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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the fiscal year ended March 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ____________
Commission File No. 000-22501
SpectruMedix Corporation
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(Name of Small Business Issuer in Its Charter)
Delaware 25-1686354
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2124 Old Gatesburg Road, State College, Pennsylvania 16803
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(Address of principal executive offices) (ZIP Code)
(814) 867-8600
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(Issuer's Telephone Number, Including Area Code)
SECURITIES REGISTERED UNDER TO SECTION 12 (b) OF THE EXCHANGE ACT: NONE
SECURITIES REGISTERED UNDER TO SECTION 12 (g) OF THE EXCHANGE ACT:
Common Stock, $0.00115 par value
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(Title of Class)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ________
No X
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Check if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
State issuer's revenue for its most recent fiscal year. $317,672
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The aggregate market value of the voting and non-voting Common Stock held by
non-affiliates of the registrant, computed by reference to the closing sales
price of the Common Stock on the OTC Bulletin Board on September 10, 1999 was
$1,655,153.*
The number of shares of the Registrant's Common Stock outstanding was
3,658,041 as of September 10, 1999.
Transitional Small Business Disclosure Format (check one): Yes __ No X
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DOCUMENTS INCORPORATED BY REFERENCE
None.
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*Excludes 1,355,220 shares of the Registrant's Common Stock held by the chief
executive officer and director and affiliated parties at September 10, 1999.
Exclusion of such shares should not be construed to indicate that any such
person possesses the power, direct or indirect, to direct or cause the direction
of the management or policies of the Registrant or that such person is
controlled by or under common control with the Registrant.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
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All statements contained herein that are not historical facts, including,
but not limited to, statements regarding SpectruMedix Corporation (the
"Company") and its current business strategy, projected sources and uses of
cash, and plans for future development and operation, are based on current
expectations. The statements are forward-looking in nature and involve a number
of risks and uncertainties. Actual results may differ materially. The risks and
uncertainties are described more fully under the heading "Risk Factors," and
include, but are not limited to, the ability of the Company to obtain the
necessary funds to continue its operations. The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements,
which statements are made pursuant to the Private Litigation Reform Act of 1995
and, as such, speak only as of the date made.
The Company
Introduction
The Company, a Delaware corporation, devotes substantially all of its
resources to the development of high-speed DNA/gene sequencing instrumentation
(the "DNA Sequencer"), an instrument for the acquisition, analysis and
management of complex genetic information. The DNA Sequencer was developed in
part from research efforts conducted at the United States Department of Energy
and Ames Laboratories' Institute for Physical Research and Technology/Iowa State
University ("Ames Laboratories"). The Company believes DNA sequencing has
significant implications for medical, genetic and forensic science applications.
In May 1995, the Company entered into an agreement with Iowa State
University Research Foundation, an affiliate of Ames Laboratories ("ISURF")
pursuant to which the Company received an option to acquire an exclusive
worldwide license to technology developed at ISURF for the commercial
development of the DNA Sequencer. The Company believes the DNA Sequencer may be
capable of substantially increasing the rate of sequencing over the other
commercially available sequencing instruments on the market today and provide
reliable results at a lower cost. In July 1997, R & D Magazine selected the
Company's DNA Sequencer technology to receive the R&D 100 Award recognizing it
as one of the top 100 technical innovations of 1997. The Company has completed
development of the DNA Sequencer and has a limited number of models available
for the market.
In June 1997, the Company exercised its option and entered into an
exclusive, worldwide licensing agreement for the technology developed by ISURF.
Due to the Company's financial condition during fiscal year 1999 and through the
end of July 1999, however, it was not able to make certain required payments
under the licensing agreement. On July 30, 1999, ISURF and the Company entered
into an amendment to the license agreement, pursuant to which the Company agreed
to pay $500,000 under the license agreement and ISURF agreed to waive any
defaults for the failure to pay such required payments, the parties agreed to a
revised schedule of minimum royalties, ISURF consented to the grant of
sublicense to The Perkin-Elmer Corporation, now known as PE Biosystems ("PE
Bio") and the Company agreed to pay ISURF a majority portion of the minimum
royalties received by the Company from PE Bio under the sublicense agreement and
the Company granted ISURF a phantom stock award equal to 150,000 shares of the
Company's common stock, par value $0.00115 per share (the "Common Stock").
Concurrently with the restructuring of its license agreement with ISURF,
the Company entered into a sublicense agreement with PE Bio pursuant to which
the Company granted PE Bio an exclusive sublicense to use certain patents for
the development of DNA sequencing machines using 30 or fewer capillaries using
side entry illumination. The Company also granted PE Bio a right of first
refusal to sublicense such technology for use in DNA sequencing machines using
more than 30 capillaries. On July 30, 1999, PE Bio paid the Company a non-
refundable sublicense issue fee of $1,000,000, and, commencing with the twelve-
month period beginning August 1, 2001, PE Bio agreed to pay to the Company
certain minimum annual royalties. Such minimum royalties are non-refundable,
but are credited against the earned royalties payable pursuant to the sub-
license agreement.
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In connection with the sublicense agreement, PE Corporation, the parent
company of PE Bio, purchased 2,000 shares of the Company's Series A Preferred
Stock for $1,000 per share. The Series A Preferred Stock will be paid dividends
only if the Company pays dividends on its common stock, and the Series A
Preferred Stock may be converted into shares of common stock at a conversion
price of $2.50 per share, subject to adjustment in the event of a consolidation,
merger, reorganization or sale of substantially all of the assets of the
Company. In addition, PE Bio and the Company entered into a multi-year
consulting agreement pursuant to which the Company will provide consulting
services to PE Bio. Upon execution of the consulting agreement, the Company
received a lump sum fee of $2,000,000.
Company History
Since its formation in 1992, the Company has devoted all of its resources
to develop, upgrade and improve its existing line of scientific instrumentation,
which initially consisted of mass spectrometers and luminoscopes, electronic
components and software. Despite the technological achievements of the
Company's products, the Company has not been able to achieve significant sales
of its scientific instrumentation, partly as a result of its significant
liquidity concerns and management turnover.
From its inception through December 1998, the Company financed its
operations primarily through the sale of equity securities and loans, most of
which loans were repaid with the proceeds from the Company's initial public
offering. Sales from the Company's existing product lines were limited and the
Company shifted its focus to the development of the DNA Sequencer and, to a
substantially lesser degree, certain other research products.
Substantially all of the Company's funds were expended on the development
and commercialization of the Company's products, including the DNA Sequencer.
From January 1999 through July 1999, the Company was primarily dependent on
funds advanced to it by the Company's Chief Executive Officer to meet payroll
and expenses. Due to its financial condition, the Company was unable to make
required payments under its license agreements and was unable to maintain an
option for the right to use a patent critical to another technology the Company
was developing.
DNA Sequencer
The Company believes DNA sequencing has significant implications for
medical, genetic and forensic applications. The Company currently licenses
technology from ISURF which was used to develop the Company's DNA Sequencer.
The license agreement with ISURF was restructured on July 30, 1999 and the
Company sublicensed certain of such technology to PE Bio.
DNA is the chemical material in living organisms that defines the physical
characteristics of each organism and is responsible for everything within the
organism concerning the reproduction, maintenance, repair and (some scientists
believe) the general behavior of a given individual or organism. At the
molecular level, DNA appears as a ladder-like structure. Two ribbons of sugar
molecules, positioned side-by-side, are cross-linked at regular intervals along
their length. The rungs of the ladder represent the actual genetic code and the
outer sugar molecules are believed to be merely physical supports to keep the
cross-linked ladder rungs in order. Each rung of the DNA ladder is composed of
two molecules called base pairs. Only four specific molecular bases are used to
make the DNA cross-links: Adenine, Thymine, Cytosine and Guanine, abbreviated A,
T, C and G. The molecules themselves are described in chemical terms as bases
(i.e., the opposite of acids), and the term "base," or "base pair," is used to
describe the DNA molecules without specifying A, T, C or G.
The search for the genetic sequence of living organisms has been an active
sphere of research since 1953, when the scientists James Watson and Francis
Crick published the discovery that DNA was in fact two cross-linked molecular
strands in the shape of a helical ladder. The complete DNA sequence for an
organism is called the genome. Coordinated by the U.S. Department of Energy and
the National Institute of Health, many research centers and laboratories are
engaged in a project to map the human genome (the "Human Genome Project").
Among the goals of the Human Genome Project are to identify all the estimated
80,000 to 100,000 genes in human DNA and determine the sequences of the three
billion chemical bases that make up human DNA.
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Since the inception of the Human Genome Project, there have been
substantial increases in speed and great reductions in the cost of dealing with
the large amount of genetic information that constitutes the human genome. Over
the past five years, significant progress has been made to map the human genome,
i.e., to provide a guide to the various pieces of DNA comprising the human
genome. There is therefore added urgency to start large scale sequencing to
further decipher and to make use of these physical maps.
DNA Sample Preparation. The DNA ladder scheme is first separated along the
long axis of the molecule (see Figure 1), yielding a "single strand" sequence of
DNA bases tethered along a single sugar backbone. The single strand is
chemically modified to obtain the fragment series as illustrated in Figure 1.
The resulting DNA pieces include a small tag molecule at one end of the strand.
This tag will fluoresce (emit light) when it is irradiated with a laser. The
color of the laser light is different from the tag fluorescence light, so it is
possible to tell them apart. In order to discern the four possible bases, each
base type reacts exclusively with one of four possible tags in the solution. The
different tags fluoresce different colors, acting as a color-code, and the four
types of bases can thus be identified. The fragments correspond to a series of
DNA pieces that increase in length by one molecule character (C, T, A or G).
Only the last base on the tail end of the strand is tagged. This is important
because it means that the signal detected by the instrument is specific to the
last base on the strand, and the rest of the strand is invisible to the
detector. The significance of keeping the strand length will be illustrated
below. The sample preparation, from the bulk raw material to the fluorescent-
tagged DNA series, is performed by laboratory personnel, and is the precursor to
using the Company's DNA Sequencer. The instrument is then used to identify, in
order, the individual bases that appear along the DNA strand.
[CHART OF DNA SAMPLE PREPARATION APPEARS HERE]
Figure 1. Illustration of the DNA structure, prepared fragment samples, and
resulting data format.
Currently Commercially Available DNA Sequencer Instrumentation. The general
separation method employed by the Company's instrument, as well as most of the
other instruments available from competitors, is electrophoresis (the movement,
under the influence of an electrical field, of electrically charged particles
suspended in a fluid). The older of the two most common instrumental
applications employing electrophoresis uses a plate of conductive, solid-like
gelatin material as the sample solution. At one end of the plate, the sample is
injected into the
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gel. When an electric field is applied across the gel, the molecules migrate
across the gel. The smallest fragments migrate the greatest distance for a given
time and voltage. To obtain the final data, the voltage is applied across the
gel for a given period of time, and then removed. The separated DNA fragments
are separated across the plate according to their size, and the entire plate is
scanned with the laser. The fluorescent tags, corresponding to each of the four
possible bases, are observed by a secondary light detector.
This instrument design has certain inherent limitations: (i) the technique
is mechanically cumbersome; (ii) the gel material must be made immediately prior
to their use; (iii) the gel material is prepared from a monomer compound that is
a highly dangerous neurotoxin that requires specialized handling and disposal
methods; (iv) due to the dense solid-like nature of the gel material, the
migration times of the DNA fragments are very long, and thus the process is very
slow; (v) slab gels can only maintain comparatively low (e.g., 5,000 volts)
voltage loads as greater voltage causes overheating and destroys the gel
integrity (the greater the voltage an electrophoretic instrument can safely
handle, the faster the analysis rate); (vi) the technique is not well-suited for
use with existing robotic-based preparation techniques commonly found in
biological laboratories, due to the incompatibility of the hardware associated
with each system, e.g., gel electrophoresis instrumentation does not utilize the
microtiter wells universally associated with DNA preparation; and (vii) the
limit to the available space on the slab means that the slab is capable of only
a limited number of "side-by-side" runs. As a result of such limitations, the
slab gel technique cannot exceed a sequencing rate of approximately 500 bases
per hour.
The SpectruMedix DNA Instrument: the SCE9600 Multiplexed Capillary
Electrophoresis DNA Sequencer. Unlike gel slab-based systems, the Company's DNA
Sequencer utilizes tubes, a process known as capillary gel electrophoresis. The
tube, or capillary, is composed of a non-conductive glass, roughly three feet in
length (See Figures 2 and 3), and is very thin in size, with an outer diameter
of 0.006 inches (150 microns) and an inner diameter of roughly 0.003 inches (75
microns). The capillaries may be compared to a three-foot long hollow tube the
thickness of sewing thread. The tube is filled with the Company's proprietary
(patented) gel material, and a very small volume of the DNA sample solution is
introduced at one end of the capillary (see Figure 2). In order to apply a
voltage across the capillary (the gel material is conductive), each end of the
capillary is immersed in a container of salt solution, along with the power
supply electrodes. In response to the voltage, the charged fragments migrate
through the gel matrix, from one end of the capillary to the other. The
fragments separate according to their size while traveling through the
capillary.
[CHART OF DNA SEQUENCING APPEARS HERE]
Figure 2. Capillary electrophoresis setup, single lane shown.
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A significant difference between slab gel electrophoresis ("SGE") and
capillary gel electrophoresis ("CGE") is the method of detection. With an SGE
based system, the sample is injected onto the gel plate, the voltage is applied
for a given amount of time, and then the voltage is removed and the entire gel
plate is scanned with the laser for analysis. Using the Company's CGE technique,
the analysis is performed "on the fly" with a light detector or charged-couple
device (CCD) camera. As the separated fragments pass through the capillary, they
pass through a region that is irradiated with laser light, and the subsequent
fluorescence is measured by the light detector. The data is presented in a plot
of light color versus the migration time of the fragments. Because each
fragment length exists in the sample solution, the bases are identified in
order, as a function of how long it takes for them to reach the laser/detector
region (see Figure 2). The Company believes that CGE provides several advantages
over the slab gel technique: (i) less gel material, sample volumes and reagents
are used for each analysis and (ii) the issue of resistive heating is greatly
reduced, because the cross-sectional area of the 0.006 inch diameter capillary
is considerably smaller than a 10 x 0.25 inch gel plate.
In addition, because less heat is generated, greater voltage can be applied
to the system, resulting in shorter analysis times. The SCE9600 system can apply
15,000 to 30,000 volts across the capillary tube reducing run times from hours
in the SGE case to minutes in the Company's CGE instrument. Samples may be
continuously run, and the entire analytical procedure may be computer
controlled. In addition, the on-column sample analysis provided by the SCE9600
provides continuous discrete isolation of concurrent samples during the analysis
and eliminates chemical cross contamination from neighboring lanes.
[CHART APPEARS HERE]
Figure 3. The SpectruMedix SCE9600 Multiplexed 96-Capillary Electrophoresis
DNA Sequencer.
The Company believes that the SpectruMedix sequencer provides advantages
over current technology by, among other things, increasing the number of
capillaries that are used simultaneously and by simplifying the construction of
the instrument through keeping both the laser light source and the detector
stationary. The SpectruMedix SCE9600 combines simultaneous fluorescence and
detection of 96 discreet capillary lanes with CGE base calling (see Figure 3).
The Company's capillary array configuration allows the introduction and analysis
of 96 individual DNA samples, with multiple runs possible via two computer
controlled eight-tray carrousels. These
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carrousels are multiple-tray holders that allow for pre-loading the DNA samples
and buffers necessary for each of several runs and then having the instrument's
computer control the instrument functions automatically without further operator
intervention. The samples are handled by the SCE9600 in standard, commercially
available 96-well microtiter plates and, the Company believes, should be
compatible with the preparation processes commonly used in laboratories. Samples
may therefore be prepared and analyzed in the same container, reducing the
possibility of cross contamination and sample loss.
The Company is also developing a fluid gel matrix capable of increased DNA
fragment resolution at increased sample migration speeds. The less viscous
nature of the gel matrix being developed by the Company, compared to currently
available materials, also allows the capability of flushing out consumed matrix
for fresh gel as part of the automated instrument sequence, and complete
capillary column reconditioning between each sample series run.
In addition, the SCE9600 utilizes direct sample injection from the tray in
which the samples were prepared, which help assure the integrity prior to its
analysis. Other capillary systems employ a robotic arm that transfers the
samples from the well tray to a secondary loading station. This raises concerns
with cross-contamination because neither the pipet tip nor the loading tray are
replaced after each use. In July 1997, R & D Magazine selected the SCE9600
Multiplexed Capillary Electrophoreses DNA Sequencer to receive the R&D 100 Award
recognizing it as one of the top 100 technical innovations of 1997.
Other Products
The Company also manufactures and sells mass spectrometers and
luminoscopes. Historically, the Company has not been able to generate
significant sales of these products. The Company has shifted its focus to the
commercialization of the DNA Sequencer, but it may continue to make limited
sales of its mass spectrometers and luminoscopes.
Mass spectrometers are scientific instruments capable of determining the
composition of matter with great precision, whether it be a solid, liquid, gas
or plasma. Mass spectrometers identify a sample by analyzing its component atoms
and molecules, on the basis of atomic weights or "masses." Key applications for
mass spectrometers include: (i) environmental testing and monitoring, including
monitoring of air pollution levels, water purity, recirculated atmospheres (such
as in submarines, spacecraft and mines), air quality in private residences and
offices, and pesticides in the soil, rivers and well water; (ii) geologists
routinely use mass spectrometers for such tasks as determining the age of rocks
and meteorites, computing the temperatures in ancient oceans, and studying the
composition of gases in rock formations; (iii) the metallurgical industry has
the need for an instrument that can perform several analyses simultaneously,
such as testing a sample for the presence of hydrogen, carbon, nitrogen and
oxygen, and for the concentration profiles of these elements; (iv) the Company's
mass spectrometers have many applications in materials science, ranging from the
analysis of semiconductor substrates to corrosion analysis of structural
materials to the analysis and eventual synthesis of new-high-temperature
materials, etc.
The Luminoscope is a fine-scale analytical device used to determine, in a
nondestructive manner, the composition and structure of solid samples. The
Luminoscope consists primarily of a small vacuum chamber fitted with an electron
"gun" that is capable of producing a beam of energetic electrons of up to 30KV.
When this beam bombards a sample in the vacuum chamber, luminescence and/or X-
rays are produced. The output is studied either visually with a microscope or
with various photon and X-ray sensors. The image defines the composition and
structure of the material.
In its traditional field of application, petrology, the Luminoscope has
proven valuable in studies of compositional zoning, secondary crystallization,
exsolution, intergrowths, fracture filling, radiation halos, organic remains,
delineation of cementation stages and cementation of sand stones and shales.
Another application for the Luminoscope is gemstone determination, where the
analysis technique must be truly nondestructive. To determine whether a diamond
is genuine or whether it has been artificially altered by one of several recent
processes which removes the value-reducing defects, or perhaps is a synthetic
diamond grown in a laboratory, a Luminoscope is, the Company believes, the best
available method. The Luminoscope easily identifies the telltale signs of the
synthetic growing process.
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Other Technologies under Development
Laser Diagnostics. In support of the Company's work on the DNA Sequencer,
the Company retained the sole staff person of Laser Diagnostics and acquired
certain assets of Laser Diagnostics. Laser Diagnostics developed a technology
known as Laser-Induced Breakdown Spectroscopy ("LIBS") in collaboration with the
Los Alamos National Laboratory, Sandia National Laboratory in Livermore, CA, and
the Diagnostic and Analysis Instrumentation Laboratory at Mississippi State
University. The LIBS technique involves focusing a high peak-power pulsed laser
to create a small spark from which optical emission is used to perform elemental
analysis. This technology can be used to continuously monitor the off-gases from
incinerators and other thermal treatment facilities for heavy metals released
into the atmosphere. The U.S. Department of Energy granted a Small Business
Technology Transfer ("STTR") grant to Laser Diagnostics in support of this work.
Laser Diagnostics also developed a novel near-infrared diode laser system to
monitor water vapor and carbon dioxide in the atmosphere. The National Science
Foundation, Atmospheric Sciences Division issued an STTR grant in support this
work. The Company is continuing the development of both these technologies with
the STTR grants.
Pulmonary Diagnostics. The Company, in collaboration with researchers at
the University of Pennsylvania, is developing technology that is designed to
enable the accurate and rapid assessment of pulmonary functioning. This method,
known as the Micropore Membrane Inlet Mass Spectrometry ("MMIMS") method, is
designed to detect impaired gas exchange associated with pulmonary disorders
such as acute respiratory distress syndrome, pneumonia, asthma and emphysema.
The new technique under development is expected to improve the existing testing
method known as the Multiple Inert Gas Elimination Technique ("MIGET") by
increasing the speed, accuracy and sensitivity required to assist physicians to
make diagnosis and treatment decisions for pulmonary disease patients. The
MMIMS instrumentation under development is expected to allow the measurement to
be made more accurately, more rapidly and with greater sensitivity.
The MIGET method measures the retention and excretion of a series of
infused inert gases covering a wide range of blood solubilities. The technique
is expected to allow for the determination of the distribution of pulmonary
ventilation/perfusion ("V/Q") ratios of a patient. With this knowledge, MIGET
provides detailed information about the mechanisms of a patient's impaired lung
oxygen and carbon dioxide exchange. The ability to measure lung function
routinely is expected to allow a physician to provide a pulmonary disease
patient with a more accurate diagnosis, to select the optimal treatment, and to
quickly determine the efficacy of the prescribed medical therapy.
Research and Development
The Company's research and development efforts currently are focused on the
commercialization and improvement of the Company's DNA Sequencer, and, to a
lesser extent, the development of a mass spectrometer for its pulmonary
diagnostic technology. As of March 31, 1999, the Company had 12 full-time
employees engaged in research and development. Expenditures for research and
development, net of grants received, in the fiscal years ended March 31, 1999
and 1998 were $1,050,933 and $1,279,959, respectively. The Company believes that
its success will depend upon its ability to develop and introduce new products
and features to incorporate new technologies, enhance its existing products and
meet changing customer requirements and emerging industry standards on a timely
and cost-effective basis. Accordingly, the Company currently intends to
continue to devote a substantial portion of its resources to research and
development activities. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Sales and Marketing
All of the Company's sales and marketing to date has been conducted on a
part-time basis by one or two of the Company's employees. The Company will need
to develop a full-time sales and marketing force and undertake a concerted
marketing effort to market the DNA Sequencer. The establishment of a sale force
and marketing program will require substantial funds, and there can be no
assurance that the Company will be able to generate significant sales of the DNA
Sequencer.
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Competition
DNA Sequencers. Competition in the market for DNA sequencing technology is
rapidly evolving and the competitors include major universities and research
centers, large corporations with significantly more financing than the Company,
and a large number of smaller instrument, software and genomics companies that
are developing complete, or components of, DNA sequencing equipment. Although
the Company believes that its technology will compete favorably with the
approaches being taken by such third parties, there can be no assurance that the
superior funding or experience levels of such competitors will not materially
and adversely affect the Company's own development and commercialization
efforts.
Current Technology. The primary commercially-available, semi-automated DNA
sequencer, the ABI377, is manufactured by PE Biosystems ("PE Bio"), a subsidiary
of PE Bio. This slab gel-based technology is capable of running 96 lanes of DNA
samples of 400-450 bases in four hours. Based on discussions with scientists
who use the ABI377, the Company believes that the ABI377 is labor-intensive for
gel and sample preparation and requires highly skilled operators. In addition,
the ABI377 allows only a single run of 96 lanes, after which the instrument must
be reset. Other companies involved in this area include Beckman Instruments,
Fisons Scientific Equipment and Pharmacia Biotech.
In early 1999, PE Bio released a new 96-capillary DNA sequencer, the ABI
Prism(R) 3700 DNA Analyzer, and PE Bio has reported significant sales for this
product. The Company believes that the technology employed in the SCE9600 should
allow the SCE9600 to compete favorably with the ABI Prism(R) 3700 DNA Analyzer.
PE Bio has sublicensed certain aspects of the Company's technology and may
incorporate such technology into its future DNA sequencing instrumentation, but
only for machines with 30 or fewer capillaries and employing an optics system
not currently being considered for commercialization by the Company.
Other Electrophoresis-based Instrumentation. Other manufacturers of DNA
sequencing machines are developing alternatives to both the ABI377 and the
SCE9600. One such multi-capillary device being commercialized by Molecular
Dynamics, Inc., the MEGABACE 1000, employs a single scanning detector that
"looks" at each single capillary in the array in sequence. The system has been
in the later stages of development for at least the last three to four years,
and commercial release has been postponed within that time. The Company believes
that the SCE9600 should compete favorably with the MEGABACE 1000 because (i)
the single detector of the MEGABACE 1000 can accurately scan a relatively low
maximum number of capillaries before the detector must return to its starting
position to monitor the first capillary and (ii) the capillary/detector system
of the MEGABACE 1000 is considerably more complex than that of the SCE9600.
In the last two to three years, other capillary electrophoresis-based
technology companies (e.g., Seurat Technologies) have been reported to be in
initial stages of development. However, no progress reports, either released
from the companies themselves or in trade publications, have been forthcoming
and the status of these devices is currently unknown.
In addition to the capillary array electrophoresis technology used by the
Company, various other technologies are being developed to sequence DNA. These
include: (i) single-molecule sequencing, where the bases are clipped off one at
a time and read with respect to their color labels, a technology which depends
on several separate revolutionary breakthroughs in enzymology, detection,
labeling chemistry and micromanipulation; (ii) mass-spectrometry by Matrix-
Assisted Laser Desorption Ionization, which determines DNA sequences based upon
the molecular mass of the DNA and its fragments; and (iii) sequencing by
hybridization, which involves binding the sample DNA fragments to complimentary,
known sequence targets anchored to a substrate.
Markets
The market for DNA sequencing instruments is rapidly evolving and includes
large well-financed corporations such as PE Bio, Beckman Instruments, Fisons
Scientific Equipment, Pharmacia Biotech and Molecular Dynamics, as well as a
large number of smaller companies, such as Genomyx and Visible Genetics, and
software and genomics companies that are developing complete, or components of,
DNA sequencing equipment. In addition, the potential applications for lower-
cost and higher throughput equipment are rapidly expanding. Consequently, it is
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difficult to predict with accuracy the current market for sequencers capable of
producing data at the speed being targeted by the Company. The Company's
capillary-array electrophoresis approach is but one of a number of approaches
being developed to improve the throughput speed of currently available DNA
sequencing equipment. In addition, research is separately being conducted at a
number of major universities and research centers to refine DNA sequencing
technologies. Although the Company believes that its technology will compete
favorably with the approaches being taken by such third parties, there can be no
assurance that the superior funding or experience levels of at least some such
competitors will not materially and adversely affect the Company's own
development and commercialization efforts.
Patents and Proprietary Technology
Proprietary protection for the Company's products, processes and know-how
is important to the Company's business. The Company's policy is to file patent
applications to protect technology, inventions and improvements that are
considered commercially important to the development of its business. The
Company also relies upon trade secrets, know-how and continuing technological
innovation to develop and maintain its competitive position. The Company plans
to aggressively prosecute and defend its patents, when issued, and proprietary
technology.
The Company has acquired an exclusive worldwide license to certain
technology owned by ISURF, including three issued patents and two pending
divisional applications, each of which relate to the Company's DNA Sequencer.
The Company presently has been issued two U.S. patents, has been allowed
one additional patent, has five U.S. patent applications pending, and three
divisional patents are under review. In addition, foreign filings have been
submitted on all 11 patents. There can be no assurance that the Company's
pending patent applications will result in patents being issued or that, if
issued, such patents will afford protection against competitors with similar
technology; nor can there be any assurance that others will not obtain patents
that the Company would need to license or circumvent. See "Risk Factors --
Uncertainty of Protection of Patents and Proprietary Rights."
Laser Diagnostics was issued a U.S. patent, entitled "Method for
Determining the Concentration of Atomic Species in Gases and Solids" (No.
5715053), in connection with its LIBS technology. The patent was included in
the assets purchased by the Company and has been assigned to the Company.
The Company's success depends on its ability to obtain patents, protect its
trade secrets and operate without infringing upon the proprietary rights of
others. A number of patents have been applied for by the Company's existing and
potential competitors. There can be no assurance, however, that any future
patent applications will be approved, that the Company will develop additional
proprietary products that are patentable, or that any patents issued to the
Company will provide the Company with any significant protection or will not be
successfully challenged by third parties. Furthermore, there can be no assurance
that others will not design around the patented products developed by the
Company. There can be no assurance that the Company's products will not be found
to infringe upon the patents of others. If the Company's products are found to
infringe upon the patents, or otherwise impermissibly utilize the intellectual
property, of others, the Company's development, manufacture, and sale of such
products could be severely restricted or prohibited. The Company may be required
to obtain licenses from such third parties or otherwise obtain licenses to
utilize patents or proprietary rights of others. No assurance can be given that
any licenses required under any such patents or proprietary rights could be
obtained on terms acceptable to the Company, or at all. If the Company does not
obtain such licenses, the development, manufacture, or sale of products
requiring such licenses could be materially adversely affected. In addition, the
Company could incur substantial costs in defending itself against challenges to
its patents or infringement claims made by third parties or in enforcing its own
patents.
The Company's competitive position is also dependent upon unpatented trade
secrets. The Company takes measures to protect its trade secrets, however, trade
secrets are difficult to protect. There can be no assurance that others will not
independently develop substantially equivalent proprietary information or
techniques or otherwise gain access to the Company's trade secrets. The Company
pursues a policy of having its employees, consultants and advisors execute
confidentiality agreements to maintain the proprietary nature of its technology.
There can be no
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assurance, however, that these agreements will provide meaningful protection for
the Company's trade secrets or other proprietary information in the event of
unauthorized use or disclosure of such information.
The Company may be required to obtain licenses to patents or proprietary
rights of others. No assurance can be given that any licenses required under any
such patents or proprietary rights would be made available on terms acceptable
to the Company. If the Company does not obtain such licenses, it could encounter
delays in product introductions while it attempts to design around such patents,
or could find that the development, manufacture or sale of such products could
be foreclosed. Litigation may be necessary to defend against or assert claims of
infringement, to enforce the Company's or its licensors' patents, to protect
trade secrets or know-how owned by the Company, or to determine the scope and
validity of the proprietary rights of others, and could result in substantial
cost to and diversion of effort by, and may have a material adverse impact on,
the Company.
