSIVE
AND IN LIEU OF ALL OTHER WARRANTIES, EXPRESS, IMPLIED OR
STATUTORY, INCLUDING, BUT NOT LIMITED TO IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
(C) LIMITATION OF LIABILITY. IN NO EVENT SHALL CEMAX HAVE ANY
LIABILITY FOR INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL
DAMAGES, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY, WHETHER
IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF THIS AGREEMENT,
INCLUDING, BUT NOT LIMITED TO LOSS OF ANTICIPATED PROFIT, EVEN
IF CEMAX HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES,
THESE LIMITATIONS SHALL APPLY NOTWITHSTANDING ANY FAILURE OF
ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.
Revised November 24, 1992 Page 3 Toshiba Agreement 10/5/92
<PAGE> 4
5. LIMITATION OF LIABILITY OF TOSHIBA. IN NO EVENT SHALL TOSHIBA HAVE ANY
LIABILITY FOR INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES,
HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY, WHETHER IN CONTRACT, TORT,
OR OTHERWISE, ARISING OUT OF THIS AGREEMENT, INCLUDING, BUT NOT LIMITED TO
LOSS OF ANTICIPATED PROFIT, EVEN IF TOSHIBA HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. THESE LIMITATIONS SHALL APPLY NOTWITHSTANDING
ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.
6. INDEMNIFICATION.
(a) CEMAX INDEMNIFICATION. CEMAX shall, at its own cost and expense,
defend, indemnify, and hold TOSHIBA/TAMS and its employees,
representatives, and affiliates, harmless from and against any and
all claims, lawsuits, damages, losses, liabilities and expenses
(including attorney's fees) arising out of any allegations of patent,
trademark, copyright, or trade secret infringement, or out of any
allegations of defect relating to the SOFTWARE and DIGITAL CONNECTION
or otherwise out of performance of this AGREEMENT by CEMAX.
(b) LIMITATION OF CEMAX INDEMNIFICATION. In the event that CEMAX determines
that continued use of the SOFTWARE and DIGITAL CONNECTION would
constitute infringement as set forth in paragraph (a) above, CEMAX
shall, at its expense, (i) modify the SOFTWARE and DIGITAL CONNECTION
so as to eliminate such infringement, or (ii) obtain a license for
the continued use of the SOFTWARE and DIGITAL CONNECTION. CEMAX shall
have no liability for any claim of infringement if the alleged
infringement arises from (i) licensing of other than the current
unaltered version of the SOFTWARE and DIGITAL CONNECTION unless the
alteration is done with CEMAX's consent or (ii) any combination of
the SOFTWARE and DIGITAL CONNECTION with programs or data not
developed by CEMAX if CEMAX can show that such combination is the
cause of the infringement.
(c) TOSHIBA INDEMNIFICATION. TOSHIBA agrees to defend, indemnify, and hold
CEMAX and its employees, representatives, and affiliates harmless
from and against any and all claims, lawsuits, damages, losses,
liabilities and expenses (including attorney's fees), arising out of
any breach of the obligations provided hereunder.
(d) PROCEDURE. The indemnitee shall promptly notify the indemnitor of any
claim for indemnification hereunder ("Claim"). The indemnitor has
the right to defend and settle at its sole expense all suits or
proceedings arising out of any Claim. The indemnitor shall not,
without the prior written consent of the indemnitee, enter into any
settlement which limits, restricts, or otherwise adversely affects
the ability of the indemnitee to conduct its business. In all events,
the indemnitee shall have the right to participate in the defense of
any such suit or proceeding through counsel of its own choosing, at
its own expense.
(e) CEMAX TRADEMARKS. TOSHIBA shall not have any right to utilize any
trademarks of CEMAX, including but not limited to those listed on
Exhibits A, B, and C hereto, in connection with the marketing of the
SOFTWARE and DIGITAL CONNECTION, or otherwise, without the prior
written consent of CEMAX, and agrees not to do so.
Revised November 24, 1992 Page 4 Toshiba Agreement 10/5/92
<PAGE> 5
(f) INSURANCE. To protect TOSHIBA/TAMS from the allegations against which
CEMAX is to indemnify TOSHIBA/TAMS hereunder, CEMAX shall, throughout the
term of this Agreement, carry Comprehensive General Liability Insurance in
the amount of not less than $1,000,000 combined single limit, and shall
furnish a certificate of such insurance to TOSHIBA/TAMS, naming
TOSHIBA/TAMS as additional insured. Such insurance shall refer to the
indemnification provision set forth in this Agreement. No such policy
shall be canceled or modified except after 30 days prior written notice
to TOSHIBA/TAMS and furnishing TOSHIBA/TAMS with renewals thereof.
7. ENHANCEMENTS. All bug fixes and enhancements developed by CEMAX to support
the ongoing reliable functionality of the LICENSED SOFTWARE and DIGITAL
CONNECTIONS shall be furnished to TOSHIBA free of charge, promptly after
development of the same.
Any modifications, new features, or improved version "MODIFICATIONS" of the
SOFTWARE and DIGITAL CONNECTION shall not be covered by this Agreement,
provided, however, that the parties shall negotiate in good faith with
regard to licensing such MODIFICATIONS to TOSHIBA at prices consistent with
the value of such MODIFICATIONS and on other terms similar to those set
forth herein.
8. SOURCE CODE ESCROW.
(a) ESCROW AGENT. Immediately upon execution of this Agreement, CEMAX shall
deposit with an escrow agent selected by CEMAX and reasonably acceptable
to TOSHIBA ("ESCROW AGENT"), the full source code language of the
SOFTWARE, as well as source code enhancements and modifications to the
SOFTWARE (together referred to as the "SOURCE CODE"), within ten (10)
days after the same becomes available. ESCROW AGENT shall act as
custodian of the SOURCE CODE as long as this Agreement shall be in
effect. ESCROW AGENT shall establish a receptacle in which the SOURCE
CODE will be placed and shall place the receptacle under the control of
one officer of ESCROW AGENT selected by ESCROW AGENT from time to time,
whose identity shall be available to the parties at all times. The
parties shall execute a standard escrow agreement as may be reasonably
requested by ESCROW AGENT which shall incorporate the provisions of this
Section.
(b) INSOLVENCY. Upon the occurrence of any one of the following events:
(i) the filing of a petition for bankruptcy by CEMAX, or the making
of an assignment for the benefit of creditors or similar
proceedings;
(ii) liquidation of CEMAX,
(iii) CEMAX's inability or failure to reasonably support the SOFTWARE
within ninety (90) days after receiving written notification of
such failure; and
(iv) discontinuation of business by CEMAX,
ESCROW AGENT is herby authorized to provide to TOSHIBA, upon TOSHIBA's
written request, a copy of the SOURCE CODE. TOSHIBA's request shall be made
by an officer of TOSHIBA and shall set fourth the facts indicating that one
of the events described above had occurred and is continuing to occur and
that TOSHIBA is entitled to a copy of the SOURCE CODE. TOSHIBA shall provide
CEMAX with a copy of its written request. CEMAX shall have the right to
dispute the facts set forth in TOSHIBA's request. In the event of such
dispute, ESCROW AGENT shall retain the SOURCE CODE and the parties shall
promptly proceed with arbitration in accordance with Section 18 of this
Agreement.
Revised November 24, 1992 Page 5 Toshiba Agreement 10/5/92
<PAGE> 6
(c) ESCROW FEES. The fees of the ESCROW AGENT shall be paid by TOSHIBA.
Annual ESCROW fees shall not exceed $1,500.00 US.
(d) USE OF SOURCE CODE. TOSHIBA shall only have the right to use the
SOURCE CODE for the purpose of maintaining the SOFTWARE and for
supporting end-users and for no other purpose. The SOURCE CODE shall
be deemed to be confidential information as provided in Section 13
hereof with TOSHIBA subject to all of the obligations set forth
therein with regard to such SOURCE CODE.
(e) AVAILABILITY OF SOFTWARE AND DIGITAL CONNECTION. TOSHIBA shall have
the right to continue to purchase the SOFTWARE from ESCROW AGENT or
receiver per terms and conditions of the Agreement.
9. MARKETING MATERIALS. CEMAX shall provide TOSHIBA with samples of marketing
literature, films, slides, videos, and other promotional materials
concerning the SOFTWARE, as reasonably requested by TOSHIBA from time to
time, during the term of this Agreement.
10. TRAINING. CEMAX shall provide reasonable ongoing clinical applications and
sales training to a reasonable number of representatives of TOSHIBA, as
designated by TOSHIBA at CEMAX facilities. Such training shall be
provided free of charge. However, all travel and lodging expenses
associated with such training shall be borne by TOSHIBA.
11. DUTIES OF TOSHIBA. TOSHIBA shall bear entire responsibility for the
installation of the SOFTWARE and for training and supporting employees of
its customers on the use thereof.
12. VISITORS. If necessary, CEMAX will permit any visitors designated by
TOSHIBA to visit its facilities during normal business hours and upon
reasonable notice, in order to examine demonstrations of the SOFTWARE
provided that such visits do not unduly disrupt the operations of CEMAX.
CEMAX shall not be responsible for any travel and lodging expenses of
such visitors. At TOSHIBA's request, CEMAX shall, at TOSHIBA's cost, send
representatives to any clinical site located in the world, in order to
assist TOSHIBA with demonstrations of the SOFTWARE to potential
purchasers of such products.
13. CONFIDENTIALITY.
(a) REQUIREMENT OF WRITING. To the extent to which either party hereto
finds it necessary or desirable to disclose its confidential
information to the other party to this AGREEMENT, the disclosure
shall be made in writing with confidential information being so
identified or if the disclosure is oral it shall be identified as
confidential at the time of disclosure and again identified in
writing to the other party within one (1) week of such oral
disclosure. Subsection (b) below will not apply to such orally
disclosed information if not so identified in writing.
(b) RESTRICTIONS ON DISCLOSURE. A party receiving confidential
information under Subsection (a) above shall, for a period of five
(5) years from the date of disclosure take reasonable precautions to
prevent disclosure thereof to outside parties in the absence of
advance written approval from the disclosing party and shall not use
such confidential information for any purpose except as provided
herein; provided that these obligations shall not apply to (1)
information known to the recipient prior to receipt of the
disclosure, (2) information which is known to the public or becomes
known to the public without fault of the party receiving the
disclosure, or (3) information lawfully received from an outside
party who has the right to make such a disclosure.
(c) RESTRICTIONS ON PUBLICATION. CEMAX shall not publish or otherwise
disclose to others information regarding the development of the
DIGITAL CONNECTION for TOSHIBA without the prior written consent of
TOSHIBA.
Revised November 24, 1992 Page 6 Toshiba Agreement 10/5/92
<PAGE> 7
(d) TOSHIBA'S MATERIALS. All designs, drawings, documentation, and the
like furnished by (i) TOSHIBA to CEMAX for the purpose of assisting
CEMAX in the development of the Xtension shall remain the exclusive
property of TOSHIBA, (ii) CEMAX to TOSHIBA in connection with the
SOFTWARE (including the object code thereof) shall remain the
exclusive property of CEMAX. Neither party shall release such
information into the public domain without the prior written consent
of the other party. Upon either party's request, or upon termination
of this AGREEMENT, whichever is earlier, the other party shall return
such materials to the requesting party.
(e) RESTRICTION OF DISCLOSING TERMS OF AGREEMENT. Each party agrees to
keep the terms of this AGREEMENT strictly confidential. CEMAX agrees
that third parties shall not be allowed to view the operation or
results of the Xtension.
14. REPRESENTATIONS. Each party herby represents and warrants that this
AGREEMENT does not conflict with any other agreement or understanding to
which it may be a party.
15. NOTICES. Any notice to be provided hereunder shall be in writing and shall
be deemed given when placed in the United States mail registered or
certified, postage prepaid, or if personally delivered, addressed as
follows:
If to TOSHIBA: Toshiba Corporation
International Agreements
Negotiations and Legal Services Division
1-1, Shibaura 1-chome
Minato-ku
Tokyo 105, Japan
Attn: Manager
If to CEMAX: CEMAX, Inc.
46750 Fremont Boulevard
Suite 207
Fremont, California 94538
U.S.A.
Attn: President and CEO
16. COMPLIANCE WITH LAWS.
(a) CEMAX'S RESPONSIBILITY. Except as set forth below, CEMAX shall comply
with all laws and regulations applicable to development and license of
the SOFTWARE including, without limitation, obtaining all approvals
required under the United States Food and Drug Administration and
other Federal, state and local laws and regulations.
(b) U.S. EXPORT REGULATIONS. TOSHIBA understands that CEMAX is subject to
regulation by agencies of the U.S. government, including the U.S.
Department of Commerce, which prohibit export or diversion of certain
technical products to certain countries. TOSHIBA warrants that it will
comply in all aspects with all export and re-export restrictions
applicable to the SOFTWARE, and related materials, and agrees to
indemnify CEMAX for any damages arising out of TOSHIBA's failure to
comply with the foregoing.
17. GOVERNING LAW. This AGREEMENT shall be governed and construed in accordance
with the laws of the State of California.
Revised November 24, 1992 Page 7 Toshiba Agreement 10/5/92
<PAGE> 8
18. ARBITRATION: WAIVER OF PUNITIVE DAMAGES. All disputes between the parties
hereto arising out of this AGREEMENT or any modification thereof shall be
first settled by good faith negotiations between the parties, and if the
parties are unable to settle, then such disputes shall be resolved through
arbitration, in accordance with the rules of the American Arbitration
Association and the laws of the State of California. Each party shall select
one arbitrator. The two arbitrators so selected shall in turn select a
third arbitrator. The decision of the arbitrators shall be final and be
enforced in any court having jurisdiction over the parties. The cost of
arbitration shall be shared equally by the parties. The parties hereby
waive any right that they may have to seek punitive damages against each
other, whether such right arises under contract laws, torts, product
liability, or other laws.
19. COMPLETE AGREEMENT: AMENDMENT. This AGREEMENT, including the exhibits,
constitutes the entire agreement between the parties with respect to the
subject matter hereof, and supersedes all prior agreements, understandings
and arrangements, whether oral or written including, without limitation, the
Letter of Intent dated October 15, 1990. The AGREEMENT may not be amended
except by a writing signed by both parties.
TOSHIBA CORPORATION CEMAX, INC.
By: /s/ S. Yamashita By: /s/ Terry Ross
----------------------------- -----------------------------
S. Yamashita, General Manager
International Agreements Negotiations & President & CEO.
----------------------------- -----------------------------
Name and Title Legal Service Division Name and Title
Agreed:
TOSHIBA AMERICA MEDICAL SYSTEMS, INC.