Government Regulation
Some of the Company's research and development activities and the future
manufacturing and marketing of products by the Company are subject to regulation
for safety and efficacy by numerous governmental authorities in the United
States and other countries. In the United States, the Company's diagnostic
kinetics equipment may be the subject of rigorous FDA regulation in its use for
the diagnosis and treatment of diseases. In addition to FDA regulations, the
Company is also subject to other federal and state regulations such as the
Occupational Safety and Health Act, the Environmental Protection Act, the
Resource Conservation and Recovery Act, the Clean Air Act, the Atomic Energy Act
and import, export and customs regulations. Product development and approval
within this regulatory framework takes a number of years and involves the
expenditure of substantial resources. In addition, there can be no assurance
that this regulatory framework will not change or that additional regulation
will not arise at any stage of the Company's product development that may affect
approval or delay an application or require additional expenditures by the
Company.
Federal, state and local regulations impose various environmental controls
on the storage, handling, discharge and disposal of chemicals and gases used in
the Company's manufacturing process. The Company believes that its activities
conform to present environmental regulations. Although the Company has not
experienced any materially adverse effects on its operations from environmental
regulations, there can be no assurance that changes in such regulations will not
impose the need for additional capital equipment or other requirements or
restrict the Company's ability to expand its operations. Any failure by the
Company to adequately restrict the discharge of hazardous substances could
subject the Company to future liabilities or could cause its manufacturing
operations to be suspended.
In addition, certain instruments in the Company's mass spectrometer line
are subject to export control regulations, including restrictions on export into
certain countries. While the Company believes it has obtained all permits
necessary to conduct its business, the failure to comply with present and future
regulations could result in fines being imposed on the Company or suspension or
cessation of operations, and thus result in a material adverse effect to the
Company's business, results of operations and financial condition.
Employees
As of March 31, 1999, the Company had 28 employees. Of the total, one was
engaged part-time in sales and marketing, twelve in research and development,
and nine in electronics and mechanical assembly. None of the Company's employees
is represented by a labor union. The Company has not experienced any work
stoppages and considers its relations with its employees to be good. See "Risk
Factors --Dependence Upon Key Personnel."
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Risk Factors
All statements contained herein that are not historical facts, including,
but not limited to, statements regarding SpectruMedix Corporation (the
"Company") and its current business strategy, projected sources and uses of
cash, and plans for future development and operation, are based on current
expectations. The statements are forward-looking in nature and involve a number
of risks and uncertainties. Actual results may differ materially. The risks
and uncertainties are described more fully under the heading "Risk Factors," and
include, but are not limited to, the ability of the Company to obtain the
necessary funds to continue its operations. The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements,
which statements are made pursuant to the Private Litigation Reform Act of 1995
and, as such, speak only as of the date made.
The Company has incurred losses since its inception, requires significant
amounts of additional capital and may not be able to continue as a going
concern. The Company has incurred operating losses since its inception in 1992.
At March 31, 1999, the Company had an accumulated deficit of $11,512,684. The
Company's current revenues from operations are limited and are not sufficient to
fund its operating expenses. The Company needs to successfully develop and
commercialize the DNA Sequencer to reach profitability. No assurance can be
given that the Company will be able to accomplish such objective. The Company
will be required to conduct significant research, development, testing and
regulatory compliance activities which, together with projected general and
administrative expenses, are expected to result in operating losses for at least
the next several years. The Company may not achieve significant revenues or
profitable operations. To date the Company's operations have been characterized
by chronic underfunding and limited ability to maintain inventories of key
components, parts and supplies. The Company has used the proceeds of its initial
public offering (the "Public Offering") and since January 1999 the Company has
been primarily dependent upon cash advances from its Chief Executive Officer to
fund its operations. While the Company's most immediate liquidity concerns may
have been alleviated by the agreements with PE Bio, the Company will require
significant additional capital to achieve its business plans. As a result of its
liquidity problems, the Company must rely on "just-in-time" manufacturing and
the inherent dependence upon sources of components, parts and supplies. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
As a result of the Company's current financial condition, the Company's
independent accountants have included an explanatory paragraph stating that the
Company's financial statements have been prepared assuming that the Company will
continue as a going concern and that the Company has suffered recurring net
losses from operations which raises substantial doubt about the Company's
ability to continue as a going concern.
The Company is still in the development stage. Since the Company's
incorporation in April 1992, the Company has been engaged in organizational
activities, acquisition of assets, hiring of personnel and financing activities.
Since operations began in July 1992, the Company has engaged in the following
activities: manufacturing, research and development, limited sales and
marketing, capital raising, exploration of strategic relationships and
collaborations, and other general corporate activities. The Company has
generated limited revenues to date. The Company will require additional capital,
above the amounts received from PE Bio, to commercialize and market the DNA
Sequencer and pursue other research and development activities. As the Company
is in the development stage, its operations are subject to all of the risks
inherent in the establishment of a new business enterprise and the
commercialization of new products. The likelihood of the success of the Company
must be considered in light of the problems, expenses, difficulties,
complications and delays frequently encountered in connection with a new
business, and, accordingly, is highly speculative.
The Company has failed to pay royalty fees under existing licenses. The
Company's DNA Sequencer was developed in part from research efforts conducted at
the Ames Laboratories. The Company entered into a world-wide exclusive licensing
agreement with ISURF, which agreement was restructured as a result of the
Company's failure to make timely payments under the agreement. If the Company
continues to fail to make payments under the license agreement, such agreement
may be terminated and the Company will not be ably to market the DNA Sequencer.
In February 1999, an option held by the Company to license technology in the
field of diagnostic kinetics expired unexercised because the Company did not
have the funds available to pay amounts to the licensor. If the Company fails to
pay license fees to ISURF it may lose the right to market the DNA Sequencer.
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The ability of the Company to protect its technology through patents and
other propriety rights is uncertain. The Company's success depends on its
ability to obtain patents, protect its trade secrets and operate without
infringing upon the proprietary rights of others. The Company's existing and
potential competitors have applied for a substantial number of patents. There
can be no assurance that any of the Company's future patent applications will be
approved, that the Company will develop additional proprietary products that are
patentable, or that any patents issued to the Company will provide the Company
with any significant protection or will not be successfully challenged by third
parties. Furthermore, there can be no assurance that others will not design
around the patented products developed by the Company. There can be no assurance
that the Company's products will not be found to infringe upon the patents of
others. The area of gene sequencing, in particular, is subject to intense
competition and active filing of patent applications. Any of such patent
applications filed by one or more third parties may conflict with the Company's
products under development. If the Company's products are found to infringe upon
the patents or otherwise impermissibly utilize the intellectual property of
others, the Company's development, manufacture and sale of such products could
be severely restricted or prohibited. Any such infringement could have a
material adverse effect on the Company's prospects, business, results of
operations or financial condition. The Company may be required to obtain
licenses from such third parties or otherwise obtain licenses to utilize patents
or proprietary rights of others. No assurance can be given that any licenses
required under any such patents or proprietary rights could be obtained on terms
acceptable to the Company, or at all. If the Company does not obtain such
licenses, the development, manufacture or sale of products requiring such
licenses could be materially adversely affected. If the Company does not obtain
such licenses, it could encounter delays in product introductions while it
attempts to design around such patents, or could find that the development,
manufacture or sale of such products could be foreclosed. Litigation may be
necessary to defend against or assert claims of infringement, to enforce the
Company's or its licensors' patents, to protect trade secrets or know-how owned
by the Company, or to determine the scope and validity of the proprietary rights
of others, and could result in substantial cost to and diversion of effort by,
and may have a material adverse impact on, the Company.
The Company's competitive position is also dependent upon unpatented trade
secrets. Although the Company takes measures to protect its trade secrets, trade
secrets are difficult to protect. There can be no assurance that others will not
independently develop substantially equivalent proprietary information or
techniques or otherwise gain access to the Company's trade secrets. The Company
pursues a policy of having its employees, consultants and advisors execute
confidentiality agreements to maintain the proprietary nature of its technology.
There can be no assurance, however, that these agreements will provide
meaningful protection for the Company's trade secrets or other proprietary
information in the event of unauthorized use or disclosure of such information.
The science and technology of the Company's products is rapidly evolving
and substantial further research and development is required. The science and
technology of the Company's products, particularly the Company's DNA Sequencer,
is rapidly evolving. Many of the Company's products and proposed products will
require significant further research, development, testing and possibly
regulatory clearances and are subject to the risks of failure inherent in the
development of products based on innovative technologies. The Company's
development efforts in the areas of diagnostic kinetics and pulmonary
diagnostics involve new areas of medicine which necessarily involves
unforeseeable risks and uncertainties. These risks include the possibility that
any or all of the products or proposed products are found to be ineffective or
unsafe, or otherwise fail to receive necessary regulatory clearances, if any,
that the proposed products, although effective, are uneconomical to market, that
such products will not satisfy cost and performance criteria, that third parties
hold proprietary rights that preclude the Company from marketing such products,
or that third parties market a superior or equivalent product. Accordingly, the
Company is unable to predict whether its research and development activities
will result in any commercially viable products. Further, the Company cannot
predict with certainty when or if the Company will be able to commercialize
certain of its proposed products or that such products will satisfactorily
perform all of the functions for which they have been designed or prove to be
sufficiently reliable in long-term applications.
The Company's new technologies are untested on a commercial scale and may
not be accepted by the market. The production of the DNA Sequencer, pulmonary
diagnostics technology and other proposed products of the Company represents new
manufacturing processes which are untested on a commercial scale. Although the
Company believes that its technologies and products will, if ultimately
commercialized, represent significant technological advances, demand for the
Company's proposed products, all of which are based upon new designs, concepts
and manufacturing processes, is subject to a high degree of uncertainty. Many
potential customers of the
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Company, including original equipment manufacturers ("OEM") and commercial end
users, may be reluctant to utilize or sell the Company's proposed products until
a sufficient number of other OEMs and commercial end users have already
committed to do so. The Company currently has limited marketing experience and
limited financial, personnel and other resources to undertake the extensive
marketing activities that will be necessary to market its proposed products. The
Company's ability to generate revenues from the sale of its proposed products
will be dependent upon, among other things, its ability to build an effective
sales organization. In its limited marketing efforts to date, the Company has
relied solely upon the efforts of its executive officers. If the Company is
unable to market and distribute its products directly, the Company may have to
enter into arrangements with others, such as joint ventures, licensing or
similar arrangements or distribution agreements. Any such contractual
arrangements may result in a lack of control by the Company over any or all of
the marketing and distribution of such products and may increase its marginal
costs. There can be no assurance that the Company will be able to formalize any
marketing arrangements or that its marketing efforts will be successful.
The Company has only limited manufacturing capabilities. The Company
maintains limited manufacturing facilities and will need to expand such
facilities to effectively manufacture its products on a profitable basis. The
expansion of the Company's manufacturing facilities and capabilities will
subject the Company to numerous risks, including unanticipated technological
problems or delays. Such expansion will also require additional sources of
capital, which may not be available on commercially reasonable terms, if at all.
In the event that the Company is unable to expand its manufacturing facilities
and capabilities, the Company maybe required to enter into arrangements with
others for the manufacture and packaging of its proposed products. There can be
no assurance that the Company will be able to enter into any such arrangements
on commercially reasonable terms, or at all, or that the Company will ever be
able to establish the capability to manufacture its products on a commercial
basis, in which case the Company's business, results of operations and financial
condition would be materially adversely affected.
The Company is dependent upon third party suppliers for components and raw
materials. The Company's existing and proposed products require high quality
components and raw materials which the Company currently purchases and will
continue to purchase from third-party suppliers. Certain raw materials or
components may, however, from time to time, be difficult to obtain and may cause
production delays or require the Company to find alternate means of production.
In particular, both the lasers and capillaries used in the DNA Sequencer are
each purchased from one manufacturer who only produces a limited number of
units. Such manufacturers may not be able to supply all of the Company's needs.
Thus, the Company's ability to manufacture its products will depend on its
ability to establish and maintain commercial relationships with at least certain
of such suppliers. The Company does not currently maintain supply agreements
with any of its suppliers.
The Company's production will also be dependent upon its suppliers
satisfying the Company's performance and quality specifications and dedicating
sufficient production capacity to meet the Company's scheduled delivery times.
There can be no assurance that the Company will be able to establish any
commercial relationships with suppliers or, if it is able to do so, that such
suppliers will be able to satisfy the Company's scheduled delivery or
performance requirements or have sufficient production capacity to satisfy such
requirements during any period of sustained demand. Failure or delay by the
Company's suppliers in supplying the Company with needed raw materials and
components would materially adversely affect the Company's operating margins and
the Company's ability to manufacture and deliver products on a timely and
competitive basis, which could, in turn, have a material adverse effect on the
Company.
The Company's lack of working capital may adversely impact its relationship
with its suppliers, creditors and customers. Since inception, the Company has
been characterized by inadequate capitalization. Accordingly, the Company's
lack of working capital has at times prevented the Company from making timely
payments to suppliers and creditors or from repairing relationships with such
entities. Such financial difficulties have also prevented the Company from
providing parts and service to certain of its customers in a timely manner. As
a result, the Company's relationships with its customers have also been damaged.
The deterioration of these relationships may make the Company's strategy for
expansion more difficult and may adversely affect the development of the
Company's business. There can be no assurance that the Company will be able to
reestablish relationships with its suppliers, creditors and customers or that
the Company will successfully implement its expansion plan.
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A significant portion of the Company's sales come from a limited number of
customers. Approximately 51% and 42% of the Company's net sales for the years
ended March 31, 1999 and 1998, respectively, were derived from sales to the
Company's top three customers. During the fiscal year ended March 31, 1999,
product sales to each of the three top customers amounted to approximately 24%,
15%, and 12%, respectively. During the fiscal year ended March 31, 1998,
product sales to each of the four top customers amounted to approximately 15%,
14%, 13% and 12%, respectively. Certain customers may not necessarily purchase
instrumentation from the Company on a regular basis. The loss of, or
significant adverse change in, the relationship between the Company and these
customers could have a material adverse effect on the Company's business,
financial condition and results of operations. The loss of or reduction in
orders from any significant customer, losses arising from customer disputes
regarding shipments, fees, merchandise condition or related matters, or the
Company's inability to collect accounts receivable from any major customer could
have a material adverse impact on the Company's business, financial condition
and results of operations.
Currently, the only customer for the DNA Sequencer is PE Bio. Except for a
license of technology to PE Bio, the Company has not sold any DNA Sequencers or
related technology and the Company does not have a sufficient marketing staff
and manufacturing capacity to properly develop the DNA Sequencer. PE Bio may
terminate the license agreement at any time.
The Company must continually upgrade its products and introduce new
technologies in order to compete. The Company's success depends upon
establishing and maintaining a competitive position in the research, development
and commercialization of products and technologies in its areas of focus. The
medical and industrial instrumentation industry is highly competitive and
requires substantial capital. The Company competes with, and will compete with,
numerous international, national and regional companies, many of which have
significantly larger operations and greater financial, marketing, human and
other resources than the Company. Accordingly, such competitors may have
substantial competitive advantages over the Company, including the ability to
negotiate favorable supply and distribution agreements and the ability to
negotiate more favorable terms with developers of technology, including
universities. In addition, the Company plans to develop additional products and
acquire additional technologies in order to expand the Company's product and
technology portfolio. No assurance can be given that the Company will
successfully compete in any market in which it conducts or may conduct
operations or that developments by such competitors will not render the
Company's current or future products or technologies uncompetitive or obsolete.
The Company is dependent upon its key employees and must recruit additional
personnel. The Company is dependent upon the efforts and abilities of Dr.
Joseph K. Adlerstein, its Chairman of the Board of Directors, Chief Executive
Officer and President, and on other members of its scientific and management
staff. Dr. Adlerstein is the only executive officer of the Company. In
addition, the Company is dependent on collaborators at research institutions and
on the Company's scientific advisors and consultants. Recruiting and retaining
qualified personnel, collaborators, advisors and consultants will be critical to
the Company's success. Due to the financial condition, the Company has had
difficulty attracting and retaining the personnel necessary for its operations.
Dr. Adlerstein is a substantial stockholder of the Company, holding
approximately 21%, of the outstanding shares. The Company has entered into an
employment agreement with Dr. Adlerstein. The loss or unavailability of the
services of Dr. Adlerstein for any significant period of time could have a
material adverse effect on the Company's business prospects. The Company has
obtained, and is the sole beneficiary of, key-person life insurance in the
amount of $1,000,000 on the life of Dr. Adlerstein.
Bernard Sonnenschein, the Company's former Secretary and Treasurer,
resigned in January 1999. As a result, Dr. Adlerstein and other personnel have
had to handle responsibilities previously assigned to Mr. Sonnenschein,
including, without limitation, preparation of the Company's financial
statements. Due to the Company's continuing liquidity difficulties, the Company
has been unable to hire a replacement for Mr. Sonnenschein, nor has the Company
been able to hire marketing professionals.
The Company is actively seeking and must retain a chief financial officer.
In addition, the Company is also seeking to expand its board of directors to at
least three members.
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Product Warranties. The Company generally warranties parts and services for
each of its products for one year from the date of purchase. Although there have
been few requests for extensive servicing and repairs for products that have
already been sold by the Company during the warranty period, a large number of
requests for such servicing could have a material adverse effect on the Company
by requiring additional expenditures for parts as well as the repair efforts of
the Company's personnel.
The Company's products are heavily regulated. A portion of the Company's
future products may be regulated by the United States Food and Drug
Administration (the "FDA"). Such regulations extend to manufacturing practices,
the conduct of clinical investigations, pre-market approval, record keeping and
reporting requirements and labeling, among other matters. To date the Company
has not yet obtained clearance from the FDA for commercial marketing of its
primary products. In addition, other products that the Company might develop may
also be subject to FDA regulation. There can be no assurance that the Company
will be able to obtain FDA clearance for commercial marketing of its products.
Even if FDA clearance is received, government regulation may have an adverse
impact on the timing and cost of new product introductions, may interfere with
the marketing of existing products and may require the recall of products from
customer locations.
The Company is subject to a variety of United States and foreign government
regulations related to the discharge or disposal of toxic, volatile or otherwise
hazardous chemicals used in its manufacturing process. The failure by the
Company to comply with present or future environmental regulations could result
in fines, suspension of production or cessation of operations. Such regulations
could also require the Company to acquire equipment or to incur other
substantial expenses to comply with environmental regulations. If substantial
additional expenses were incurred by the Company, product costs could
significantly increase, thus materially and adversely affecting the Company's
results of operations. Additionally, the Company is subject to a variety of
government regulations relating to its operations, such as environmental, labor
and export control regulations. While the Company believes it has obtained all
permits necessary to conduct its business, the failure to comply with present
and future regulations could result in fines being imposed on the Company or
suspension or cessation of operations. Any failure by the Company to control the
use of, or adequately restrict the discharge of, hazardous substances could
subject the Company to future liabilities, and could have a material adverse
effect on the Company's business and results of operations.
The Company's products may be subject to recall. Products such as those
sold by the Company may be subject to recall for unforeseen reasons. In
addition, certain projected applications of the Company's products entail the
risk of product liability claims. The Company performs extensive testing of its
products at each stage of their design to minimize the risk of recall or product
liability claims. A recall or product liability claim could materially adversely
affect the Company's operation and reputation. The Company does not maintain any
insurance related to recalls or product liability and, accordingly, a product
recall of the Company's principal products or successful product liability
claims against the Company would have a material adverse effect on the Company.
The Company is controlled by its management and current stockholders and
there are no independent directors. The Company's current management owns
approximately 21% of the outstanding shares of Common Stock. Management may,
therefore, have the ability to elect a majority of the directors of the Company
and to control the outcome of all issues submitted to a vote of the stockholders
of the Company. The Company currently has only one director, Dr. Adlerstein ,
the Chief Executive Officer and a principal stockholder of the Company.
Accordingly, he is in a position to control the actions and decisions of the
Board of Directors. Although the Company is seeking to expand its Board of
Directors to at least three members, there can be no assurance that it will be
able to do so.
Year 2000 Compliance. The Company is in the process of assessing the impact
of year 2000 on its operations and systems, including those of its suppliers and
collaborators and other third parties. Management is in the process of
formalizing its assessment procedures and developing a plan to address
identified issues, if any. To date, the Company has evaluated its financial and
accounting systems and believes that these systems are not and will not be
materially affected by the year 2000. The Company has determined that the
software developed by the Company in support of the instrumentation sold by the
Company is year 2000 compliant. The Company has not determined if the all the
components produced by third parties and used in the Company's products are year
2000 compliant. If the vendors of such components can not certify to the
Company that such components are year 2000
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compliant, the Company will have to locate other suppliers. The Company does not
yet know the extent, if any, of the impact of the year 2000 on its other systems
and equipment or those of third parties with which the Company does business.
There can be no assurance that third parties, such as suppliers, clinical
research organizations and collaborative parties, are using systems that are
year 2000 compliant or will address any year 2000 issues in a timely fashion, or
at all. Any year 2000 compliance problems of either the Company, its suppliers,
its clinical research organizations, or its collaborative partners could have a
material adverse effect on the Company's business, operating results and
financial conditions.
The Company's stock price may be volatile. There can be no assurance that
an active trading market for the Company's Common Stock or redeemable warrants
to purchase shares of Common Stock (the "Redeemable Warrants") will be sustained
in the future. In fact, there have been extended periods during which there has
been limited trading in the Company's Common Stock and the Redeemable Warrants.
The market price of the shares of common stock and the redeemable warrants, like
that of many other small cap and emerging technology companies, is likely to be
highly volatile.
The Company has not paid dividends. The Company has not paid any cash
dividends on the Common Stock since inception and does not intend to pay any
dividends to its stockholders in the foreseeable future. The Company currently
intends to reinvest earnings, if any, in the development and expansion of its
business.
A significant number of shares of capital stock will become eligible for
sale in the near future and any sale may adversely affect the price of the
Company's Common Stock. 1,512,647 shares of the Company's outstanding shares of
Common Stock are subject to a 24-month restriction against transfer, which
expires on September 16, 1999. Rule 144 provides, in essence, that a person
holding "restricted securities" for a period of one year may sell only an amount
every three months equal to the greater of (a) one percent of the Company's
issued and outstanding shares or (b) the average weekly volume of sales during
the four calendar weeks preceding the sale. The amount of "restricted
securities" which a person who is not an affiliate of the Company may sell is
not so limited, since non-affiliates may sell without volume limitation their
shares held for two years if there is adequate current public information
available concerning the Company. In such an event, "restricted securities"
would be eligible for sale to the public at an earlier date. The sale in the
public market of such shares of Common Stock may adversely affect prevailing
market prices of the Common Stock. An additional 660,498 shares of Common Stock
of the Company held by people and institutions who provided financing to the
Company prior to its initial public offering became available for resale in
September and October 1998.
A significant number of shares of Common Stock are subject to outstanding
options and warrants. At March 31, 1999, there were outstanding stock options
to purchase an aggregate of 127,827 shares of Common Stock at an exercise price
of $0.00115 per share, warrants to purchase an aggregate of 100,000 shares of
Common Stock at an exercise price of $1.00 per share, stock options to purchase
an aggregate of 35,000 shares of Common Stock at an exercise price of $5.00 per
share, stock options and warrants to purchase an aggregate of 173,915 shares of
Common Stock at an exercise price of $2.88 per share, stock options to purchase
an aggregate of 180,008 shares of Common Stock at an exercise price of $4.60 per
share, warrants to purchase an aggregate of 1,200,600 at $7.50 per share,
stock options to purchase an aggregate of 57,000 shares of common stock at a
price an exercise price of $6.25 per share, stock options to purchase an
aggregate of 25,000 shares of Common Stock at an exercise price of $6.00 per
share, stock options to purchase an aggregate of 100,000 shares of Common Stock
at an exercise price of $10.00 per share, warrants to purchase 322,000 Units (as
defined below) at an exercise price of $5.75 per Unit and warrants to purchase
104,400 Units at an exercise price of $9.49 per Unit. Of the foregoing,
warrants and options to purchase 534,578 shares of Common Stock are subject to a
24-month lock-up restriction, which expires on September 16, 1999. In addition,
on July 30, 1999, the Company issued 2,000 shares of its Series A Preferred
Stock which are convertible into 800,000 shares of common stock. The exercise of
such outstanding options and warrants will dilute the percentage ownership of
the Company's stockholders, and any sales in the public market of shares of
Common Stock underlying such securities may adversely affect prevailing market
prices for the Common Stock. Moreover, the terms upon which the Company will be
able to obtain additional equity capital may be adversely affected since the
holders of such outstanding securities can be expected to exercise their
respective rights therein at a time when the Company would, in all likelihood,
be able to obtain any needed capital on terms more favorable to the Company than
those provided in such securities.
In May 1999, Dr. Adlestein exercised an option to purchase 127,827
shares of Common Stock.
16
<PAGE>
Holders of the Company's redeemable warrants may only exercise such
warrants if a current prospectus is available. The Company will be able to
issue shares of its Common Stock upon exercise of the Redeemable Warrants only
if there is then a current prospectus relating to such Common Stock and only if
such Common Stock is qualified for sale or exempt from qualification under
applicable state securities laws of the jurisdictions in which the various
holders of the Redeemable Warrants reside. The Company has undertaken and
intends to file and keep current a prospectus which will permit the purchase and
sale of the Common Stock underlying the Redeemable Warrants, but there can be no
assurance that the Company will be able to do so. Although the Company intends
to seek to qualify for sale the shares of Common Stock underlying the Redeemable
Warrants in those states in which the securities are to be offered, no assurance
can be given that such qualification will occur. The Redeemable Warrants may be
deprived of any value and the market for the Redeemable Warrants may be limited
if a current prospectus covering the Common Stock issuable upon the exercise of
the Redeemable Warrants is not kept effective or if such Common Stock is not
qualified or exempt from qualification in the jurisdictions in which the holders
of the Redeemable Warrants then reside.
The Company has the right to redeem certain warrants. The Redeemable
Warrants may be redeemed by the Company at a redemption price of $.01 per
Redeemable Warrant upon 30 days written notice given at any time after September
16, 1998 in the event that the market price of the Common Stock equals or
exceeds $10.00 per share. "Market price" shall mean: (i) the average closing
sale price of the Common Stock, for any 10 consecutive trading days within a
period of 30 consecutive trading days ending within five days of the date of
notice of redemption, as reported on the National Association of Securities
Dealers, Inc. ("NASD") Automated Quotation System or the NASD Electronic
Bulletin Board or (ii) the average of the last reported sales price of the
Common Stock for the 10 consecutive business days ending within five days of the
date of notice of redemption, on the primary exchange on which the Common Stock
is traded, if traded on a national securities exchange. Notice of redemption of
the Redeemable Warrants could force the holders to exercise the Redeemable
Warrants and pay the exercise price at a time when it may be disadvantageous for
them to do so, to sell the Redeemable Warrants at the current market price when
they might otherwise wish to hold the Redeemable Warrants, or to accept the
redemption price which would be substantially less than the market value of the
Redeemable Warrants at the time of redemption.
The Company has the right to issue preferred stock, which may have possible
anti-takeover effects. The Company's Certificate of Incorporation, as amended,
authorizes the Board of Directors to issue up to 2,000,000 shares of preferred
stock, par value $0.00115 per share. The preferred stock may be issued in one
or more series, the terms of which may be determined at the time of issuance by
the Board of Directors, without further action by stockholders, and may include
voting rights (including the right to vote as a series on particular matters),
preferences as to dividends and liquidation, conversion and redemption rights,
and sinking fund provisions. However, the issuance of any such preferred stock
could materially adversely affect the rights of holders of Common Stock and,
therefore, could reduce the value of the Common Stock. In addition, specific
rights granted to future holders of preferred stock could be used to restrict
the Company's ability to merge with, or sell its assets to, a third party. The
ability of the Board of Directors to issue preferred stock could discourage,
delay, or prevent a takeover of the Company, thereby preserving control of the
Company by the current stockholders.
There can be no assurance that there will be a public trading market for
the Company's securities. Although the Company's securities are included on the
OTC Bulletin Board, there can be no assurance that a regular trading market for
the securities will be sustained in the future. The OTC Bulletin Board is an
unorganized, inter-dealer, over-the-counter market which provides significantly
less liquidity than The Nasdaq Stock Market, and quotes for stocks included on
the OTC Bulletin Board are not listed in the financial sections of newspapers as
are those for The Nasdaq Stock Market. Therefore, prices for securities traded
solely on the OTC Bulletin Board may be difficult to obtain and purchasers of
the Company's securities may be unable to resell the securities at or near their
purchase price or at any price. In the event the securities are not included on
the OTC Bulletin Board, quotes for the securities may be included in the "pink
sheets" for the over-the-counter market. See "--'Penny Stock' Regulations May
Impose Certain Restrictions on Marketability of Securities."
Certain restrictions may be imposed upon the Company's Common Stock so long
as it trades below $5.00 per share. The Securities and Exchange Commission (the
"Commission") has adopted regulations which generally define "penny stock" to be
any equity security that is not traded on a national securities exchange or
17
<PAGE>
Nasdaq and that has a market price of less than $5.00 per share or an exercise
price of less than $5.00 per share, subject to certain exceptions. If the
Company's securities that are currently included on the OTC Bulletin Board are
trading at less than $5.00 per security at any time, the Company's securities
may become subject to rules that impose additional sales practice requirements
on broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally, such investors have assets in
excess of $1,000,000 or an individual annual income exceeding $200,000, or,
together with the investor's spouse, a joint income of $300,000). For
transactions covered by these rules, the broker-dealer must make a special
suitability determination for the purchase of such securities and have received
the purchaser's written consent to the transaction prior to the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
rules require, among other things, the delivery, prior to the transaction, of a
risk disclosure document mandated by the Commission relating to the penny stock
market and the risks associated therewith. The broker-dealer must also disclose
the commission payable to both the broker-dealer and the registered
representative, current quotations for the securities and, if the broker-dealer
is the sole market-maker, the broker-dealer must disclose this fact and the
broker-dealer's presumed control over the market. Finally, monthly statements
must be sent disclosing recent price information for the penny stock held in the
account and information on the limited market in penny stocks. Consequently, the
penny stock rules may restrict the ability of broker-dealers to sell the
Company's securities and may affect the ability of stockholders to sell the
Company's securities in the secondary market. See "-- No Assurance of Public
Trading Market."
ITEM 2. DESCRIPTION OF PROPERTY
-----------------------
The Company currently leases approximately 18,500 square feet of laboratory
and office space in State College, Pennsylvania. The Company leases this space
under an operating lease that expired on June 30, 1997. The lease provides that
it will continue for successive one-year periods until terminated by giving
written notice not less than three months prior to the end of the then-current
term. As of March 31, 1999, no such notice had been given. The Company has the
right to use this space for laboratory research and development, storage and
distribution, offices, marketing and other related uses. Although the Company
believes that its existing facilities are adequate to meet its requirements for
the near term, additional space may be necessary in the future. There can be no
assurance that sufficient additional space will be available in the area upon
acceptable terms, or at all.
ITEM 3. LEGAL PROCEEDINGS
-----------------
Robert M. Rubin v. SpectruMedix Corporation et. al. On April 21, 1997, a
complaint was filed in the Supreme Court of the State of New York alleging
breach of contract. Specifically, the plaintiff alleges that the Company
defaulted under a promissory note issued to plaintiff on May 16, 1996 in the
amount of $175,000 (the "Rubin Note") while such Note was outstanding and
therefore that the Company is liable and indebted to plaintiff in the principal
amount of $175,000, together with interest and expenses. The Company, on May
2,1997, paid the principal and interest due under the Rubin Note. The main
remaining issue asserted by the plaintiff is whether, pursuant to an alleged
related agreement, the plaintiff is entitled to 152,174 shares (adjusted to
reflect stock splits) of Common Stock or, alternatively, $875,000. Plaintiff
alleges that the Company undertook to enter into a securities purchase agreement
pursuant to which he should have received the aforementioned shares of Common
Stock. The Company contends that such securities purchase agreement was never
discussed and therefore that no agreement was reached with respect to the terms
thereof. Such securities purchase agreement was not signed by either of the
parties to the Rubin Note. The Company believes that it has meritorious defenses
to the above-described claims and it intends to defend the litigation
vigorously. However, due to the nature of litigation and because the lawsuit is
in the initial stages, the Company cannot determine the total expense or
possible loss, if any, that may ultimately be incurred either in the context of
a trial or as a result of a negotiated settlement. While management believes
that the resolution of this matter will not have a material adverse effect on
the Company's business financial condition and results of operations, the
results of these proceedings are uncertain and there can be no assurance to that
effect. Regardless of the ultimate outcome of the litigation, it could result in
significant diversion of time by the Company's personnel.
Other than the foregoing, the Company is not a party to any other material
legal proceedings.
18
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
-----------------------------------------------------
No matters were submitted to a vote of securities holders during the fourth
quarter of the fiscal year ended March 31, 1999.
19
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------
Market For Common Equity And Related Stockholder Matters
The Company's Common Stock and Redeemable Warrants trade on the Nasdaq OTC
Bulletin Board under the symbols SMDX AND SMDXW, respectively. The Company's
units, with each unit consisting of one share of Common Stock and one Redeemable
Warrant to purchase one share of Common Stock (the "Units"), were traded from
September 16, 1997 through September 1998. The Company's Common Stock and
Redeemable Warrants began trading separately on December 17, 1997.
Set forth below is the range of high and low bid prices for the Company's
Common Stock for each quarter commencing on or after December 17, 1997, as
regularly quoted on the Nasdaq OTC Bulletin Board. The quotations reflect inter-
dealer prices, without retail mark-up, mark-down or commission, and may not
represent actual transactions.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Q3 FY 98 (commencing December 17, 1997) 5 1/2 5 1/2
Q4 FY 98 7 3/8 5 1/2
Q1 FY 99 9 1/8 6
Q2 FY 99 9 1
Q3 FY 99 2 3/16
Q4 FY 99 17/32 3/16
Q1 FY 00 9/32 3/32
Q2 FY 00 (through August 10, 1999) 7 1/6 5/32
</TABLE>
As of August 20, 1999, there were approximately 61 holders of record of the
Company's Common Stock. No dividends have been paid on the Common Stock since
the Company's inception, and the Company does not anticipate paying any
dividends in the foreseeable future.
Recent Sales of Unregistered Securities; Use of Proceeds From Registered
Securities
Recent Sales of Unregistered Securities
In July 1999, the Company issued 2,000 shares of its Series A Preferred
Stock to PE Corporation in exchange for $2,000,000.
In May 1999, Dr. Adlerstein, the Company's Chief Executive Officer
exercised an option to purchase 127,827 shares of the Company's Common Stock.
In October 1998, the Company issued 15,000 shares of Common Stock in
exchange for the assets of Laser Diagnostics.
In March 1998, the Company issued 22,000 shares of Common Stock as a gift
to a certain charitable organization.
In February 1998, the Company issued to a consultant 7,000 shares of Common
Stock as compensation in connection with a consulting services agreement between
such consultant and the Company.
In October 1997, the holder of a $300,000 promissory note converted such
note into 104,348 shares of Common Stock.
20
<PAGE>
In September 1997, the Company issued 8,166 shares of Common Stock in lieu
of interest payments on a note payable.
Use of Proceeds From Registered Securities.
In the Company's initial public offering ("Public Offering"), the Company
registered and sold 1,200,600 units, with each unit consisting of one share of
the Company's common stock and one redeemable warrant to purchase one share of
the Company's common stock, for an aggregate price of $6,903,450. In connection
with the Public Offering, the issuer allowed underwriting discounts and
commissions of $690,345 and incurred aggregate expenses of $1,015,100, broken
down as follows: a non-accountable expense allowance of $207,104, a consulting
fee in the amount of $100,000 and offering expenses of $707,996. Net offering
proceeds to the Company after deducting expenses were $5,198,055. Of the net
proceeds, approximately $250,000 has been used to pay professional fees,
approximately $1,620,000 has been used to repay indebtedness, including
approximately $75,000 of indebtedness to officers and directors of the Company,
and approximately $620,000 has been used towards repayment of accounts payable.
The remaining proceeds were allocated substantially as set forth in the
prospectus (the "Prospectus") included in the Registration Statement (File No.
333-31843) relating to the Public Offering. This use of proceeds does not
represent a material change in the use of proceeds described in the Prospectus.
21
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------
The following discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements and Notes thereto included
elsewhere in this Annual Report on Form 10-KSB. All statements contained herein
that are not historical facts, including, but not limited to, statements
regarding SpectruMedix Corporation (the "Company") and its current business
strategy, projected sources and uses of cash, and plans for future development
and operation, are based on current expectations. The statements are forward-
looking in nature and involve a number of risks and uncertainties. Actual
results may differ materially. The risks and uncertainties are described more
fully under the heading "Risk Factors," and include, but are not limited to, the
ability of the Company to obtain the necessary funds to continue it operations.
The Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which statements are made pursuant to the Private
Litigation Reform Act of 1995 and, as such, speak only as of the date made.
Overview
During the period from April 1992 (inception) through June 1992, the
Company was engaged in organizational activities, including negotiating
agreements with the Bankruptcy Court in Harrisburg, Pennsylvania to lease, on a
temporary basis, the assets and facilities of Nuclide Corporation ("Nuclide")
and Measurement and Analytic Systems, Inc. ("MAAS"). In December 1992, via court
order, the Company acquired the assets of Nuclide and MAAS. In April 1993, the
Company acquired all the assets of Lab Data, including an inventory of computer
hardware and a complete line of data acquisition and instrument control
software. Since June 1992, the Company has devoted substantially all of its
resources to upgrade and improve the Company's existing line of instrumentation
(Mass Spectrometers, Luminoscopes, etc.), electronic components and software and
to initiate the Company's strategy of carving out new and commercially promising
areas of application for its instrumentation and its scientific expertise and
capabilities, as well as finding new technologies that lie within its technical
purview for licensing and commercialization. The Company sells a line of
magnetic sector mass spectrometers, new and improved Luminoscope add-ons, and
high-performance software for a variety of applications in the petrochemical,
environmental and geochemical areas, among others. Sales of these products,
however, has been limited. Accordingly, the Company has shifted its focus to the
commercialization of the DNA Sequencer.
The Company has not been profitable since inception and had an accumulated
deficit of $11,512,689 at March 31, 1999. Successful future operations depend
upon the Company's ability to develop and commercialize its products.
The Company has financed its operations primarily through the private sale
and issuance of equity securities and proceeds from an initial public offering
(the "Public Offering") of equity securities during September 1997. All such
funds have been utilized by the Company and since January 1999 the Company has
relied on cash infusions from its Chief Executive Officer. On July 30, 1999, the
Company restructured its license agreement with the ISURF for technology used to
develop the DNA Sequencer and entered into a sublicense agreement relating to
certain of such technology with PE Bio. In connection with the sublicense
agreement, PE Bio made an investment in the Company and retained the Company as
a consultant.
The aggregate gross proceeds from the sublicense and related agreements
with PE Bio will provide the Company with additional liquidity, and allow it to
pay amounts owing under its license agreements, and, the Company believes, meet
its current obligations over the next twelve months. There can be no assurance,
however, that such funds will be sufficient. In order to proceed with the
realization of its plans for development and growth, the Company anticipates
that over the next twelve months it will need significant additional capital to
greatly expand its manufacturing capabilities, and launch a substantial sales
and marketing campaign.
The Company was awarded a grant from the United States Department of Energy
during September 1997 which paid the Company $75,000 over a period of six
months, subject to certain terms and conditions, and through March 31, 1998,
grant proceeds of $75,000 have been received. In addition, the Company has been
awarded a Phase II award by the Department of Energy's Small Business
Innovations Research Program and has acquired a Phase I STTR through its
acquisition of the assets of Laser Diagnostic. The respective amounts of these
awards are $750,000 over a period of eighteen months, and $100,000 over a period
of twelve months, in each case, subject to certain terms and conditions. Through
March 31, 1999, grant proceeds of $521,654 have been received.
22
<PAGE>
Results of Operations for the Years Ended March 31, 1999 and 1998
The Company had total revenue of $317,672 and $341,813 for the fiscal years
ended March 31, 1999 and 1998, respectively. Revenue for both periods reflect
sales from old product lines. To date, the Company has received limited revenues
from the sales of products. The decreases in revenue of $24,141, or
approximately 7%, during fiscal year 1999 and $220,497, or approximately 39%,
during fiscal year 1998, were due primarily to the increased focus of the
Company on its various research and development, commercialization and
fundraising efforts, which resulted in the shifting of key personnel from sales
and marketing into such activities, and secondarily to the lack of any full time
sales and marketing staff.
Of the total revenue discussed above, revenue derived from the sale of the
Company's services totaled $38,491 and $71,938 for the fiscal years ended March
31, 1999 and 1998, respectively. The decrease in service revenue of $33,447, or
approximately 46%, during fiscal year 1999 was due to the non-renewal of one
major service contract ascribable entirely to the discontinued use of the
underlying instrumentation by the customer.
Research and development expenses decreased 18% to $1,050,933 in 1999 due
to the offsetting SBIR research grant and increased 132% in 1998 to $1,279,959,
due primarily to increased expenditures for the Company's new licensed
technologies. The proceeds of the public offering in September 1997 and the
Bridge Financing during the second half of the fiscal year ended March 31, 1997,
enabled the Company to increase its research and development activities, which
are dependent primarily on cash availability. The Company anticipates that
research and development expenses will increase for fiscal year 2000 as a result
of expenses relating to its license agreements with ISURF, and its license and
research and development agreements with the University of Pennsylvania.
General and administrative expenses were $1,380,630 and $1,282,002 during
the fiscal years ended March 31, 1999 and 1998, respectively, an increase of
$98,636, or approximately 8% in fiscal 1999. Approximately $386,118 and $355,125
of general and administrative expenses for the fiscal years ended March 31, 1999
and 1998, respectively, were attributable to payroll, payroll taxes and employee
benefits. This represents an increase of $30,993 during fiscal 1999 as compared
to the preceding fiscal year. During fiscal 1999, legal, accounting and
consulting fees increased by $149,349 to $611,600. The Company expects its
general and administrative expenses to increase in the future as a result of
further Company expansion.
Interest expense of $13,527 and $133,372 for the fiscal years ended March
31, 1999 and 1998, respectively, resulted from borrowings. Interest expense
decreased during fiscal 1999 due to the repayment of outstanding debt from the
proceeds of the Company's initial public offering. Interest expense decreased
during fiscal 1998 primarily because the obligations which caused such interest
expense were repaid during September 1997 and October 1997.
23
<PAGE>
Liquidity and Capital Resources
From its inception through March 1999, the Company has financed its
operations primarily through the sale of equity securities and loans, most of
which loans were repaid with the proceeds from the Company's initial public
offering. All of such funds were expended on the development and
commercialization of the Company's products. Since January 1999, the Company has
been primarily dependent on funds advanced by its Chief Executive Officer to
meet payroll and expenses, and the Company has failed to make payments under its
license agreements. As a result of its financial condition, the Company was not
able to exercise or renew its option with the University of California, Berkeley
relating to diagnostic kinetics technology.
On July 30, 1999, the Company restructured its license agreement with ISURF
for technology used to develop the Company's DNA Sequencer and entered into a
sublicense agreement relating to certain of such technology with PE Bio. In
connection with the sublicense agreement, PE Bio made an investment in the
Company. PE Bio also retained the Company as a consultant.
The aggregate $5,000,000 in gross proceeds from the sublicense and
other agreements with PE Bio will provide the Company with additional
liquidity, allow it to pay amounts owing under its license agreement with ISURF,
complete the commercialization of the DNA Sequencer and, the Company believes,
meet all of its existing obligations over the next twelve months. There can be
no assurance, however, that such Funds will be sufficient. In order to further
develop and expand the business in accordance with it plans, the Company
anticipates that over the next twelve months it will need significant additional
capital to greatly expand its manufacturing capabilities, launch a substantial
sales and marketing program, pay various required license and milestone fees,
establish third-party collaborations and pursue additional research and
development. The Company's capital requirements depend on many factors,
including the status of the development of its products, obtaining manufacturing
capabilities to produce its products in volume, prosecuting and enforcing its
intellectual property rights, competing technological and market developments,
and the ability of the Company to develop new collaborative and licensing
arrangements.
If the Company is unable to obtain the necessary funds, by issuing equity
or debt securities, entering into collaborative agreements or obtaining grants,
it will not be able to complete the commercialization of its DNA Sequencer or
the development of its other products and may not be able to continue its
operations.
24
<PAGE>
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities", which establishes accounting and reporting standards for derivative
instruments. The Company does not expect that the adoption of this standard will
have a material effect on the Company.
Year 2000 Compliance
The Company is in the process of assessing the impact of year 2000 on its
operations and systems, including those of its suppliers and collaborators and
other third parties. Management is in the process of formalizing its assessment
procedures and developing a plan to address identified issues, if any. To date,
the Company has evaluated its financial and accounting systems and believes that
these systems are not and will not be materially affected by the year 2000.
The Company has determined that the software developed by the Company in
support of the instrumentation sold by the Company is year 2000 compliant. The
Company has not determined if all the components produced by third parties and
used in the Company's products are year 2000 compliant. The Company has
requested its vendors to certify that the products purchased by the Company from
such vendors are year 2000 compliant, but not all the vendors have responded to
the Company's request. If the vendors of such components can not certify to the
Company that such components are year 2000 compliant, the Company will have to
locate other suppliers.
The Company does not yet know the extent, if any, of the impact of the year
2000 on its other systems and equipment or those of third parties with which the
Company does business. There can be no assurance that third parties, such as
suppliers, clinical research organizations and collaborative parties, are using
systems that are year 2000 compliant or will address any year 2000 issues in a
timely fashion, or at all. The Company is developing contingency plans in the
event that certain of its vendors, suppliers of collaborative partners are not
year 2000 compliant. Such contingency plans include locating additional
suppliers and modifying systems. Certain of the Company's suppliers produce
highly specialized instrumentation and it may prove difficult to locate
alternate suppliers.
Any year 2000 compliance problems of the Company, its suppliers, its
clinical research organizations, or its collaborative partners could have a
material adverse effect on the Company's business, operating results and
financial conditions.
25
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
--------------------
SpectruMedix Corporation
Index to Financial Statements
Page
Report of Independent Accountants............................. F-2
Balance Sheets as of March 31, 1999 and 1998.................. F-3
Statements of Operations for the years ended March 31, 1999
and 1998.................................................... F-4
Statements of Stockholders' Equity (Deficit) for the years
ended March 31, 1999 and 1998............................... F-5
Statements of Cash Flows for the years ended March 31, 1999
and 1998.................................................... F-6
Notes to Financial Statements................................. F-7
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of
SpectruMedix Corporation
In our opinion, the accompanying balance sheets and the related statements of
operations, of stockholders' equity (deficit) and of cash flows present fairly,
in all material respects, the financial position of SpectruMedix Corporation as
of March 31, 1999 and 1998, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
which raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
PricewaterhouseCoopers LLP
New York, New York
July 9, 1999, except as to the information presented
in Note 18 for which the date is July 30, 1999
F-2
<PAGE>
SpectruMedix Corporation
Balance Sheets
<TABLE>
<CAPTION>
March 31,
1999 1998
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 20,318 $ 1,680,643
Accounts receivable 55,319 12,806
Inventories 527,979 381,393
Prepaid expenses 4,582 49,426
----------------- -----------------
Total current assets 608,198 2,124,268
----------------- -----------------
Property and equipment, net 463,536 279,717
Patent fees 358,816 216,947
License and license options, net of accumulated
amortization of $88,672 and $35,669 106,343 159,346
Security deposit 8,479 8,479
----------------- -----------------
Total assets $ 1,545,372 $ 2,788,757
================= =================
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses $ 2,389,486 $ 1,132,580
Current portion of long-term obligations 29,926 5,041
Customer deposits - 5,960
Officer's note 161,423 -
----------------- -----------------
Total current liabilities 2,580,835 1,143,581
----------------- -----------------
Long-term obligations, net of current portion 103,273 29,217
----------------- -----------------
Commitments and contingencies - -
Stockholders' equity (deficit)
Preferred stock, $.00115 par value, 2,000,000 shares
authorized, none issued or outstanding - -
Common stock, $.00115 par value, 23,000,000 shares
authorized, 3,530,214 and 3,515,214 shares issued
and outstanding at March 31, 1999 and 1998,
respectively 4,059 4,042
Additional paid-in-capital 10,631,756 10,623,823
Accumulated deficit (11,512,684) (8,570,152)
----------------- -----------------
(876,869) 2,057,713
Less: deferred compensation (261,867) (441,754)
----------------- -----------------
Total stockholders' equity (deficit) (1,138,736) 1,615,959
----------------- -----------------
Total liabilities and stockholders' equity (deficit) $ 1,545,372 $ 2,788,757
----------------- -----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
SpectruMedix Corporation
Statements of Operations
<TABLE>
<CAPTION>
For the Year Ended
March 31,
1999 1998
<S> <C> <C>
Revenues:
Products $ 279,181 $ 269,875
Services 38,491 71,938
------------------ -----------------
Total revenue 317,672 341,813
------------------ -----------------
Cost of revenues:
Products 815,416 292,311
Services 15,748 28,775
------------------ -----------------
Total cost of revenues 831,164 321,086
------------------ -----------------
Gross profit (loss) (513,492) 20,727
------------------ -----------------
Operating expenses:
Research and development, net 1,050,933 1,279,959
General and administrative 1,380,638 1,282,002
------------------ -----------------
Total operating expenses 2,431,571 2,561,961
------------------ -----------------
Loss from operations (2,945,063) (2,541,234)
------------------ -----------------
Other income (expense):
Interest income 16,058 47,695
Amortization of original issue discount and deferred
bridge financing costs - (1,674,705)
Interest expense (13,527) (133,372)
------------------ -----------------
Total other income (expense) 2,531 (1,760,382)
------------------ -----------------
Loss from operations before extraordinary items (2,942,532) (4,301,616)
Extraordinary item:
Gain on forgiveness of debt - 252,396
------------------ -----------------
Net loss $ (2,942,532) $ (4,049,220)
================== =================
Basic and diluted loss per share:
Loss from operations before extraordinary item $ (0.84) $ (1.51)
Extraordinary item - 0.09
------------------ -----------------
Basic and diluted loss per share $ (0.84) $ (1.42)
================== =================
Weighted average common shares outstanding
used for basic and diluted loss per share 3,521,419 2,846,749
------------------ -----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
SpectruMedix Corporation
Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-In Accumulated Deferred Stockholders'
Shares Amount Capital Deficit Compensation Equity (Deficit)
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1997 2,173,100 $2,499 $ 3,013,053 $ (4,520,932) - $ (1,505,380)
Issuance of common shares and
warrants in connection with initial
public offering, net of offering costs
of $1,705,395 1,200,600 1,381 5,196,674 - 5,198,055
Issuance of warrants in connection
with bridge financing restructuring - - 869,007 - 869,007
Issuance of common shares
in lieu of interest payments 8,166 9 37,557 - 37,566
Issuance of common shares
upon conversion of note payable 104,348 120 299,880 - 300,000
Issuance of common shares
to consultant 7,000 8 43,742 - 43,750
Issuance of common shares
as charitable contribution 22,000 25 140,225 - 140,250
Compensatory stock options issued
to non-employees - - 629,285 - $ (441,754) 187,531
Issuance of common stock warrants
in connection with note payable - - 394,400 - - 394,400
Net loss - - - (4,049,220) - (4,049,220)
-------------- --------- ------------- ------------ ------------- --------------
Balance at March 31, 1998 3,515,214 4,042 10,623,823 (8,570,152) (441,754) 1,615,959
Issuance of common stock in
in connection with asset purchase 15,000 17 7,933 - - 7,950
Amortization of compensatory stock
options issued to non-employees - - - - 179,887 179,887
Net loss - - - (2,942,532) - (2,942,532)
-------------- --------- ------------- ------------ ------------- --------------
Balance at March 31, 1999 3,530,214 $4,059 $ 10,631,756 $(11,512,684) $ (261,867) $ (1,138,736)
============== ========= ============= ============ ============= ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
SpectruMedix Corporation
Statements of Cash Flows
<TABLE>
<CAPTION>
For the Year Ended
March 31,
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,942,532) $ (4,049,220)
Adjustments to reconcile net loss to net cash used
in operating activities:
Amortization of original issue discount and deferred
bridge financing costs - 1,674,705
Extraordinary gain on forgiveness of debt - (252,396)
Depreciation and amortization 148,899 64,128
Noncash compensation expense 179,887 192,446
Noncash charitable contribution - 140,250
Noncash interest expense 4,843 37,566
Changes in assets and liabilities:
Accounts receivable (42,513) 68,147
Inventory (146,856) (271,943)
Prepaid expenses 44,844 (10,591)
Other assets (148,006) (345,487)
Accounts payable and accrued expenses 1,252,063 32,971
Customer deposits (5,960) 5,960
----------------- ----------------
Net cash used by operating activities (1,655,331) (2,713,464)
----------------- ----------------
Cash flows from investing activities:
Capital expenditures (144,635) (212,216)
----------------- ----------------
Net cash used by investing activities (144,635) (212,216)
----------------- ----------------
Cash flows from financing activities:
Repayment of bridge financing - (805,000)
Proceeds from notes payable - others - 495,000
Repayment of notes payable - others - (885,728)
Principal payments on long term obligations (21,782) (2,356)
Proceeds from initial public offering, net - 5,198,055
Deferred initial public offering costs - 328,228
Proceeds from officer's notes 161,423 -
Repayment of officer's notes - (74,166)
----------------- ----------------
Net cash provided by financing activities 139,641 4,254,033
----------------- ----------------
Net (decrease) increase in cash and cash equivalents (1,660,325) 1,328,353
Cash and cash equivalents, at beginning of period 1,680,643 352,290
----------------- ----------------
Cash and cash equivalents, at end of period $ 20,318 $ 1,680,643
================= ================
Supplemental disclosures of cash flows information
Cash paid during the year for
Interest $ 8,684 $ 95,806
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
SpectruMedix Corporation
Notes to Financial Statements
March 31, 1999 and 1998
1. The Company
SpectruMedix Corporation (the "Company") was incorporated in the State of
Delaware on April 16, 1992. The Company develops, manufactures, and markets
high technology measuring instruments and software packages with a strong
focus on DNA sequencing instrumentation and other medical and scientific
technologies and associated instrumentations. The Company also provides
systems maintenance for the measuring instruments it manufactures.
2. Basis of Presentation
These financial statements have been prepared assuming the Company will
continue as a going concern. The Company has limited capital resources,
incurred substantial losses since its inception in 1992, and expects to incur
additional losses to complete the commercialization of its technologies.
These conditions raise substantial doubt about the Company's ability to
continue as a going concern. The Company's ability to continue as a going
concern is dependent upon its ability to generate sufficient cash flow to meet
its obligations as they come due. Management is actively pursuing various
options; which include securing additional equity financing and believes that
sufficient funding will be available to meet its planned business objectives.
However, no assurance can be made that the Company will be able to secure
additional equity financing. (See subsequent events - Note 18) These financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
3. Summary of Significant Accounting Policies
Use of estimates
To prepare financial statements in accordance with generally accepted
accounting principles, management makes certain estimates and assumptions,
where applicable, that affect the reported amounts of assets and liabilities
at the date of the financial statements, as well as the reported amounts of
revenues and expenses during the reporting period. Certain material estimates
include the carrying value of inventory and the continued use of intangible
assets (see Note 18). Actual results could differ from those estimates and
the difference could be material.
Cash and cash equivalents
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. The Company invests
its excess cash in certificates of deposit and money market funds of major
financial institutions which are subject to minimal credit and market risk.
Supplemental cash flow information
In September 1997, the Company issued 8,166 shares of its common stock valued
at approximately $4.60 per share in lieu of interest payments on a note.
In October 1997, the Company financed the purchase of transportation equipment
through the issuance of long-term debt in the amount of $36,614.
F-7
<PAGE>
SpectruMedix Corporation
Notes to Financial Statements
March 31, 1999 and 1998
During the year ended March 31, 1998, the holder of a $300,000 promissory note
elected to convert the principal into 104,348 shares of the Company's common
stock.
In February 1998, the Company issued 7,000 shares of its common stock valued
at approximately $6.25 per share in exchange for services to be provided by a
consultant.
In March 1998, the Company donated 22,000 shares of its common stock valued at
approximately $6.38 per share to a charitable organization.
During the year ended March 31, 1999, the Company issued 15,000 common stock
valued at approximately $0.53 per share as consideration for the purchase of
certain assets of another company.
During the year ended March 31, 1999, the Company acquired $120,723 of assets
under a capital lease.
Revenue recognition
Revenue from the sale of products is recognized at the time goods are shipped.
Revenue from maintenance and service agreements is recognized over the terms
of the agreements. Related costs are charged to expense in the period
incurred.
Research and development
Research and development costs, other than software development costs, are
charged to expense as incurred and are reported net of grants received from
U.S. federal agencies. Grants received for the years ended March 31, 1999 and
1998, were $521,654 and $75,000 respectively. Software development costs
incurred to establish technological feasibility of the Company's products are
charged to expense when incurred. Costs incurred subsequent to the
establishment of technological feasibility are capitalized. As of March 31,
1999, no software development costs have been capitalized. Capitalization of
computer software costs is discontinued when the product is available to be
sold or leased.
Costs of maintenance and customer support are expensed when the related
revenue is recognized or when the costs are incurred, whichever occurs first.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
Property and equipment
Property and equipment are stated at cost. Depreciation and amortization are
provided on a straight-line basis over the estimated useful lives of the
assets, as follows:
F-8
<PAGE>
SpectruMedix Corporation
Notes to Financial Statements
March 31, 1999 and 1998
Equipment 5 years
Furniture and fixtures 7 years
Transportation equipment 5 years
Property improvements Shorter of lease term or estimated useful life
Expenditures for maintenance and repairs are charged to expense when incurred.
License fees
License fees include costs of obtaining licensed technology and are amortized
over the shorter of their estimated useful lives or the agreement terms.
Patent fees
The Company has incurred patent application and related legal fees through
March 31, 1999 and 1998 of $364,953 and $216,947, respectively. If patents
are granted, the patent fees will be amortized over the expected useful lives
of the patents, or otherwise expensed. During the year ended March 31, 1999,
approximately $6,137 of costs associated with an abandoned patent application
were charged to expense.
Fair value of financial instruments
The carrying value of accounts receivable, accounts payable and accrued
expenses, and officer's note approximate their fair values due to the
relatively short maturity of these instruments.
Income taxes
Income taxes are accounted for under the asset and liability method. Deferred
income taxes are recorded for temporary differences between financial
statement carrying amounts and the tax basis of assets and liabilities.
Deferred tax assets and liabilities reflect the tax rates expected to be in
effect for the years in which the differences are expected to reverse. A
valuation allowance is provided if it is more likely than not that some or all
of the deferred tax asset will not be realized.
Loss per share
Loss per share is accounted for under Financial Accounting Standards No. 128,
"Earnings per Share" ("FAS 128") which requires presentation of basic earnings
per share ("Basic EPS") and diluted earnings per share ("Diluted EPS"). FAS
128 also requires presentation of earnings per share by an entity that has
made a filing or is in the process of filing with a regulatory agency in
preparation for the sale of those securities in a public market. Basic EPS is
computed by dividing income available to common stockholders by the weighted
average number of common stock outstanding during the period. Diluted EPS
adjusts the Basic EPS to give effect to all potentially dilutive common stock
equivalents (options, warrants, convertible securities or contingent stock
arrangements) outstanding during the period. The computation of Diluted EPS
does not assume conversion, exercise or contingent exercise of securities that
would be antidilutive.
At March 31, 1998 and 1999, outstanding options and warrants to purchase
2,761,892 and 2,852,150, respectively, shares of common stock with exercise
prices ranging from $.00115 to $12.38 per share have been excluded from the
computation of diluted loss per share as they were antidilutive.