By: /s/ Fredric J. Friedberg
-----------------------------
Fredric J. Friedberg
-----------------------------
Name and Title
Vice President
Revised October 21, 1992 Page 8 Toshiba Agreement 10/5/92
<PAGE> 9
EXHIBIT "A"
TOSHIBA
XTENSION(TM)
SPECIFICATIONS
Toshiba Xtension(TM) specifications are designed to provide a description of the
major software elements included. Toshiba software operates on all Sun SPARC
Microsystems workstations. Complete turnkey workstation/software solutions are
readily available from Toshiba. For easy reference, software specifications are
divided into the following categories:
I IMAGE CREATION AND VIEWING 2D
II IMAGE CREATION AND VIEWING 3D
III PROTOCOLS
IV TOOL BOX
V PATIENT STATUS
VI RETRIEVE/ARCHIVE
VII SYSTEM CONTROL
VIII CLINICAL APPLICATION MODULES
IX DIGITAL INTERFACE TO TOSHIBA
SCANNERS
X OPTIONS
Revised November 24, 1992 Page 9 Toshiba Agreement 10/5/92
<PAGE> 10
I. IMAGE CREATION AND VIEWING 2D
- - Interactive multi image display capability (1 on 1, up to 48 on 1)
- - Interactive movie display with speed control
- - Interactive window width and level adjustment with user-defined presets
- - Interactive orthogonal, oblique or curved slice reformats, "cube tool"
- - Interactive image magnification
- - Interactive interrupt, cancel, continue of background cases
- - User selectable queuing of case processing
- - User selectable foreground or background processing
- - Multi modality display capability
- - Multitasking of any number of cases processing
- - Image annotation on/off
- - Multiple regions of interest
- - Irregular or rectangular ROI's
- - CT/MRI value readout
- - 8 bit display of single grey scale, dual grey scale or color
- - Life size filming from protocols
- - Pan to center object on monitor or focus on a particular area of interest
- - Gantry tilt correction
- - Scout image generation from original data set
II. IMAGE CREATION AND VIEWING 3D
- - High resolution volume rendering
- - Tissue differentiation via computer assisted seed point and thresholding
- - Tissue differentiation by computer assisted edge tracking
- - Ray tracing for maximum intensity voxel projection (angiography images)
- - Interactive multi image display capability (1 on 1, up to 48 on 1)
- - Interactive "melt-thru" of 3D image data by tissue types
- - Interactive movie display with speed control
- - Interactive image magnification
- - Interactive color manipulation
- - Interactive transparency
- - Interactive cutting planes with superimposed grayscale information on
cutplane surfaces
- - Interactive interrupt, cancel, continue of background cases
- - Interactive surface rendering
- - Interactive rapid rotation about any axis in space
- - User defined protocols for automatic image creation
- - User defined protocols for automatic movie loop creation
- - User defined formats for automatic filming
- - User selectable foreground or background processing
- - User selectable queuing of case processing
Revised November 24, 1992 Page 10 Toshiba Agreement 10/5/92
<PAGE> 11
- - Multiple or single saved views for future review
- - Multitasking of any number of cases processing
- - Multiple light source capability
- - Computer enhanced automated disarticulation (using 2D slices)
- - Unlimited frames for high temporal or spatial movie resolution
- - Life size images from protocols
- - Gantry tilt correction
- - Scout image generation from original date set
III. PROTOCOLS
- - Protocols comprised of selecting, computing, formatting and filming images
- - Automated clinical protocols by application
- - Protocol interrupt/resume
- - Protocol abort
- - Protocol on/off
- - Pre-defined clinical protocol packages
IV. TOOL BOX
FILMING TOOL
- - Automatic filming using predefined protocols
- - Interactive film format selection
- - User selectable background or foreground filming
- - Sharing of laser camera with scanner
- - Spooling allows queuing of actual filming until camera is ready
STATISTICS AND QUANTITATION TOOL
- - Dynamic CT, MR pixel intensity measurements
- - Point-to-point distance measurement
- - Angle between three (3) points or between two lines defined on an image
- - Area calculation for user-specified regions of interest
- - Volume calculation for user-specified volume of interest
- - Multiple ROI and VOI calculations
Revised November 24, 1992 Page 11 Toshiba Agreement 10/5/92
<PAGE> 12
COLOR TOOL
- - Interactive window and level for grey scale images for all or selected
images on screen
- - Interactive creation of colors to add to color palette
- - Continuous control of color transparency
- - True color selection from 16 million color palette
ROI TOOL FOR DISARTICULATION & AUTODRAW(TM)
- - Automatic ROE definition. Aids in fast soft tissue segmentation
- - Multiple ROI's
V. PATIENT STATUS
- - Acquisition status with user interrupt capability
- - Processing status with user interrupt capability
- - Filming status with user interrupt capability
- - Interactive prioritization of foreground, background, filming, acquisition,
processing
- - Interactive pause and continue
- - Available disk space displayed upon request
- - Job status indicator to monitor progress of background jobs
- - Automatic listing by name
- - Automatic listing by procedure
VI. RETRIEVE/ARCHIVE
- - Accepts data from Toshiba 900, Xpress, and Xspeed
- - Automatic organization by either patient name, run number, or date
- - Automatic annotation of patient name, run number, patient orientation, and
window width and level values
- - Accepts data from and archives data to 9 track magnetic tape
- - Accepts data from and archives data to Sun Microsystems compatible cartridge
- - User selectable archiving of original slices, MPR images, 3D images or
movies, protocols and screen saves
Revised November 24, 1992 Page 12 Toshiba Agreements 10/5/92
<PAGE> 13
VII. SYSTEM CONTROL
- - ICON based pull down menu selections
- - Mouse controlled point and click operation
- - Keyboard annotation and advanced user operation
- - User manual and help features on line at all times
- - High resolution, color display
- - Service diagnostics via modem
- - System initialization (boot)
- - Camera calibration
- - System shut down
- - Clock on screen at all times
- - Hospital logo identification
VIII. CLINICAL APPLICATION MODULES
FORMATTED SPINE MPR
- - Automatic generation of sequential reformatted views along a curve for
examination of spinal cord and facet joints
- - A series of sequential views following spine curvature for evaluation of
disc, cord and other soft tissue conditions
- - MPDI type automated film formatting
MANDIBULAR/MAXILLAR MAPPING
- - Automatic generation of panoramic views and cuts perpendicular to the
mandible/maxilla
- - Cross reference between images for easy location
- - User definable curve for panoramic view and cut parameters
- - Life size images on film, for referring oral surgeons
- - Unattended filming for high throughput
- - Minimal use of film
- - Optimal film presentation for dental practitioners
Revised November 24, 1992 Page 13 Toshiba Agreement 10/5/92
<PAGE> 14
AMENDMENT NO. 1
TO
THE AGREEMENT DATED NOVEMBER 30, 1992
This Amendment No. 1 is made by and between Cemax, Inc., a California
corporation having its principal place of business at 46750 Fremont Boulevard,
Suite 207, Fremont, California 94538, U.S.A. (hereinafter referred to as
"CEMAX") and Toshiba Corporation, a Japanese Corporation having its principal
place of business at 1-1, Shibaura 1-chome, Minato-ku, Tokyo 105-01, Japan
(hereinafter referred to as "TOSHIBA").
WHEREAS, CEMAX and TOSHIBA entered into the Agreement as of November 30, 1992
(hereinafter referred to as "the Agreement"); and
WHEREAS, both parties agree on revising the Agreement, so as to add a license
for the improved versions of the LICENSED SOFTWARE (as defined in the Agreement)
and renew the Price Lists attached to the Agreement as Exhibits "B" and "C".
NOW, THEREFORE, in consideration of the mutual covenants and premises contained
herein, the parties agree as follows:
1. In addition to the Toshiba Xtension(TM) Specification attached to the
Agreement as Exhibit "A", the System Specifications for "Xtension 2.0" and
"Xtension 2.1" attached hereto are hereby added to Exhibit "A" of the
Agreement.
2. CEMAX shall deliver to TOSHIBA, "Xtension 2.0" ALPHA version by [ * * ],
1996 and BETA version by [ * * ], 1996, and "Xtension 2.1" ALPHA version
by [ * * ], 1996 and BETA version by [ * * ], 1996, with each test
reports. For the purpose of this Amendment "ALPHA" shall mean fully
functional software release that has passed initial module and integrated
engineering testing, at which stage the software is not suitable for full
clinical use, but in final testing prior to clinical release, and "BETA"
shall mean software that has completed system level testing and GMP
validation and is now ready to be released to early clinical sites.
3. Exhibits "B" and "C" of the Agreement shall be combined and replaced with
the new Exhibit "B" attached hereto.
4. This Amendment No. 1 shall become effective as of the date executed by both
parties.
5. In all other respects, the Agreement shall remain unchanged and in full
force and effect.
6. This Amendment No. 1 and the Agreement shall constitute the entire and
exclusive agreement between the parties with respect to the subject matter
hereof. All previous discussions and agreements with respect to this
subject matter are superseded by this Amendment No. 1.
IN WITNESS WHEREOF, the parties hereto have caused their respective duly
authorized representatives to sign this Amendment in counterparts as of the date
specified below.
<TABLE>
<S> <C>
Cemax, Inc. Toshiba Corporation
By: By:
Name: S.
YAMASHITA
General Manager
Name: Legal Affairs Division
Title: Title:
Date: Date:
</TABLE>
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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CEMAX CONFIDENTIAL DECEMBER 6, 1995
SYSTEM SPECIFICATION
XTENSION 2.0
BRIAN CAVANAUGH
ARTURO GAMBOA
JONATHAN REIS
DECEMBER 6, 1995
CEMAX-ICON, INC.
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CEMAX CONFIDENTIAL DECEMBER 6, 1995
SYSTEM SPECIFICATION
XTENSION 2.0
1. OVERVIEW
Xtension 2.0 is an upgrade on the technology used for Xtension 1.32. It
will be marketed by Cemax under the trade name VIP 2.0 and by Toshiba under the
name Xtension 2.0.
Xtension 2.0 provides replacement functionality for Xtension R1.3.X
products.
Xtension 2.0 includes the Multiple Objects technology that allows for
[ *
* ] allows the creation of [ * * ] within the anatomy.
Xtension 2.0 included a [ * * ] that allows [ * * ]
of CT and MR angio data using Maximum Intensity Projection.
The Movie module includes SmartLoad (TM) a feature that allows
visualization of CT data in [ * * ] and
comparison of [ * * ] with
preset [ * * ] .
Xtension 2.0 has an X-Windows Motif user interface and runs on Sun Sparc
computers under Solaris 2.4.
Xtension 2.0 includes networking connectivity to the environment of CV 1.0
(X1.0).
Xtension 2.0 consists of a series of independent modules that can be
marketed in various combinations according to the customer needs.
Xtension 2.0 includes options to have Dicom 3.0 Query/Retrieve User
capabilities and Dicom Storage Class User and Storage Class Provider
functionality. This enables Xtension 2.0 to function as a Dicom 3.0 gateway for
Toshiba scanners.
2. SYSTEM SPECIFICATIONS
Platform:
Sun Sparc 2, 5, 10, 20, LX. Recommended 5 or 20
Memory:
64 Megabytes minimum required. 96 Megabytes recommended.
Disk Space:
1 Gigabyte for operating system, Xtension software and system files
(allocate minimum of 150 Megabytes of swap space)
2 Gigabyte minimum for data
Display:
Choose monitor according to components being sold and application
according to the following criteria:
Single standard Sun 8-bit landscape color monitor (1152X900 or
1280X1024) is required if:
(1) X3D or Surface View is included.
(2) Display color images and/or movies is desired.
grey scale portrait monitors supported by CV (X1.0) are an option if:
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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CEMAX CONFIDENTIAL DECEMBER 6, 1995
(1) VIEW will display only grey scale images, and is used primarily
for display of X-ray images
(2) [ * * ] is used for primary display of CT and MR images, and
display of [ * * ]
(3) X3D and Surface View are not included
Graphics cards:
Sun GX, Turbo GS, and Turbo GX+ (Turbo GX+ needed for portrait displays)
ArchiveTool peripherals:
8 mm tape
1/4 inch tape
Pointing Device:
Mouse
Trackball
Software requirements:
Operating system is Solaris 2.4
Xserver X11R5X*
Window Manager: Motif release 1.2.1*
X11 windows dynamic libraries*
* Software is included on Xtension 2.0 distribution tape.
3. COMPONENTS
Xtension 2.0 consists of independent modules that are invoked from a common
TopLevel interface that lets the user choose the module to use. The TopLevel
also coordinates the behavior of the modules when they start so as to terminate
other processes to maximize use of resources (e.g. memory). The TopLevel also
provides a mechanism to allow the user to add other applications to the Xtension
2.0 environment (Note: they must comply with specific X-resource and color
allocation policies as defined by Cemax).
According to user needs the TopLevel can be configured to have one or more
of the following modules:
View -- (X1.0)
[ * * ]
Surface View
[ * * ]
[ * * ]
Shutdown
3.1 VIEW MODULE
- Ability to select and view original images from different modalities
(CT, MR, US). Also allows viewing of 3D images, saved images,
scouts, scanograms and screens. User can select the screen layout to
view the images.
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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CEMAX CONFIDENTIAL DECEMBER 6, 1995
- Ability to load and display images by patient, study, series and
individual images. User can page by patient, study and image.
- Window and Leveling of one and selected images interactively with
the mouse and by using presets.
- Provide 2D distance measurements and angle.
- Text and line annotation on images.
- Saving of images with annotation and measurements in 8 bit mode.
- Control of display of original text annotation from the scanner.
- [ * * ] can be invoked from the VIEW user interface and will
automatically load and display the list of currently displayed
images with their windows and levels.
- Common selection mechanism with all Xtension 2.0 applications.
- Transmit interface to send images and studies to other DICOM 3.0
Storage Class Providers.
- Folder interface to view and manipulate data on other Xtension 2.0
workstations.
3.1.1 CLINICAL VIEW RESTRICTIONS FOR FIRST RELEASE
[ *
* ]
3.2 MOVIETOOL
- Supports [ * * ] , 8-bit
grey images, 16-bit grey images, and 24-bit color images dithered to
8-bit. [ * * ] cannot be played at the same time.
- Runs on 8-bit color and 8-bit greyscale frame buffers. There need
not be any special handling of greyscale frame buffers in MovieTool.
- SmartLoad (TM) allows the comparison of same CT data in multiple
windows showing predetermined Window and Levels (e.g. bone and
soft-tissue). Number of comparison windows and Window and Level
values are configurable.
- SmartLoad (TM) allows the [ * * ]
sequences in different windows for echo comparison.
- SmartLoad (TM) will load all CT and MR series belonging to one study
when studies are selected...
- Studies not in use can be removed from display.
- Playback controls: [ * * ] , single
step, auto [ * * ] , and [ * * ] selection.
- Simultaneous playback of [ * * ] . All [ * * ] at [ *
* ] .
- Ability to [ * * ] by a few frames with respect to
another for rough synchronization.
- Interactive and Preset driven window and level adjustment for
[ * * ] .
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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CEMAX CONFIDENTIAL DECEMBER 6, 1995
- Ability to handle [ * * ] and images of arbitrary dimensions
up to monitor's resolution. Display window size is configurable.
- Ability to communicate with other applications such as Clinical
View; ability to load the set of images selected in CV, retaining
window and level values.
- Common selection interface with all Xtension 2.0 modules.
3.3 IMAGE CREATION
3.3.1 VOLUME CREATION.
- To select the slices to compose a volume and save into files for
later use in the generation of 3D or MPR images.
- Includes the use of [ * * ] to limit the extent of the data
to be used. Include the use of [ * * ] to [ *
* ] structures. The [ * * ] can also be used to [ *
* ] by [ * * ] . Within this application, the user is
able to select a subset of slices and [ * * ]
needed to [ * * ] .
3.3.2 ORTHOSECTION
- To visualize volumes in orthogonal planes and also along curved
surfaces.
- Display of 3D images for correlation using TrackTool.
3.3.3 VOLUME VIEW
- Supports [ * * ]
- Includes surface and transparency modes, projection and maximum
intensity projections based on thresholds.
- Allows user to set the viewing angle, image magnification and light
source position.
- Supports Perspective rendering.
- Allows definition of cutting planes parallel to the volume edges and
the screen plane.
- Multiple Objects software provides [ * * ] and [ * * ]
of the segmentation.
- Integrated segmentation in Volume View.
- Seeding in 3D and 2D allows automatic generation of ROIs for tissues
to include, exclude and tag (Multiple Objects). Morphological
operations on ROIs include: dilate, contraction, opening and
closure.
- Segmentation tools supports using 3D propagation and semi-automatic
segmentation with editing on 2D and 3D images.
- Supports wedging and tagging using square ROIs (Cookie Cutter)
- Inset functionality renders only within a subarea of the displayed
image.
- [ * * ] allows simplified interaction for [ * * ] in
a Multiple Objects environment.
- [ * * ] allows simpler [ * * ] and [ *
* ] that can be later saved after customization.
- Queues background jobs to create [ * * ] . Also
functionality to queue [ * * ] and [ * * ] .
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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CEMAX CONFIDENTIAL DECEMBER 6, 1995
- [ * * ] render mode displays interactively a low
resolution image while image rotates. When desired location is
achieved, the image is displayed in full resolution.
- [ * * ] mode allows Window and Level control interactively
or via presets.
- Supports 3D Protocols.
- Supports Color rendering with [ * * ], or greyscale [ * * ]
edges at the [ * * ] .
- Allows Panning of 3D images.
- Saves images, modified volumes, and rois.
X3D FOR RELEASE 2.1 WILL CONTAIN
- 2D Protocols
- SpineProbe
- ToothPix
3.4 SURFACE VIEW
- Interactive visualization of Extracted Surface data as in XI.3.X.
- Improved interactivity allows the user to drag a low resolution
version while rotating. The high resolution image is displayed when
rotation is terminated by releasing the mouse.
- Display from [ * * ] included in the same input surface
file.
- Control to change the magnification of the displayed image.
- After image is displayed it can be saved for later display and
filming.
3.5 ARCHIVE/RETRIEVE
- Archive data from Xtension database to 1/4 inch or 8 mm tape.
- Retrieve data from Xtension archive tapes ( 1/4 inch or 8 mm) into
database.
- Local database allows quick access to tape contents.
- Xtension tapes from other systems can be added to database.
- Local database can be examined to load appropriate retrieval tape.
- Q/R DICOM 3.0 SCU functionality.
- Export to MAC and PC in TIFF and PICT formats for color 3D images.
- Interface to Toshiba Direct Connect via Xlink.
- Receive DICOM 3.0 images.
3.6 STATUS
- Display of jobs: active, queued, suspended and terminated.
- Improved status presentation from Xtension 1.3.2 and CV 1.0.
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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CEMAX CONFIDENTIAL DECEMBER 6, 1995
3.7 SELECTION
- Quick access and selection of study (series) detail.
- Access to details for [ * * ]: [ * * ] surfaces,
[ * * ] etc.
- Access to files not belonging to patient (3D protocols).
- Deletion of patients, studies, images and other.
- Selection and display of folders containing patient data in
different nodes in Xtension network.
- Uniform selection mechanism for all Xtension 2.0 modules.
- Images of different types from different lists (original, MPR, 3D)
can be appended in a single list for visualization.
- Lists can be sorted according to any of the parameters displayed.
Parameters displayed and sorting criteria can be defined at
configuration time.
3.8 OTHER FEATURES
- CV can be configured to invoke MovieTool and/or ArchiveTool from its
user interface. In this case Patient, Study and Image information
will be passed to the applications.
- Filming will be restricted to Clinical View.
- Xtension 2.0 Supports DICOM 3.0 Storage Provider, Storage User, and
Query/Retrieve User.
1. RESTRICTIONS FOR VIP 2.0
- If application A (e.g. CV) invokes application B [ * * ]
and then application B changes the state of the selections, that
information will not be communicated to the parent application.
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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EXHIBIT "B"
PRICE LIST
TOSHIBA
(INCLUDES TAMS)
(To be paid by TOSHIBA or TAMS for the period [ * * ] through [ *
* ])
<TABLE>
<S> <C> <C>
(A) XtensionTM Software per attached spec. [ * * ]..................... [ * ]
(B) Xtension 2.0/2.1TM Software per attached spec. [ * * ]............. [ * ]
(C) Mandibular/Maxillar Mapping Spine Probe..................................... [ * ]
(D) Laser LinkTM Digital Interface to 3M, Kodak, AGFA, Fuji, Konica, DuPont..... [ * ]
(E) Upgrade to 2.x for 1.x purchased on or before [ * * ]................. [ * ]
(F) Upgrade to 2.x for 1.x purchased on or after [ * * ].................. [ * ]
</TABLE>
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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<PAGE> 1
EUROPEAN EX. 10.15
DISTRIBUTION AGREEMENT
This agreement, dated June 18, 1996 (the "Effective Date"), is between
CEMAX/ICON, INC., a California corporation with its principal place of business
at 47281 Mission Falls Court, Fremont, California 94539 ("CEMAX/ICON"), and
MINNESOTA MINING AND MANUFACTURING COMPANY, a Delaware corporation with its
principal place of business at 3M Center, P.O. Box 33428, St. Paul, Minnesota
55133 ("3M").
1. BACKGROUND AND PURPOSE
Under the Sales Agreement between CEMAX/ICON and 3M dated June 13, 1995, 3M
and CEMAX/ICON agreed to develop a distribution plan for CEMAX/ICON product
sales and service in Europe. This European Distribution Agreement states the
terms and conditions under which 3M will distribute and service certain
CEMAX/ICON PACS products in Europe.
2. CEMAX/ICON OBLIGATIONS
A. CEMAX/ICON will sell to 3M the hardware products listed in Exhibit A
(the "Hardware Products") for 3M's distribution by resale through 3M Affiliates
or Approved Distributors within the geographic areas listed in Exhibit B (the
"Territory"). For purposes of this Agreement, "3M Affiliate shall mean any
corporation, firm, partnership, proprietorship or other form of business
organization as to which 3M owns at least a forty percent (40%) of the
outstanding stock or other voting rights entitled to elect directors or, if less
than forty percent, the maximum ownership interest it is permitted to have in
the country where such business organization exists. "Approved Distributor(s)"
shall mean any authorized 3M distributor of Medical Imaging Systems Division
labeled products, approved by CEMAX/ICON in writing in advance.
B. CEMAX/ICON will grant to 3M a nonexclusive license under any and all
intellectual property rights assertable by CEMAX/ICON with respect to the
software products listed in Exhibit A (the "Software Products") and any
accompanying end user documentation to reproduce, have reproduced, use,
distribute, and sublicense to 3M Affiliates and end users the use of the
Software Products, in machine executable object code form, and any such
documentation for 3M's internal use as set forth herein and distribution in the
Territory. All right, title, and interest in the Software Products shall remain
vested in CEMAX/ICON. Within fifteen (15) days of the Effective Date of this
Agreement, CEMAX/ICON shall deliver to 3M a machine-executable object code copy
of each Software Product on mutually acceptable data storage media and a copy
of the documentation accompanying each Software Product, from which 3M may
reproduce copies for distribution in the Territory. As an alternative, 3M and
CEMAX/ICON may work together to develop a mutually acceptable means for
electronic transmission of copies of Software Products and accompanying
documentation from CEMAX/ICON to 3M for distribution in the Territory.
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C. The CEMAX/ICON products listed in Exhibit C are not Hardware Products
or Software Products under this Agreement, but can be added as such by the
mutual written consent of 3M and CEMAX/ICON for distribution by 3M on a
nonexclusive basis in the Territory (i.e., without the co-labeling or labeling
restriction set for in Section 2.F)
D. CEMAX/ICON will sell to 3M replacement parts generally made available
by CEMAX/ICON for the Hardware Products ("Replacement Parts") for 3M's
distribution in the Territory.
E. All labeling and packaging of Hardware Products, Software Products,
and Replacement Parts shall be mutually agreed upon by 3M and CEMAX/ICON. Until
mutually agreed otherwise by 3M and CEMAX/ICON, Hardware Products, Software
Products, and Replacement Parts shall be labeled with a CEMAX/ICON trademark,
tradename, servicemark, service name, trade dress, logo, or other source
identifier ("CEMAX/ICON Trademarks"). CEMAX/ICON acknowledges that 3M
anticipates the creation of a new, independent company, called Imation, that
will take control of 3M's Medical Imaging Systems Division. The parties
presently anticipate that, sometime after commencement of independent operations
by Imation, the parties agree to co-label the Hardware Products, Software
Products, and Replacement Parts as Imation-CEMAX/ICON products. CEMAX/ICON
fully understands that the above-described co-labeling may require approval of
Imation corporation management, and agrees that 3M shall have no obligation to
undertake such co-labeling absent Imation corporate management approval.
F. CEMAX/ICON will not, and will not authorize any third party to, label
or co-label with CEMAX/ICON Trademarks the Hardware Products and/or Software
Products that are intended by CEMAX/ICON or such third party for sale or
license, respectively, within the Territory.
G. CEMAX/ICON will provide to 3M CEMAX/ICON's product literature,
including promotional literature, operator's manuals and service manuals.
CEMAX/ICON grants 3M the right to copy and use CEMAX/ICON's product literature
to print literature for marketing and distribution of the Hardware Products,
Replacement Parts, and Software Products by 3M.
H. CEMAX/ICON agrees to provide the staffing as stated in Exhibit D
during the term of this Agreement.
I. CEMAX/ICON personnel will provide reasonable support to 3M personnel
making sales calls on end-users. With regard to the products listed in Exhibit
A, CEMAX/ICON will make no sales calls on end-users in the Territory either
directly or in the company of third parties and shall provide no sales support
to third parties in the Territory without the prior written consent of 3M, such
consent not to be unreasonably withheld.
J. CEMAX/ICON agrees to provide reasonable training to 3M, as mutually
agreed, to assist 3M in selling, integrating, installing, maintaining and
supporting the Hardware Products, Replacement Parts and Software Products. The
training schedule as of the Effective Date is stated in Exhibit E.
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K. For a period of twelve (12) months after the Effective Date of this
Agreement, but not to exceed a total of six (6) man-months of actual support,
CEMAX/ICON will provide to 3M at the direction of 3M Europe, technical service
support, relating to the Hardware Products, Replacement Parts, and Software
Products at times to be mutually agreed in writing.
L. CEMAX/ICON will ensure that the CEMAX/ICON Hardware Products,
Replacement Parts, and Software Products meet all applicable European Community,
country and local laws and regulatory requirements in the Territory, provided
that 3M Europe is responsible for identifying the requirements in writing to
CEMAX/ICON. CEMAX/ICON is responsible for making the necessary changes unless
found by CEMAX/ICON to be uneconomic. In the event that CEMAX/ICON states the
lack of economic viability of a change, both parties will enter into a
negotiation to find a fair solution to the situation.
M. Nothing in this Agreement restricts CEMAX/ICON from introducing or
discontinuing production, sale, or licensing of any Hardware Product,
Replacement Part, or Software Product, or changing the list prices set forth in
Exhibit A, provided that CEMAX/ICON provides 3M with written notice not less
than ninety (90) days in advance of such event. In the event that CEMAX/ICON
makes commercially available any Update or New Release of a Software Product,
CEMAX/ICON shall license 3M with respect to such Update or New Release, subject
to the same terms and conditions applicable to the Software Product. For
purposes of this Agreement, "Update" shall mean Error corrections, work-arounds
and bug fixes to a Software Product generally made available by CEMAX/ICON to
its customers free of charge, and "New Release" shall mean a new version of a
Software Product that incorporates substantially all functionality in such
Software Product existing as of the Effective Date together with significant new
features of functionality.
N. At any time during this Agreement, 3M may notify CEMAX/ICON of any
error or defect in a Software Product resulting in a material nonconformity with
the specifications set forth in Exhibit G ("Error"). 3M shall provide
CEMAX/ICON with all information in its possession sufficient to reproduce the
Error. CEMAX/ICON shall use reasonable efforts to provide 3M with an error
correction or an Update sufficient to eliminate the Error within thirty (30)
days of notification by 3M. 3M shall have the right to, and further agrees to,
distribute and sublicense the use of the error correction or Update to
then-existing and future users of the Software Product in the Territory.
3. 3M OBLIGATIONS
A. Except as specifically stated in this Agreement, 3M will be
responsible for all sales, marketing, integration, installation, customer
training, and service of Hardware Products, Replacement Parts, and Software
Products. 3M will report in writing to CEMAX/ICON on all adverse events as
required under U.S. Territorial law, and in particular as required under the
U.S. FDA's Medical Device Reporting requirements. 3M will include with all
copies of the Software Products a software license agreement substantially in
the form of Exhibit H.
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B. 3M agrees to submit purchase orders to CEMAX/ICON, and pay to
CEMAX/ICON a minimum of [ *
* ] Any amount paid for a previous calendar
quarter in excess of the applicable minimum payment shall be creditable against
the minimum payment for subsequent calendar quarters; provided, however, that it
is understood and agreed that minimum calendar quarterly payments are
nonrefundable and if Hardware Products, Replacement Parts and/or Software
Products shipped in any calendar quarter do no meet the minimum payments for
such calendar quarter, such minimum payments shall be noncreditable to future
periods. These minimum payment requirements will apply only to the extent the
Hardware Products and Replacements Parts and/or Software Products are available
according to the schedule stated in Exhibit F. If CEMAX/ICON cannot maintain
the schedule stated in Exhibit F [ * * ], 3M
shall have the right [ * * ]
in an amount equal [ *
* ] CEMAX/ICON [ *
* ] Exhibit F, [ * * ] for such
Hardware Products, Replacement Products and/or Software Products, as applicable,
set forth in Section 4.A. For all post-1997 calendar quarters of this
Agreement, 3M and CEMAX/ICON will attempt to mutually agree on the amounts of
minimum payment requirements and/or whether to invoke minimum payment
requirements.