F-9
<PAGE>
SpectruMedix Corporation
Notes to Financial Statements
March 31, 1999 and 1998
New accounting pronouncements
In June 1998, the FASB issued Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"),
which establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the Statement of Financial
Position and measure those instruments at fair value. FAS 133 is effective
for fiscal years beginning after June 15, 2000. This statement should not be
applied retroactively to financial statements of prior periods. The adoption
of FAS 133 is not expected to have a material impact on the Company's
financial statements.
4. Inventories
The components of inventory as of March 31, 1999 and 1998 are as follows:
1999 1998
Raw materials $ 201,505 $ 238,710
Work-in-process 203,889 142,683
Finished goods 122,585 -
----------- -----------
$ 527,979 $ 381,393
=========== ===========
The Company allocates general and administrative expenses to inventory based
on the degree to which its infrastructure is utilized for manufacturing
purposes. At March 31, 1999 and 1998, general and administrative expenses
included in inventory amounted to $74,759 and $43,347, respectively.
F-10
<PAGE>
SpectruMedix Corporation
Notes to Financial Statements
March 31, 1999 and 1998
5. Property and Equipment
Property and equipment consists of the following as of March 31, 1999 and
1998:
1999 1998
Equipment $ 616,498 $343,190
Furniture and fixtures 1,006 1,006
Transportation equipment 38,339 38,339
Property improvements 2,589 2,589
------------ ------------
658,432 385,124
Less - accumulated depreciation and amortization (194,896) (105,407)
------------ ------------
$ 463,536 $279,717
============ ============
Equipment includes $120,723 of assets acquired under capital leases during the
year ended March 31, 1999. Accumulated depreciation related to those assets
was $10,415 at March 31, 1999.
6. License, License Options and Sponsored Research Agreements
In March 1998, the Company entered into a license agreement with the research
department of a major university. Under the terms of the agreement, the
Company has been granted an exclusive worldwide license to make, have made,
use, and sell products derived from the licensed technologies. In
consideration of the license grant, the Company is obligated to pay royalties
equal to a specified percentage of net sales of products incorporating the
licensed technologies, subject to annual minimums beginning in 2002, and
annual license maintenance fees until minimum royalties are due. In the event
the Company sublicenses any technologies covered by this agreement, the
university is entitled to receive a significant percentage of the sublicense
revenue. The Company has also agreed to sponsor further research by the
university for the development of the licensed technologies for a period of
one year from the date of the agreement in exchange for a cash payment and the
use of certain services, equipment and related support not to exceed $160,000.
Costs incurred in connection with sponsored research amounted to $4,995 during
the year ended March 31, 1999.
In May 1995, the Company entered into an option agreement at a cost of $15,000
with the research department of a major university which, upon exercise, would
grant the Company an exclusive license to manufacture, use, and sell DNA
sequencers. The option was exercised in December 1996. In June 1997, the
Company entered into a license agreement with the university that expires upon
termination of the last patented item to be acquired under the agreement. In
connection therewith, the Company paid a license issuance fee of $150,000. In
additional consideration of the license grant, the Company is obligated to pay
royalties equal to a specified percentage of net sales of products
incorporating the licensed technologies, subject to annual minimums.
Additionally, in the event the Company sublicenses any technologies covered by
this agreement, the university is entitled to receive a significant percentage
of the sublicense revenue. During the year ended March 31, 1999,
F-11
<PAGE>
SpectruMedix Corporation
Notes to Financial Statements
March 31, 1999 and 1998
the Company extended the due dates for minimum royalty payments until April
1999. (See Note 18).
In December 1996, the Company entered into an option agreement with the
research department of another major university which, upon exercise of the
option, would grant the Company an exclusive license for certain technology
relating to diagnostic kinetics, which the university has either patented or
intends to file patent applications. The option had been extended to February
1999. During the year ended March 31, 1999, the option expired unexercised.
The Company is obligated to pay aggregate sponsored research and development,
minimum royalty and license maintenance fees of $325,000 for the years ended
March 31, 2000 and 2001, and $250,000 per year, thereafter, until the last
patented item to be acquired under the agreements expires.
7. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses are comprised of the following at March
31, 1999 and 1998:
1999 1998
Trade accounts payable $ 823,726 $ 505,374
Accrued payroll tax interest and penalties 85,509 128,194
Accrued legal 385,817 274,826
Accrued sponsored research fees 399,757 110,829
Accrued license royalties 437,500 -
Other accrued liabilities 257,177 113,357
------------ -------------
$2,389,486 $1,132,580
============ =============
8. Notes Payable
In July, August and September 1997 the Company issued an aggregate of $495,000
in promissory notes to one investor. In connection therewith, the Company
issued the investor warrants to purchase 100,000 shares of the Company's
common stock at an exercise price $1.00 per share. The Company has valued the
warrants at $394,400 which was recorded as a debt discount and amortized over
the life of the notes. The notes were repaid in September 1997 upon the
closing of the Company's initial public offering ("IPO")(see Note 12).
In August 1994, the Company borrowed $300,000 pursuant to a convertible note
agreement. The note provided for 10% interest per annum, and was payable on
August 4, 1997. Pursuant to the note agreement, the Company had the option to
issue the noteholder shares of the Company's common stock in lieu of cash
interest payments. The Company has issued the noteholder 8,166 and 41,742
shares of common stock valued at approximately $4.60 per share and has
recorded interest expense
F-12
<PAGE>
SpectruMedix Corporation
Notes to Financial Statements
March 31, 1999 and 1998
of $37,566 in the year ended March 31, 1998. During the year ended March 31,
1998, the note was converted into 104,348 shares of the Company's common
stock.
9. Bridge Financing
From July 1996 through February 1997, the Company sold in a private placement
offering 16.1 units, each unit consisting of $100,000 of 10% promissory notes
and 34,783 shares of common stock for an aggregate purchase price of
$1,610,000. The shares were valued at approximately $4.60 per share and an
original issue discount on the notes of $2,576,000 was recorded (resulting in
an annualized effective interest rate of 170%). In connection with the
offering, the Company also incurred $167,432 of other financing costs related
to the bridge financing transaction, of which $103,808 and $63,624 have been
allocated to equity and debt, respectively. The original issue discount and
deferred financing costs were amortized on a straight-line basis through the
original maturity date of June 30, 1997.
In July 1997, effective upon the consummation of the Company's IPO (see Note
12), the Company renegotiated the terms of the Bridge Financing with its
noteholders. Under the revised terms, one-half of the face amount of the
promissory notes ($805,000) and accrued but unpaid interest thereon of
approximately $64,000 were converted into 322,000 warrants ("the Warrants") to
purchase units at an exercise price of $5.75 per unit (each unit consisting of
one share of common stock and one redeemable warrant to purchase one
additional share of common stock at an exercise price of $7.50 per share). The
Warrants are exercisable for a period of four years commencing one year from
the effective date of the IPO. The balance of the promissory notes, including
accrued but unpaid interest of approximately $64,000, were repaid from the
proceeds of the IPO.
10. Officer's Note
During the period between January and March 1999 an officer and stockholder
advanced the Company $161,423 under a note. The note bears interest at a rate
of 12% per annum and is due in December 1999. Interest expense on the note
was $4,843 for the year ended March 31, 1999 and was payable at March 31,
1999.
11. Long Term Obligations
In October 1997, the Company entered into a loan agreement for the purchase of
an automobile in the principal amount of $36,614, of which $29,916 and $34,258
was outstanding at March 31, 1999 and 1998, respectively. The loan bears
interest at 9% per annum and is due in 72 equal monthly installments of $660
through October 2003.
During the year ended March 31, 1999, the Company entered into three new
capital lease agreements.
F-13
<PAGE>
SpectruMedix Corporation
Notes to Financial Statements
March 31, 1999 and 1998
Future minimum annual payments due under long term obligations are as follows
at March 31, 1999:
Year
2000 $ 35,466
2001 35,266
2002 31,863
2003 30,387
2004 13,950
------------
146,932
Less: amount representing interest 13,733
------------
133,199
Less: current portion 29,926
------------
$103,273
============
12. Capital Stock
On June 30, 1997, the Company's Board of Directors declared an approximate
eight-for-nine (or .8695652:1) reverse stock split of the Company's common
stock. In addition, the Company reduced the authorized shares of preferred
stock from 5,000,000 to 2,000,000 and of common stock from 100,000,000 to
23,000,000. All shares of common stock, common stock options and warrants
included in these financial statements have been restated to give retroactive
effect to the reverse stock split for all periods presented.
In September 1997, the Company completed an IPO of 1,200,600 units (the
"Units"), each unit consisting of one share of the Company's common stock and
one redeemable Common Stock purchase warrant (the "Redeemable Warrants"), each
Redeemable Warrant entitling the holder to purchase one share of Common Stock
at an exercise price of $7.50 per share. The Redeemable Warrants are
exercisable for a period of four years commencing in September 1998 and are
subject to redemption by the Company at $.01 per Redeemable Warrant upon
thirty days written notice at any time after September 1998, provided the
market price (as defined) of the Company's common stock equals or exceeds
$10.00 per share. The Company realized gross proceeds from the IPO of
$6,903,450 and net proceeds, after deducting underwriting discounts and
commissions, and other offering expenses payable by the Company, of
$5,198,055.
In February 1998, the Company granted a consultant 7,000 shares of its common
stock in exchange for services to be provided by the consultant. The Company
has recorded $43,750 in consulting expense based upon the fair value of the
shares on the date of issue.
F-14
<PAGE>
SpectruMedix Corporation
Notes to Financial Statements
March 31, 1999 and 1998
In March 1998, the Company donated 22,000 shares of its common stock to a
charitable organization. The Company has recorded $140,250 in expense based
upon the fair value of the shares on the date of issue.
During the year ended March 31, 1999, the Company issued 15,000 common stock
valued at approximately $0.53 per share as consideration for the purchase of
certain assets of another company.
13. Stock Options and Warrants
In April 1992, the Company issued to its Chairman options to purchase 127,827
shares if its common stock at an exercise price of $.00115 per share, the
market value of the Company's common stock on the date of grant. The options
vested on the issuance date and expire in April 2012. As of March 31, 1999,
none of the options have been exercised.
During the years ended March 31, 1995 and 1996, the Company issued warrants to
purchase an aggregate of 73,914 shares of the Company's common stock at an
exercise price of $2.88 per share in connection with the issuance of notes
payable. The warrants expired unexercised in May 1999.
In September 1997, and in connection with the Company's IPO (see Note 12), the
Company granted the underwriters options to purchase 104,400 units (the
"Underwriter's Unit Purchase Options"). Each of the Underwriter's Unit
Purchase Options are exercisable to purchase one unit at $9.49, each unit
consisting of one share of the Company's common stock and one Class B
Redeemable Warrant. The Class B Redeemable Warrant is identical to the
Redeemable Warrants (see Note 12) except that it has an exercise price of
$12.38 per share and is subject to redemption in the event the market price of
the Company's common stock equals or exceeds $16.50 per share. The
Underwriters Unit Purchase Options are exercisable for a period of four years
commencing in September 1998.
In March 1997, the Company implemented its Stock Incentive Plan (the "Plan").
The Plan is divided into three separate equity programs: (i) the Discretionary
Option Grant Program; (ii) the Stock Issuance Program and (iii) the Automatic
Option Grant Program. The programs provide for the grant of incentive and
nonqualified stock options for the purchase of up to an aggregate of 500,000
shares of the Company's common stock to employees, members of the Board of
Directors and independent consultants to the Company. However, no participant
may receive option grants or direct stock issuances of more than 100,000
shares in the aggregate per calendar year. The exercise and vesting periods
for options granted under the Plan are determined by a Committee of the Board
of Directors. The Plan stipulates that no option may be (i) exercisable after
ten years from the date of grant, or (ii) granted with an exercise price less
than the fair market value of Common Stock on the option grant date. Option
vesting provisions are determined for each grant by the Company's Board of
Directors.
In June 1997, the Company granted options to purchase 217,403 shares of its
common stock to employees under the Plan at an exercise price of $4.60 per
share, the estimated fair value of the common stock on the date of grant. The
options vest in annual installments over a four-year period commencing in June
1997 and are exercisable for a period of ten years from the date of grant.
F-15
<PAGE>
SpectruMedix Corporation
Notes to Financial Statements
March 31, 1999 and 1998
In May 1998, the Company granted options to purchase 57,000 shares of its
common stock to employees under the Plan at an exercise price of $6.25 per
share, the estimated fair value of the commons stock on the date of grant.
The options vest in annual installments over a four-year period commencing in
May 1998 and are exercisable for a period of ten years from the date of grant.
Transactions under the Plan are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------- --------------------------
Weighted Weighted
Average Average
Number Exercise Number Exercise
of Shares Price of Shares Price
<S> <C> <C> <C> <C>
Options outstanding at beginning of year 207,836 $ 4.60 - -
Options granted 57,000 6.25 217,403 $ 4.60
Options forfeited (27,828) 4.60 (9,567) 4.60
----------- ----------- ----------- -----------
Options outstanding at end of year 237,008 $ 5.00 207,836 $ 4.60
=========== =========== =========== ===========
Options available for future grant at March 31, 1999 262,992
===========
Weighted average fair value of options granted during the year
ended March 31, 1999 $ 3.55 $ 2.63
----------- -----------
</TABLE>
Exercise Options Outstanding at Weighted Average Years
Price March 31, 1999 Remaining Contractual Life
At $4.60 180,008 8.2
At $6.25 57,000 9.9
In April and June 1997, the Company granted non-plan options to purchase
173,915 shares of its common stock to consultants. The options have an
exercise price of $2.88 per share and expire in April 2007. The estimated
fair value of the Company's common stock at the date of grant was $4.60 per
share. On the dates of grant, a total of 17,392 of such options vested
immediately. The remaining options vest over a three-year period commencing
on the grant dates. During the year ended March 31, 1998, the Company
recorded $543,485 in deferred compensation expense related to these options
that is being amortized over the vesting period.
In December 1997, the Company granted non-plan options to purchase 25,000
shares of its common stock to a consultant. The options have an exercise
price of $6.00 per share, the estimated fair value
F-16
<PAGE>
SpectruMedix Corporation
Notes to Financial Statements
March 31, 1999 and 1998
of the common stock on the date of grant, and expire in December 2007.
The options vest in equal annual installments over a five-year period
beginning in December 1998. During the year ended March 31, 1998, the Company
recorded $85,800 in deferred compensation expense related to these options
that is being amortized over the vesting period.
In May 1998, the Company granted non-plan options to purchase 35,000 shares of
its common stock to a consultant. The options have an exercise price of $5.00
per share, vest in one year from the date of grant, and expire in May 2008.
In June 1998, the Company granted non-plan options to purchase 100,000 shares
of its common stock to consultants. The options have an exercise price of
$10.00 per share, the estimated fair value of the common stock on the date of
grant, and expire in June 2008. The options vest in equal annual installments
over a three-year period beginning in June 1998. In the event the Company
receives $5,000,000 or more in equity investments, milestone payments and
research support from a collaborative partner, one-half of the then unvested
shares will become vested. The remaining unvested shares would vest over the
remaining term of the original three-year period. However, upon a second
qualifying collaboration, the remaining unvested shares would vest.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
its Plan and other stock-based compensation issued to employees and directors.
Had compensation cost for options grants to employees been determined based
upon the fair value at the date of grant for awards under the Plan consistent
with the methodology prescribed under Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation," ("FAS 123"), the Company's net loss
and loss per share for the years ended March 31, 1999 and 1998 would have
increased by approximately $240,000 or $.07 and $173,000 or $0.06,
respectively.
The fair values of options granted to employees and consultants during the
years ended March 31, 1999 and 1998 have been determined on the date of the
respective grant using the Black-Scholes option pricing model based on the
following assumptions:
1999 1998
Dividend yield None None
Weighted average risk free interest rate on date of grant 5.53 6.00
Volatility 60% 60%
Forfeitures None None
Weighted average expected life 9 years 5 years
14. Commitments
In July 1996, the Company entered into an agreement to lease office and
factory space in State College, Pennsylvania for one year at an annual rent of
$101,750. The Company has an option in perpetuity to renew the lease for
additional one-year periods that must be exercised within three months of the
end of the lease term for the respective year. During the fiscal year ended
March 31, 1999, the Company exercised its option to renew the lease through
June 30, 2000.
F-17
<PAGE>
SpectruMedix Corporation
Notes to Financial Statements
March 31, 1999 and 1998
In March 1997, the Company entered into a three-year employment agreement with
its Chairman of the Board of Directors, President and Chief Executive Officer.
The agreement provides for annual compensation of $96,000, annual minimum
increases of 5% and annual bonuses of up to 25% of base salary plus $24,000
through the term of the agreement for past services rendered.
During the year ended March 31, 1998, the Company entered into several
consulting agreements that expire in 2002. Under the terms of the agreements,
the Company is obligated to pay aggregate annual consulting fees of $120,000.
15. Income Taxes
The Company has incurred losses since inception which have generated net
operating loss carryforwards of approximately $11,638,000 and $8,268,000 at
March 31, 1999 and 1998, respectively, for federal and state income tax
purposes. These carryforwards are available to offset future taxable income
and will expire in years 2006 through 2019 for federal income tax purposes.
These losses may be subject to limitation on future years' utilization should
certain ownership changes occur
The net operating loss carryforwards and temporary differences between
carrying amounts of assets and liabilities for financial reporting and income
tax purposes result in a net deferred tax benefit of approximately $4,655,000
and $3,307,000 at March 31, 1999 and 1998, respectively. In consideration of
the Company's accumulated losses and uncertainty about its ability to utilize
this deferred tax benefit in the future, the Company has recorded a valuation
allowance of an equal amount on such dates to fully offset the deferred tax
benefit amount.
For the years ended March 31, 1999 and 1998, the Company's effective tax rates
differ from the federal statutory rate principally due to net operating losses
for which no benefit has been recorded, state taxes and other permanent
differences.
16. Economic Dependency
To date, the Company's revenues have been materially dependent on a limited
number of customers. The nature of the Company's business (see Note 1) is such
that during any individual accounting period it may sell its products to a
limited number of significant customers. During the year ended March 31,
1999, product sales consisted of approximately 24%, 15% and 12% to three
separate customers. During the year ended March 31, 1998, product sales
consisted of approximately 15%, 14% 13% and 12% to four separate customers.
The Company's existing and proposed products require high quality raw
materials and components that the Company purchases from third party
suppliers. The Company believes adequate sources of supply exist for all raw
materials and components it will need, and that such items are available on
commercially reasonable terms.
17. Legal Proceedings
F-18
<PAGE>
SpectruMedix Corporation
Notes to Financial Statements
March 31, 1999 and 1998
Rubin Matter
On April 21, 1997, a complaint was filed in the Supreme Court of the State of
New York alleging breach of contract. Specifically, the plaintiff alleges
that the Company defaulted under a promissory note issued to plaintiff on May
16, 1996 in the amount of $175,000 (the "Rubin Note") while such Note was
outstanding and therefore that the Company is liable and indebted to plaintiff
in the principal amount of $175,000, together with interest and expenses. The
Company, on May 2, 1997, paid the principal and interest due under the Rubin
Note. The main remaining issue asserted by the plaintiff is whether, pursuant
to an alleged related agreement, the plaintiff is entitled to 152,174 shares
(adjusted to reflect stock splits) of Common Stock or, alternatively,
$875,000. Plaintiff alleges that the Company undertook to enter into a
securities purchase agreement pursuant to which he should have received the
aforementioned shares of Common Stock. The Company contends that such
securities purchase agreement was never discussed and therefore that no
agreement was reached with respect to the terms thereof. Such securities
purchase agreement was not signed by either of the parties to the Rubin Note.
The Company believes that it has meritorious defenses to the above-described
claims and it intends to defend the litigation vigorously. However, due to
the nature of litigation and because the lawsuit is in the initial stages, the
Company cannot determine the total expense or possible loss, if any, that may
ultimately be incurred either in the context of a trial or as a result of a
negotiated settlement. While management believes that the resolution of this
matter will not have a material adverse affect on the Company's business
financial condition and results of operations, the results of these
proceedings are uncertain and there can be no assurance to that effect.
Regardless of the ultimate outcome of the litigation, it could result in
significant diversion of time by the Company's personnel.
18. Subsequent Events
Stock options
In May 1999, the Company granted options to purchase 28,500 shares of its
common stock to employees under the Plan at an exercise price of $0.0938 per
share, the estimated fair value of the common stock on the date of grant. The
options vest in annual installments over a four-year period commencing in May
1999 and are exercisable for a period of ten years from the date of grant.
Additionally, in May 1999, the Company provided to its employees an
opportunity to exchange the options they previously received under the Plan
for new options ("New Options"). The New Options have the same terms as the
options granted under the Plan except that the exercise price has been changed
from $4.60 to $0.0938 per share, the estimated fair value of the common stock
on the date the New Options were granted. In connection with the exchange,
237,008 New Options were granted. Commencing on the effective date of a
proposed interpretation of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", the Company will be required to
recognize compensation expense related to the New Option grants based on the
extent to which the future fair value of the Company's common stock is greater
than its fair value on the effective date of the interpretation.
In May 1999, an officer of the Company exercised stock options to purchase
127,827 shares, par value $0.00115 per share, of the Company's common stock at
$0.00115 per share.
F-19
<PAGE>
SpectruMedix Corporation
Notes to Financial Statements
March 31, 1999 and 1998
Amended license agreement and sublicense agreement
Due to the Company's financial condition during fiscal year 1999, it was not
able to make certain required payments under its licensing agreement with a
major university. On July 30, 1999, the university and the Company entered
into an amendment to the license agreement ("Amended License"), pursuant to
which the Company agreed to pay $500,000 under the Amended License and the
university agreed to waive any defaults for the failure to pay overdue
amounts. The parties agreed to a revised schedule of minimum royalties.
Additionally, the university consented to the grant of a sublicense
("Sublicense") to a company, and the Company agreed to pay the university
approximately half of the royalities received under the Sublicense for the
first two fiscal years, a majority in the third fiscal year, and all of the
minimum royalties thereafter. However, in the event royalties under the
Sublicense exceed certain milestone amounts they will be equally shared with
the university. The Company also granted the university a phantom stock award
equal to 150,000 shares of the Company's common stock, par value $0.00115 per
share (the "Common Stock"), which will have the right to participate in the
increase in value of the Company's common stock between July 30, 1999 and the
date of any sale of the Company, as defined. However, in the event the Company
consummates one or more transactions in which it receives net cash proceeds of
$25,000,000 or more, as defined, the Company will be obligated to pay to the
university in the same calendar year and thereafter (i) 100 percent of
Sublicense fees up to $1,000,000 and (ii) 50 percent of Sublicense fees
greater than $1,000,000.
In the event the Company fails to make required payments to the university
under the Amended License, the Amended License may be canceled. The
university may then require the Company to grant to the university a non-
exclusive license to any patents, trade secrets and other technology owned or
developed by the Company in connection with its business of manufacturing,
distributing and/or selling DNA sequencing equipment. The university would be
required to pay the Company 50% of all revenues received by the university in
connection with any such license.
Concurrently with entering into the Amended License with the university, the
Company entered into a Sublicense agreement pursuant to which the Company
granted a company (the "Sublicensee") an exclusive sublicense to use certain
patents for the development of DNA sequencing machines using 30 or fewer
capillaries using side entry illumination. The Company also granted the
Sublicensee a right of first refusal to sublicense such technology for use in
DNA sequencing machines using more than 30 capillaries. On July 30, 1999, the
Sublicensee paid the Company a non-refundable Sublicense issue fee of
$1,000,000, and, commencing with the twelve-month period beginning August 1,
2001, the Sublicensee agreed to pay to the Company certain minimum annual
royalties. Such minimum royalties are non-refundable, but are credited
against the earned royalties payable pursuant to the Sublicense agreement.
Series A preferred stock
On July 30, 1999, the Company completed the sale and issuance of 2,000 shares
of series A preferred stock ("Series A Preferred") at $1,000 per share,
providing gross proceeds of $2,000,000 and net proceeds, after expenses paid
by the Company, of $1,995,000.
F-20
<PAGE>
SpectruMedix Corporation
Notes to Financial Statements
March 31, 1999 and 1998
At March 31, 1999, the Company had authorized the issuance of 2,000,000 shares
of preferred stock, $.00115 par value. The Company has designated 2,000 of
such preferred shares as Series A Preferred. The holders of Series A Preferred
are entitled to (i) share in dividends on a pro-rata basis with common
stockholders on an as-converted basis; (ii) a liquidation preference equal to
the sum of the price paid per share and all declared and unpaid dividends (the
"Liquidation Preference"); (iii) optional redemption by the Company of the
Liquidation Preference with notice of at least 20 days; (iv) vote on all
matters on an as converted basis; and (v) convert to common stock at the
Liquidation Preference Amount multiplied by the shares to be converted divided
by the conversion price (the "Conversion Price") per share. The initial
Conversion Price is equal to $2.50 per share of common stock, and is subject
to adjustment in the event that shares of common stock are issued without
consideration or for consideration per share less than the conversion price.
Consulting agreement
On July 30, 1999 the Company and the Sublicensee entered into a three-year
consulting agreement pursuant to which the Company will provide consulting
services to the Sublicensee. In connection with such agreement, the Company
received a lump sum fee of $2,000,000.
F-21
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
-------------------------------------------------------------
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE OFFICERS
------------------------------------------------------
Directors, Executive Officers, Promoters and Control Persons
Dr. Adlerstein co-founded the Company in April 1992 and currently serves as
its sole director, President and Chief Executive Officer. Dr. Adlerstein has
over 20 years of experience with high-tech companies focusing on energy, the
environment, bioengineering, pharmaceuticals, ultrasonics and metallurgy. Prior
to joining the Company, Dr. Adlerstein served as an officer, director and
principal of Kasiel Holdings Ltd. (a member of the Adir Group), a real estate
and construction firm. Dr. Adlerstein is a director of Future Energy Research
Corporation, a privately held company. Dr. Adlerstein received a B.S. from City
University of New York, a Masters in Physics from New York University and a
Ph.D. in Physics from the Massachusetts Institute of Technology.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file with the SEC
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Officers, directors and greater than
10% stockholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) reports they file.
Based solely upon review of the copies of such reports furnished to the
Company and written representations that no other reports were required, the
Company believes that during the fiscal year ended March 31, 1999, its officers,
directors and holders of more than 10% of the Company's Common Stock complied
with all Section 16(a) filing requirements.
ITEM 10. EXECUTIVE COMPENSATION
----------------------
Board Report on Executive Compensation
The following is a summary of the policies which governed the decisions of
the Board of Directors concerning the compensation paid to the Company's
executive officers, including the compensation reflected in the tables which
appear elsewhere in this Proxy Statement.
General Compensation Policy
Introduction. The compensation policy is designed to attract and retain
qualified key executive officers critical to the Company's success. In
developing this policy, the Board of Directors has concluded that it is not
appropriate to base a significant percentage of the compensation payable to the
executive officers upon traditional financial targets, such as return on equity.
This is primarily because the Company's early stage of development and all of
the Company's product candidates are still in either development or clinical
testing phases and because, through the end of fiscal 1999, the Company had not
yet realized any significant revenues or product sales. Instead, the decisions
are based upon the following standards: (i) base salary levels which are
commensurate with those of comparable positions at other biopharmaceutical
companies, given the level of seniority and skills possessed by the executive
officer, and which reflect the individual's performance with the Company over
time, (ii) annual bonuses tied to the achievement of corporate and individual
performance objectives and the Company's financial performance, and (iii) long-
term, stock-based incentive awards intended to strengthen the mutuality of
interests between the executive officers and the Company's stockholders.
Factors. The primary factors which we considered in establishing the
components of each executive officer's compensation package for the 1999 fiscal
year are summarized below. We may, however, apply entirely
26
<PAGE>
different factors, particularly different measures of performance, in setting
executive compensation for future fiscal years.
. Base Salary. The base salary of each executive officer is initially
established through negotiation at the time the officer is hired. Base salary is
subsequently adjusted at periodic intervals, usually on an annual basis. When
establishing or reviewing base salary levels for each executive officer, we
consider the following factors: the qualifications of the executive officer and
the relevant individual experience he or she brings to the Company, strategic
goals for which the executive officer has responsibility, compensation levels at
biopharmaceutical companies at a development stage comparable to the Company and
at other companies which compete with the Company for executive talent.
. Annual Incentive Compensation. Annual bonuses payable in cash were
awarded based on achievement of corporate and individual performance objectives.
For the 1998 fiscal year, the corporate performance objectives were tied to the
following measures of financial success: (i) the successful completion of the
Company's initial public offering, (ii) the execution of certain license
agreements and (iii) the progress on the development of the Company's core
technologies. Each objective was assigned a relative weight in determining the
amount of the bonus attributable to corporate performance.
CEO Compensation
In establishing Dr. Adlerstein's base salary, it was the intent of the
Board to provide him with a level of stability and certainty each year and not
to have this particular component of compensation affected to any significant
degree by Company performance factors. Accordingly, we primarily took Dr.
Adlerstein's personal performance into consideration in setting his base salary
at $96,000. In addition, Dr. Adlerstein is entitled to a five percent annual
increase in base salary and an annual payment of $24,000 in respect of services
performed for the Company prior to 1997. The remaining components of Dr.
Adlerstein's compensation package provide no dollar guarantees and are
contingent upon the attainment of performance objectives.
In fiscal year 1999, Dr. Adlerstein accrued a bonus of $25,000, based
primarily upon the Company's progress in meeting the performance objectives
identified above for the year .
Compliance with Internal Revenue Code Section 162(m)
As a result of Section 162(m) of the Internal Revenue Code, the Company
will not be allowed a federal income tax deduction for compensation paid to
certain executive officers, to the extent that compensation exceeds $1 million
per officer in any one year. This limitation will apply to all compensation paid
to the covered executive officers which is not considered to be performance
based. Compensation which does qualify as performance-based compensation will
not have to be taken into account for purposes of this limitation. The 1997 Plan
contains certain provisions that are intended to assure that any compensation
deemed paid in connection with the exercise of stock options granted under that
plan with an exercise price equal to the market price of the option shares on
the grant date will qualify as performance-based compensation.