C. Nothing in this Agreement prevents 3M from developing, manufacturing,
marketing, selling and/or servicing PACS related products in the Territory.
D. 3M agrees to provide the staffing as stated in Exhibit D during the
term of this Agreement.
4. ORDERS, PRICES AND PAYMENTS
A. CEMAX/ICON will sell Hardware Products and Replacement Parts to 3M at
[ * * ] the applicable list price during [ * * ], and
[ * * ] the applicable [ * * ].
CEMAX/ICON will grant licenses to 3M in the Software Products [ *
* ] during calendar year [ * ], and [ *
* ] license fee during [ *
* ]. CEMAX/ICON and 3M will attempt to mutually agree on prices and license
fees for calendar years [ * * ].
B. 3M will order Hardware Products, Replacement Parts, and Software
Products using purchase orders submitted to CEMAX/ICON. Acceptance of any
orders placed by 3M does not constitute acceptance by CEMAX/ICON of any of the
terms and conditions of those orders, except as to identification and quantity
of Hardware Products, Replacement Parts and Software Products involved. All
orders are governed by the provisions of this Agreement. Purchase orders to
meet
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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the minimum payment requirement set forth in Section 3.B above for each calendar
quarter shall be submitted within the first forty-five (45) days of the calendar
quarter to which such minimum payment requirement pertains.
C. Taxes.
i. Any and all amounts payable hereunder by 3M do not
include any government taxes (including without limitation sales, use, excise,
and value added taxes) or duties imposed by any governmental agency that are
applicable to the export, import, or purchase of the Products (other than taxes
on the net income of CEMAX/ICON), and 3M shall bear all such taxes and duties.
When CEMAX/ICON has the legal obligation to collect and/or pay such taxes, the
appropriate amount shall be added to 3M's invoice and paid by 3M, unless 3M
provides CEMAX/ICON with a valid tax exemption certificate authorized by the
appropriate taxing authority.
ii. All payments by 3M specified hereunder are expressed as
net amounts and shall be made free and clear of, and without reduction for, any
withholding taxes. Any such taxes which are otherwise imposed on payments to
CEMAX/ICON or 3M shall be the sole responsibility of 3M. 3M shall provide
CEMAX/ICON with official receipts issued by the appropriate taxing authority or
such other evidence as is reasonably requested by CEMAX/ICON to establish that
such taxes have been paid. If CEMAX/ICON uses a foreign tax credit received by
CEMAX/ICON as a result of the payment of withholding taxes by 3M and thereby
reduces the amount of U.S. income tax that CEMAX/ICON otherwise would have paid,
CEMAX/ICON shall refund to 3M the amount of such reduction with respect to such
foreign tax credit.
D. CEMAX/ICON will ship Hardware Products and Replacement Parts
listed in the purchase orders packaged for international shipment. CEMAX/ICON
will select the carrier unless otherwise specified by 3M. Shipping expenses
will be prepaid by CEMAX/ICON and charged to 3M. Title and risk of loss in
Hardware Products will transfer to 3M ex works (Incoterms) CEMAX/ICON's point of
shipment. 3M shall reproduce copies of Software Products listed in the
purchase orders or obtain such copies from CEMAX-ICON via electronic
transmission. Upon prior written notice, CEMAX-ICON shall have the right to
appoint a certified public accountant or firm of CPAs acceptable to 3M to
audit 3M's books and records during 3M's normal business hours only to the
extent necessary to verify the number of copies of Software Products made and
the accuracy of payments made with respect to such copies, subject to
reasonable confidentiality provisions. If such audit reveals an underpayment
of more than seven percent (7%), 3M shall pay the cost of the audit and all
amounts underpaid.
E. CEMAX/ICON will invoice 3M for the balance of the minimum
payment applicable to any calendar quarter at any time on or after the 45th day
of the calendar quarter, except for the second calendar quarter of 1996, in
which case CEMAX/ICON will invoice 3M for the minimum payment at any time on or
after the Effective Date of this Agreement. CEMAX/ICON will invoice 3M for
Hardware Products and Replacement Parts upon shipment to 3M. CEMAX/ICON will
invoice 3M for Software Products within ten (10) days of receipt of 3M's
purchase order.
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F. 3M will pay the amount of any invoice within forty-five (45)
days following receipt of the invoice, provided that in no event shall the
minimum payment requirement set forth Section 3.B above for any calendar quarter
be paid by 3M later than the last day of the calendar quarter to which such
minimum payment requirement pertains. The minimum amount paid by 3M for the
then-present calendar quarter and any amount paid by 3M in previous calendar
quarters in excess of the minimum amounts for such previous calendar quarters
shall be creditable against such invoice.
5. TERM AND TERMINATION
A. The initial term of this Agreement begins on the Effective
Date of this Agreement and will continue until December 31, 2000, unless earlier
terminated as stated below.
B. 3M may terminate this Agreement without cause on December 31,
1996 by providing prior written notice to CEMAX/ICON. If 3M terminates under
this Section 5.B, 3M will have no further obligations to CEMAX/ICON under this
Agreement.
C. Either party may terminate this Agreement on or after
[ * * ] if the parties have been unable to mutually agree on minimum
payment requirements and/or whether to invoke [ *
* ] of this Agreement. In addition,
CEMAX/ICON shall have the right to terminate this Agreement by written notice to
3M in the event 3M does not meet any of the minimum payment requirements set
forth in Section 3.B above.
D. Either party may terminate this Agreement if the other party
is in breach by giving the other party at least thirty (30) days prior written
notice of the breach. If the breach is not cured within such thirty (30) days
period, the non party may terminate this Agreement effective upon written
notice, and opportunity to cure. If the breaching party cures the breach within
the thirty (30) day period, this Agreement will continue.
E. The provisions of Sections 5.E, 6, 7, 8, 9, 10.D, the second
sentence of Section 3.A, and the last sentence of Section 4.D shall survive
expiration or any termination of this Agreement. Even after termination or
expiration of this Agreement, the provisions of this Agreement still apply to
any work performed, payments made, events occurring, charges incurred or
obligations arising, in each case before the termination or expiration date.
Further, in the event of expiration of this Agreement or termination other than
termination for 3M's breach under Section 5.D above, for a period of six (6)
months from the date of expiration of termination of this Agreement, 3M Europe
shall have the right to continue to sell Hardware Products and Software Products
on a non-exclusive basis, in each case for the purposes of completing in-process
sales and CEMAX/ICON agrees to extend the pricing and delivery schedules to 3M
Europe, it being understood that in addition to the surviving provisions set
forth in this Section 5.E above, the provisions of Sections 3.A and 4 shall
survive during such six (6) month period.
F. Upon termination or expiration of this Agreement, the right
of any third party to whom 3M has distributed a copy of a Software Product to
use the copy of the Software Product
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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shall continue indefinitely, provided that such third party's use of the
Software Product complies with the terms of the software license agreement
attached as Exhibit H.
6. WARRANTIES: INDEMNIFICATION
A. Product Limited Warranty
i. CEMAX/ICON warrants to 3M that for a period of one (1) year from
the date of shipment, the Hardware Products and Replacement Parts shall perform
substantially in accordance with the applicable technical specifications set
forth in Exhibit G ("Specifications") and the Software Products will perform
substantially in accordance with the Specifications. The foregoing warranty is
contingent upon proper use of the Hardware Products, Replacement Parts and
Software Products in the applications for which they were intended as indicated
in CEMAX/ICON's accompanying end user documentation for the Hardware Products,
Replacement Parts and Software Products. The above limited warranty applies only
to reproducible defects (it being understood that the reproducibility of defects
requirement shall apply to Hardware Products and Replacement Parts only to the
extent reasonably practical) reported to CEMAX/ICON in accordance with its
standard reporting procedures and does not apply to (i) third party hardware or
software, or (ii) to any Hardware Product, Replacement Part or Software Product
which (a) has been altered, except by CEMAX/ICON or under CEMAX/ICON's
direction, or (b) has not been installed, operated, repaired or maintained in
accordance with any installation, handling, maintenance or operating
instructions supplied by CEMAX/ICON, or (c) has been subject to unusual physical
or electrical stress, negligence or accident, (d) has been damaged by acts of
nature, vandalism, burglary, neglect, or misuse or (e) has not been updated with
all error corrections and Updates provided by CEMAX/ICON, if any. CEMAX/ICON
does not warrant that operation of the Hardware Products, Software Products or
Replacement Parts will be uninterrupted or Error-free. No oral or written
information or advice given by CEMAX/ICON, its dealers, distributors, agents or
employees will create a warranty or in any way increase the scope of the limited
warranties set forth herein, and 3M may not rely on any such information or
advice.
ii. Remedy. In the event the Hardware Products, Replacement Parts or
Software Products fail to conform to the warranty set forth above, 3M's
exclusive remedy and CEMAX/ICON's sole and exclusive liability shall be, at
CEMAX/ICON's sole election, (i) with respect to the Hardware Products and
Replacement Parts, to repair or replace the nonconforming Hardware Product or
Replacement Part, and (ii) with respect to Software Products, to use
commercially reasonable efforts to correct such nonconformity provided that (x)
3M notifies CEMAX/ICON in a timely manner in writing in English that such
Hardware Product, Replacement Part or Software Product failed to conform and
furnish a detailed explanation of any alleged nonconformity; and (y) CEMAX/ICON
is reasonably satisfied that the claimed nonconformities actually exist and were
not caused by any of the items set forth in (a), (b), (c), (d) or (e) of Section
6A(i) above.
iii. CEMAX/ICON will pass on to 3M third party warranties to the
extent CEMAX/ICON has the right to do so with respect to third party hardware
and third party software,
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it being understood that CEMAX/ICON shall have no other liability or obligation
with regard to third party hardware or third party software.
B. CEMAX/ICON warrants that it has full authority to enter into this
Agreement and to grant the license rights granted to 3M under this Agreement
with respect to the Software Products without any obligation of 3M to pay
royalties to any third party.
C. CEMAX/ICON warrants to 3M that neither the exercise of the license
rights granted under this Agreement nor the distribution of the Hardware
Products, Software Products, or Replacement Parts will infringe any U.S. patent
issued as of the Effective Date or copyright or trade secret existing in the
Territory owned by third parties other than CEMAX/ICON. The provisions of
Section 6.D shall be 3M's exclusive remedy and CEMAX/ICON's sole liability for
breach of the warranties set forth in Section 6.B or Section 6.C.
D. CEMAX/ICON shall have sole control over defense and/or settlement of
any claims, actions or proceedings against 3M that allege that 3M's distribution
of the Hardware Products, Replacement Parts, or Software Products or exercise
for any license rights granted under this Agreement infringes any intellectual
property right of a third party including any patent, trademark, or copyright,
or constitutes misappropriation of any trade secret or confidential information
of a third party, or constitutes any activity that may give rise to an
obligation by 3M to pay royalties to any third party, except that 3M shall have
the right in good faith to approve or disapprove any settlement agreement that
is agreed upon by CEMAX/ICON and the third party, to the extent applicable to
the claim brought against 3M, which approval shall not be unreasonably withheld.
CEMAX/ICON agrees to bear the cost of any final judgment against 3M or
settlement resulting from such claims, actions, or proceedings, as well as any
cost of defense of such claims, actions, or proceedings including settlement
amounts.
E. Product Liability.
i. CEMAX/ICON shall indemnify and hold 3M harmless from any and all
loss or liability for any and all claims, causes of action, suits, proceedings,
losses, damages, demands, fees, expenses, fines, penalties and costs (including
without limitation reasonable attorney's fees, costs and disbursements)
(collectively, "Liabilities") resulting from any claim brought by a third party
for personal injury or property damage, to the extent caused by any
nonconformity in the Hardware Products, Replacement Parts, or Software Products
with the Specifications, or the accompanying end user documentation provided by
CEMAX/ICON; provided that CEMAX/ICON shall not be liable under this Section
6.E(i) for any Liabilities to the extent covered under Section 6.E(ii) below.
ii. 3M shall indemnify and hold CEMAX/ICON harmless from any and all
loss or liability for any and all claims, causes of action, suits, proceedings,
losses, damages, demands, fees, expenses, fines, penalties and costs (including
without limitation reasonable attorney's fees, costs and disbursements)
(collectively, "Liabilities") resulting from any claim brought by a third party
for personal injury or property damage arising out of or relating to (i)
maintenance, training, integration, installation or other services relating to
the Hardware Products, Replacement Products
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and Software Products provided by or for 3M or a 3M Affiliate or Approved
Distributor except to the extent caused by CEMAX/ICON training of 3M or 3M
Affiliate or Approved Distributor personnel; (ii) end user use of the Hardware
Products or Software Products in a manner or for an application other than as
provided in the Specifications and accompanying end user documentation, except
to the extent otherwise authorized in writing by CEMAX/ICON; or (iii) the
negligence or willful misconduct of 3M or a 3M Affiliate or Approved
Distributor.
F. The indemnification provided in this Article 6 above shall be
conditioned on the following: (i) Each party shall promptly notify the other in
writing of any action, claim or liability for which such party intends to claim
indemnification under Section 6.D or 6.E and shall provide full information and
reasonable assistance to the indemnifying party with respect thereto, and (ii)
the indemnifying party shall have sole authority to defend and/or settle any
such action, claim or liability and sole control over such defense and/or
settlement, except that the indemnified party shall have the right in good faith
to approve or disapprove any settlement agreement that is agreed upon by the
indemnifying party and a third party, to the extent applicable to the claim
brought against the indemnified party, which approval shall not be unreasonably
withheld.
7. CONFIDENTIAL INFORMATION
A. 3M may, during the course of this Agreement, have access to or have
disclosed to it information which is identified as confidential by CEMAX/ICON.
3M agrees to maintain in confidence CEMAX/ICON confidential information and not
to disclose such confidential information to third parties without CEMAX/ICON's
written consent. 3M will protect the disclosed information by using the same
degree of care, but no less than a reasonable degree of care, to prevent the
unauthorized disclosure of such confidential information, as 3M uses to protect
its own confidential information of a like nature.
B. CEMAX/ICON may, during the course of this Agreement, have access to or
have disclosed to it information which is identified as confidential by 3M.
CEMAX/ICON agrees to maintain in confidence 3M confidential information and not
to disclose such confidential information to third parties without 3M's written
consent. CEMAX/ICON will protect the disclosed information by using the same
degree of care, but no less than a reasonable degree of care, to prevent the
unauthorized disclosure of such confidential information, as CEMAX/ICON uses to
protect its own confidential information of a like nature.
C. The obligations stated in Sections 7-A and B will not apply to information
which:
- is or becomes generally known to the general public or is
independently developed by each other, or
- either party can show was known at the time of disclosure, or
- either party can show it rightfully learned from a third party without
an obligation of confidence.
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D. 3M and CEMAX/ICON agree to maintain the other's confidential
information as confidential for a period of three (3) years after the
termination or expiration of this Agreement.
8. NOTICES
All notices required by this Agreement must be in writing and sent by
certified mail, with return receipt requested, Federal Express or other
overnight service. The date of a notice is the date it is received. CEMAX/ICON
will send all notices under this Agreement to:
Vice President
3M Medical Imaging Systems Division
3M Center, Building 300-1S-20
P.O. Box 33428
St. Paul, MN 55144
and to:
Jorg Zaehres
3M Italia SPA
20090 Segrate (Milano)
Via San Bovio 3, ITALY
3M will send all notices under this Agreement to:
President
CEMAX/ICON, Inc.
47281 Mission Falls Court
Fremont, California 94539
A party may designate in writing other individuals to receive notice.
9. DISPUTE RESOLUTION
A. The parties shall attempt in good faith to resolve any dispute arising
out of the making or performance of or otherwise relating to this Agreement
promptly by negotiations between executives who have authority to settle the
controversy. Any party may give the other party written notice of any dispute
not resolved in the normal course of business. Within 20 days after delivery of
said notice, executives of both parties shall meet at a mutually acceptable time
and place, and thereafter as often as they reasonably deem necessary, to
exchange relevant information and to attempt to resolve the dispute. If the
matter has not been resolved within 60 days of the disputing party's notice, or
if the parties fail to meet within 20 days, either party may initiate mediation
of the controversy or claim as provided hereinafter. If a negotiator intends to
be accompanied at a meeting by an attorney, the other negotiator shall be given
at least seven (7) days notice of such intention and may also be accompanied by
an attorney. All negotiations pursuant to
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this clause are confidential and shall be treated as compromise and settlement
negotiations for purposes of the Federal Rules of Evidence 408 and any
comparable law provision.
B. If the dispute has not been resolved by negotiation as provided in
Section 9.A above, the parties shall endeavor to settle the dispute by mediation
before and in compliance with the rules established by any mutually acceptable
alternative dispute resolution organization. Either party may initiate a
mediation proceeding by a request in writing to the other party. The selection
of an organization shall be made within ten (10) business days after
notification from one party to the other requesting mediation of a dispute. If
an organization/judge and applicable rules have not been agreed upon within such
ten (10) day period, the dispute shall be mediated in accordance with the Center
for Public Resources Model Procedure for Mediation of Business Disputes, and a
single mediator will be chosen by CPR. The parties shall attempt in good faith
to resolve the dispute within sixty (60) days of the commencement of such
procedure (which period may be extended by mutual agreement). Thereupon, both
parties will be obligated to engage in a mediation. The parties regard the
aforesaid obligation to mediate an essential provision of this Agreement and one
that is legally binding on them. If the parties are unable to resolve the
dispute within said time period or in case of a violation of such obligation by
either party, the other may bring an action to seek enforcement of such
obligation in any court of competent jurisdiction in California.
C. Nothing in Section 9.A or 9.B shall preclude either party from taking
whatever actions are necessary to prevent imminent, irreparable harm to its
interests. Otherwise those procedures shall be exclusive in the order set forth.
D. The parties agree that California has a substantial relationship to
this transaction, and each party consents to personal jurisdiction in the courts
of California consistent with Section 9.A or 9.B above.
E. Any questions, claims, disputes, remedies or procedural matters shall
be governed exclusively by the laws of the State of California without regard to
the principles of conflicts of law.
10. GENERAL TERMS
A. Neither party is liable to the other for damages caused by delays in
delivery or performance due to acts of God or other causes beyond its control.
B. The relationship of the parties under this Agreement is that of
independent contractors. Nothing in this agreement authorizes either party to
act for the other as an agent. CEMAX/ICON is not an agent or franchisee of 3M
and has no authority to bind 3M, transact any business on behalf of 3M in any
manner, or make any promises or representation on behalf of 3M. 3M is not an
agent or franchisee of CEMAX/ICON and has no authority to bind CEMAX/ICON,
transact any business on behalf of CEMAX/ICON in any manner, or make any
promises or representation on behalf of CEMAX/ICON.
C. Neither this Agreement nor any right or obligation hereunder shall be
assignable by either party without the prior written consent of the other party.
CEMAX/ICON acknowledges
-11-
<PAGE> 12
that 3M anticipates the creation of a new independent company that will be the
successor to 3M's Medical Imaging Systems Division ("Imation"). CEMAX/ICON
specifically consents to assignment or licensing, as applicable, of this
Agreement, all of 3M's intellectual property rights and licenses relating to
this Agreement, and all of 3M's other rights and obligations under this
Agreement to Imation. Any permitted assignee shall assume all obligations of its
assignor under this Agreement. No assignment shall relieve any party of
responsibility for the performance of any accrued obligation which such party
then has hereunder. Any assignment contrary to this Section 10.C shall be null
and void.
D. This Agreement states the complete Agreement between 3M and CEMAX/ICON
on this subject and replaces any previous understandings, representations or
communications, whether oral or written. THIS AGREEMENT IS INTENDED BY THE
PARTIES TO BE THE FINAL, COMPLETE AND EXCLUSIVE STATEMENT OF ALL TERMS AND
CONDITIONS OF THE AGREEMENT. This Agreement can be amended only by a writing
signed by both parties. No oral modification is possible. A party's failure to
exercise a right in one or many instances does not waive that right as to any
later instance. A course of dealing or performance does not effect a
modification or a waiver unless ratified in writing by the party to be bound.
ACCEPTED AND AGREED TO:
MINNESOTA MINING AND CEMAX/ICON, INC.
MANUFACTURING COMPANY ("CEMAX/ICON")
("3M")
By: /s/ CT Pinder By: /s/ Terry Ross
------------------------------ ------------------------------
Clifford T. Pinder Terry Ross
Vice President Chief Executive Officer
3M Medical Imaging
Systems Division
Exhibit A - List of Products (to be provided by 3M)
Exhibit B - List of Countries in the Territory (attached)
Exhibit C - List of Non-exclusive CEMAX/ICON products (to be provided by
CEMAX/ICON)
Exhibit D - CEMAX/ICON and 3M Staffing (attached)
Exhibit E - List of Training and Schedule (to be provided by 3M)
Exhibit F - Schedule of Product Availability (to be provided by CEMAX/ICON)
Exhibit G - Software Product Specifications (to be provided by CEMAX/ICON)
Exhibit H - Software License Agreement
-12-
<PAGE> 13
EXHIBIT A
LIST OF PRODUCTS
<PAGE> 14
===============================================================================
SCHEDULE A
===============================================================================
<TABLE>
<CAPTION>
PART # PRODUCT SW HW LIST**
<S> <C> <C> <C> <C>
211-0028-00 LaserLink(TM) Cable
231-0002-00 LaserLink(TM) Board
231-0008-00 Turbo GX+ Video Graphic Board (Sun)
231-0011-00 SBUS SCS12 Card (Sun)
231-0017-00 Fast Ethernet Card (Sun)
233-0026-00 FDDI Client Card (Mac)
233-0033-00 Fast Ethernet Card (Mac)
253-0012-01 TeleRad Acquisition (DVI) Software Upgrade
253-0014-00 Additional Modality for Existing DVI
253-0015-00 Two Additional Modalities for Existing DVI
253-0016-00 Three Additional Modalities for Existing DVI
253-0017-00 TeleMax(TM) Display Software Upgrade (Mac)
254-0002-00 TeleMax(TM) Display Software Upgrade (PC)
273-0001-00 Hub
273-0002-00 Remote
273-0033-00 Bonded ISDN 128k or SW56 (Mac) *Certain information on this
273-0043-00 Keypad Interface Hub page has been omitted and filed
273-0044-00 Keypad separately with the Commission.
273-0045-00 1.5K Portrait Monitor (Mac) Confidential treatment has been
273-0046-00 1.5K Landscape Color Monitor (Mac) requested with respect to the
273-0047-00 2K Portrait Monitor (Mac) omitted portions.
273-0048-00 Multiple Input/Output Modem Kit (Mac)
273-0049-00 Multiple Input/Output ISDN Kit (Mac)
274-0001-00 Single Channel ISDN 56-64K (Mac or PC)
391-0005-00 16 MB additional memory (Sun SPARC 20)
397-0007-00 32 MB additional memory (Sun SPARC 5)
391-0008-00 32 MB additional memory (Sun SPARC 20)
393-0001-00 8 MB additional memory (Mac)
393-0003-00 16 MB additional memory (Mac)
393-0004-00 32 MB additional memory (Mac)
400-0017-00 1.3 GB M.O. Drive (Mac)
400-0019-00 UPS Backup 600 (PACS)
400-0059-00 UPS Backup 400 (TELERAD)
401-0045-00 Sun Trackball
403-0014-00 Fiber Optic Remote Transceiver (Mac)
403-0015-00 Fiber Optic Receiver (Mac)
</TABLE>
Page: 1
<PAGE> 15
<TABLE>
<CAPTION>
PART # PRODUCT SW HW LIST
<S> <C> <C> <C> <C>
403-0022-00 1 GB Internal Hard Disk (Mac)
403-0043-00 Trackball Device (Mac)
403-0061-00 2 GB Internal Hard Disk (Mac)
403-0062-00 4 GB Internal Hard Disk (Mac)
403-0067-00 PowerMac 8500 Option
403-0069-00 PowerMac 9500 Option
405-0012-00 Optional Sheet Feeder for Lumisys 75
443-0001-00 Ethernet Transceiver For Mac
443-0002-00 Ethernet Transceiver Thin Net
471-0002-00 20 inch Grayscale Monitor (Sun)
471-0003-00 20 inch Color Monitor (Sun)
471-0004-00 24 inch Portrait Grayscale Monitor (Sun)
473-0005-00 20 inch Apple Color Monitor
473-0007-00 17 inch Apple Color Monitor
473-0014-00 20 inch Dell Color Monitor
640-0001-00 ScanLink(TM) I - DuPont Linx Gateway *Certain information has been omitted
641-0002-00 ScanLink(TM) I - Acuson Aegis and filed separately with the Commission.
641-0003-00 ScanLink(TM) I - GE CT HiLight Advantage 5.4 Confidential treatment has been requested
641-0004-00 ScanLink(TM) I - GE CT HiSpeed Advantage with respect to the omitted portions.
641-0007-00 ScanLink(TM) I - GE Signa 1.5 MR Advantage
641-0008-00 ScanLink(TM) I - Imatron Ultrafast CT
641-0009-00 ScanLink(TM) I - Picker PQ/IQ CT
641-0010-00 ScanLink(TM) I - Toshiba Xspeed/Xpress(TM)
641-0011-00 ScanLink(TM) I - Toshiba MRT 35 MR
641-0012-00 ScanLink(TM) I - Toshiba Access MRI
641-0013-00 ScanLink(TM) I - DuPont CRS
641-0014-00 ScanLink(TM) I - Kodak CR - DICOM 3.0
641-0017-00 ScanLink(TM) I - DICOM 3.0
641-0018-00 ScanLink(TM) I - Picker Edge MR
641-0023-00 ScanLink(TM) I - Eiscint CT Twin - DICOM 3.0
641-0024-00 ScanLink(TM) I - Fuji CR
641-0025-00 ScanLink(TM) I - Picker HPQ
641-0036-00 ImageXchange
641-0037-00 ClinicalView(TM) Single Monitor Software
641-0038-00 ClinicalView(TM) Dual Monitor Software
641-0039-00 ImageServer(TM) Software
641-0040-00 ClinicalView(TM) Single to Dual Monitor Software
641-0041-00 VIP Tape Reader
</TABLE>
Page: 2
<PAGE> 16
<TABLE>
<CAPTION>
PART # PRODUCT SW HW LIST
<S> <C> <C> <C> <C>
641-0055-00 Network Filming Option
641-0057-00 ScanLink(TM) IV - Software Only - Fuji CR
641-0058-00 QA Station Software (Sun)
641-0059-00 VIP1.3 Software VIP1.4 Software Upgrade
641-0060-00 Network Film Server(TM) Software (Sun)
641-0061-00 2K ClinicalView(TM) Single Monitor Software
641-0062-00 2K ClinicalView(TM) Dual Monitor Software
641-0065-00 ArchieveManager(TM) 1.0 Software
641-0066-00 2K ClinicalView(TM) Single to Dual Monitor Software
641-0067-00 ClinicalView(TM) to 2K ClinicalView(TM) Dual
Monitor Software
641-0068-00 ScanLink(TM) IV - Software Only - Lumisys
Digitizer
641-0069-00 Tumor Trak(TM) Software
641-0070-00 ScanLink(TM) II - Software Only
641-0071-00 ScanLink(TM) III - Software Only
641-0072-00 CEMAX Homeview Filming Option Software
641-0073-00 Xtension to VIP Software Upgrade
641-0074-00 Direct Filming Option Software
641-0076-00 ToothPix(TM) * Certain information on this page
641-0079-00 MPDI 9800 Quickstar Software has been omitted and filed separately
641-0080-00 ScanLink(TM) I - Toshiba Flexart MRI with the Commission. Confidential
641-0081-00 ScanLink(TM) I - DICOM Gateway treatment has been requested with
641-0083-00 Network Film Server(TM) Software Kit (Sun) respect to the omitted portions.
641-0087-00 Network Management Package (Sun)
641-0088-00 VIP 2.0(TM) Software
641-0089-00 VIP1.X to VIP2.0 (X3D) Software Upgrade
643-0021-00 Digitizer Software Upgrade to Existing
ScanLink(TM) V
643-0022-00 Digitizer Software Upgrade to Existing TeleRad DVI
643-0023-00 Network Manager Station Software (Mac)
643-0027-00 TelePACS(TM) 8 bit to 12 bit Software Upgrade
643-0028-00 TelePACS(TM) Display Software
643-0030-00 MultiCom Software (Mac)
643-0031-00 Digitizer Acquisition 8 bit to 12 bit Software Upgrade
643-0032-00 Network Film Server(TM) Software Kit (Mac)
643-0033-00 TeleMac(TM) Display Software - Macintosh
643-0034-00 Teleradiology Server Software (Mac)
643-0035-00 Administration Station Software (Mac)
643-0036-00 TeleRad DICOM Gateway Software (Mac)
644-0005-00 Network Management Package (PC)
</TABLE>
Page: 3
<PAGE> 17
<TABLE>
<CAPTION>
PART # PRODUCT SW HW LIST
<S> <C> <C> <C> <C>
644-0006-00 TeleMax(TM), Display Software - PC
661-0001-00 SumNet Manager
910-0020-00 Telebit T-2500 Modem (Mac & PC)
910-0023-00 Microcom Modem
910-0024-00 T4 Barcode Printer
910-0028-00 Codonics NP-1600M Medical Color Printer
910-0030-00 Modem (US Robotics Courier)
910-0032-00 CodeScan 3000
911-0002-00 4 GB Hard Disk (Sun)
911-0003-00 9 GB Hard Disk
911-0004-00 18 GB Hard Disk
911-0005-00 27 GB Hard Disk
911-0006-00 36 GB Hard Disk (Sun)
911-0007-00 45 GB Hard Disk (Sun)
911-0009-00 54 GB Hard Disk (Sun) *Certain information on this page
911-0011-00 4 GB RAID Storage has been omitted and filed
911-0012-00 8.4 GB RAID Storage separately with the Commission.