Because it is very unlikely that the cash compensation payable to any of
the Company's executive officers will approach the $1 million limit in the
foreseeable future, we have decided at this time not to take any other action to
limit or restructure the elements of cash compensation payable to the Company's
executive officers. We will reconsider this decision should the individual cash
compensation of any executive officer ever approach the $1 million level.
The foregoing report has been submitted by the undersigned in our capacity
as members of the Company's Board of Directors.
Joseph K. Adlerstein, Ph.D.
27
<PAGE>
Summary of Cash and Certain Other Compensation
The following table sets forth the compensation earned by the Company's
Chief Executive Officer, the only executive officer of the Company as of the end
of the 1999 fiscal year, for services rendered in all capacities to the Company
for the 1999, 1998 and 1997 fiscal years. Mr. Bernard Sonneschein, the Company's
former Treasurer and Secretary would have been included in the summary
compensation table had he not resigned as of January 28, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
Other Long Term
Annual Compensation
Compensation Awards
------------------------------------- ---------------- ----------------------------------------
Name and Number of Securities All Other
----------------
Principal Position(s) Year Salary Bonus /(1)/ Underlying Options Compensation
- ------------------------- ------- ---------- ------------- ---------------- --------------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Joseph K. Adlerstein, 1999 $128,500/(2)/ $25,000/(3/) --- --- ---
Ph.D.
President, Chief Executive 1998 $116,221(4) --- --- --- ---
Officer and Chairman of
the Board
1997 73,415(5) $ 5,000 --- --- ---
</TABLE>
______________________
(1) The amounts shown under the Bonus column include cash bonuses earned for
the indicated fiscal years, but paid in the following year.
(2) Includes $13,000 paid under the Company's health insurance plan.
(3) Includes a $25,000 bonus which was earned during the fiscal year but was
not paid due to the Company's financial condition.
(4) Includes $10,702 paid under the Company's health insurance plan.
(5) Includes $8,800 paid under the Company's health insurance plan.
28
<PAGE>
Stock Options
No options were granted to the Named Officers in the fiscal year ending
March 31, 1999.
Option Exercises and Holdings
The table below sets forth information concerning the exercise of options
during the 1999 fiscal year and unexercised options held as of the end of such
year by the Named Officers. No stock appreciation rights were exercised during
such fiscal year, and except for the limited stock appreciation right which
forms part of each previously granted outstanding stock option, no stock
appreciation rights were outstanding at the end of the 1999 fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of
Number of Securities Underlying Unexercised Value of Unexercised
Shares Aggregate Options at In-the-Money Options at
Acquired on Value March 31, 1999 March 31, 1999(2)
-----------------------------------
Name Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------- ---------------- ------------------ ------------------ ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joseph K. Adlerstein, Ph.D. --- --- 127,827 --- $15,831 ---
</TABLE>
______________________
(1) Based on the closing price of the purchased shares on the option exercise
date less the exercise price paid for such shares.
(2) Based on fair market value of the Common Stock at fiscal year end ($0.125
per share) less the option exercise price payable per share.
Employment Contracts, Termination of Employment and Change-in-Control
Arrangements
In March 1997, the Company entered into an employment agreement, which was
amended in August 1997 (the "Executive Agreement"), with Joseph K. Adlerstein,
Ph.D. (the "Executive"), pursuant to which Dr. Adlerstein is employed as the
Company's Chairman of the Board, President and Chief Executive Officer. The
Executive Agreement provides that the Executive shall devote substantially all
of his respective business time to the affairs of the Company. The Executive
Agreement expires in March 2000, and shall be automatically renewed for
successive one-year periods unless, within 30 days of the expiration of the
Executive Agreement, either party notifies the other of its election not to
renew the Executive Agreement. The Executive Agreement provides for an initial
base salary of $96,000 (the "Base Salary") per annum and the payment of an
annual bonus of up to 25% of the Base Salary, as determined by the Board of
Directors of the Company based on performance and other criteria. In addition,
the Executive Agreement provides for additional compensation at a rate of
$24,000 for each year of the Executive Agreement for services rendered to the
Company since the Company's inception. Under the Executive Agreement, if the
Executive is terminated without cause, such terminated Executive shall receive a
severance payment equal to 18 months of his then applicable base salary. A
change in ownership or control of the Company shall be considered termination
without cause. The Executive Agreement contains confidentiality provisions and
covenants not to compete with the Company during the employment period. Also in
March 1997, the Company entered into an employment agreement with Bernard
Sonnenschein, the Company's Treasurer and Secretary. This agreement was
terminated in August 1997.
As a result of the Company's dependence on Dr. Adlerstein as a key
employee, the Company has obtained and is the sole beneficiary of key-person
life insurance in the amount of $1,000,000 on the life of Dr. Adlerstein. There
is no assurance that such insurance will continue to be available on reasonable
terms or at all.
All of the Company's employees are subject to certain confidentiality and
non-competition obligations. Each employee has also agreed that all inventions,
discoveries and developments which may be used in the
29
<PAGE>
Company's business and that are developed by such employee during his or her
employment with the Company are the Company's property and the employee will
assign his or her rights therein to the Company. Should the Company be acquired
by merger or asset sale, then all outstanding options held by executive officers
under the 1997 Plan will automatically accelerate and vest in full, except to
the extent those options are to be assumed by the successor corporation. In
addition, the Plan Administrator of the 1997 Plan will have the authority to
provide for the accelerated vesting of the shares of Common Stock subject to
outstanding options held by any executive officer or any unvested shares of
Common Stock subject to direct issuances held by such individual, in connection
with the termination of that individual's employment following: (i) a merger or
asset sale in which these options are assumed or are assigned, (ii) the
successful completion of a tender offer for more than 50% of the Company's
outstanding voting stock or (iii) certain hostile changes in control of the
Company.
Compensation Committee Interlocks and Insider Participation
The Company does not presently have a Compensation Committee. No executive
officer of the Company serves as a member of the board of directors or
compensation committee of any entity which has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The following table sets forth certain information known to the Company
with respect to the beneficial ownership of the Company's Common Stock as of
August 20, 1999, unless otherwise noted, by (i) all persons who are beneficial
owners of five percent or more of the Company's Common Stock, (ii) each director
and nominee for director at the Annual Meeting, (iii) the Chief Executive
Officer and the next most highly compensated executive officer named in the
Summary Compensation Table below, and (iv) all current directors and executive
officers as a group. Unless otherwise noted, each of the stockholders has sole
voting and dispositive power with respect to the shares beneficially owned,
subject to community property laws, where applicable.
<TABLE>
<CAPTION>
Name and Address, if Required, Shares Percent of Shares
of Beneficial Owner Beneficially Owned Beneficially Owned (1)
- -------------------------------------------------- ------------------------ ---------------------------
<S> <C> <C>
Joseph K. Adlerstein, Ph.D. 780,001 21.31%
c/o SpectruMedix Corporation
2124 Old Gatesburg Road
State College, Pennsylvania 16803
Bernard Sonnenschein 575,219 15.7%
1519 49th Street
Brooklyn, New York 11219
PE Corporation 800,000 /(2)/ 17.9%
761 Main Avenue
Norwalk, CT 06859
All directors and executive officers 780,001 21.3%
as a group (1 person)
</TABLE>
______________________
* Less than one percent of the Company's outstanding Common Stock.
(1) Percentage of beneficial ownership is calculated assuming 3,658,041 shares
of Common Stock were outstanding on August 20, 1999. Beneficial ownership
is determined in accordance with the rules of the United States Securities
and Exchange Commission (the "SEC") and generally includes voting or
dispositive power with respect to securities. Shares of Common Stock
subject to stock options and warrants currently exercisable or exercisable
within 60 days after August 20, 1999, are deemed outstanding for computing
the percentage of the person holding such stock options and warrants but
are not deemed outstanding for computing the percentage of any other
person.
30
<PAGE>
(2) Represents shares of Common Stock issuable upon exercise of 2,000 shares of
the Company's Series A Preferred Stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Pursuant to the Delaware General Corporation Law, the Company has adopted
provisions in its Second Amended and Restated Certificate of Incorporation that
eliminate the personal liability of its directors to the Company and its
stockholders for monetary damages for breach of the directors' fiduciary duties
in certain circumstances and which authorize the Company to indemnify its
directors, officers and other agents, by bylaw, agreement or otherwise, to the
fullest extent permitted by law. The Company's Bylaws require the Company to
indemnify its directors and allow the Board of Directors in its discretion to
indemnify officers, employees and other agents to the fullest extent permitted
by law, including those circumstances in which indemnification would otherwise
be discretionary; provided, however, that the corporation shall indemnify any
such agent in connection with a proceeding initiated by such agent only if such
proceeding was authorized by the Board of Directors of the Company.
Additionally, the Company shall advance to the Director, prior to any final
disposition of any threatened or pending action, suit or proceeding, whether
civil, criminal, administrative or investigative, any and all reasonable
expenses (including legal fees and expenses) incurred in investigating or
defending any such action, suit or proceeding within 10 days after receiving
copies of invoices presented to Director for such expenses.
The Company has entered into separate indemnification agreements with its
directors and executive officers. These agreements may require the Company,
among other things, to indemnify directors and officers against certain
liabilities that may arise by reason of their status or service as directors and
officers. Management believes that these provisions in its Second Amended and
Restated Certificate of Incorporation and its Bylaws and contractual
indemnification are necessary to attract and retain qualified persons as
directors and officers.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding which may result in a claim for such indemnification.
Dr. Adlerstein agreed to extend up to $750,000 in loans to the Company, at
Dr. Adlerstein's option. In consideration of such credit, the Company granted
Dr. Adlerstein a promissory note which matures on December 31, 1999 and bears
interest at 12% per annum on all amounts outstanding thereunder. Currently, the
Company owes Dr. Adlerstein approximately $381,530.
ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K
-------------------------------------
(a) Exhibits
Exhibit No. Description
----------- -----------
3.1(1) Restated Certificate of Incorporation of the
Registrant, as filed with the Delaware Secretary of
State on March 5, 1993.
3.2(1) Certificate of Amendment to Restated Certificate of
Incorporation of the Registrant, as filed with the
Delaware Secretary of State on March 11, 1997.
3.3(1) Second Amended and Restated Certificate of
Incorporation of the Registrant, as filed with the
Delaware Secretary of State on September 17, 1997.
3.4* Certificate of Designation of the Company's Series A
Preferred Stock, as filed with the Delaware
Secretary of State on July 28, 1999.
3.5(1) Amended and Restated Bylaws of the Registrant.
4.1(1) Form of Stock Certificate.
4.2(1) Form of Registration Rights Agreement by and between
the Registrant and certain stockholders.
4.3(1)(5) 1997 Stock Incentive Plan of the Registrant and
related documents.
4.4(1) Form of SpectruMedix Corporation Unit Purchase
Option.
4.5(1) Form of Warrant Agreeement by and between the
Registrant and ChaseMellon
31
<PAGE>
Shareholder Services, L.L.C.
4.6(1)(5) Notice of Grant and Stock Option Agreement for
option to purchase shares of Common Stock granted to
Joseph K. Adlerstein.
4.7(1) Form of Unit.
4.8(1) Form of Redeemable Warrant.
4.9(1) Form of Warrant issued in the Bridge Financing.
10.1(1) Form of Indemnification Agreement.
10.2(1) Asset Purchase Agreement dated April 5, 1993 by and
between Lab Software Associates, Inc and the
Registrant.
10.3(1) Reserved.
10.4(1) Form of Warrant Agreement by and between the Company
and the Gross Foundation, Inc.
10.5(1)(3) Option Agreement dated May 1, 1995 by between the
Registrant and Iowa State University Research
Foundation.
10.6(1) Commercial Lease Agreement dated July 9, 1996 by and
between FMF Partnership and the Registrant.
10.7(1)(3) Option and Bailment Agreement for an Exclusive
License between the Registrant and the Regents of
the University of California dated December 1, 1996.
10.8(1)(3) Research Agreement No. M2498 dated December 1, 1996
by and between the Regents of the University of
California, Berkeley and the Registrant.
10.9(1)(5) Employment Agreement dated March 31, 1997 by and
between the Registrant and Joseph K. Adlerstein.
10.10(1)(5) Employment Agreement dated March 31, 1997 by and
between the Registrant and Bernard Sonnenschein.
10.11(1)(3) Scientific Advisory Board and Consulting Agreement
by and between the Registrant and Dr. Edward Yeung.
10.12(1)(3) Scientific Advisory Board and Consulting Agreement
by and between the Registrant and Dr. Marc
Hellerstein.
10.13(1)(3) License Agreement dated June 24, 1997 by and between
the Registrant and Iowa State University Research
Foundation, Inc.
10.14(1)(5) Amendment No. 1 to Employment Agreement by and
between the Registrant and Joseph K. Adlerstein.
10.15(1)(5) Letter Agreement by and between the Registrant and
Bernard Sonnenschein.
10.16(4) Amendment No. 1 to Option and Bailment Agreement for
an Exclusive License between the Registrant and the
Regents of the University of California, effective
as of January 15, 1998.
10.17(4) Amendment No. 1 to Research Agreement No. M2498 by
and between the Regents of the University of
California, Berkeley and the Registrant.
10.18(4) Sponsored Research Agreement, effective as of March
15, 1998, by and between The Trustees of the
University of Pennsylvania and the Registrant.
10.19(4) License Agreement, effective as of March 15, 1998,
by and between The Trustees of the University of
Pennsylvania and the Registrant.
10.20(4)* Amendment to License Agreement, dated July 30, 1999,
between Iowa State University Research Foundation,
Inc. and SpectruMedix Corporation
10.21(4)* Sublicense Agreement, dated July 30, 1999, between
SpectruMedix Corporation and The Perkin-Elmer
Corporation
10.22* Stock Purchase Agreement, dated July 30, 1999,
between SpectruMedix Corporation and PE Corporation
10.23(4)* Consulting Services Agreement, dated July 30, 1999,
between SpectruMedix Corporation and The Perkin-
Elmer Corporation
23.1* Consent of Independent Accountants.
27* Financial Data Schedule
- --------------------
32
<PAGE>
* Filed herewith.
(1) Incorporated by reference to exhibits filed with Registrant's
Registration Statement on Form SB-2, File No. 333-31843, which was
declared effective September 16, 1997.
(2) Incorporated by reference to exhibits filed with Registrant's Current
Report on Form 8- K, filed with the Commission on December 15, 1997.
(3) Confidential treatment has been granted with respect to certain
portions of this Exhibit.
(4) Confidential treatment has been requested with respect to certain
portions of this Exhibit. Such information has been omitted and filed
separately with the Commission.
(5) Management contract or compensation plan.
(b) Reports on Form 8-K
No Current Reports on Form 8-K were filed in the last quarter of the
fiscal year ended March 31, 1999.SIGNATURES
33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: August 17, 1999
SPECTRUMEDIX CORPORATION
By:/s/ Joseph K. Adlerstein
------------------------
Joseph K. Adlerstein, Ph.D.
President, Chief Executive Officer and Sole Director
<PAGE>
EXHIBIT 3.4
CERTIFICATE OF DESIGNATION OF
RIGHTS AND PREFERENCES OF
SERIES A PREFERRED STOCK OF
SPECTRUMEDIX CORPORATION
-------------------------
SpectruMedix Corporation, a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
FIRST: That the name of the Corporation is SpectruMedix Corporation,
and the original certificate of incorporation of the Corporation was filed with
the Secretary of State of the State of Delaware on April 16, 1992 under the name
Premier American Technologies Corp. and the Second Amended and Restated
Certificate of Incorporation of the Corporation was filed with the Secretary of
State of the State of Delaware on September 16, 1997.
SECOND: That the Certificate of Incorporation of the Corporation
authorizes the issuance of 2,000,000 shares of preferred stock, with the Board
of Directors of the Corporation authorized to establish the rights and
preferences thereof in accordance with Section 151(g) of the Delaware General
Corporation Law.
THIRD: That, on July 30, 1999, the Board of Directors of the
Corporation duly adopted resolutions setting forth the rights and preferences of
the Series A Preferred Stock.
FOURTH: That the rights and preferences of the Series A Preferred
Stock shall be as follows:
1. Designation; Number of Shares. The Corporation hereby authorizes
-----------------------------
the issuance of a series of preferred stock, to be called the "Series A
Preferred Stock." The total number of shares of Series A Preferred Stock that
the Corporation shall have the authority to issue is 2,000.
2. Dividends; Ranking. Holders of Series A Preferred Stock shall be
------------------
entitled to receive dividends only as and when the Corporation shall declare and
pay dividends in respect of its Common Stock, and absent such a declaration, no
dividends shall be payable, accrue or accumulate in respect of shares of Series
A Preferred Stock. If the Corporation shall declare a dividend in respect of
its Common Stock, each Holder of Series A Preferred Stock shall be paid in an
amount equal to the dividend that would be payable if such Holder had converted
his shares of Series A Preferred Stock into shares of Common Stock immediately
prior to the record date for the payment of such dividend at the Conversion
Price then in effect.
3. Liquidation Preference. In the event of any voluntary or
----------------------
involuntary liquidation, dissolution or winding-up of the Corporation, the
Holders of the Series A Preferred Stock shall be entitled to receive out of the
assets of the Corporation available for distribution to stockholders, before any
distribution of assets shall be made to the Holders of the Common Stock of the
Corporation or any other stock of the Corporation ranking junior to the Series A
Preferred Stock as to any such distribution, an amount in cash for each share
equal to $1,000.00 (subject to equitable adjustment in the event of any stock
dividend, stock split, combination, reorganization, recapitalization,
reclassification or other similar event affecting such shares) plus
<PAGE>
all declared and unpaid dividends for each share of Series A Preferred Stock, if
any (collectively, the "Liquidation Preference"). If upon any voluntary or
----------------------
involuntary liquidation, dissolution or winding-up of the Corporation, the
amounts payable with respect to the Series A Preferred Stock and any other stock
of the Corporation ranking as to any such distribution on a parity with the
Series A Preferred Stock shall not be paid in full, then the Holders of the
Series A Preferred Stock and such parity stock shall share ratably in any such
distribution of assets of the Corporation in proportion to the full preferential
amounts to which they are entitled. The merger of the Corporation with or into
any other corporation, or the sale of substantially all the assets of the
Corporation in consideration for the issuance of equity securities of another
corporation, shall not be regarded as a liquidation, dissolution or winding-up
of the Corporation within the meaning of this Section 2, but no merger or sale
of assets shall in any way impair the rights, preferences, privileges or
priorities of the Series A Preferred Stock.
4. Redemption.
----------
(a) Optional Redemption by Corporation. Subject to the right of the
----------------------------------
Holders of Series A Preferred Stock to convert such shares into Common Stock, as
provided in Section 6 hereof, the Corporation, at its option, may redeem the
whole or any part of the outstanding Series A Preferred Stock on any Redemption
Date (as hereinafter defined) by paying in cash a redemption price in an amount
equal to the Liquidation Preference per share. Redemptions of less than all of
the outstanding Series A Preferred Stock pursuant to this Section 4(a) shall be
apportioned among the Holders in accordance with Section 4(b) below.
(b) Notice of Redemption. Any redemption of the Series A Preferred
--------------------
Stock pursuant to Section 4(a) may be made only if prior notice is given by the
Corporation at least 20 days but not more than 60 days prior to the date fixed
for such redemption (a "Redemption Date") to all Holders of record of the Series
---------------
A Preferred Stock at their respective addresses appearing on the books of the
Corporation. Such notice shall specify (i) the number of shares being redeemed,
(ii) the Redemption Date, and (iii) the redemption price and an amount equal to
all dividends accrued and unpaid thereon, if any, to and including the
Redemption Date. From and after the date fixed in such notice as the Redemption
Date (unless default shall have been made by the Corporation in providing monies
for the payment in full of the redemption price and an amount equal to all
accrued and unpaid dividends on the Series A Preferred Stock to and including
the Redemption Date), all dividends upon the shares of the Series A Preferred
Stock that are redeemed shall cease to accrue, and all rights of the Holders
thereof as stockholders of the Corporation (except the right to receive payment
in full of the redemption price and an amount equal to all accrued and unpaid
dividends to and including the Redemption Date) shall cease; or, if the
Corporation shall so elect and so state in the notice of redemption, from and
after the date (which date shall be the Redemption Date or a date prior thereto)
on which the Corporation shall deposit as a trust fund for the benefit of the
Holders of shares called for redemption with a bank or trust company with a
combined capital surplus of at least $50,000,000 doing business in New York, New
York, as paying agent, monies sufficient in the amount to pay at the office of
such paying agent, on the Redemption Date, the redemption price, together with
an amount equal to all accrued and unpaid dividends to and including the
Redemption Date (provided that notice of redemption shall state the name and
address of such paying agent and the intention of the Corporation to deposit
such monies on or before the Redemption Date with such paying agent), all
dividends on shares of the Series A Preferred Stock that are to be redeemed
-2-
<PAGE>
shall cease to accrue and all rights of the Holders thereof as stockholders of
the Corporation, except the right to receive payment of the redemption price and
an amount equal to all accrued and unpaid dividends to and including the
Redemption Date, shall thereupon cease. All monies so deposited with the paying
agent which shall remain unclaimed by the Holders of shares of the Series A
Preferred Stock so called for redemption at the end of three calendar years
after the Redemption Date shall be paid by the paying agent to the Corporation
and thereafter the Holders of the Series A Preferred Stock shall look only to
the Corporation for payment.
(c) Shares Retired. All shares of the Series A Preferred Stock
--------------
redeemed by the Corporation shall be retired and cancelled and shall not be
reissued.
5. Conversion of Series A Preferred Stock.
--------------------------------------
(a) Right to Convert. Each Holder of Series A Preferred Stock shall
have the right, at such Holder's option, to convert all or any portion of such
Holder's shares of Series A Preferred Stock into such number of fully paid and
nonassessable shares of Common Stock, at such Holder's option ("Conversion
----------
Stock"), as is equal to the quotient obtained by dividing (1) $1,000.00, by (2)
- -----
the Conversion Price (as last adjusted and then in effect) for the shares of
Series A Preferred Stock being converted, by surrender of the certificates
representing the shares of Series A Preferred Stock to be converted in the
manner provided in Section 5(b) hereof. The initial Conversion Price shall be
$2.50 per share of Common Stock, and shall be subject to adjustment as provided
in Section 6 hereof. The Holder of any shares of Series A Preferred Stock
converted in accordance with the provisions of this Section 5 shall be entitled
to payment of any declared but unpaid dividends thereon on the Series A
Preferred Stock to be converted to the date of issuance by the Corporation of
the shares of Conversion Stock.
(i) Notwithstanding the delivery by the Corporation of a
notice of redemption pursuant to Section 4(b) hereof, any Holder of Series
A Preferred Stock may, by delivery of an irrevocable notice (the "Exemption
---------
Notice") to the Corporation not less than five (5) days prior to the
------
Redemption Date, elect to convert, in full or in part, such Holder's shares
of Series A Preferred Stock into Conversion Stock. Upon delivery of an
Exemption Notice, the right of the Corporation to redeem the shares of
Series A Preferred Stock that are the subject of the Exemption Notice shall
irrevocably terminate, and the subject shares of Series A Preferred Stock
shall remain outstanding for all purposes hereunder until such time as they
are converted into shares of Conversion Stock.
(ii) The conversion rights of any share of Series A
Preferred Stock redeemed hereunder shall terminate on the Redemption Date
for such share unless the Corporation has failed to pay to the Holder
thereof the Liquidation Preference of such share.
(b) Exercise of Conversion Right. The Holder of any shares of Series
----------------------------
A Preferred Stock may exercise the conversion right pursuant to Section 5(a)
hereof by delivering to the Corporation during regular business hours, at the
office of any transfer agent of the Corporation for the Series A Preferred
Stock, or at such other place as may be designated by the Corporation, the
certificate or certificates for the shares of the shares to be converted, duly
endorsed or assigned in blank to the Corporation, accompanied by written notice
(a "Conversion
----------
-3-
<PAGE>
Notice") stating that such Holder elects to convert all or a specified portion
- ------
of such shares and stating the name or names (with address) in which the
certificate or certificates for the shares of Conversion Stock are to be issued
and the class or classes of Conversion Stock to be issued; provided, however,
-------- -------
that, if such name or names are other than that of the Holder, such issuance of
Conversion Stock is permitted by applicable Federal and state securities laws.
The date of receipt of such certificate or certificates and notice by the
Corporation or transfer agent, as the case may be, shall be the conversion date
(the "Conversion Date"). As soon as practicable after the Conversion Date, but
---------------
in any event within ten (10) Business Days thereafter, the Corporation shall
issue and deliver to the Holder, or upon the written order of such Holder, to
the place designated by such Holder, (i) a certificate or certificates for the
number of full shares of Conversion Stock to which such Holder is entitled (ii)
a check or cash in respect of any fractional interest in a share of Common
Stock, as provided in Section 5(c) hereof, payable with respect to the shares of
Series A Preferred Stock so converted up to and including the Conversion Date
and (iii) a check or cash representing declared but unpaid dividends, if any, on
the Series A Preferred Stock converted in accordance with Section 5(a). The
person in whose names the certificate or certificates for Conversion Stock are
to be issued shall be deemed to have become a stockholder of record on the next
succeeding date on which the transfer books are open, but the Conversion Price
shall be that in effect on the Conversion Date. Upon conversion of only a
portion of the number of shares covered by a certificate representing shares of
Series A Preferred Stock surrendered for conversion, the Corporation shall issue
and deliver to or upon the written order of the Holder of the certificate so
surrendered for conversion, at the expense of the Corporation, a new certificate
covering the number of shares of Series A Preferred Stock representing the
unconverted portion of the certificate so surrendered.
(c) No Fractional Shares. No fractional shares of Conversion Stock or
--------------------
scrip shall be issued upon conversion of shares of Series A Preferred Stock. If
more than one share of Series A Preferred Stock shall be surrendered for
conversion at any one time by the same Holder, the number of full shares of
Conversion Stock issuable upon conversion thereof shall be computed using the
aggregate number of shares of Series A Preferred Stock so surrendered. Instead
of issuing any fractional shares of Conversion Stock that would otherwise be
issuable upon conversion of any shares of Series A Preferred Stock, the
Corporation shall make payment to such Holder, in cash, of an amount equal to
the fraction of a share of Conversion Stock otherwise issuable to such Holder,
multiplied by the Market Price on the Business Day immediately prior to
conversion.
(d) Stamp Taxes, Etc. The Corporation shall pay all documentary,
----------------
stamp or other transactional taxes or governmental charges attributable to the
issuance or delivery of shares of capital stock of the corporation upon
conversion of any shares of Series A Preferred Stock; provided, however, that
-------- -------
the Corporation shall not be required to pay any taxes which may be payable in
respect of any transfer involved in the issuance or delivery of any certificate
of such shares in a name other than that of the Holder of the shares of Series A
Preferred Stock in respect of which such shares are being issued.
(e) Reservation of Common Stock. The Corporation shall reserve, free
---------------------------
from preemptive rights, out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the shares of
Series A Preferred Stock and the conversion, exercise and exchange of all other
outstanding Convertible Securities and Options sufficient
-4-
<PAGE>
shares to provide for the conversion of all outstanding shares of Series A
Preferred Stock and all other outstanding Convertible Securities and Options.
The Corporation shall take all such actions as may be necessary to assure that
all such shares of Common Stock may be so issued without violation of any
applicable law or governmental regulation or any requirements of any domestic
securities exchange upon which shares of Common Stock may be listed (except for
official notice of issuance which shall be immediately delivered by the
Corporation upon each such issuance). The Corporation shall not take any action
which would cause the number of authorized but unissued shares of Common Stock
to be less than the number of such shares required to be reserved hereunder for
issuance upon conversion of the Series A Preferred Stock.
(f) No Liens. All shares of Conversion Stock which may be issued in
--------
connection with the conversion provisions set forth herein will, upon issuance
by the Corporation, be validly issued, fully paid and nonassessable and free
from all taxes, liens or charges with respect thereto created or imposed by the
Corporation.
(g) No Impairment. The Corporation shall not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but shall at all times in good faith assist in the carrying out of
all provisions of Section 5 and 6 and in the taking of all such action as may be
necessary or appropriate to protect the conversion rights of the Holders of the
Series A Preferred Stock against impairment.
6. Adjustment of Exercise Price and Number of Shares of Common Stock.
-----------------------------------------------------------------
The applicable Conversion Price for the Series A Preferred Stock shall be
subject to adjustment from time to time as hereinafter provided for in this
Section 6.
(a) Stock Dividends. In case at any time the Corporation shall
---------------
declare a dividend or make any other distribution upon the Common Stock of the
Corporation which is payable in Common Stock or Convertible Securities, the
Conversion Price in effect immediately prior to such dividend or other
distribution shall be proportionately reduced and the number of shares of Common
Stock issuable upon conversion of the Series A Preferred Stock immediately prior
to such dividend or other distribution shall be proportionately increased.
(b) Subdivision or Combination of Stock. In case the Corporation
-----------------------------------
shall at any time subdivide the outstanding shares of Common Stock into a
greater number of shares, the Conversion Price in effect immediately prior to
such subdivision shall be proportionately reduced and the number of shares
issuable upon conversion of the Series A Preferred Stock immediately prior to
such subdivision shall be proportionately increased, and conversely, in case the
outstanding shares of Common Stock shall be combined at any time into a smaller
number of shares, the Conversion Price in effect immediately prior to such
combination shall be proportionately increased and the number of shares issuable
upon conversion of the Series A Preferred Stock immediately prior to such
combination shall be proportionately reduced.
(c) Adjustments for Consolidation, Merger, Sale of Assets,
------------------------------------------------------
Reorganization, etc. In case the Corporation (i) consolidates or merges with or
- -------------------
into any other corporation and the Corporation shall not have exercised its
rights to redeem this Series A Preferred Stock under
-5-
<PAGE>
Section 4(a) hereof, or (ii) transfers all or substantially all of its
properties and assets to any other corporation and the Corporation shall not
have exercised its rights to redeem this Series A Preferred Stock under Section
4(a) hereof, or (iii) effects a capital reorganization or reclassification of
the capital stock of the Corporation in such a way that holders of Common Stock
shall be entitled to receive stock, securities, cash or assets with respect to
or in exchange for Common Stock, then, and in each such case, proper provision,
in form and substance reasonably satisfactory to the Holders of 66-2/3% of the
Series A Preferred Stock then outstanding, shall be made so that, upon the basis
and upon the terms and in the manner provided in this Section 6(c), upon the
conversion of the Series A Preferred Stock at any time after the consummation of
such consolidation, merger, transfer, reorganization or reclassification, each
Holder shall be entitled to receive (at the Conversion Price in effect for
shares issuable upon such conversion of the Series A Preferred Stock immediately
prior to such consummation), in lieu of shares issuable upon such conversion of
the Series A Preferred Stock prior to such consummation, the stock and other
securities, cash and assets to which such Holder would have been entitled upon
such consummation if such Holder had so converted such Series A Preferred Stock
immediately prior thereto. The Corporation shall not effect any such
consolidation, merger or sale, unless prior to the consummation thereof, the
successor entity (if other than the Corporation) resulting from consolidation or
merger or the entity purchasing such assets assumes by written instrument, the
obligation to deliver to each such Holder such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holder may be
entitled to acquire.
(d) Notice of Adjustment. Whenever the number of shares issuable upon
--------------------
the conversion of the Series A Preferred Stock or the Conversion Price is
adjusted, as provided in this Section, the Corporation shall prepare and mail to
each Holder a certificate setting forth (i) the Conversion Price and the number
of shares issuable upon the conversion of the Series A Preferred Stock after
such adjustment, (ii) a brief statement of the facts requiring such adjustment
and (iii) the computation by which such adjustment was made.
(e) Treasury Shares. The number of shares of Common Stock outstanding
---------------
at any given time shall not include shares of Common Stock owned or held by or
for the account of the Corporation. The disposition of any shares of Common
Stock owned or held by or for the account of the Corporation shall be considered
an issue of Common Stock for the purposes of this Section 6.
(f) Certain Adjustment Rules.
------------------------
(i) The provisions of this Section 6 shall similarly apply to
successive transactions.
(ii) If the Corporation shall declare any dividend referred to
in Section 6(a) and if any Holder converts all or any part of the Series A
Preferred Stock after such declaration, but before the payment of such dividend,
the Corporation may elect to defer, until the payment of such dividend, issuing
to such Holder the shares of Common Stock issuable upon such conversion over and
above the shares issuable upon such conversion on the basis of the Conversion
Price in effect prior to such adjustment; provided, however, that the
Corporation shall deliver to each such Holder a due bill or other appropriate
instrument evidencing such Holder's right to receive such additional shares upon
the payment of such dividend.
-6-
<PAGE>
(iii) If the Corporation shall declare any dividend referred to
in Section 6(a) and shall legally abandon such dividend prior to payment, then
no adjustment shall be made pursuant to this Section 6 in respect of such
declaration.
7. Voting Rights.
-------------
(a) Except to the extent required by the Delaware General Corporation
Law, each Holder of outstanding shares of Series A Preferred Stock shall be
entitled to the number of votes equal to the number of whole shares of Common
Stock into which such shares of Series A Preferred Stock are convertible (as
adjusted from time to time pursuant to Section 6 hereof), at each meeting of
stockholders of the Corporation (and written actions of stockholders in lieu of
meetings) with respect to any and all matters presented to the stockholders of
the Corporation for their action or consideration.
(b) Notwithstanding the provisions of Section 7(a), so long as any
shares of Series A Preferred Stock shall be outstanding, the affirmative vote or
written consent of the Holders of 66-2/3% of the Series A Preferred Stock then
outstanding, voting or consenting separately as a class, shall be required for
the Corporation to:
(i) amend or repeal any provision of, or add any provision to,
the Corporation's Certificate of Incorporation or By-laws if such action
would change the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, the Series A Preferred Stock, or
increase or decrease the number of shares of Series A Preferred Stock
authorized hereby;
(ii) authorize or issue shares of any class or series of stock
having any preference or priority as to the right to receive either
dividends or amounts distributable upon liquidation, dissolution or winding
up of the Corporation superior to any such preference or priority of the
Series A Preferred Stock, or authorize or issue shares of stock of any
class or series of any bonds, debentures, notes or other obligations
convertible into or exchangeable for, or having option rights to purchase,
any securities of the Corporation having any preference or priority as to
the right to receive either dividends or amounts distributable upon
liquidation, dissolution or winding up of the Corporation superior to any
such preference or priority of the Series A Preferred Stock; or
(iii) reclassify any class or series of any Common Stock into
securities having any preference or priority as to the right to receive
either dividends or amounts distributable upon liquidation, dissolution or
winding up of the Corporation superior to any such preference or priority
of the Series A Preferred Stock.
8. Definitions.
-----------
(a) "Business Day" shall mean any day that is not a Saturday, a Sunday
------------
or a day on which banks are required or authorized by law to be closed in the
City of New York, New York.
-7-
<PAGE>
(b) "Common Stock" shall mean the common stock of the Corporation, par
------------
value $.00115 per share.
(c) "Conversion Date" has the meaning specified in Section 5(b)
---------------
hereof.
(d) "Conversion Notice" has the meaning specified in Section 5(b)
-----------------
hereof.
(e) "Conversion Stock" has the meaning specified in Section 5(a)(i)
----------------
hereof.
(f) "Convertible Securities" means any evidences of indebtedness,
----------------------
shares of stock, or other securities directly or indirectly convertible into or
exchangeable for Common Stock.
(g) "Corporation" shall mean SpectruMedix Corporation, a corporation
-----------
organized and existing under the laws of the State of Delaware.
(h) "Exemption Notice" has the meaning specified in Section 5(a)(ii)
----------------
hereof.
(i) "Holder" shall mean any holder of shares of Series A Preferred
------
Stock.
(j) "Issue" means to grant, issue, sell, assume, or fix a record date
-----
for determining persons entitled to receive, any security (including Options),
whichever of the foregoing is the first to occur.
(k) "Liquidation Preference" has the meaning specified in Section 3
----------------------
hereof.
(l) "Market Price" means the average of the closing prices of any
------------
security's sales on the principal securities exchange on which such security may
at the time be listed, or, if there have been no sales on such exchange on any
day, the average of the highest bid and lowest asked prices on such exchange at
the end of such day, or, if on any day such security is not so listed, the
average of the representative bid and asked prices quoted in the NASDAQ System
as of 4:00 P.M., New York time, or, if on any day such security is not quoted in
the NASDAQ System, the average of the highest bid and lowest asked prices on
such day in the domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated, or any similar successor organization, in each
such case averaged over a period of 21 days consisting of the day as of which
"Market Price" is being determined and the 20 consecutive business days prior to
such day. If at any time such security is not listed on any securities exchange
or quoted in the NASDAQ System or the over-the counter market, the "Market
Price" shall be the fair value thereof determined in good faith by the Board of
Directors of the Corporation.
(m) "Option" means any right, option, or warrant to subscribe for,
------
purchase, or otherwise acquire Common Stock or Convertible Securities.
(n) "Person" shall mean any corporation, natural person, firm, joint
------
venture, partnership, trust, unincorporated organization, enterprise,
government or any department or agency of any government.
(o) "Series A Preferred Stock" has the meaning assigned to such term
------------------------
in Section 1 hereof.
-8-
<PAGE>
(p) "Redemption Date" has the meaning specified in Section 4(b)
---------------
hereof.
9. Registration of Transfer. The Corporation shall keep at its
------------------------
principal office a register for the registration of Series A Preferred Stock.
Upon the surrender of any certificate representing Series A Preferred Stock at
such place, the Corporation shall, at the request of the record holder of such
certificate, execute and deliver (at the Corporation's expense) a new
certificate or certificates in exchange therefor representing in the aggregate
the number of shares represented by the surrendered certificate. Each such new
certificate shall be registered in such name and shall represent such number of
shares as is requested by the holder of the surrendered certificate and shall be
substantially identical in form to the surrendered certificate, and dividends
shall accrue on the Series A Preferred Stock represented by such new certificate
from the date to which dividends have been fully paid on such Series A Preferred
Stock represented by the surrendered certificate.
10. Replacement. Upon receipt of evidence reasonably satisfactory to
-----------
the Corporation (an affidavit of the registered holder shall be satisfactory) of
the ownership and the loss, theft, destruction or mutilation of any certificate
evidencing shares of Series A Preferred Stock, and in the case of any such loss,
theft or destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Corporation shall
(at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of shares of such class
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate, and dividends
shall accrue on the Series A Preferred Stock represented by such new certificate
from the date to which dividends have been fully paid on such lost, stolen,
destroyed or mutilated certificate.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Amendment this 28th day of July, 1999.
/s/ Joseph K. Adlerstein
---------------------------------
Joseph K Adlerstein, Chairman and
Chief Executive Officer
-9-
<PAGE>
EXHIBIT 10.20
AMENDMENT TO LICENSE AGREEMENT
This Amendment to License Agreement by and between Iowa State University
Research Foundation, Inc., a body having corporate powers under the laws of the
State of Iowa ("ISURF"), and SpectruMedix Corporation, a Delaware corporation
-----
("SMDX"), is dated as of July 30, 1999.
- ------
WHEREAS, ISURF and SMDX entered into that certain License Agreement
effective as of June 24, 1997 (the "License Agreement");
-----------------
WHEREAS, ISURF and SMDX desire to amend the License Agreement as
hereinafter set forth and otherwise to be bound hereby;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged and agreed, the parties hereto
hereby agree as follows:
1. Defined Terms. Capitalized terms used but not otherwise defined herein
-------------
shall have the meanings ascribed thereto in the License Agreement.
2. Default. ISURF and SMDX acknowledge and agree that SMDX has defaulted
-------
under the License Agreement by virtue of its failure to pay the sum of
***** owing to ISURF as of the date hereof under Section 5 of the License
Agreement (the "Default Amount"). ISURF shall not claim a default or breach
--------------
under the License Agreement with respect to the Default Amount unless and until
SMDX fails to comply with Section 3 hereof.
3. Payment of the Default Amount. SMDX shall pay the entire Default Amount
-----------------------------
by delivery by a nationally recognized overnight courier to ISURF of a check in
an amount at least equal to the Default Amount within ten (10) days after the
date hereof and in any event within three (3) business days after receipt by
SMDX of the Sublicense Issue Fee.
4. Payment of Minimum Royalty Payment. Section 5.2 of the License
----------------------------------
Agreement is hereby deleted and replaced in its entirety with the following:
5.2 Minimum Royalties: ISURF shall have the right to terminate this
license in the event that the Licensee does not pay ISURF at least the following
minimum royalty payments:
(i) For calendar year 2000, payable on
November 15, 2000 *******
(ii) For calendar year 2001 (and each
year thereafter), payable on
<PAGE>
December 31, 2001
(and each year thereafter) *******
Such minimum royalty payments are nonrefundable, but they are
creditable against earned royalties to the extent provided in Section 5.4.
5. Termination. Section 14.2 of the License Agreement is hereby amended
-----------
by deleting the phrase ***** and replacing it with the phrase *****.
6. Event of Default. In the event ISURF terminates the License Agreement
----------------
in accordance with Section 14.2 thereof, SMDX shall upon the request of ISURF
grant to ISURF a worldwide non-exclusive license to the extent not prohibited by
other SMDX patents not licensed to ISURF to sublicense any patents, trade
secrets and other technology owned or developed by SMDX in connection with its
business of manufacturing, distributing and/or selling DNA sequencing equipment
to use and exploit such patents, trade secrets and technology. Any sublicense
granted by ISURF pursuant to such license shall provide that the relevant
sublicensee shall not further sublicense the licensed technology. ISURF shall
pay to SMDX a royalty of fifty percent (50%) of all revenues received by it in
connection with any such license; provided, however, that ISURF may instead
apply any amounts which would otherwise be owing to SMDX under this Section 6
against amounts owing to ISURF by SMDX under the License Agreement.
7. SMDX Board. Until July 31, 2002, ISURF shall have the right to
----------
designate a representative reasonably acceptable to SMDX to attend and observe
each meeting of the Board of Directors of SMDX (the "Observer"); provided,
--------
however, that SMDX shall have the right to terminate the observer status of the
Observer by written notice to ISURF upon the consummation of one or more public
offerings after the date hereof of equity securities of SMDX pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
as a result of which SMDX received an aggregate of not less than ******* in
gross proceeds. SMDX shall provide to the Observer a copy of all written
materials prepared for and provided to the Board of Directors of SMDX. ISURF
shall cause the Observer to execute and deliver a confidentiality agreement in
form and substance satisfactory to SMDX. Notwithstanding the foregoing, SMDX
shall be entitled (a) to withhold from the Observer any confidential written
materials dealing with commercial matters involving ISURF, and (b) to exclude
the Observer from any portion of any meeting of the Board of Directors dealing
with commercial matters involving ISURF. The rights provided to ISURF herein are
personal to ISURF and are not transferable. As promptly as practicable, but in
any event prior to the consummation of the closing of the Equity Financing (as
hereinafter defined), SMDX shall cause to be elected to the Board of Directors
at least two additional independent members. The "Equity Financing" shall mean
----------------
the closing of a transaction or transactions pursuant to which SMDX raises
approximately ******* in cash, whether by means of debt and/or equity, from
banks, institutional investors and/or qualified private investors.
8. Phantom Stock Grant. SMDX hereby grants to ISURF an award of phantom
-------------------
stock (the "Stock Award") that entitles ISURF to receive, upon the occurrence of
-----------
a Sale Event (as hereinafter defined), an amount equal to the excess of (i) the
Fair Market
2
<PAGE>
Value (as hereinafter defined) of 150,000 shares of Common Stock, par value
$0.00115 per share, of SMDX (the "Shares") as of the Sale Date (as hereinafter
------
defined) over (ii) the Fair Market Value of the Shares as of the date hereof.
The Stock Award shall be payable on the Sale Date in cash. The Stock Award shall
be forfeited upon termination by ISURF of the License Agreement pursuant to
Section 14.2 thereof. ISURF shall have no rights as a stockholder as a result of
the Stock Award. Neither the Stock Award nor the rights and privileges conferred
hereby may be transferred, assigned, pledged, hypothecated or encumbered, and
shall not be subject to execution, attachment, garnishment or other similar
legal process. Upon any attempt to transfer, assign, pledge, hypothecate or
otherwise encumber or dispose of the Stock Award, the Stock Award and the rights
and privileges conferred hereby shall be rendered null and void. The number of
the Shares shall not be adjusted in the event of any stock dividend or
distribution, recapitalization, stock split, reverse stock split, share
combination, share exchange or any similar change in the capital structure of or
by SMDX.
"Sale Event" shall mean an acquisition, consolidation or merger (including,
----------
but not limited to, combinations, recapitalizations or redemptions) respecting
SMDX as a result of which more than 50% of the voting interests of SMDX, or as
applicable, the entity succeeding SMDX, become owned by an individual,
corporation, partnership, limited liability company or other entity which
together with its affiliates did not own more than 50% of SMDX immediately prior
to such event.
"Fair Market Value" shall mean (i) as of the Sale Event Date, the highest
-----------------
per share consideration (as cash or, if not as cash, the cash or fair market
value thereof) received for a share of Common Stock of SMDX in the Sale Event
and (ii) as of the date hereof, $0.15625.
"Sale Date" shall mean the date of the closing of the Sale Event.
---------
9. Perkin-Elmer Corporation Sublicense.
-----------------------------------
(a) SMDX has advised ISURF that it intends to enter into a
sublicense agreement (the "Sublicense") with The Perkin-Elmer Corporation, a New
----------
York corporation ("PEC"), pursuant to which, inter alia, PEC will (i) sublicense
--- ----- ----
from SMDX U.S. Patent Nos. 5,741,411 and 5,582,705, (ii) pay to SMDX a
sublicense issuance fee of $1,000,000 (the "Sublicense Issue Fee"), and (iii)
--------------------
pay to SMDX minimum annual royalties of ***** per year, commencing August
1, 2000, based upon the following schedule:
Cumulative Net Sales Royalty Rate
-------------------- ------------
Up to ******* **%
*******_******* **%
In excess of ******* **%
The royalties paid by PEC to SMDX pursuant to the Sublicense are hereinafter
referred to as the "PEC License Fees."
----------------
3
<PAGE>
(b) Notwithstanding any terms and provisions in the License Agreement
that are or may be inconsistent herewith, ISURF hereby (i) consents to the entry
by SMDX into the Sublicense; (ii) agrees that the Sublicense Issuance Fee shall
be ******* to SMDX and ******* to ISURF, which payment to ISURF shall be fully
creditable toward payment of the Default Amount and shall satisfy in full any
and all monetary defaults by SMDX under the License Agreement; and (iii) agrees
that the royalties payable by SMDX to ISURF in respect of PEC License Fees shall
be payable, subject to subsection (D) below, as follows:
(A) The PEC License Fees in respect of calendar year 2000 shall be
payable ******* to ISURF and ******* to SMDX.
(B) The first ******* of PEC License Fees in respect of calendar year
2001 shall be payable in full to ISURF. The next ******* of PEC License
Fees in respect of calendar year 2001 shall be payable in full to SMDX. Any
PEC License Fees in excess of ******* in respect of calendar year 2001
shall be payable ******* to SMDX and ******* to ISURF.
(C) The first ******* of PEC License Fees in respect of calendar year
2002 and each calendar year thereafter shall be payable ****** to ISURF and
any PEC License Fees in excess of ******* in respect of any such calendar
year shall be payable ******* to SMDX and ******* to ISURF; provided,
however, that if the aggregate royalties payable to ISURF pursuant to the
License Agreement in respect of calendar year 2002 from sources other than
the PEC License Fees shall be less than *******, then ISURF, acting in its
sole discretion, may instead elect, on a one-time irrevocable basis, that
the PEC License Fees in respect of calendar year 2002 and thereafter shall
be payable ******* to SMDX and ******* to ISURF. In the event ISURF shall
fail to give written notice of such election to SMDX on or prior to January
31, 2003, it shall be deemed to have waived its right to so elect.
(D) Notwithstanding subsections (A), (B) and (C) above, in the event
SMDX consummates one or more transactions pursuant to which SMDX receives
net cash proceeds of ******* or more, whether by means of debt and/or
equity, from banks, institutional investors, qualified private investors or
the public, the first ******* of PEC License Fees in respect of any
calendar year thereafter shall be payable in full to ISURF and any PEC
License Fees in excess of ******* in respect of such calendar year shall be
payable ******* to SMDX and ******* to ISURF.
ISURF agrees that payments by SMDX of the PEC License Fees shall be applied
toward SMDX's obligation to pay minimum royalties under the License Agreement.
SMDX agrees that it shall segregate from its other funds by the establishment
and maintenance of a separate account funds in an amount equal to the PEC
License Fees payable to ISURF. SMDX agrees that it shall make payment to ISURF
of the PEC License Fees payable to ISURF within ten (10) business days after
SMDX's receipt of the relevant PEC License Fees. SMDX further agrees that in
the event SMDX is in default of the
4
<PAGE>
License Agreement as a result of a failure to pay amounts owing to ISURF
thereunder, ISURF may request from PEC that PEC pay directly to ISURF amounts
payable after the date of such request in respect of the PEC License Fees.
(c) SMDX covenants to ISURF that the Sublicense shall be in
compliance with Section 13.3 of the License Agreement except that the Sublicense
may provide, and ISURF agrees that the Sublicense may provide, that PEC may
further sublicense to its end-user purchasers the right to use the Licensed
Products. SMDX covenants to ISURF that SMDX will not accept from PEC or its
affiliates any consideration in respect of the Sublicense other than the
Sublicense Issue Fee and the PEC License Fees and that any consideration SMDX
receives in respect of any Stock Purchase Agreement and/or Consulting Agreement
between SMDX and PEC and/or its affiliates shall not be consideration in respect
of the Sublicense.
10. Mutual Releases. Upon the execution and delivery of this Amendment,
---------------
ISURF, SMDX and Joseph K. Adlerstein shall execute and deliver the releases in
the forms attached hereto as Exhibits A, B and C, respectively.
11. Confidentiality. ISURF shall, and shall cause its affiliates,
---------------
officers, directors, employees, agents and representatives to, keep secret and
not divulge to any third party or otherwise use for its benefit (other than in
connection with the transactions contemplated by this Agreement) any
confidential or proprietary information of SMDX to which such person or entity
obtains access pursuant to Section 8; provided, however, that such obligation
shall not apply to any information to the extent that (a) it is or becomes part
of public or industry knowledge or literature as a result of causes other than
the acts or omissions of such person or entity, (b) it can be demonstrated to
have been known to such person or entity prior to its receipt from SMDX, (c) it
is received by such person or entity in good faith from a third party, or (d)
disclosure shall be required by applicable law, regulation or court order
provided that prior to such disclosure, such person or entity shall promptly
notify SMDX with respect to such requirement in recognition of the fact that
SMDX may elect to obtain relief from such disclosure requirement.
12. Effect. Except to the extent amended hereby, the License Agreement
------
shall remain in full force and effect.
13. Counterparts. This Amendment may be executed in counterparts, all of
------------
which, when taken together, shall constitute one agreement.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment to
License Agreement as of the date hereof.
SPECTRUMEDIX CORPORATION
/s/ Joseph K. Adlerstein
--------------------------------
Name: Joseph K. Adlerstein
Title: Chief Executive Officer
IOWA STATE UNIVERSITY
RESEARCH FOUNDATION, INC.
/s/ Kenneth Kirkland
--------------------------------
Name: Kenneth Kirkland
Title: Executive Director
6
<PAGE>
EXHIBIT 10.21
SUBLICENSE AGREEMENT
--------------------
THIS SUBLICENSE AGREEMENT is made as of July 30, 1999 (the "Effective
Date") between SPECTRUMEDIX CORPORATION, a Delaware corporation having a
principal place of business at 2124 Old Gatesburg Road, State College,
Pennsylvania 16803 (the "Company"), and THE PERKIN-ELMER CORPORATION, a New York
corporation having a place of business at 850 Lincoln Centre Drive, Foster City,
California 94404 (the "Sublicensee").
1. Background.
1.1 The Company has a valid license to the Sublicensed Patents (as
hereinafter defined).
1.2 Sublicensee wishes to acquire a sublicense to the Sublicensed
Patents, for the purpose of undertaking development, manufacture, use, sale,
offer for sale and importation within the Sublicensed Territory of Sublicensed
Products in the Sublicensed Field of Use (as defined below).
2. Definitions.
-----------
2.1 "Sublicensed Patents" means (i) U.S. Patent Nos. 5,741,411 and
-------------------
5,582,705, (ii) any foreign counterpart of any of the patents listed in item
(i), and (iii) any continuations, divisions, reissues, reexaminations and patent
term extensions of any of the patents listed in items (i) and (ii).
2.2 "Sublicensed Product" means any product or part thereof, the
-------------------
manufacture, use, sale, offer for sale or importation of which would, but for
the sublicense granted herein, infringe a valid claim of an issued, unexpired
Sublicensed Patent. Sublicensed Product shall include any instruments or
machines a component of which is itself a Sublicensed Product. A claim of an
issued, unexpired Sublicensed Patent shall be presumed to be valid unless and
until it has been finally held to be unpatentable by a judicial or
administrative agency.
2.3 "Net Sales" means the aggregate gross revenues received by the
---------
Sublicensee or any of its affiliates in connection with the sale of the
Sublicensed Products in the form in which they are sold or used, whether or not
assembled (and without excluding therefrom any components or subassemblies
thereof, whatever their origin; provided, however, (1) that the separate sale of
-------- -------
any components or subassemblies which are not themselves Sublicensed Product,
and to the extent said components or subassemblies do not contribute to the
infringement of the Sublicensed Patents, shall not constitute "Net Sales;" and
(2) the sale of Sublicensed Product that include separate product components
with independent value that are not dependent on the Sublicensed Product and are
separately patentable or protectible as trade secrets ("Combination Products")
shall be subject to Sublicensee's payment of a reduced royalty payment as set
forth in Sections 5.4(a) and 5.4(b) hereof), less the following items, but only
insofar as such items actually pertain to the disposition of such Sublicensed
Product by Sublicensee and are included in such gross income and (except Item
(d) below,) are separately billed:
<PAGE>
(a) import, export, excise, value-added and sales taxes,
discounts, commissions and custom duties;
(b) costs of insurance, packing, and transportation from the
place of manufacture to the customer's premises or point of installation;
(c) costs of installation at the place of use; and
(d) credit for returns, allowances, or trades.
Sublicensed Product shall be considered sold when shipped.
2.4 "Sublicensed Field of Use" means Sublicensed Products in which
------------------------
or fewer coplanar capillaries are illuminated using a side-entry illumination
geometry in which light passes through a transparent portion of each of the
capillaries in a sequential manner with such light in the capillary plane and
normal to the direction of sample migration, substantially as depicted in
Figures 1 and 2 of U.S. Patent Nos. 5,741,411 and 5,582,705.
2.5 "Sublicensed Territory" means worldwide, except to the extent
---------------------
that manufacture outside the United States is restricted by law.
2.6 "Exclusive" means the Company shall not, during the term of this
---------
Agreement, grant further sublicenses in the Sublicensed Patents in the
Sublicensed Field of Use in the Sublicensed Territory and shall not itself make,
use, offer to sell, sell or import Sublicensed Product in the Sublicensed Field
of Use in the Sublicensed Territory, it being understood that the Company may
itself otherwise use and exploit the Sublicensed Patents and make, use, offer to
sell, sell, or import the Sublicensed Products outside the Sublicensed Field of
Use.
3. Grant.
-----
3.1 Sublicense. The Company hereby grants and Sublicensee hereby
----------
accepts, subject to the terms and conditions hereof, an Exclusive sublicense to
use and exploit the Sublicensed Patents, and to make, have made, use, sell,
offer to sell and import Sublicensed Product, in the Sublicensed Territory for
use in the Sublicensed Field of Use. This Agreement does not grant Sublicensee
any rights in or interests to any patents owned or licensed by the Company other
than the Sublicensed Patents.
To the best of the Company's knowledge, there are no issued patents,
pending applications or invention disclosures in its current portfolio, which
dominate the Sublicensed Patents. If an issued patent currently in the
Company's portfolio, a patent issuing from an application currently pending in
the Company's portfolio or a patent issuing based on an invention disclosure
currently in the Company's portfolio is later determined to dominate any
Sublicensed Patent, Sublicensee shall have the first option to license such
dominant patent in the Sublicensed Territory for use in the Sublicensed Field of
Use for additional consideration. Sublicensee's option shall commence on the
date the Company notifies Sublicensee of such dominant issued patent and shall
expire six (6) months thereafter. At any time during the option period,
Sublicensee may notify the Company in writing of its intent to negotiate a
license for
2
<PAGE>
such dominant patent, and both parties shall enter into good faith negotiations
within ninety (90) days to license such dominant patent in accordance with the
terms of this Agreement.
3.2 Term; Exclusivity. The sublicense granted by the Company to
-----------------
Sublicensee shall be Exclusive for a term commencing as of the Effective Date
and ending upon expiration of the last to expire of Sublicensed Patents.
3.3 No Security Interests. Sublicensee shall not grant to a third
---------------------
party any security interest in the Sublicensed Patents.
3.4 Right of First Refusal. In the event that the Company receives
----------------------
from a third party (an "Offeror") a bona fide offer (a "Transaction Offer") upon
specific terms and conditions for the exclusive sublicense to use and exploit
the Sublicensed Patents, and to make, use, sell, offer to sell and import
Sublicensed Product in which more than thirty (30) coplanar capillaries are
illuminated using a side-entry illumination geometry in which light passes
through a transparent portion of each of the capillaries in a sequential manner
with such light in the capillary plane and normal to the direction of sample
migration, substantially as depicted in Figures 1 and 2 of U.S. Patent Nos.
5,741,411 and 5,582,705, the Company may so sublicense the Sublicensed Patents
only pursuant to and in accordance with this Section 3.4.
(a) The Company shall cause the terms and conditions of the
Transaction Offer to be reduced to a writing. The Company shall notify
Sublicensee in writing (along with a copy of the written Transaction Offer) of
its wish to effect the Transaction Offer (such notice, the "First Refusal
Notice").
(b) Sublicensee shall have the right, exercisable upon written
notice to the Company within twenty (20) days after delivery to it of the First
Refusal Notice, to enter into a sublicense in accordance with the terms and
conditions set forth in the First Refusal Notice. In the event Sublicensee so
elects, Sublicensee and the Company shall enter into such sublicense no later
than sixty (60) days of the date of delivery of the First Refusal Notice.
(c) In the event Sublicensee does not so elect, the Company may
enter into a sublicense agreement with the Offeror on the terms and conditions
set forth in the First Refusal Notice within sixty (60) days after the date of
delivery of such notice.
(d) In the event the transaction contemplated in subsections (b)
or (c), as the case may be, are not consummated within the periods set forth
therein, the Transaction Offer shall be deemed to have lapsed and any sublicense
pursuant to such Transaction Offer shall be in violation of this Agreement
unless the provisions of this Section have been complied with.
3.5 Option to Company. The Company shall have the option exercisable
-----------------
by written notice to Sublicensee at any time during the term hereof to enter
into a license or sublicense agreement, as the case may be, with Sublicensee
and/or its affiliates with respect to any technology which Sublicensee and/or
its affiliates license or sublicense to third parties as part of an established
licensing or sublicensing program on terms and conditions no less favorable to
the Company than to such third parties. Such programs currently include programs
relating to Sublicensee's and/or its affiliates PCR technology, DNA synthesis
technology and DNA sequencing technology. Sublicensee shall use good faith
efforts to cause such license or
3
<PAGE>
sublicense agreement to be entered into as promptly as commercially practicable
after delivery of such exercise notice by the Company.
3.6 Customer Access to Sublicensee Technology. Users of Company's
-----------------------------------------
instrumentation will be permitted to purchase without restriction from
Sublicensee and its affiliates any kits, reagents and chemistries which they
make commercially available; provided, however, that use (but not the sale by
Sublicensee and its affiliates) of such kits, reagents and chemistries shall be
subject to any legal, contractual and licensing restrictions associated with
such products.