911-0013-00 16.8 GB RAID Storage Confidential treatment has been
911-0014-00 25.2 GB RAID Storage requested with respect to the
911-0015-00 33.6 GB RAID Storage omitted portions.
911-0017-00 2.1 GB Hard Disk (Sun)
911-0018-01 7 GB 8mm Tape Drive System (Sun)
911-0021-00 High Density Magnetic Tape Drive (Sun)
911-0027-00 Lumisys Lumiscan 150 Digitizer(TM)
913-0002-00 Hayes Optima Modem (Mac)
913-0004-00 Practical Peripherals Modem (Mac)
914-0003-00 Hayes Optima Modem (PC)
914-0005-00 Practical Peripherals Modem (PC)
971-0000-12 Standard 12 Month Service-Partner Agreement
971-0001-00 Performance Option (Sun)
971-0001-12 Standard 12 Month Service Agreement
971-0002-01 VIP Training at CEMAX-ICON
971-0003-00 Hardware/Software Integration
971-0004-02 ClinicalView(TM) Single Monitor Station
971-0005-01 VIPview(TM)
971-0006-02 ClinicalView(TM) Dual Monitor Station
971-0008-02 Lumisys 150 Digitizer (Preferred Package Sun)
971-0009-02 Network Film Server(TM) (Sun)
</TABLE>
Page 4
<PAGE> 18
<TABLE>
<CAPTION>
PART # PRODUCT SW HW LIST
<S> <C> <C> <C> <C>
971-0011-00 ClinicalView(TM) Single to Dual Monitor Upgrade
971-0012-00 Direct Filming Option (Sun)
971-0013-00 FDDI High Speed Network Option (Sun)
971-0014-00 ScanLink(TM) II - GE 9800 CT Non-Advantage (50 pin)
971-0014-01 ScanLink(TM) II - GE 9800 CT Non-Advantage (100 pin)
971-0015-00 ScanLink(TM) II - GE Signa 1.5 MR Non-Adv (50 pin)
971-0015-01 ScanLink(TM) II - GE Signa 1.5 MR Non-Adv (Pertec)
971-0015-02 ScanLink(TM) II - GE Signa 1.5 MR Non-Adv (100 pin)
971-0016-00 ScanLink(TM) II - GE Signa 1.5 MR Advantage up to 4.6
971-0017-00 ScanLink(TM) III - Hitachi MRP 7000 MR
971-0018-00 ScanLink(TM) III - Philips CX CT
971-0019-00 ScanLink(TM) III - Philips LX CT
971-0020-00 ScanLink(TM) III - Philips SR CT
971-0021-00 ScanLink(TM) III - Philips MR
971-0022-00 ScanLink(TM) II - Picker 1200 SX CT/Level II
971-0024-00 ScanLink(TM) III - Siemens DRS CT *Certain information on this page
971-0025-00 ScanLink(TM) III - Siemens DRH CT has been omitted and filed
971-0026-00 ScanLink(TM) III - Siemens Somarom - CT separately with the Commission.
971-0027-00 ScanLink(TM) III - Siemens Magnetom MR Confidential treatment has been
971-0028-00 ScanLink(TM) III - Toshiba 600 CT requested with respect to the
971-0029-00 ScanLink(TM) III - Toshiba 900 CT omitted portions.
971-0030-00 ScanLink(TM) III - Toshiba MRT 50
971-0031-00 ScanLink(TM) III - Toshiba MRT 150
971-0032-02A ScanLink(TM) IV/QA Station - Fuji CR
971-0032-02B ScanLink(TM) IV/QA Station - Lumisys Digitizer
971-0032-02C ScanLink(TM) IV/QA Station - DuPont CR
971-0033-00 ScanLink(TM) III - Siemens Magnetom 1.5 Tesla SP MR
971-0034-01 VIPstation20(TM)
971-0036-00 Modem (Sun)
971-0037-00 LaserLink(TM) Kit
971-0038-02 2K ClinicalView(TM) Single Monitor Station
971-0039-02 2K ClinicalView(TM) Dual Monitor Station
971-0040-02 2K ClinicalView(TM) 20/50 Dual Monitor Station
971-0041-01 Remote Diagnostic Kit (Sun)
971-0042-01 VIPstation(TM) Hardware Upgrade
971-0044-01 Archive Manager(TM) 1.0
971-0045-00 ATM Network Option (Sun)
971-0046-00 ScanLink(TM) V
</TABLE>
Page 5
<PAGE> 19
<TABLE>
<CAPTION>
PART # PRODUCT SW HW LIST
<S> <C> <C> <C> <C>
971-0047-00 2K ClinicalView(TM) Single to Dual Monitor Upgrade
971-0048-00 ClinicalView(TM) to 2K ClinicalView(TM) Dual Monitor Station
971-0049-01 ClinicalView(TM) 20/50 Single Monitor Station
971-0050-02 ClinicalView(TM) 20/50 Dual Monitor Station
971-0051-00 ScanLink(TM) III -Toshiba DFP 50/60
971-0052-00 ScanLink(TM) III - Siomons MR Impact
971-0053-02 ImageServer(TM)
971-0059-02 2K ClinicalView(TM) 20/50 Single Monitor Station
971-0060-00 ScanLink(TM) III - Toshiba EPS 30
971-0061-00 HIS/RIS Gateway
971-0062-00 ClinicalView(TM)/QA Station
971-0063-00 64 MB additional memory (SPARC 20)
971-0064-00 ScanLink(TM) III - Hitachi CT W3000
971-0065-00 32 MB/12 Bit Input Module (analog or digital)
971-0066-00 VIP 2.0(TM)
971-0068-00 ArchiveManager(TM) 2.0 (DLT Drive)
971-0069-00 ArchiveManager(TM) 2.0 (520 GB DLT)
971-0070-00 ArchiveManager(TM) 2.0 (1.2 TB DLT)
971-0071-00 ArchiveManager(TM) 2.0 (2.1 TB DLT)
971-0072-00 ArchiveManager(TM) 2.0 (7.2 TB DLT) *Certain information on this page
971-0073-00 20 GB Optical Disk Jukebox for ArchiveManager(TM) 2.0 has been omitted and filed
971-0074-00 40 GB Optical Disk Jukebox for ArchiveManager(TM) 2.0 separately with the Commission.
971-0075-00 120 GB Optical Disk Jukebox for ArchiveManager(TM) 2.0 Confidential treatment has been
971-0076-00 200 GB Optical Disk Jukebox for ArchiveManager(TM) 2.0 requested with respect to the
971-0077-00 500 GB Optical Disk Jukebox for ArchiveManager(TM) 2.0 omitted portions.
971-0078-00 1 TB Optical Disk Jukebox for ArchiveManager(TM) 2.0
971-1000-06 Extended 6 Month Warranty
971-1100-48 Extended 48 Month Service Agreement (cost per yr)
971-1148-48 Extended 48 Month Service-Partner Agreement
973-0001-01 Registration Station (Mac)
973-0002-01 Lumisys 50 Acquisition (Preferred Package-Mac)
973-0003-01 Lumisys 75 Acquisition (Preferred Package-Mac)
973-0004-01 Lumisys 150 Acquisition (Preferred Package-Mac)
973-0005-01 Lumisys 200 Acquisition (Preferred Package-Mac)
973-0006-01 Vidar CCD Acquisition (Preferred Package-Mac)
973-0007-01 Vidar CCD Teleradiology Acquisition System
973-0008-01 Lumisys 50 Teleradiology Acquisition System
973-0009-01 Lumisys 75 Teleradiology Acquisition System
</TABLE>
Page 6
<PAGE> 20
<TABLE>
<CAPTION>
PART # PRODUCT SW HW LIST
<S> <C> <C> <C> <C>
973-0010-01 Lumisys 150 Teleradiology Acquisition System
973-0011-01 Lumisys 200 Teleradiology Acquisition System
973-0014-00 PowerBook 540c Option
973-0016-01 TeleRad - LINX(TM) Gateway
973-0018-01 ScanLink(TM) V - Single Channel DPI
973-0019-01 ScanLink(TM) - Single Channel DVI
973-0020-00 Network Film Server(TM) (Mac)
973-0021-01 20 GB Modality Archive (Mac)
973-0022-01 40 GB Modality Archive (Mac)
973-0023-01 114 GB Modality Archive (Mac)
973-0024-01 187 GB Modality Archive (Mac)
973-0027-00 Lumisys 50 Digitizer Add-On for DVI
973-0028-00 Lumisys 75 Digitizer Add-On for DVI
973-0029-00 Lumisys 150 Digitizer Add-On for DVI
973-0030-01 Study Server (Mac)
973-0031-01 ScanLink(TM) V - LINX(TM) Gateway *Certain information on this page
973-0032-00 DVI Four Channel Interface (Software included) has been omitted and filed
973-0033-00 Vidar CCD Acquisition Add-On for DVI separately with the Commission.
973-0034-01 TeleMax(TM) Display System - Macintosh Confidential treatment has been
973-0035-01 TeleMax(TM) Display System - PowerBook requested with respect to
973-0036-01 RadAccess(TM) 8 bit 1.5K Dual Monitor Station omitted portions.
973-0038-01 Teleradiology Acquisition for Vidar CCD
973-0039-01 Teleradiology Acquisition for Lumisys 50
973-0040-01 Teleradiology Acquisition for Lumisys 75
973-0041-01 Teleradiology Acquisition for Lumisys 150
973-0042-01 Teleradiology Acquisition for Lumisys 200
973-0044-01 AutoRad(TM) 1.5K Dual Monitor Station
973-0045-01 AutoRad(TM) 2K Dual Monitor Station
973-0048-01 TeleRad - Single Channel DVI
973-0049-01 TeleRad - Four Channel DVI
973-0050-01 AutoRad(TM) 1.5K Four Monitor Station
973-0051-01 AutoRad(TM) 2K Four Monitor Station
973-0054-01 AutoRad(TM) 1.5K Six Monitor Station
973-0056-01 AutoRad(TM) 2K Six Monitor Station
973-0057-00 Additional Hub & Remote for Existing DVI
973-0058-00 Additional Hub & Two Remotes for Existing DVI
973-0059-00 Additional Hub & Three Remotes for Existing DVI
973-0060-00 DVI Upgrade
</TABLE>
Page 7
<PAGE> 21
<TABLE>
<CAPTION>
PART # PRODUCT SW HW LIST
<S> <C> <C> <C> <C>
973-0061-00 Low-Line DVI to High-Line DVI Upgrade
973-0062-01 Teleradiolgoy Acquisition for Lumisys 100 *Certain information on this page
973-0065-01 Teleradiology Server (Mac) has been omitted and filed
973-0066-00 Network Manager Station (Mac) separately with the Commission.
973-0069-00 TelePACS(TM) Single Monitor Display System Confidential treatment has been
973-0070-00 TelePACS(TM) Two Monitor Display System requested with respect to the
omitted portions.
</TABLE>
<PAGE> 22
EXHIBIT B
THE TERRITORY
DENMARK
ICELAND
NORWAY
SWEDEN
ESTONIA
LATVIA
LITHUANIA
GERMANY
AUSTRIA
SWITZERLAND
FRANCE
ITALY
BELGIUM
NETHERLANDS
SPAIN
PORTUGAL
UNITED KINGDOM
IRELAND
LUXEMBOURG
<PAGE> 23
EXHIBIT C
LIST OF NONEXCLUSIVE CEMAX/ICON PRODUCTS
Vip Station
<PAGE> 24
EXHIBIT D
STAFFING
3M Staffing:
- 2 European Technical Service Persons
- 7.1 Professional Service Persons
- 2.9 Regional Sales and Marketing Persons
- 1.0 European Marketing Person
CEMAX/ICON Staffing:
- 1 product specialist in the Territory
- 1 sales person in the Territory
- 1/2 of a full time equivalent (20 hours per week, CEMAX/ICON normal
business hours) of a sales support person in Fremont, California
<PAGE> 25
EXHIBIT E
TRAINING PLAN
<TABLE>
<CAPTION>
Training Who? When? Where?
<S> <C> <C> <C>
Sales & Product Training 1 16 people June 10, 1996 ??????? Hospital
"Professional Service" 5 days
Sales & Product Training 2 16 people October, 1996 ?????? Tech. Center, Italy
"Professional Service" 5 days or Fremont, US
Regional Sales Training 103 From June At Regional
8 Regions to September Sales Meeting
2 days Shared with 3M teams
Technical Training 1 3 engineers June/July Fremont, California
10 days
Technical Training 2 3 engineers September Fremont, California
10 days
Field Service Training based on C-1
Training agenda For TELEMAX
LUMISYS digitizer: 1 person May - June Fremont, California
Two weeks
For CV, AutoRad & Archive Manager 2.0: still on definition still on definition Fremont, California
</TABLE>
<PAGE> 26
EXHIBIT F
Cemak-Icon Confidential
Pocket 125-Q:Desktop Folder:VIP2.0 manual from_jeff:3M.schedule 050796
Distribution: (3M-Europe) Remy Labreuil, Marketing Ops Mgr
(3M) Jim Wales, OEM-Strategic Manager,
(Cemax-Icon) Terry Ross, Oran Muduroglu
CEMAX-ICON/3M PRODUCT DEVELOPMENT SCHEDULE
UPDATE 5/9/96
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Application
-----------------------------------------------
Alpha Beta FCS
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
AutoRad 2.0
- ------------------------------------------------------------------------------
AutoRad 2.1
- ------------------------------------------------------------------------------
RadAccess 3.0
- ------------------------------------------------------------------------------
MacSCP 2.0
- ------------------------------------------------------------------------------
MacSCU 2.0
- ------------------------------------------------------------------------------
MacQRU 1.0 *Certain information on this page has been
- ------------------------------------------------------------------------------
DB4 1.0 omitted and filed separately with the
- ------------------------------------------------------------------------------
HRD5 1.0 Commission. Confidential treatment has
- ------------------------------------------------------------------------------
Clinical View 1.03 been requested with respect to the
- ------------------------------------------------------------------------------
Ditcom Gateway omitted portions.