3.7 License. This Agreement is subject and subordinate to the terms
-------
and conditions of the License Agreement dated as of June 24, 1997 between Iowa
State University Research Foundation, Inc. ("ISURF") and the Company (the
"Original License"). Sublicensee shall have no right to sublicense any rights
under this Agreement except that Sublicensee shall have the right to sublicense
to its end-user purchasers the right to use the Sublicensed Products. The
provisions of Sections 7, 8 and 9 of this Agreement shall also inure to the
benefit of ISURF. In the event of the termination of the Original License, the
benefit of all obligations of Sublicensee hereunder, including the payment of
royalties, shall be transferred to ISURF or its designee.
4. Government Rights. This Agreement is subject to all of the terms
-----------------
and conditions of Public Law 96-517 as amended, and Sublicensee agrees to take
all action necessary on its part as Sublicensee to enable the Company to satisfy
its obligations thereunder relating to Sublicensed Patents. The Company
represents that it has complied with all provisions of the Bayh-Dole Act, to the
extent that such Act applies to the Company.
5. Consideration.
-------------
5.1 Sublicense Issuance Fee. Sublicensee agrees to pay to the
-----------------------
Company a nonrefundable sublicense issue fee of One Million Dollars
($1,000,000), payable in full in cash on the Effective Date. Such sublicense
issue fee is fully creditable against earned royalties paid under Section 5.3 to
the extent provided in Section 5.4 hereof.
5.2 Minimum Royalties. Commencing with the year beginning August 1,
-----------------
2000, Sublicensee shall pay to the Company minimum royalties of ******** per
year, payable quarterly in arrears on each October 31, January 31, April 30 and
July 31. The minimum royalties payable hereunder are nonrefundable, but shall be
credited against earned royalties to the extent provided in Section 5.4 hereof.
5.3 Earned Royalties. Sublicensee shall pay the Company an earned
----------------
royalty on Net Sales of all Sublicensed Product used or sold by and/or for
Sublicensee according to the royalty rate set forth immediately below; provided,
--------
however, that the royalty rate set forth below shall be reduced to a royalty
- -------
equal to the Company Portion (as defined below) multiplied by the applicable
royalty rate in the case of sales of Combination Products.
4
<PAGE>
Net Sales Royalty Rate
--------- ------------
Up to ******* **%
*******-******* **%
In excess of ******* **%
The "Company Portion" means the value of a component of a Combination
Product that is itself a Sublicensed Product, divided by the total value of the
Combination Product.
5.4 Offset to Royalties. Payment by Sublicensee of the sublicense is
-------------------
sue fee payable pursuant to Section 5.1 and the minimum royalties payable
pursuant to Section 5.2 of this Agreement shall be an offset to Sublicensee
against one hundred percent (100%) of each earned royalty payment which
Sublicensee would be required to pay pursuant to Section 5.3 only for the twelve
(12) month period that immediately follows the payment of such sublicense issue
fee or minimum royalties.
5.5 Duration of Payments. If this Agreement is not terminated in
--------------------
accordance with any other provision hereof, Sublicensee's obligation to pay
royalties hereunder shall continue for so long as Sublicensee, by its activities
would, but for the sublicense granted herein, infringe a valid claim of an
unexpired Sublicensed Patents covering said activity.
5.6 Currency Rates. The royalty on sales in currencies other than
--------------
U.S. Dollars shall be calculated using the appropriate foreign exchange rate for
such currency quoted by the Wall Street Journal on the close of business on the
last banking day of each calendar quarter. Royalty and payments to the Company
shall be in U.S. Dollars and shall be net of all non-U.S. taxes.
5.7 Patent Prosecution Expenses. Within thirty (30) days after
---------------------------
receipt of a statement from the Company, Sublicensee shall reimburse the Company
for one half (1/2) of all patent prosecution and maintenance costs of the
Sublicensed Patents, up to a maximum of ***** per annum, plus a five percent
(5%) administration fee not to exceed ***** per annum, per patent (where each
patent includes all corresponding domestic and foreign patents) whether such
fees and costs were incurred before or after the date of this Agreement;
provided, however, in the event that the Company grants additional sublicenses
under the Sublicensed Patents, then the portion of patent prosecution and
maintenance costs paid by Sublicensee will be no more than (1/N+1) of the total
patent prosecution and maintenance costs of the Sublicensed Patents, where N is
the total number of sublicensees, including Sublicensee. The Company shall
cooperate with Sublicensee in prosecuting any patent applications and in the
maintenance of patents as reasonably requested by Sublicensee, shall permit
Sublicensee to review and comment on all prosecution activities, and shall
promptly provide Sublicensee, upon request, written status reports concerning
all patents and patent applications. Amounts will be payable thirty (30) days
from date of the Company's invoice. In country(ies) where Sublicensee elects not
to reimburse the Company for such fees and costs, Sublicensee shall have no
residual license or patent rights in said country(ies) .
5
<PAGE>
6. Representations of The Company and Sublicensee.
----------------------------------------------
The Company hereby represents and warrants to Sublicensee that:
(a) The Company has not granted commercialization rights or
licenses or security interest under the Sublicensed Patents in the Sublicensed
Field of Use to any third party;
(b) The Company has not received any notice of a claim of
infringement, misappropriation or invalidity of any alleged rights asserted by
any third party in relation to the Sublicensed Patents; and
(c) The Company has a valid license to all Sublicensed Patents
under a license agreement between the Company and Iowa State University Research
Foundation, Inc., a body having corporate powers under the laws of the State of
Iowa. Such license agreement is valid and enforceable and the Company will not
take any steps to jeopardize the validity and enforceability of such license
agreement.
7. Reports, Payments. and Accounting.
---------------------------------
7.1 Quarterly Earned Royalty Payment and Report. Sublicensee shall
-------------------------------------------
submit a written report and make an earned royalty payment to the Company within
forty-five (45) days after the end of each calendar quarter. Such reports shall
state, for such completed calendar quarter, (1) the number, description, and
aggregate Net Sales of Sublicensed Product, (2) a calculation of earned
royalties based on such Net Sales pursuant to Section 5.3, (3) a calculation of
any royalty adjustments due to Sublicensed Product sold in the form of
Combination Products pursuant to Section 5.3, (4) a calculation of any royalty
offset due to (A) the sublicense issue fee pursuant to Section 5.1 and (B)
payment of minimum royalties pursuant to Section 5.2, and (5) an accounting of
any reduction in Net Sales as a result of returns, allowances or trades pursuant
to Section 2.3(d). Concurrently with the making of each such report, Sublicensee
shall include payment due the Company of earned royalties for the calendar
quarter covered by such report.
7.2 Accounting. Sublicensee agrees to keep records for a period of
----------
five (5) years showing the manufacturing, sales, use, and other disposition of
products sold or otherwise disposed of under the sublicense herein granted in
sufficient detail to enable the royalties payable hereunder by Sublicensee to be
determined, and further agrees to permit its books and records to be examined by
the Company from time to time during regular business hours to the extent
reasonably necessary to verify reports provided for in Section 7.1, but not more
frequently than two (2) times in any twelve (12) month period. Such examination
is to be made by the Company, at the expense of the Company, except in the event
that the results of the audit reveal an underpayment by Sublicensee of five
percent (5%) or more, the reasonable audit fees shall be paid by Sublicensee.
8. Negation of Warranties and Disclaimer.
-------------------------------------
8.1 Limitation on Warranties. Nothing in this Agreement is or shall
------------------------
be construed as:
6
<PAGE>
(a) a warranty or representation by the Company as to the
validity or scope of any Sublicensed Patents;
(b) a warranty or representation that anything made, used, sold,
or otherwise disposed of under any sublicense granted in this Agreement is or
will be free from infringement of patents, copyrights and other rights of third
parties;
(c) an obligation to bring or prosecute actions or suits against
third parties for infringement; or
(d) granting by implication, estoppel or otherwise any licenses
or sublicenses under patents of the Company or other persons other than the
Sublicensed Patents, regardless of whether such patents are dominant or
subordinate to any Sublicensed Patents.
8.2 No Other Warranties. Except as expressly set forth in this
-------------------
Agreement, THE COMPANY MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY
KIND, EITHER EXPRESS OR IMPLIED. THERE ARE NO EXPRESS OR IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR THAT THE USE OF THE
SUBLICENSED PRODUCT WILL NOT INFRINGE ANY PATENT, COPYRIGHT, TRADEMARK, OR OTHER
RIGHTS.
9. Indemnity.
---------
9.1 Indemnity. Sublicensee agrees to indemnify, hold harmless, and
---------
defend the Company and its officers, directors, employees, and agents against
any and all claims for infringement of third party patent rights, death,
illness, personal injury, property damage and improper business practices
arising out of the manufacture, use, sale. or other disposition of the
Sublicensed Patents or Sublicensed Product by Sublicensee or its customers.
9.2 Insurance. In addition to the foregoing, Sublicensee shall
---------
maintain, during the term of this Agreement, Comprehensive General Liability
Insurance, including Products Liability Insurance to cover the activities of
Sublicensee contemplated by this Agreement. Such insurance shall provide minimum
limits of liability consistent with industrial practice, and shall include the
Company, its directors, officers, employees, and agents as additional insured
parties. Such insurance shall be written to cover claims incurred, discovered,
manifested, or made during or after the expiration of this Agreement. At the
Company's request, Sublicensee shall furnish a Certificate of Insurance
evidencing primary coverage of One Million Dollars ($1,000,000) combined single
limit and requiring at least thirty (30) days prior written notice of
cancellation or material change to the Company. At the Company's request,
Sublicensee shall advise the Company, in writing, that it maintains excess
liability coverage over primary insurance for at least the minimum limits set
forth above. All such insurance of Sublicensee shall be primary coverage;
insurance of the Company shall be excess and noncontributory.
9.3 Workers' Compensation Insurance. Sublicensee shall at all times
-------------------------------
comply, through insurance or self-insurance, with all statutory workers'
compensation and employers' liability requirements covering any and all
employees with respect to activities performed under this Agreement.
7
<PAGE>
10. Marking. Sublicensee agrees to mark Sublicensed Product (or
-------
their containers or labels) made, sold, or otherwise disposed of by it under the
sublicense granted in this Agreement with the numbers of the Sublicensed
Patents.
11. Promotional Advertising. Sublicensee agrees not to identify the
-----------------------
Company in any promotional advertising or other promotional materials to be
disseminated to the public or any portion thereof or to use the name of any
officer, director, employee or agent of the Company or any trademark, service
mark, trade name, or symbol of the Company without the Company's prior written
consent.
12. Infringement by Others; Protection of Patents. Sublicensee
----------------------------------------------
shall promptly inform the Company of any suspected infringement of any
Sublicensed Patents by a third party. Outside the Sublicensed Field of Use, the
Company shall have the sole right to institute an action for infringement of the
Sublicensed Patents. Inside the Sublicensed Field of Use, each party shall have
the right but not the obligation to bring, at its own expense, an infringement
action against any third party and to use the other party's name in connection
therewith. The party conducting such action will have full control over its
conduct, including settlement thereof provided such settlement will not be made
without the prior written consent of the other party if such settlement would
adversely affect the rights of the other party, such consent not to be
unreasonably withheld or delayed. In any event, the parties will assist each
another and cooperate in any such litigation at the other's reasonable request
without expense to the requesting party, and, if a party is necessary in order
to institute and maintain an infringement suit by the other party as defined by
law, that party will agree to be joined in such suit. Each party shall have the
right to recover its respective actual out-of-pocket expenses, or proportionate
share thereof, in connection with any litigation or settlement thereof from any
recovery received by any party. Any excess amount will be shared between the
parties in an amount proportional to their respective out-of-pocket expenses.
The parties will keep each another reasonably informed of the status of their
respective activities regarding any such litigation or settlement thereof.
13. Termination.
-----------
13.1 Termination by the Company. The Company may terminate this
--------------------------
Agreement if Sublicensee:
(a) is in default in payment of royalty or providing of
reports; or
(b) is in breach of a material provision hereof; or
(c) provides any materially false report;
and Sublicensee fails to remedy any such default, breach, or false report within
thirty (30) days after written notice by the Company.
13.2 Survival of Obligations. The following provisions shall survive
-----------------------
any termination of this Agreement:
(a) Sublicensee's obligation to pay royalties accrued or
accruable;
8
<PAGE>
(b) Any cause of action or claim of Sublicensee or the Company,
accrued or to accrue, because of any breach or default by the other party; and
(c) The provisions of Sections 7, 8, 9, 13.2, 15, 16, 17, 18,
19, 20, 21 and 22.
13.3 Termination by Sublicensee. Sublicensee may terminate this
--------------------------
Agreement at any time upon ninety (90) days' prior written notice to the
Company.
14. Assignment. This Agreement may not be assigned by either party
----------
without the prior written consent of the other party, except that a party may
assign and transfer this Agreement and its rights and obligations hereunder to
any third party who succeeds to all or substantially all of its business, stock
or assets to which this Agreement pertains.
15. Notices. All notices under this Agreement shall be deemed to
-------
have been fully given when done in writing and deposited in the United States
mail, registered or certified, and addressed as follows:
To the Company: SpectruMedix Corporation
2124 Old Gatesburg Road
State College, Pennsylvania 16803
Attention: Dr. Joseph K. Adlerstein
Copy to: McDermott, Will & Emery
50 Rockefeller Plaza
New York, New York 10020
Attention: Stephen B. Selbst
To Sublicensee: PE Biosystems
Legal Department
4000 East 3rd Avenue, Second Floor
Foster City, California 94404
Attention: Vice President of Intellectual Property
Either party may change its address upon written notice to the other
party. In the event that Sublicensee becomes insolvent, files a petition in
bankruptcy, has such a petition filed against it, or receives notice of a third
party's intention to file an involuntary petition in bankruptcy, Sublicensee
shall immediately notify the Company in writing.
16. Waiver. None of the terms, covenants, and conditions of this
------
Agreement can be waived except by the written consent of the party waiving
compliance.
17. Applicable Law. This Agreement shall be construed, interpreted,
--------------
and applied in accordance with the laws of the State of New York.
9
<PAGE>
18. Independent Contractors. The relationship of the Company and
-----------------------
Sublicensee established by this Agreement is that of independent contractors,
and nothing contained in this Agreement shall be construed (i) to give either
party the power to direct or control the day-to-day activities of the other, or
(ii) to constitute the parties as partners, joint venturers, co-owners or
otherwise as participants in a joint or common undertaking.
19. Severability. If any provision of this Agreement is held to be
------------
invalid by a court of competent jurisdiction, then the remaining provisions
shall nevertheless remain in full force and effect. The parties further agree to
negotiate in good faith a substitute, valid and enforceable provision that most
nearly effects the parties' intent and to be bound by such mutually agreed
substitute provision.
20. Force Majeure. Neither party shall be held liable for failure to
-------------
fulfill its obligations hereunder if such failure is due to a natural calamity,
act of government, or similar cause beyond the control of such party.
21. Publicity. Neither party nor any of its affiliates will
---------
originate any publicity, news release, or other public announcement, written or
oral, relating to this Agreement without the prior written approval of the other
party, except as otherwise required by law.
22. Entire Agreement. This Agreement constitutes the entire, final,
----------------
complete and exclusive agreement between the parties and supersede all previous
agreements or representations, oral or written, relating to this Agreement. This
Agreement may not be modified or amended except in a writing signed by a duly
authorized representative of each party. Both parties acknowledge having read
the terms and conditions set forth in this Agreement, understand all terms and
conditions, and agree to be bound thereby. Confidentiality agreements made prior
to the date hereof between the parties and/or their affiliates shall remain in
full force and effect in accordance with their terms.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Sublicense
Agreement in duplicate originals by their duly authorized officers or
representatives.
SPECTRUMEDIX CORPORATION
By: /s/ Joseph K. Adlerstein
------------------------------------------
Title: Chairman and Chief Executive Officer
Date: July 30, 1999
-----------------------------------------
THE PERKIN-ELMER CORPORATION
By: /s/ Michael C. Hunkapiller
-------------------------------------------
Title: Senior Vice President
----------------------------------------
Date: July 30, 1999
-----------------------------------------
11
<PAGE>
EXHIBIT 10.22
STOCK PURCHASE AGREEMENT
------------------------
STOCK PURCHASE AGREEMENT, dated as of July 30, 1999, by and between
SpectruMedix Corporation, a Delaware corporation (the "Company"), and PE
Corporation, a Delaware corporation (the "Purchaser").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, concurrently herewith, the Company and The Perkin-Elmer
Corporation, a New York corporation and wholly-owned subsidiary of the Purchaser
("Perkin-Elmer"), are entering into that certain License Agreement concerning
certain patents and technology in substantially the form set forth in Exhibit A
---------
hereto (the "License Agreement") and that certain Consulting Agreement in
substantially the form set forth in Exhibit B hereto (the "Consulting
---------
Agreement"); and
WHEREAS, in connection with the License Agreement, the Purchaser has
agreed to purchase shares of preferred stock of the Company;
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties and agreements set forth herein, the Company and the
Purchaser agree as follows:
ARTICLE I
PURCHASE AND SALE OF THE STOCK
1.1 Purchase and Sale. Subject to the terms and conditions of this
-----------------
Agreement, on the Closing Date, the Company shall issue and deliver to
Purchaser, and Purchaser agrees to purchase from the Company, 2,000 shares of
authorized but unissued shares of the Series A Preferred Stock, par value
$.00115 per share (the "Shares").
1.2 Purchase Price. The purchase price for each Share is $1,000 and the
--------------
aggregate purchase price for all the Shares is Two Million Dollars ($2,000,000).
The Purchaser shall pay the Purchase Price on the Closing Date by wire transfer
of immediately available funds to the Company against the issuance and delivery
to Purchaser of a certificate evidencing the Shares.
1.3 Time and Place of Transaction. The consummation of the purchase and
-----------------------------
sale of the Shares (the "Closing") shall take place at the offices of the
Company's counsel on or before July 30, 1999 at 10:00 A.M., New York time, or at
such other place or time or earlier date as the Company and Purchaser may
mutually agree (the "Closing Date").
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As a material inducement to Purchaser to enter into this Agreement and
purchase the Series A Preferred Stock, the Company represents and warrants that:
<PAGE>
2.1 Due Organization and Qualification; Due Authorization.
-------------------------------------------------------
(a) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of its jurisdiction of formation, with full
corporate power and authority to own, lease and operate its business and
properties and to carry on its business in the places and in the manner as
presently conducted or proposed to be conducted. The Company is in good standing
as a foreign corporation in each jurisdiction in which the properties owned,
leased or operated, or the business conducted, by it requires such qualification
except for any such failure, which when taken together with all other failures,
is not likely to have a material adverse effect on the business, properties,
financial condition or results of operations of the Company (a "Material Adverse
Effect").
(b) The Company does not own, directly or indirectly, any capital
stock, equity or interest in any corporation, firm, partnership, joint venture
or other entity.
(c) The Company has all requisite corporate power and authority to
execute and deliver this Agreement and the Additional Agreements and to
consummate the transactions contemplated hereby and thereby. The Company has
taken all corporate action necessary for the execution and delivery of this
Agreement and the Additional Agreements and the consummation of the transactions
contemplated hereby and thereby, and this Agreement and the Additional
Agreements constitute the valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms,
except as may be affected by bankruptcy, insolvency, moratoria or other similar
laws affecting the enforcement of creditors' rights generally and subject to the
qualification that the availability of equitable remedies is subject to the
discretion of the court before which any proceeding therefor may be brought.
2.2 No Conflicts or Defaults. The execution and delivery of this Agreement
------------------------
and the Additional Agreements by the Company and the consummation of the
transactions contemplated hereby and thereby do not and will not (a) contravene
the certificate of incorporation or by-laws of the Company or (b) with or
without the giving of notice or the passage of time, (i) violate, conflict with,
or result in a breach of, or a default or loss of rights under, any material
covenant, agreement, mortgage, indenture, lease, instrument, permit or license
to which the Company is a party or by which the Company or any of its assets is
bound, or any judgment, order or decree, or any law, rule or regulation to which
the Company or any of its assets is subject, (ii) result in the creation of, or
give any party the right to create, any lien, charge, security interest,
encumbrance or any other right or adverse interest ("Liens") upon any of the
capital stock or assets of the Company, or (iii) result in a violation of or
require any authorization, consent, approval, exemption or other action by or
notice or declaration to, or filing with, any court or administrative or
governmental body or agency (a "Governmental Entity") pursuant to, the
certificate of incorporation or by-laws of the Company or any law, statute, rule
or regulation to which the Company is subject, or any agreement, instrument,
order, judgment or decree to which the Company is subject.
2.3 Capitalization. As of the date hereof, the authorized capital stock
--------------
of the Company consists of 23,000,000 shares of Common Stock, of which 3,530,214
shares were issued and outstanding on July 28, 1999, and 2,000,000 shares of
preferred stock (the "Preferred Stock"), of which none are issued and
outstanding. Except as set forth on Schedule 2.3, neither the Common Stock nor
the Preferred Stock is subject to any preemptive or subscription right, any
voting trust agreement or other contract, agreement, arrangement, option,
warrant, call,
-2-
<PAGE>
commitment or other right of any character obligating or entitling the Company
to issue, sell, redeem or repurchase any of its securities, and there is no
outstanding security of any kind convertible into or exercisable or exchangeable
for Common Stock. Except as set forth on Schedule 2.3, there are no agreements
or arrangements pursuant to which the Company is or could be required to
register shares of the Company's capital stock or other securities under the
Securities Act or other agreements or arrangements (including voting agreements)
with or, to the knowledge of the Company, among any securityholders of the
Company with respect to any securities of the Company. The offer, sale and
issuance of the Series A Preferred Stock pursuant to Section 1.1 this Agreement,
and the Common Stock issuable upon conversion of the Series A Preferred Stock,
do not and will not, as the case may be, require registration under the
Securities Act or any applicable state securities laws.
2.4 Validity of Shares. The Shares, when issued, sold and delivered in
------------------
accordance with the terms and for the consideration expressed in this Agreement,
shall be duly and validly issued (including, without limitation, issued in
compliance with applicable federal and state securities laws), fully paid and
non-assessable and free of any liens, encumbrances or preemptive or similar
rights (or agreements for any such rights). The shares of Common Stock issuable
upon conversion of the Shares are not subject to any preemptive or similar
rights (or agreements for any such rights) and, assuming such Common Stock is
issued to the Purchaser, upon issuance in accordance with the Amended Charter
shall be duly and validly issued (including, without limitation, issued in
compliance with all applicable federal and state securities laws), fully paid
and non-assessable.
2.5 SEC Documents. Except as set forth on Schedule 2.5, the Company has
-------------
filed with the SEC all reports, schedules, forms, statements and other documents
required pursuant to the Securities Act and the Exchange Act since September 1,
1997 (collectively, and in each case including all exhibits and schedules
thereto and documents incorporated by reference therein, the "SEC Documents").
As of their respective dates, the SEC Documents complied as to form in all
material respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such SEC Documents. As of their respective dates, (i)
none of the SEC Documents (including any and all financial statements included
therein) filed pursuant to the Securities Act or any rule or regulation
thereunder contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements therein not misleading and (ii) none of the SEC Documents (including
any and all financial statements included therein) filed pursuant to the
Exchange Act or any rule or regulation thereunder contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. Except to the
extent that information contained in any SEC Document has been revised or
superseded by a later filed SEC Document, none of the SEC Documents (including
any and all financial statements included therein) contains any untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The consolidated
financial statements of the Company included in all SEC Documents filed since
September 1, 1997 (the "SEC Financial Statements") comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles (except, in the case of
unaudited consolidated quarterly statements, as permitted by Form 10-Q of the
SEC),
-3-
<PAGE>
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto). The SEC Financial Statements fairly present the
consolidated financial position of the Company as of the dates thereof and the
consolidated results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited quarterly statements, to normal recurring
audit adjustments).
2.6 Financial Statements; Undisclosed Liabilities. The Company has
---------------------------------------------
furnished to the Purchaser its audited balance sheet as of March 31, 1998 and
the corresponding audited statements of income, cash flows and stockholders'
equity for the fiscal year then ended and its unaudited balance sheet as of
December 31, 1998 and the corresponding unaudited statements of income, cash
flows and stockholders' equity for the nine months ended December 31, 1998
(collectively, the "Financial Statements"). The Financial Statements (i) have
been prepared in accordance with generally accepted accounting principles,
applied on a consistent basis throughout the periods indicated, (ii) are
complete and correct in all material respects, and (iii) are consistent with the
books and records of the Company and fairly present the consolidated financial
position of the Company as of the dates thereof and the consolidated results of
operations of its operations and cash flows for the periods then ended (subject,
in the case of unaudited quarterly statements, to normal recurring audit
adjustments). The Company does not have any liabilities or obligations of any
nature (whether accrued, absolute, contingent or otherwise) required by
generally accepted accounting principles to be recognized or disclosed on a
consolidated balance sheet of the Company or in the notes thereto, except (i)
liabilities reflected in the consolidated unaudited balance sheet of the Company
as of December 31, 1998 or the notes thereto (subject to ordinary year-end
adjustments), and (ii) liabilities incurred since December 31, 1998 in the
ordinary course of business consistent with past practice.
2.7 Absence of Certain Changes or Events. Except as disclosed on Schedule
------------------------------------
2.7, since December 31, 1998, the Company has conducted its business only in the
ordinary course consistent with past practice, and there is not and has not
been: (i) since December 31, 1998, any condition, event or occurrence which has
had a Material Adverse Effect with respect to the Company; (ii) since December
31, 1998, any condition, event or occurrence which as of the date of this
Agreement, individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect with respect to the Company; or (iii) since
December 31, 1998, any condition, event or occurrence which, individually or in
the aggregate, could reasonably be expected to prevent or materially delay the
ability of the Company to consummate the transactions contemplated by this
Agreement or the Additional Agreements or perform its obligations hereunder or
thereunder.
2.8 Litigation. Except as disclosed on Schedule 2.8, there is (a) no suit,
----------
action, arbitration or proceeding pending, and (b) to the knowledge of the
Company, no suit, action, arbitration or proceeding threatened against or
investigation pending with respect to the Company that, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect with
respect to the Company or prevent or materially delay the ability of the Company
to consummate the transactions contemplated by this Agreement or the Additional
Agreements or to perform its obligations hereunder or thereunder, nor is there
any judgment, decree, citation, injunction, rule or order of any Governmental
Entity or arbitrator outstanding against the Company which, individually or in
the aggregate, has or could reasonably be expected to have, any such effect.
-4-
<PAGE>
2.9 Compliance with Laws. The Company holds all permits, licenses,
--------------------
variances, exemptions, orders and approvals of all Governmental Entities which
are material to the operation of the businesses of the Company (the "Company
Permits"). The Company is in compliance with the terms of the Company Permits,
except where the failure so to comply, individually or in the aggregate, would
not have a Material Adverse Effect with respect to the Company. The businesses
of the Company are not being conducted in violation of any law (domestic or
foreign), ordinance or regulation of any Governmental Entity, except for
possible violations which, individually or in the aggregate, do not and could
not reasonably be expected to have a Material Adverse Effect with respect to the
Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
The Purchaser represents and warrants to the Company that:
3.1 Due Authorization; Valid Obligation. The Purchaser or Perkin-Elmer,
-----------------------------------
as the case may be, has or prior to the Closing Date will have taken all
corporate action necessary to authorize it or Perkin-Elmer, as the case may be,
to execute and deliver this Agreement and the Additional Agreements, and to
consummate the transactions contemplated hereby and thereby, and this Agreement
and the Additional Agreements constitute the valid and binding obligations of
the Purchaser or Perkin-Elmer, as the case may be, enforceable against the
Purchaser or Perkin-Elmer, as the case may be, in accordance with their
respective terms, except as may be limited by bankruptcy, insolvency, moratoria
or other similar laws affecting the enforcement of creditors' rights generally
and subject to the qualification that the availability of equitable remedies is
subject to the discretion of the court before which any proceeding therefor may
be brought.
3.2 No Conflicts. The execution and delivery by the Purchaser of this
------------
Agreement and by Perkin-Elmer of the Additional Agreements and the consummation
of the transactions contemplated hereby and thereby do not and will not (a)
contravene the certificate of incorporation or by-laws (or similar governing
instruments) of the Purchaser or Perkin-Elmer, as the case may be, or (b) with
or without the giving of notice or the passage of time, violate, conflict with,
or result in a breach of, or a default or loss of rights under, or require any
authorization, consent, approval or other action under, any material covenant,
agreement, mortgage, indenture, lease or instrument to which the Purchaser or
Perkin-Elmer, as the case may be, is a party or by which the Purchaser or
Perkin-Elmer, as the case may be, or any of its assets is bound, or any
judgment, order, decree, law, rule or regulation to which the Purchaser or
Perkin-Elmer, as the case may be, or any of its assets is subject.
3.3 Purchase for Investment.
-----------------------
(a) The Purchaser is acquiring the Shares for investment for the
Purchaser's own account and not as a nominee or agent, and not with a view to
the resale or distribution of any part thereof, and the Purchaser has no present
intention of selling, granting any participation in, or otherwise distributing
the same. The Purchaser further represents that it does not have any contract,
undertaking, agreement or arrangement with any Person to sell, transfer or grant
a participation to such Person or to any third Person, with respect to any of
the Shares.
-5-
<PAGE>
(b) The Purchaser understands that the Shares are not registered
under the Act on the ground that the sale and the issuance of securities
hereunder is exempt from registration under the Act pursuant to Section 4(2)
thereof, and that the Company's reliance on such exemption is predicated on the
Purchaser's representations set forth herein. The Purchaser is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D under the Act.
3.4 Investment Experience. The Purchaser acknowledges that it can bear
---------------------
the economic risk of its investment in the Shares, and has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of the investment in the Shares.
3.5 Information. The Purchaser has been given the opportunity to review
-----------
such information as it deemed necessary to evaluate an investment in the Series
A Preferred Stock. The Purchaser has been afforded the opportunity to ask
questions of representatives of the Company concerning the terms and conditions
of the offering.
3.6 Restricted Securities. The Purchaser understands that the Shares and
---------------------
the shares of Common Stock issuable upon conversion of the Series A Preferred
Stock (the "Restricted Shares") may not be sold, transferred, or otherwise
disposed of without registration under the Act or an exemption therefrom, and
that in the absence of an effective registration statement covering the Shares
or any available exemption from registration under the Act, the Restricted
Shares must be held indefinitely. The Purchaser is aware that the Restricted
Shares may not be sold pursuant to Rule 144 promulgated under the Act unless all
of the conditions of that Rule are met. Among the conditions for use of Rule
144 may be the availability of current information to the public about the
Company.
ARTICLE IV
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER
The obligations of the Purchaser under this Agreement are subject to
the satisfaction, on or prior to the Closing Date, of the following conditions,
any of which may be waived in whole or in part by the Purchaser:
4.1 Due Performance. The Company shall have performed and complied in all
---------------
material respects with all agreements and conditions required by this Agreement
to be performed or complied with by it on or prior to the Closing Date.
4.2 Accuracy of Representations and Warranties. All representations and
------------------------------------------
warranties of the Company set forth in this Agreement shall be true and correct
in all material respects on and as of the Closing Date, as though made on and as
of the Closing Date.
4.3 Amended Charter. The Company shall have duly adopted, executed and
---------------
filed with the Secretary of State of Delaware the Amended Charter providing for
rights and preferences establishing the terms and the relative rights and
preferences of the Series A Preferred Stock in the form set forth in Exhibit C
---------
hereto, and the Company shall not have adopted or filed any other document
designating terms, relative rights or preferences of the Series A Preferred
Stock. The Amended Charter shall be in full force and effect as of the Closing
under the laws of the state of Delaware and shall not have been amended or
modified.
-6-
<PAGE>
4.4 Securities Law Compliance. The Company shall have made all filings
-------------------------
under all applicable federal and state securities laws necessary to consummate
the issuance of the Series A Preferred Stock pursuant to this Agreement in
compliance with such laws.
4.5 License Agreement. The Company shall have executed and delivered the
-----------------
License Agreement.
4.6 Consulting Agreement. The Company shall have executed and delivered
--------------------
the Consulting Agreement.
4.7 Closing Documents. The Company shall have delivered to the Purchaser
-----------------
all of the following documents:
(a) an Officer's Certificate, dated the date of the Closing executed
by the President of the Company with respect to the representations and
warranties set forth in Article II of this Agreement and the due performance and
satisfaction of the obligations and conditions hereunder to be performed and
satisfied by the Company;
(b) certified copies of the resolutions duly adopted by the Company's
board of directors (the "Board") authorizing the execution, delivery and
performance of this Agreement, the filing of the Amended Charter, the issuance
and sale of the Series A Preferred Stock, the reservation for issuance upon
conversion of the Series A Preferred Stock of an aggregate of 800,000 shares of
Common Stock and the consummation of all other transactions contemplated by this
Agreement;
(c) certified copies of the Amended Charter and the Company's by-
laws, each as in effect at the Closing and a certificate as to the good standing
of the Company in the state of its formation and each state where the Company is
required to be qualified as a foreign corporation; and
(d) such other documents relating to the transactions contemplated by
this Agreement as the Purchaser or its counsel may reasonably request.
4.8 No Claims. No claim, action, suit, investigation or proceeding shall
---------
be pending or threatened by any Person or Persons against any of the parties
hereto or any of their respective affiliates which, if adversely determined,
could (a) prevent, hinder or enjoin consummation of the transactions
contemplated by this Agreement or the Additional Agreements or (b) materially
and adversely affect the business of the Company. No party to this Agreement
shall have received written notice from any Governmental Entity of its intention
to (i) institute any action or proceeding to restrain, enjoin, nullify or render
ineffective this Agreement or any Additional Agreement or the transactions
contemplated hereby or thereby or (ii) commence any investigation into the
consummation of this Agreement or any Additional Agreement or the transactions
contemplated hereby or thereby, which, in the reasonable opinion of the
Purchaser, would make it inadvisable to consummate any such transactions.
-7-
<PAGE>
ARTICLE V
CONDITIONS TO THE OBLIGATIONS OF THE COMPANY
The obligations of the Company under this Agreement to issue and
deliver Shares to the Purchaser are subject to the satisfaction, on or prior to
the Closing Date, of the following conditions, any of which may be waived in
whole or in part by the Company:
5.1 Due Performance. Such Purchaser shall have fully performed and
---------------
complied with all agreements and conditions required by this Agreement to be
performed or complied with by it on or prior to the Closing Date.
5.2 Accuracy of Representations and Warranties. All representations and
------------------------------------------
warranties of such Purchaser set forth in this Agreement shall be true and
correct on and as of the Closing Date in all respects, as though made on and as
of the Closing Date.
5.3 Certificate. The Company shall have received a certificate executed
-----------
by an officer of the Purchaser with respect to the representations and
warranties of the Purchaser set forth in this Agreement and the due performance
and satisfaction of the obligations and conditions hereunder to be performed and
satisfied by the Purchaser.
5.4 License Agreement. The Perkin-Elmer Corporation shall have executed
-----------------
and delivered the License Agreement.
5.5 Consulting Agreement. The Perkin-Elmer Corporation shall have executed
--------------------
and delivered the Consulting Agreement.
5.6 No Claims. No claim, action, suit, investigation or proceeding shall
---------
be pending or threatened by any Person or Persons against any of the parties
hereto which, if adversely determined, would (a) prevent or hinder consummation
of the transactions contemplated by this Agreement or any Additional Agreement,
or (b) result in the payment by the Company of substantial damages as a result
of the transactions contemplated hereby or thereby which would materially and
adversely affect the business of the Company. No party to this Agreement shall
have received written notice from any Governmental Entity of its intention to
(i) institute any action or proceeding to restrain, enjoin, nullify or render
ineffective this Agreement or any Additional Agreement or the transactions
contemplated hereby or thereby or (ii) commence any investigation into the
consummation of this Agreement or any Additional Agreement or the transactions
contemplated hereby or thereby, which, in the reasonable opinion of the Company,
would make it inadvisable to consummate any such transactions.
ARTICLE VI
AFFIRMATIVE COVENANTS
6.1 Meetings of the Board of Directors.
----------------------------------
(a) The Company covenants and agrees that so long as the Purchaser
shall continue to hold at least 500 shares of Series A Preferred Stock, the
Purchaser shall have the right to designate a representative reasonably
acceptable to the Company to attend and observe
-8-
<PAGE>
each meeting of the Board of the Company and its committees (the "Observer").
--------
The Company shall also provide to the Observer a copy of all notices and other
written materials prepared for and provided to the Board of the Company at the
same time and in the same manner as such notices and written materials are
provided to members of the Board. Notwithstanding the foregoing, the Company
shall be entitled to (x) withhold from the Observer any confidential written
materials dealing with commercial matters involving the Purchaser, and (y)
exclude the Observer from any portion of any meeting of the Board of Directors
dealing with commercial matters involving the Purchaser. The rights provided to
the Purchaser herein are personal to the Purchaser and are not transferable in
connection with a sale of all or any portion of the Series A Preferred Stock.
(b) The Purchaser shall, and shall cause its Affiliates, officers,
directors, employees, agents and representatives to, keep secret and not divulge
to any third party or otherwise use for the Purchaser's benefit (other than in
connection with the transactions contemplated by this Agreement) any
confidential or proprietary information of the Company to which the Purchaser
obtains access pursuant to this Section 6.1; provided, however, that such
-------- -------
obligation shall not apply to any information to the extent that (a) it is or
becomes part of public or industry knowledge or literature as a result of causes
other than the acts or omissions of the Purchaser or its Affiliates, officers,
directors, employees, agents or representatives, (b) can be demonstrated to have
been known to the Purchaser prior to its receipt from the Company, (c) is
received by the Purchaser in good faith from a third party or (d) can be
demonstrated to have been independently developed by the Purchaser.
6.2 Reservation of Common Stock. The Company shall at all times reserve
---------------------------
and keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of issuance upon the conversion of the Series A Preferred
Stock, such number of shares of Common Stock issuable upon the conversion of all
outstanding Series A Preferred Stock. All shares of Common Stock which are so
issuable shall, when issued, be duly and validly issued, fully paid and non-
assessable and free from all taxes, liens and charges. The Company shall take
all such actions as may be necessary to assure that all such shares of Common
Stock may be so issued without violation of any applicable law or governmental
regulation or any requirements of any domestic securities exchange upon which
shares of Common Stock may be listed (except for official notice of issuance
which shall be immediately transmitted by the Company upon issuance).
6.3 Filing of Reports with the SEC. With a view to making available to
------------------------------
the Purchaser the benefits of Rule 144 and any other rule or regulation of the
SEC that may at any time permit the Purchaser to sell securities of the Company
to the public without registration or pursuant to a registration on Form S-3,
the Company agrees to (a) use its best efforts to file with the SEC in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act and (b) furnish to the Purchaser, so long as
it owns any Shares or Common Stock issued upon conversion of the Shares,
forthwith upon request (i) a written statement that it has complied with the
reporting requirements of Rule 144, the Securities Act and the Exchange Act, or
that it qualifies as a registrant whose securities may be resold pursuant to
Form S-3, (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company and (iii)
such other information as may be reasonably requested in availing the Purchaser
of any rule or regulation of the SEC that permits the selling of any such
securities without registration or pursuant to such Form S-3.
-9-
<PAGE>
6.4 Delivery of Stockholder Information. The Company covenants and agrees
-----------------------------------
that so long as the Purchaser shall hold any shares of Series A Preferred Stock,
the Company shall furnish to the Purchaser a copy of all notices of stockholder
meetings and other written materials prepared for and provided to holders of its
Common Stock at the same time and in the same manner as such notices and written
materials are provided to holders of its Common Stock.
ARTICLE VII
TRANSFER
7.1 General Restrictions on Transfer.
--------------------------------
(a) The Purchaser shall not directly or indirectly effect a Transfer
of any Restricted Shares owned or held by it unless (i) such Transfer is
consummated after compliance with the provisions of Section 7.1(b) and Section
7.2 hereof, and (ii) the certificate or certificates representing such
Restricted Shares bear a legend as provided in, and subject to, Section 7.3
hereof.
(b) The Purchaser shall not directly or indirectly effect a Transfer
of any Restricted Shares owned or held by it if such action would constitute a
violation of any federal securities laws or any state securities or blue sky
laws. In connection with any Transfer of Restricted Shares not effected through
a Public Sale, the Purchaser shall deliver to the Company a written opinion of
counsel reasonably acceptable to the Company (it being understood that the
General Counsel of the Purchaser is acceptable to the Company), in form and
substance reasonably satisfactory to the Company, to the effect that the
transfer of such Shares is exempt from registration under the Securities Act and
applicable state securities laws.
(c) The Company shall refuse to record in its stock transfer books a
Transfer by the Purchaser of any Restricted Shares that are not effected in
compliance with this Agreement, and any such attempted Transfer shall be null
and void.
7.2 First Offer Right. At least 14 calendar days prior to making any
-----------------
Transfer of any Restricted Stock (other than in a Public Sale or a Transfer to
an Affiliate of the Purchaser), the Purchaser shall deliver a written notice (an
"Offer Notice") to the Company, which shall disclose in reasonable detail the
proposed number of shares of Restricted Stock to be transferred (the "Offered
Stock"), the proposed terms and conditions of the Transfer and the identity of
the prospective transferee(s) (if any). The Company may elect to purchase all
(but not less than all) of the Offered Stock specified in the Offer Notice at
the price and on the terms specified therein by delivering written notice of
such election (the "Election Notice") to the Purchaser as soon as practical but
in any event within ten calendar days after the delivery of the Offer Notice
(the "Election Notice Deadline"). If the Company has elected to purchase all
(but not less than all) Offered Stock from the Purchaser, the purchase of the
Offered Stock shall be consummated as soon as practical but not later than 15
calendar days after the delivery of the Election Notice to the Purchaser. If the
Company elects not to purchase all of the Offered Stock, the Purchaser may, for
a period of 60 days after the Election Notice Deadline, transfer such Offered
Stock to one or more third parties at a price no less than the price per share
specified in the Offer Notice and on other terms no more favorable to the
transferees thereof than offered to the Company. Any Offered Stock not
transferred within such 60 day period shall be re-offered to the Company under
this Section 7.2 above prior to any subsequent Transfer.
-10-
<PAGE>
7.3 Legend.
------
(a) A copy of this Agreement shall be filed with the permanent
records of the Company and shall be kept at all times at the principal place of
business of the Company. The Purchaser agrees that all certificates representing
shares of Restricted Stock shall have affixed thereto a legend substantially in
the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF OR PLEDGED OR HYPOTHECATED UNLESS REGISTERED
UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR UNLESS AN
EXEMPTION FROM REGISTRATION UNDER THE ACT AND ANY SUCH LAWS IS
AVAILABLE (AND, IN SUCH CASE, AN OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO THE COMPANY, IN FORM AND SUBSTANCE REASONABLY
SATISFACTORY TO THE COMPANY, SHALL HAVE BEEN DELIVERED TO THE COMPANY
TO THE EFFECT THAT THE OFFER, SALE, TRANSFER, DISPOSITION, PLEDGE OR
HYPOTHECATION THEREOF IS EXEMPT FROM REGISTRATION UNDER THE ACT AND
ANY SUCH LAWS)."
(b) Notwithstanding the foregoing, the legend contained in this
Section 7.3 may be removed from a certificate upon receipt by the Company of a
written opinion of counsel reasonably acceptable to the Company (it being
understood that the General Counsel of the Purchaser is acceptable to the
Company), in form and substance reasonably satisfactory to the Company, to the
effect that such legend is no longer required under the Securities Act and
applicable state securities laws.
ARTICLE VIII
MISCELLANEOUS
8.1 Survival of Representations, Warranties and Agreements. All
------------------------------------------------------
representations and warranties and statements made by the Company in this
Agreement or in any document or certificate delivered pursuant hereto shall
survive the Closing Date for a period of one year.
8.2 Expenses. Each party shall bear its own fees and expenses in
--------
connection with consummating the transactions contemplated hereby.
8.3 Notice. All communications, notices, requests, consents or demands
------
given or required under this Agreement shall be in writing and shall be
delivered personally or sent by facsimile or by a nationally recognized
overnight courier, and shall be deemed to have been duly given when so delivered
personally or sent by facsimile, with receipt confirmed, or one business day
after the date of deposit with such nationally recognized overnight courier. All
such communications, notices, requests, consents or demands shall be addressed
to the party for whom intended, as follows, or to such other address or
facsimile number as may be furnished by such party by notice in the manner
provided herein:
-11-
<PAGE>
If to the Company:
SpectruMedix Corporation
2124 Old Gatesburg Road
State College, Pennsylvania 16803
Attention: Dr. Joseph Adlerstein
Tel: (814) 867-8600
Fax: (814) 867-4513
with a copy to:
McDermott, Will & Emery
50 Rockefeller Plaza
New York, New York 10020
Attention: Stephen B. Selbst
Tel.: (212) 547-5362
Fax: (212) 547-5444
If to Purchaser:
PE Corporation
761 Main Avenue
Norwalk, CT 06859-0313
Attention: Secretary
Tel.: (203) 762-1000
Fax: (203) 761-5000
8.4 Entire Agreement. This Agreement and the schedules and the exhibits
----------------
thereto, sets forth the entire understanding of the parties hereto with respect
to its subject matter, merges and supersedes all prior and contemporaneous
understandings with respect to its subject matter and may not be waived or
modified, in whole or in part, except by a writing signed by each of the parties
hereto. No waiver of any provision of this Agreement in any instance shall be
deemed to be a waiver of the same or any other provision in any other instance.
Failure of any party to enforce any provision of this Agreement shall not be
construed as a waiver of its rights under such provision.
8.5 Successors and Assigns. This Agreement shall be binding upon,
----------------------
enforceable against and inure to the benefit of, the parties hereto and their
respective heirs, administrators, executors, personal representatives,
successors and assigns, and nothing herein is intended to confer any right,
remedy or benefit upon any other Person.
8.6 Governing Law; Submission to Jurisdiction. This Agreement shall in all
-----------------------------------------
respects be governed by and construed in accordance with the laws of the State
of New York applicable to agreements made and fully to be performed in such
state, without giving effect to conflicts of law rules or provisions (whether of
the State of New York or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of New York.
The parties hereto agree to submit to the jurisdiction of the state and federal
courts in the State of New York with respect to any claim or matter arising
under this Agreement, and hereby consent
-12-
<PAGE>
that service of process with respect to all courts in and of the State of New
York may be made by registered mail to such Person at the address of such Person
set forth herein.
8.7 Counterparts. This Agreement may be executed in multiple counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
8.8 Construction. Headings contained in this Agreement are for convenience
------------
only and shall not be used in the interpretation of this Agreement. References
herein to Articles, sections and exhibits are to the articles, sections and
exhibits, respectively, of this Agreement. The schedules are hereby
incorporated herein by reference and made a part of this Agreement. As used
herein, the singular includes the plural, and the masculine, feminine and neuter
gender each includes the others where the context so indicates.
8.9 Severability. If any provision of this Agreement is held to be invalid
------------
or unenforceable by a court of competent jurisdiction, this Agreement shall be
interpreted and enforceable as if such provision were severed or limited, but
only to the extent necessary to render such provision and this Agreement
enforceable.
ARTICLE IX
DEFINITIONS
9.1 Defined Terms. As used in this Agreement, and unless the context
-------------
requires a different meaning, the following terms have the meanings indicated:
"Additional Agreements" shall mean the License Agreement and the
Consulting Agreement.
"Affiliate" of any particular Person means any other Person
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise.
"Agreement" shall mean this Stock Purchase Agreement, as the same may
be amended, supplemented or modified in accordance with the terms hereof.
"Amended Charter" shall have the meaning given such term in Section
4.3(c).
"Closing" shall have the meaning given such term in Section 1.3.
"Closing Date" shall have the meaning given such term in Section 1.3.
"Common Stock" shall mean common stock of the Company, par value
$.00115 per share.
"Consulting Agreement" has the meaning given such term in the first
recital.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor federal statute thereto.
-13-
<PAGE>
"License Agreement" has the meaning given such term in the first
recital.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Preferred Stock" has the meaning given such term in Section 2.3.
"Public Sale" means any sale of Common Stock or Series A Preferred
Stock to the public pursuant to any offering registered under the Securities Act
or to the public through a broker, dealer or market maker pursuant to the
provisions of Rule 144 adopted under the Securities Act (or any similar or
analogous exemption).
"Restricted Shares" has the meaning set forth in Section 3.6 hereof.
"SEC" means the U.S. Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute thereto.
"Series A Preferred Stock" means the Series A Preferred Stock of the
Company, par value $.00115 per share.
"Shares" shall have the meaning given such term in Section 1.1.
"Transfer" means any sale, transfer, assignment, gift, exchange,
pledge, hypothecation, encumbrance or other disposition of any Restricted Shares
or any interest therein, whether voluntary or involuntary and regardless of the
nature or method thereof (other than an exchange, reclassification or other
conversion of Restricted Shares into cash, securities or other property pursuant
to a merger, consolidation or recapitalization of the Company).
-14-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first set forth above.
COMPANY:
SPECTRUMEDIX CORPORATION
By: /s/ Joseph K. Adlerstein
-------------------------------------
Name: Joseph Adlerstein
Title: President
PE CORPORATION
By: /s/ Michael W. Hunkapiller
-------------------------------------
Name: Michael W. Hunkapiller
Title: Senior Vice President
-15-
<PAGE>
EXHIBIT 10.23
CONSULTING SERVICES AGREEMENT
CONSULTING SERVICES AGREEMENT, dated as of July 30, 1999, by and between
SpectruMedix Corporation, a Delaware corporation (the "Company"), located at
2124 Old Gatesburg Road, State College, Pennsylvania 16803, and The
Perkin-Elmer Corporation, a New York corporation and wholly-owned subsidiary of
PE Corporation, ("Perkin-Elmer") with offices at 850 Lincoln Centre Drive,
Foster City, CA 94404.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Company engages in research and development of instrumentation used in
the field of *****;
WHEREAS, concurrently herewith, the Company and PE Corporation are entering into
that certain Stock Purchase Agreement concerning the purchase of shares of
preferred stock of the Company (the "Stock Purchase Agreement"); and
WHEREAS, in connection with the Stock Purchase Agreement, the Company has agreed
to provide certain consulting services to Perkin-Elmer;
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties and agreements set forth herein, the Company and
Perkin-Elmer agree as follows:
1. Services. During the Term (as defined below), Company shall provide
--------
consulting services to Perkin-Elmer in the area of ***** as may be reasonably
requested by Perkin-Elmer upon reasonable notice (the "Services").
2. Fees. The fee for such Services shall be Two Million Dollars($2,000,000.00)
----
payable in full as of the date hereof by wire transfer to an account designated
by the Company.
3. Expenses. Perkin-Elmer shall reimburse Company for its reasonable expenses
--------
associated with the rendering of the Services, provided, however, that Company
is not authorized to incur any expenses on behalf of Perkin-Elmer without prior
written consent of and authorized agent of Perkin-Elmer, and that all statements
submitted by Company for services and expenses shall be in the form prescribed
by Perkin-Elmer.
4. Term. The term of this Agreement shall be three (3) years following the
----
date hereof (the "Term"). Sections 5, 6, 7 and 8 shall survive the termination
or expiration of this Agreement.
5. Confidentiality. Company shall not, either during or subsequent to the Term
---------------
of this Agreement, directly or indirectly divulge to any third party any
information designated confidential by Perkin-Elmer; nor shall it disclose to
anyone other than an employee of Perkin-Elmer or use in any way other than in
the course of the performance of this Agreement any confidential information
regarding Perkin-Elmer, including Perkin-Elmer's know-how not known to the
general public or recognized as standard practice, whether acquired or developed
by Company, either during or subsequent to the Term of this Agreement, directly
or indirectly publish any such information without prior written authorization
from Perkin-Elmer to do so. Company shall protect such information to prevent
its unauthorized use, disclosure or
<PAGE>
publication using the same degree of care as Company uses to protect its own
information of similar nature, but in no event less than a reasonable degree of
care. The confidentiality obligations of this Agreement shall not apply to
confidential information which (a) was in the Company's possession before
acquisition of such information from Perkin-Elmer; (b) is or becomes a matter of
public knowledge through no fault of the Company; or (c) is rightfully received
by the Company from a third party without a duty of confidentiality.
6. Perkin-Elmer Property. When requested by Perkin-Elmer and in any event
---------------------
upon the termination or expiration of this Agreement, Company shall return to
Perkin-Elmer any Perkin-Elmer property that has come into its possession during
the Term of this Agreement, unless Company has received written authorization
from Perkin-Elmer to keep such property. The product of all work performed
solely in connection with this Agreement at Perkin-Elmer's direction, including
reports, drawings, computer programs, devices or models, shall be the property
of Perkin-Elmer or its nominees, and Perkin-Elmer or its nominees shall have the
sole right to use, sell, license, publish, or otherwise disseminate or transfer
rights in such work product.
7. Inventions. During and subsequent to the Term of this Agreement, Company
----------
shall communicate to Perkin-Elmer's Intellectual Property Counsel all inventions
made or conceived in connection with any projects or work assignment performed
solely and exclusively for Perkin-Elmer at Perkin-Elmer's direction; and without
further consideration, Company will assign all right, title and interest in such
inventions to Perkin-Elmer and assist Perkin-Elmer and its nominees in every
proper way, entirely at Perkin-Elmer's expense, to obtain appropriate
intellectual property protection for these inventions in any and all countries,
all such inventions to be and to remain the property of Perkin-Elmer or its
nominees, whether patented or not.
8. Copyrights. Company shall, during and subsequent to the Term of this
----------
Agreement, without further consideration, assign all right, title and interest
in any copyrightable material produced solely in connection with this Agreement
at Perkin-Elmer's direction and will assist Perkin-Elmer and its nominees in
every proper way, entirely at its expense, to secure, maintain, and defend for
its own benefit, copyrights and any extensions and renewals shall be and remain
the property of Perkin-Elmer, whether copyrighted or not. All material produced
by Company solely in connection with this Agreement at Perkin-Elmer's direction
shall be considered "Work Made for Hire" insofar as may be permitted by the
laws governing copyright.
9. Prior Knowledge and Inventions. With respect to all subject matter
------------------------------
including ideas, processes, designs, and methods which Company discloses or uses
in the performance of this Agreement, Company warrants that it has the right to
make such disclosure and use thereof without liability to others.
10. Use of Names. Neither party shall at any time employ the name or any of
------------
the trade names, trademarks, slogans, designs, or like the of the other party
for any advertising, promotional or other purposes without prior written
permission to do so.
11. No Agency Relationship. This Agreement does not, shall nor be deemed to,
----------------------
make either party hereto the agent or legal representative of the other for any
purpose whatsoever. Neither party shall have the right or authority to assume
or create any obligations or responsibility whatsoever, express or
2
<PAGE>
implied, on behalf of or in the name of the other, or to bind the other in any
respect whatsoever.
12. Independent Contractor. In making and performing this Agreement, Company
----------------------
shall act at all times as an independent contractor and nothing contained in
this Agreement shall be constructed or implied to create between Company and
Perkin-Elmer an agency, partnership, or employee-employer relationship, or to
create between Company and Perkin-Elmer any other form of legal association or
arrangement which imposed liability upon one party for the act or failure to act
of the other party.
13. Assignment. Company may not assign or otherwise transfer of any of its
----------
rights or obligations under this Agreement without the prior written consent of
Perkin-Elmer.
14. Successors and Assigns. This Agreement shall be binding upon, enforceable
----------------------
against and inure to the benefit of, the parties hereto and their respective
heirs, administrators, executors, personal representatives, successors and
assigns, and nothing herein is intended to confer any right, remedy or benefit
upon any other person or entity.
15. Governing Law; Submission to Jurisdiction. This Agreement shall in all
-----------------------------------------
respects be governed by and construed in accordance with the laws of the State
of New York applicable to agreements made and fully to be performed in such
state, without giving effect to conflicts of law rules or provisions (whether of
the State of New York or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of New York.
The parties hereto agree to submit to the jurisdiction of the state and federal
courts in the State of New York with respect to any claim or matter arising
under this Agreement, and hereby consent that service of process with respect to
all courts in and of the State of New York may be made by registered mail to
such party at the address of such party set forth herein.
16. Counterparts. This Agreement may be executed in multiple counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
17. Construction. Headings contained in this Agreement are for convenience
------------
only and shall not be used in the interpretation of this Agreement. References
herein to sections and exhibits are to the sections and exhibits, respectively,
of this Agreement. The exhibits are hereby incorporated herein by reference and
made a part of this Agreement. As used herein, the singular includes the plural,
and the masculine, feminine and neuter gender each includes the others where the
context so indicates.
18. Severability. If any provision of this Agreement is held to be invalid or
------------
unenforceable by a court of competent jurisdiction, this Agreement shall be
interpreted and enforceable as if such provision were severed or limited, but
only to the extent necessary to render such provision and this Agreement
enforceable.
19. Non-Solicitation. During the Term and for a period of one (1) year
----------------
thereafter Perkin-Elmer shall not solicit, induce or attempt to solicit or
induce any employee of the Company to become an employee of Perkin-Elmer or its
affiliates other than through general solicitations not directed to specific
individuals or companies.
20. Entire Agreement. This Agreement and any schedules and exhibits thereto,
----------------
sets forth the entire
3
<PAGE>
understanding of the parties hereto with respect to its subject matter, merges
and supersedes all prior and contemporaneous understandings with respect to its
subject matter and may not be waived or modified, in whole or in part, except by
a writing signed by each of the parties hereto. No waiver of any provision of
this Agreement in any instance shall be deemed to be a waiver of the same or any
other provision in any other instance. Failure of any party to enforce any
provision of this Agreement shall not be construed as a waiver of its rights
under such provision.
4
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement as of
the date first set forth above.
COMPANY:
SPECTRUMEDIX CORPORATION
By: /s/ Joseph K. Adlerstein
---------------------------------
Name: Joseph K. Adlerstein
------------------------------
Title: Chief Executive Officer
------------------------------
THE PERKIN-ELMER CORPORATION
By: /s/ Michael W. Hunkapiller
---------------------------------
Name: Michael W. Hunkapiller
------------------------------
Title: Senior Vice President
------------------------------
5
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (no. 333-42437) of SpectruMedix Corporation of our report
dated July 9, 1999, except as to the information presented in Note 18 for which
the date is July 30, 1999, relating to the financial statements, which appears
in this Form 10-KSB.
PricewaterhouseCoopers LLP
New York, New York
September 9, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SPECTRUMEDIX
CORPORATION AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 1999 AND
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> MAR-31-1999 MAR-31-1998
<PERIOD-START> APR-01-1998 APR-01-1997
<PERIOD-END> MAR-31-1999 MAR-31-1998
<CASH> 20,318 1,680,643
<SECURITIES> 0 0
<RECEIVABLES> 55,319 12,806
<ALLOWANCES> 0 0
<INVENTORY> 527,979 381,393
<CURRENT-ASSETS> 608,198 2,124,268
<PP&E> 658,432 385,124
<DEPRECIATION> (194,896) (105,407)
<TOTAL-ASSETS> 1,545,372 2,788,757
<CURRENT-LIABILITIES> 2,580,835 1,143,581
<BONDS> 0 0
0 0
0 0
<COMMON> 4,059 4,042
<OTHER-SE> (1,142,795) 1,611,917
<TOTAL-LIABILITY-AND-EQUITY> 1,545,372 2,788,757
<SALES> 317,672 341,813
<TOTAL-REVENUES> 317,672 341,813
<CGS> 831,164 321,086
<TOTAL-COSTS> 831,164 321,086
<OTHER-EXPENSES> 2,431,571 2,561,961
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 13,527 133,372
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,942,532) (4,301,616)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 252,396
<CHANGES> 0 0
<NET-INCOME> (2,942,532) (4,049,220)
<EPS-BASIC> (0.84) (1.42)
<EPS-DILUTED> (0.84) (1.42)
</TABLE>