- ------------------------------------------------------------------------------
Active Manager 2.0
- ------------------------------------------------------------------------------
ImageCom 3.0
- ------------------------------------------------------------------------------
Telemax Mac 3.0
- ------------------------------------------------------------------------------
TeleMax Mac 3.0
- ------------------------------------------------------------------------------
</TABLE>
done = phase is complete
x = in progress
RadAccess 3.0 = from AutoRad code base
<PAGE> 27
EXHIBIT G
SOFTWARE PRODUCT SPECIFICATIONS
<PAGE> 28
MACQRU 1.0
Product Description:
Native Mac product to run in conjunction with AutoRad display systems to
query and retrieve studies from DICOM Query Retrieve Providers (e.g
Archive Manager)
Features:
- Native Macintosh support for PowerPC
- Browser displays patient, study and series information
- Supports Patient/Study only, Patient, Study, and Cemax-Icon
Series Query model
- Common queries can be saved and are available from User Interface
- Simple and complex queries supporting wildcards and data range
matching
- Allows configuration of multiple destinations including self
- Can query multiple Query Providers
- Can build list of matches from multiple Query Providers
- Can select multiple items to move
- Can be invoked from AutoRad interface
- User may cancel Query and Move operations
- Move operations run in foreground
- TCP/IP connectivity to DICOM devices
- Graphical configuration UI
Limitations:
- [ * * ]
Standard Configuration:
- Power PC 9500 (AutoRad) or 7500 w/32 Meg RAM and 500 MB Disk
(additional memory and disk required for other applications on the
system)
- Standard Mac display
Options:
- None
Interfaceability:
- DOCOM 3.0
Configuration Issues:
- Recommended for use with AutoRad 3.0 to access any Query/Retrieve
Provider (e.g. Archive Manager)
* Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect
to the omitted portions.
<PAGE> 29
DICOM GATEWAY 1.0
Product Description:
Interface to connect multiple DICOM devices (modalities, workstations)
to Cemax-Icon Macintosh Network products. Product consists of a
SparcStation frontend and a Macintosh backend.
Features:
- DICOM Server may run in conjunction with Clinical View
- Allows multiple DICOM inputs to an AutoRad system
- Provides Image Sorting
- Supports Single Association per Image scanners
- Supports Multiple Associations per DICOM server
- Supports Series Consolidation
- Supports transmission of 8 and 16 bit data
- Mac Converter runs native on 680x0 and emulated on PowerPC machines
- Supports CT, CR, MR, SC
- DICOM configuration tool
- Connectivity to ImageCom for TeleRadadiology gateway
- AppleTalk Connectivity to AutoCom for AutoRad LAN
- TCP/IP connectivity to DICOM devices
Limitations:
- [ * * ]
- [ * * ]
- [ * * ]
- [ * * ]
Standard Configuration:
- Sun Sparc-5 w/64 Meg RAM, 1 GB Hard Disk (additional memory and disk
required for other processes running on same system)
- Mac 7500 w/32 Meg RAM, 1 GB Hard Disk (additional memory and disk
required for other processes running on same system)
- Standard Sun and Mac displays (used only for monitoring)
Options:
- None
Interfaceability:
- ImageCom
* Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect
to the omitted portions.
<PAGE> 30
- AutoCom
- DICOM 3.0
Configuration Issues:
- Not recommended for interfacing to Fuji-9000 CR system
- Recommended for teleradiology from DICOM SSCU devices
<PAGE> 31
MacSSCP 2.0
Product Description:
Native Mac Interface to connect multiple DICOM devices (modalities,
workstations) and send image data to Cemax-Icon Macintosh Network
products for LAN and WAN applications.
Features:
- Native Macintosh support for PowerPC
- Allows multiple DICOM inputs to an AutoRad system
- Provides Image Sorting
- Supports Single Association per Image
- Supports Series Consolidation
- Supports transmission of 8 and 16 bit data
- STA or Direct Consolidation to AutoRad
- Supports CT, CR, MR, SC
- Connectivity to AutoRad LAN via STA
- TCP/IP connectivity to DICOM devices
- Complete preservation of DICOM header information
- Smart Protocols based on modality and body part
- Smart Window and Level
- Configurable Compression support (lossy and lossless)
- Graphical configuration UI
- Non-square pixel support
- VOI LUT conservation
- Multiple SSCP Servers for multiple DICOM connections per system
Limitations:
- [ * * ]
- [ * * ]
- [ * * ]
Standard Configuration:
- PowerPC 9500, w/32 Meg RAM, 1GB disk (additional memory and disk
required for other applications running on same system)
- Standard Mac display (used only for monitoring and configuration)
Options:
- None
Interfaceability:
* Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect
to the omitted portions.
<PAGE> 32
- STA
- DICOM 3.0
Configuration Issues:
- Recommended for direct input from DICOM modalities to AutoRad networks
<PAGE> 33
MacSSCU 2.0
Product Description:
Native Mac Interface to send data from Cemax-Icon Macintosh Network
products (e.g. Film Digitizer, ScanLink V, AutoRad) on LAN and WAN to
DICOM 3.0 SSCP systems (e.g. ArchiveManager, Clinical View, etc.)
Features:
- Native Macintosh support for PowerPC
- Same study may be sent to multiple destinations
- Supports transmission of 8 and 16 bit data
- Receives data via STA, ImageCom, AutoCom interfaces
- Supports CT, CR, MR, SC
- Integrated with AutoRad
- Automatic send from ScanLinkV and Film Digitizer
- UI for manual send
- TCP/IP connectivity to DICOM devices
- Configurable Compression ratio per destination based on modality and
body part
- Graphical configuration UI
Limitations:
- [ * * ]
Standard Configuration:
- PowerPC 7500 or 9500 (AutoRad) w/32 Meg RAM, 1GB Disk (additional
memory and disk needed for other programs running on same system)
- Standard Mac display (used only for monitoring)
Options:
- None
Interfaceability:
- STA
- AutoCom
- ImageCom
- DICOM 3.0
Configuration Issues:
- Recommended for use with ScanLink V, Film Digitizer, AutoRad
* Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect
to the omitted portions.
<PAGE> 34
HRD-5
Product Description:
[ *
* ]
Features:
- [ * * ]
- [ * * ]
- Programmable Pixel clock and video timing
- Monochrome only
- [ * * ]
- [ * * ]
- [ * * ]
- 8 Mbyte graphics frame buffer QuickDraw compatible
- 512 overlay buffer
- Supports all Macintosh hardware and software
- Displays full resolution (2k x 2.5k) X-ray images
- Full screen interactive W&L
- Interactive pan and zoom
Electrical Specifications:
- Video Output: Separate horizontal and vertical, TTL levels
- Video: Grey-scale
- Video Amplitude: 0.7 pp (RS343), driving 50 ohm double terminated
- Horizontal Video: up to 200 Khz
- Vertical Video: 60 to 75 Hz
- Pixel Clock frequency: from 25 to 500 Mhz
- Pixel clock jitter: less than 100 ppm
- DAC resolution: 8 bits
- DAC noise: +/- 1 LSB maximum
- Depth: 8 bits-per-pixel
- Frame Buffer: 2 buffers at 8 Mbytes each
Configuration Issues:
- Used by AutoRad and RadAccess for maximum performance
* Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect
to the omitted portions.
<PAGE> 35
DB-4
Product Description:
The Db-4 is [ * * ]. It is designed
for medical imaging and supports [ *
* ]
Features:
- [ * * ]
- [ * * ]
- For use with RadAccess and low end AutoRad
- [ * * ]
- Supports all Macintosh hardware and software
- Full screen interactive W&L
- Interactive pan and zoom
Configuration Issues:
- Used by AutoRad and RadAccess.
- Existing product preferable to use HRD-5
* Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect
to the omitted portions.
<PAGE> 36
[Photo]
[Scanlink III Chart]
[Scanlink IV Chart]
[Scanlink V Teleradiology DVI&FO Chart]
PACS and Mini-PACS ACQUISITION
ScanLinks(TM) provide connectivity between CEMAX-ICON products and image
acquisition devices. ScanLink interfaces interpret DICOM V3.0 or proprietary
image formats for distribution throughout the imaging network.
ScanLink I - A software only interface for many of the newer generation MR/CT
scanners, and CR systems that support TCP/IP. The interface is also compatible
with all DICOM V3.0 enabled modalities. ScanLink I maintains full image
fidelity, up to 16-bits, of the data set.
ScanLink III - A software and hardware combination for interfacing those CT and
MR scanners that do not support ethernet and TCP-IP for direct digital network
output. Full image fidelity, up to 16-bits, is maintained.
ScanLink IV - A combination software and hardware product that connects primary
acquisition products utilizing a SCSI interface for output to the imaging
network. ScanLink IV is used when devices such as a laser film digitizer or a
Computed Radiography system are interfaced to an imaging network. Full image
fidelity, up to 16-bits, is maintained.
ScanLink V - A software and hardware combination for capturing 8-bit print
ready data. A printer keypad or host control is used to control the capture of
the formatted image. The image is then converted to a digital file format and
output to the imaging network via the DICOM V3.0 Service Class User standard
for Storage.
Both analog(video) and digital laser printer interfaces are supported. ScanLink
V can be connected directly to a scanner in place of a laser printer or can be
connected in parallel with an existing scanner/laser printer connection. One
ScanLink V is required per modality.
ScanLink V supports an optional bar code reader for scanning patient
demographics.
TELERADIOLOGY ACQUISITION
Teleradiology DVI - The Direct Video Interface is a hardware and software
solution for acquiring images from the video output of up to four modalities.
The interface includes a remote hand switch for image capture. An optional
hub/remote or keypad is available allowing the operator to input patient
information, capture and transmit the image directly from the acquisition
device.
Teleradiology FD - the teleradiology film digitizer interface supports the
Lumisys 20, 50 and 75 laser film digitizers and the Vidar VXR12 CCD film
digitizer.
[CEMAX-ICON LOGO]
47281 Mission Falls Court, Fremont, CA 94539
Voice (510) 770-8612 Fax (310) 440-9137
e-mail: [email protected]
<PAGE> 37
CEMAX-ICON teleradiology display products are designed for home or remote
radiology practices. These products answer the specific requirements of on-call
and consultative/diagnostic radiology. The TeleMax(TM) product line provides an
on-call teleradiology solution with an economical easy-to-use PC/Windows(R) or
Macintosh(R) based software package.
TelePacs(TM) addresses the consultative and diagnostic teleradiology needs of
the hospital based referring physician. The TelePacs product line includes the
display functionality of TeleMax and provides additional features designed
specifically for soft copy interpretation of multi-modality images.
Both TeleMax and TelePacs support LAN and standard modems or ISDN for
connectivity to the medical facility.
TeleMax features:
- - Menu driven user interface
- - True 8 bit, 256 grayscale display
- - True aspect ratio
- - Reporting with fax capability
- - Locating a specific image within a study
- - User definable preferences for autoloading, viewing and tool settings
- - User selectable viewing formats
- - Floating magnifying glass with user adjustable viewing area
- - Invert & revert contrast
- - Pan & Roam tool
- - Cine tool
- - Optional DICOM V3.0 support
- - JPEG specified compression
TelePacs supports all of the features listed above as well as:
- - Single and dual monitor configurations
- - Up to 1280 x 1600 pixel resolution (landscape or portrait)
- - 8 and 12-bit image support
- - Concurrent display of current and prior studies
- - Multiple series display for each study
- - Identification, display, and printing of key images
- - Creation and display of image specific notes
- - Synchronized image paging
- - Annotation tools
- - User definable Window/Level pre-sets
- - DICOM V3.0 support
- - Sharpen filter
TeleMax and TelePacs are based on the CEMAX-ICON DICOM distributed database for
image distribution and system communication. Both products support the DICOM
V3.0 Service Class User standard for Storage. System network communication is
accomplished using industry standards including TCP/IP in a LAN or standard
modems for a WAN.
[CEMAX-ICON LOGO]
47281 Mission Falls Court, Fremont, CA 94539
Voice (510) 770-8612 Fax (510) 440-9137
e-mail: [email protected]
<PAGE> 38
AutoRad(TM) is a multi-user, multi-modality, primary diagnostic soft copy
reading station. The system is designed to emulate radiology reading workflow.
Images are automatically displayed in a variety of formats specified by user
defined display protocols. AutoRad supports simultaneous, synchronized display
of current and prior studies.
AutoRad is the first primary diagnostic softcopy reading station designed as a
component of a fully implemented DICOM V3.0 based PACS Solution.
AutoRad features:
- 8 and 12-bit image display
- Up to 6 portrait monitors, up to 2k x 2.5k resolution
- Login security, administrator defined user privileges
- Per user patient/study worklist
- Workflow emulation, supports facility defined film stacks
- Film checkout, read/unread, assign utilities
- Auto archive capability
- Current and comparison studies over multiple modalities
- Multiple series display for each study
- Identification, display, and printing of key images
- Creation and display of image specific notes
- User customizable automated display protocols
- Protocol selectable viewing formats
- Synchronized image paging
- User detinable Window/Level presets
- Standard image display and processing tools
AutoRad is based on the CEMAX-ICON DICOM distributed database for image
distribution and system communication. It supports the DICOM V3.0 Service Class
User and Provider standard for Storage.
System network communication is accomplished using industry standards including
TCP/IP running over Ethernet, FDDL, or ATM.
[ART]
[TABLE]
[LOGO AND ADDRESS]
<PAGE> 39
Clinical View(TM) and RadAccess(TM) display systems are designed for non
Radiologist physician review of diagnostic images in critical care
environments. The images acquired in the hospital's Radiology or Emergency
department are transmitted via the imaging network to the patient care area.
Immediate availability of the images provides the clinician with a consistent,
and efficient tool for delivering patient care. Both products offer an easy to
use Graphical User Interface for quick access, display and comparison of
clinical images.
ClinicalView is a medical image review station designed for mission critical,
high-bandwidth, distributed network applications. It is designed using the
UNIX(TM) operating system and is intended for environments where system
administration and recovery are critical.
RadAccess is a cost effective Macintosh(R) based review station designed for
distributed WAN and low volume LAN applications. Typical installations include
small hospitals, out-patient imaging centers, and nursing homes.
Both systems feature:
- - Scrollable Patient List
- - Automatic display of most recent image on first monitor and comparison image
on second monitor
- - Prior study selection and viewing
- - Individual and multiple image select/deselect
- - 8 and 12 bit Window/Level control
- - Image Zoom and Pan
- - Image Flip and Rotate
- - Invert/revert contrast
- - Manual and auto-delete
- - Single and multiple monitor support with resolutions up to 2K
- - Background image transmit
Both ClinicalView and RadAccess are based on the CEMAX-ICON DICOM distributed
database for image distribution and system communication. System network
communication is accomplished using industry standards including TCP/IP running
over Ethernet, FDDI, or ATM.
Clinical View supports the DICOM V3.0 Service Class Provider and User standard
for Storage and the User standard for Query Retrieve.
RadAccess supports the DICOM V3.0 Service Class User standard for Storage.
[CEMAX-ICON LOGO]
47281 Mission Falls Court, Fremont, CA 94539
Voice (510) 770-8612 Fax (510) 440-9137
e-mail: [email protected]
[TABLE]
<PAGE> 40
ArchiveManager(TM) is a scalable digital archive solution for medical image
storage and retrieval. This combination software and hardware product provides
an effective and efficient system for distribution, storage, and archiving of
patient information and images throughout the hospital and adjunct
institutions/offices.
With totally automated processes for primary archiving, storage, and
pre-fetching, ArchiveManager makes the filmless radiology department a reality
today.
ArchiveManager features:
- DICOM V3.0 compliant for Query/Retrieve and Storage
- Data storage object modeled on DICOM V3.0 object paradigm
- Seamless integration of two-way HIS/RIS interface (HL-7 compliant)
- Fully distributed object oriented database
- Multi-level complex query facilities
- Server support for multiple hardware platforms
- State-of-the-art, object oriented distributed architecture (CORBA
compliant)
- Powerful and simple to use administration tools
- Sophisticated fault tolerance
- Automatic hierarchical archive of all images (mixed media capable)
- Storage of DICOM V3.0 specified JPEG compressed images
ArchiveManager is based on the CEMAX-ICON DICOM distributed database for image
distribution and system communication. Archive/Manager supports the DICOM V3.0
Service Class User and Provider standards for Storage and Query/Retrieve.
System network communication is accomplished using industry standards including
TCP/IP running over Ethernet, FDDI, or ATM.
[CEMAX-ICON LOGO]
47281 Mission Falls Court, Fremont CA 94539
Voice (510) 770-8612 Fax (510) 440-9137
e-mail: [email protected]
[TABLE]
<PAGE> 41
EXHIBIT H
SOFTWARE LICENSE AGREEMENT
<PAGE> 42
LICENSE AND LIMITED WARRANTY
CEMAX-ICON INCORPORATED ("C-I") grants to You, the original end user purchaser
("You"), a nonexclusive, nontransferable license to use a copy of the (product
name) _________________ software in machine executable object code format as
incorporated into the (product name) _______________ system ("Software") and
accompanying documentation (the hardware and software portions of the system
collectively referred to herein as the "System") for Your own internal use,
subject to the terms and conditions stated in this License and Limited Warranty
Agreement ("Agreement"). You assume responsibility for the selection of the
System to achieve Your intended results.
LICENSE. You may:
1. use the enclosed Software on AccuRad and TeleMax systems only in connection
with the System and on a single CPU (the Software contains a hard key that
enables its operation on a single CPU any attempt to move new Software will
cause the hard key to self destruct); and
2. make one (1) copy of the Software solely for backup and archival purposes,
provided that You include all proprietary notices on such copy.
RESTRICTIONS. You may not sublicense, assign or transfer the License to the
Software or accompanying documentation except as expressly provided in this
Agreement. Any attempt otherwise to sublicense, assign or transfer the rights,
duties or obligations hereunder is void. You may not distribute copies of the
Software to others or electronically transfer the Software or accompanying
documentation from one computer to another over a network. The System contains
trade secrets, and in order to protect them, You may not decompile, reverse
engineer or disassemble the System or otherwise reduce the Software to a human
perceivable form. You may not modify, adapt, translate, lease, loan, resell for
profit, distribute, network or create derivative works based on all or any part
of the System. Subject to all health and safety laws and regulations applicable
to use of the System to the extent that local law requires C-I to grant You the
right to decompile, reverse engineer, or disassemble the Software or part
thereof in order to obtain information necessary to render the Software
interoperable with other software, C-I hereby undertakes to make such
information readily available to You. Without limiting the foregoing, C-I
retains the right to impose reasonable conditions such as compliance with all
health and safety laws and regulations in the applicable territory and
imposition of a reasonable fee for making available such information. In order
to ensure that You receive the appropriate information You must first provide
C-I sufficient information relating to Your objectives and the other software
concerned. Requests for such information should be in writing and directed to
C-I's address below.
TITLE. The Software is owned by C-I and is protected by United States and
international copyright laws and treaty provisions. This Agreement is not a sale
of the Software and does not transfer to You any title or ownership interest in
the Software or any patent, copyright, trade secret, trade name,
<PAGE> 43
trademark or other proprietary or intellectual property rights related to the
System. You shall not remove, alter or obscure any proprietary designation or
mark contained on or within the System and shall reproduce such designations and
marks on any back-up copy of the Software.
TERMINATION. You may terminate your licenses to the Software at any time by
destroying the Software and accompanying documentation together with all copies,
modifications, and merged portions in any form. The licenses will also terminate
upon conditions set forth elsewhere in this Agreement or if You fail to comply
with any term or condition of this Agreement. You agree upon such termination to
destroy the Software and accompanying documentation together with all copies,
modifications and merged portions in any form.
LIMITED WARRANTY. C-I warrants to You that subject to the exclusions set forth
below the System will substantially conform to the material functional
specifications in the accompanying documentation for a period of six (6) months
from Your acceptance of the System as evidenced by Your signing of the delivery
installation certificate or if no such delivery installation certificate is
attached through your first use of the System after C-I delivery or installation
of the System. The foregoing warranty is contingent upon proper use of the
System in the application for which it was intended as indicated in the
accompanying documentation. The above limited warranty applies only to
reproducible defects reported to C-I in accordance with its standard reporting
procedures and do not apply to (i) beta or preproduction versions of the System
(including the Software), (ii) third party hardware or software, or (iii) to any
System which (a) has been altered, except by C-I or under C-I's discretion or
(b) has not been installed, operated, repaired or maintained in accordance with
any installation, and maintenance or operating instructions supplied by C-I or
(c) has been subject to unusual physical or electrical stress, negligence or
accident, (d) has been damaged by acts of nature, vandalism, burglary, neglect,
or misuse or (e) has not been updated with all error corrections and bug fixes
provided by C-I to You, if any. In the event the System fails to conform to the
warranty set forth above, Your exclusive remedy and C-I's sole and exclusive
liability shall be at C-I's sole election (i) with respect to the hardware
portions of the System, to repair or replace the System, and (ii) with respect
to the Software, to use commercially reasonable efforts to correct such
nonconformity provided that (x) You notify C-I in a timely manner in writing in
English that such System failed to conform and furnish a detailed explanation of
any alleged nonconformity; and (y) C-I is reasonably satisfied that the claimed
nonconformities actually exist and were not caused by any of the items set forth
in (a), (b), (c), (d) or (e) above.
You shall use the following procedures to return to C-I for repair or
replacement a nonconforming System. You first shall call C-I at the number
indicated below to obtain a Return Material Authorization Number ("RMA"). After
receiving the RMA from C-I, You shall ship the nonconforming System to C-I
F.O.B. C-I's repair facility freight prepaid, pursuant to the shipping and other
requirements specified by C-I with the RMA promptly displayed on the shipping
container for the nonconforming System. If any System is returned without an RMA
number, C-I reserves the right to refuse to accept such System. If C-I confirms
that the returned System fails to conform to the above warranty, C-I will
reimburse You for reasonable documented shipping expenses incurred in returning
the System.
<PAGE> 44
EXCEPT FOR THE LIMITED WARRANTY STATED IN THIS SECTION ABOVE, C-I GRANTS NO
OTHER WARRANTIES OR CONDITIONS EXPRESS OR IMPLIED, BY STATUTE IN ANY
COMMUNICATION OR OTHERWISE, REGARDING THE SYSTEM (INCLUDING THE SOFTWARE
CONTAINED THEREIN), AND C-I EXPRESSLY DISCLAIMS THE IMPLIED WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT. C-I DOES
NOT WARRANT THAT OPERATION OF THE SYSTEM WILL BE UNINTERRUPTED OR ERROR-FREE. No
oral or written information or advice given by C-I, its dealers, distributors,
agents or employees will create a warranty or in any way increase the scope of
the limited warranties set forth herein and you may not rely on any such
information or advice.
LIMITATION OF LIABILITY. WARNING: DUE TO THE EXISTENCE OF A HARDWARE KEY
PROVIDED WITH THE ACCURAD AND TELEMAX SYSTEMS, THE SOFTWARE INCLUDED WITH THE
ACCURAD OR TELEMAX SYSTEM MAY NOT OPERATE IF YOU ATTEMPT TO CREATE UNAUTHORIZED
COPIES OF THE SOFTWARE OR ATTEMPT TO TRANSFER THE HARDWARE PROVIDED WITH THIS
SYSTEM TO ADDITIONAL CPU'S. IN NO EVENT WILL C-I BE LIABLE TO YOU OR ANY THIRD
PARTY FOR ANY CONSEQUENTIAL, INCIDENTAL, OR SPECIAL DAMAGES, INCLUDING ANY LOST
PROFIT OR COST OF OBTAINING SUBSTITUTE GOODS ARISING OUT OF OR RELATING TO THE
SYSTEM, OR THE USE OR INABILITY TO USE THE SYSTEM, EVEN IF C-I HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGES. The foregoing limitations of
liability shall apply notwithstanding any failure of essential purpose of any
limited remedy stated herein. C-I's liability to You or any third party arising
out of or related to this Agreement, however caused and arising under any theory
of liability, whether based in contract, tort (including negligence), or
otherwise will not exceed the fee paid by You for the nonconforming System.
U.S. GOVERNMENT RIGHTS. If You are acquiring the System on behalf of any part of
the United States Government, the following provision applies. The Software and
accompanying documentation are deemed to be "commercial software" and
"commercial computer software documentation," respectively, pursuant to DFAR
Section 227.7202 and FAR 12.212, as applicable. Any use, modification,
reproduction, release, performance, display or disclosure of the Software or the
accompanying documentation by the U.S. Government or any of its agencies shall
be governed solely by the terms of this Agreement and shall be prohibited except
to the extent expressly permitted by this Agreement. If any product sold to You
under this Agreement is purchased for a U.S. Government contract or subcontract,
then You agree to include such provisions in such contract or subcontract and
attach such notices to the products or other materials provided to the U.S.
Government as will protect Seller's proprietary rights to the maximum extent
possible under applicable law.
TELEPHONE AND ON SITE SUPPORT. During the six month warranty period, C-I will
provide a reasonable effort to respond to Your telephone support calls in two
(2) hours (not necessarily problem resolution). Phone support is 8:00 a.m. to
5:00 p.m. local time, USA only, Monday - Friday (not including C-I holidays).
When service problems cannot be resolved using telephone support or replacement
of certain equipment and C-I determines that on site repair is needed, C-I will
provide a reasonable effort to resolve the problem in a timely manner.
<PAGE> 45
MISCELLANEOUS. This Agreement constitutes the complete and exclusive
understanding and agreement between C-I and You relating to the subject hereof
and supersedes all prior or contemporaneous understandings, agreements, and
communications, and/or advertising with respect to such subject matter. This
Agreement cannot be amended, modified or waived unless done so in writing and
signed by an authorized C-I representative. If any provision of this Agreement
is held unenforceable, that provision shall be enforced to the maximum extent
permissible so as to give effect to the intent of the parties and the remainder
of this Agreement shall continue in full force and effect. This Agreement is
governed by the laws of the State of California without reference to its
conflict of law principles. You agree to comply with all U.S. and foreign export
control laws and regulations.
Should you have any questions concerning this Agreement, You may contact C-I at
Cemax-Icon, Inc., 47281 Mission Falls Court, Fremont, CA 94539, Attn: Support &
Service or (510) 770-8612, extension 52 at the prompt or extension 3349.
<PAGE> 1
EXHIBIT 11.1
CEMAX-ICON, INC.
COMPUTATION OF NET LOSS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- -------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Historical primary and fully diluted:
Weighted average common stock
outstanding........................ 2,030 2,347 3,895 2,920 4,968
Shares related to SAB Nos. 55, 64 and
83:
Stock options......................... 315 315 315 315 315
Common stock.......................... 155 155 155 155 155
------- ------- ------- ------- -------
2,500 2,817 4,365 3,390 5,438
======= ======= ======= ======= =======
Net loss................................ $(1,198) $(2,578) $(6,815) $(3,233) $(1,299)
======= ======= ======= ======= =======
Net loss per share...................... $(0.48) $(0.92) $(1.56) $(0.95) $(0.24)
======= ======= ======= ======= =======
Proforma:
Weighted average common stock
outstanding........................ 3,895 2,920 4,968
Preferred Stock if converted.......... 1,455 2,065 845
Shares related to SAB Nos. 55, 64 and
83:
Stock options......................... 315 315 315
Common stock.......................... 155 155 155
------- ------- -------
5,820 5,455 6,283
======= ======= =======
Net loss................................ $(6,815) $(3,233) $(1,299)
======= ======= =======
Net loss per share...................... $(1.17) $(0.59) $(0.21)
======= ======= =======
</TABLE>
(1) Assumed exercise of stock options granted during the twelve months ended
June 1996, and purchase of treasury stock at the assumed initial public
offering price applied retroactively for all periods presented.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to use of our report dated March 8, 1996,
except for Note 7, as to which the date is July 23, 1996 in the Registration
Statement (Form S-1) Amendment No. 1 and related Prospectus of CEMAX-ICON, Inc.
for the registration of 3,220,000 shares of its Common Stock.
Our audits also included the financial statement schedule of CEMAX-ICON,
Inc. listed in Item 16(b). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
Palo Alto, California
August 13, 1996
- --------------------------------------------------------------------------------
The foregoing consent is in the form that will be signed upon completion of
the 1-for 2.35 reverse stock split and reincorporation in Delaware described in
Note 7 to the financial statements.
Palo Alto, California
August 13, 1996
ERNST & YOUNG LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE YEAR
ENDED DECEMBER 31, 1995 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM S-1
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> JUN-30-1996 DEC-31-1995
<EXCHANGE-RATE> 1 1
<CASH> 3,796 1,775
<SECURITIES> 0 0
<RECEIVABLES> 4,102 4,583
<ALLOWANCES> 827 773
<INVENTORY> 2,187 2,005
<CURRENT-ASSETS> 9,766 7,732
<PP&E> 2,581 4,400
<DEPRECIATION> 1,061 2,928
<TOTAL-ASSETS> 11,304 9,279
<CURRENT-LIABILITIES> 11,612 8,305
<BONDS> 0 0
0 0
5 5
<COMMON> 2 2
<OTHER-SE> (32,880) (31,581)
<TOTAL-LIABILITY-AND-EQUITY> 11,304 9,279
<SALES> 11,232 17,030
<TOTAL-REVENUES> 11,232 17,030
<CGS> 5,864 10,512
<TOTAL-COSTS> 6,668 13,360
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> (45) 299
<INTEREST-EXPENSE> 44 115
<INCOME-PRETAX> (1,299) (6,842)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,299) (6,842)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,299) (6,815)
<EPS-PRIMARY> $(0.21) $(1.17)
<EPS-DILUTED> $(0.21) $(1.17)
</TABLE>
