<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
REGISTRATION STATEMENT
ON FORM S-1
UNDER
THE SECURITIES ACT OF 1933
------------------------
CHROMAVISION MEDICAL SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3826 75-2649072
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code No.) Identification No.)
</TABLE>
------------------------
33171 PASEO CERVEZA
SAN JUAN CAPISTRANO, CALIFORNIA 92675
1-888-776-4276
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
------------------------------
DOUGLAS S. HARRINGTON, M.D.
CHIEF EXECUTIVE OFFICER
CHROMAVISION MEDICAL SYSTEMS, INC.
33171 PASEO CERVEZA
SAN JUAN CAPISTRANO, CALIFORNIA 92675
1-888-776-4276
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES OF ALL COMMUNICATIONS TO:
<TABLE>
<S> <C> <C>
JAMES A. OUNSWORTH, ESQ. N. JEFFREY KLAUDER, ESQ. ROBERT H. STROUSE, ESQ.
SAFEGUARD SCIENTIFICS, INC. MORGAN, LEWIS & BOCKIUS LLP DRINKER BIDDLE & REATH LLP
800 THE SAFEGUARD BUILDING 2000 ONE LOGAN SQUARE 1000 WESTLAKES DRIVE
435 DEVON PARK DRIVE PHILADELPHIA, PENNSYLVANIA SUITE 300
WAYNE, PENNSYLVANIA 19087 19103-6993 BERWYN, PENNSYLVANIA 19312-2409
(610) 293-0600 (215) 963-5694 (610) 993-2213
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /_________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /_________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. /X/
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
AMOUNT TO PROPOSED PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES BE MAXIMUM OFFERING AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) PRICE PER UNIT(2) PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share........... 7,360,000 $5.00 $36,800,000 $11,152
Subscription Rights(3)........................... (3) -- -- --
</TABLE>
(1) Includes 640,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(g) under the Securities Act of 1933.
(3) Evidencing the rights to subscribe for 6,400,000 of the shares of Common
Stock described above.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 30, 1997
PROSPECTUS
6,720,000 SHARES
CHROMAVISION MEDICAL SYSTEMS, INC.
COMMON STOCK
(AND RIGHTS TO ACQUIRE
UP TO 6,400,000 OF SUCH SHARES)
----------------------------
ChromaVision Medical Systems, Inc. is granting at no cost to you, as a
holder of common stock of Safeguard Scientifics, Inc., transferable rights to
purchase shares of our Common Stock. As a Safeguard shareholder, you will
receive one right for every five Safeguard common shares that you own as of
, 1997. Each right will entitle you to purchase one share of our Common
Stock at an anticipated exercise price of $5.00 per share. Up to 6,400,000
shares of Common Stock will be offered in the rights offering. Of these shares,
we will be selling 6,020,000 shares and Safeguard and three other selling
stockholders will be selling 380,000 shares.
(CONTINUED ON NEXT PAGE)
--------------------------
YOU SHOULD CAREFULLY CONSIDER THE INFORMATION REGARDING THE RISKS ASSOCIATED
WITH YOUR INVESTMENT IN OUR COMMON STOCK THAT ARE DISCUSSED UNDER THE CAPTION
"RISK FACTORS" BEGINNING ON PAGE 8.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
ASSUMED UNDERWRITING UNDERWRITING DISCOUNT PROCEEDS
EXERCISE AND DISCOUNT PAID BY SELLING TO THE
OFFER PRICE PAID BY THE COMPANY STOCKHOLDERS COMPANY
<S> <C> <C> <C> <C>
Min. $0.15 Min. $0.15 Max. $4.85
Per Share............ $5.00 Max. $0.35 Max. $0.35 Min. $4.65
Min. $ 903,000 Min. $105,000 Max. $29,197,000
Total................ $33,600,000 Max. $2,107,000 Max. $181,000 Min. $27,993,000
Total with Over- Min. $ 903,000 Min. $329,000 Max. $29,197,000
Allotment........... $36,800,000 Max. $2,107,000 Max. $405,000 Min. $27,993,000
<CAPTION>
PROCEEDS TO
THE SELLING
STOCKHOLDERS
<S> <C>
Max. $4.85
Per Share............ Min. $4.65
Max. $3,395,000
Total................ Min. $3,319,000
Total with Over- Max. $6,371,000
Allotment........... Min. $6,295,000
</TABLE>
The table above describes the assumed exercise and offering price, minimum
and maximum underwriting commissions to be paid by us and the selling
stockholders, and minimum and maximum offering proceeds to be realized by us and
by the selling stockholders in the offering. The minimum underwriting discount
assumes the exercise of all rights in the rights offering and reflects the
payment by us and by the selling stockholders of a financial advisory fee to the
underwriters equal to 3% of the exercise price on the 6,720,000 shares sold in
the offering. In such a case, the minimum underwriting discount would yield the
maximum proceeds to us and to the selling stockholders. The maximum underwriting
discount assumes that none of the rights offered in the rights offering were
exercised and reflects the payment by us and the selling stockholders of an
underwriting discount of 4% of the exercise price on the 6,400,000 shares
purchased by the underwriters in addition to the 3% financial advisory fee on
the 6,720,000 shares sold in the offering. The maximum underwriting discount
yields the minimum proceeds to us and to the selling stockholders.
The last row of the table assumes that the underwriters have exercised their
option granted by the selling stockholders to purchase an additional 640,000
shares of Common Stock. The exercise of the over-allotment option would yield
additional proceeds to the selling stockholders and would require the payment of
the 4% underwriting discount and the 3% financial advisory fee by the selling
stockholders for such shares.
ROBERT W. BAIRD & CO. ADAMS, HARKNESS & HILL, INC.
Incorporated
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
Safeguard and the other selling stockholders will also be selling an
additional 320,000 shares of our Common Stock to persons selected by us. These
persons may have a relationship with us, Safeguard or one of Safeguard's other
partnership companies.
The exercise period for the rights will expire at 5:00 p.m., New York City
time, on , 1997. You may only exercise your rights if you purchase at
least 20 shares of our Common Stock through such exercise.
Once you exercise a right and we accept the exercise, you may not withdraw
the exercise. The shares of our Common Stock that are sold in the offering will
come first from the shares being issued by us, and then from the shares being
sold by the selling stockholders. If shares remain unsubscribed after the end of
the rights exercise period, the first 300,000 shares not purchased through the
exercise of rights will be offered by us to other persons. These persons may
have a relationship with us, Safeguard or one of Safeguard's other partnership
companies. If any shares remain unsold after this offer, the underwriters will
purchase any remaining unsold shares.
The number of rights that will be granted to the holders of Safeguard common
shares is calculated based upon the number of Safeguard common shares that are
outstanding on , 1997. If there are fewer than 32,000,000 Safeguard common
shares outstanding on , 1997, we will grant fewer than 6,400,000 rights in
the rights offering. If fewer than 6,400,000 rights are granted, we will offer
the remaining shares for purchase at an anticipated price of $5.00 per share to
persons selected by us. In any event, a total of 6,400,000 shares will be sold
in the offering.
We will not receive any proceeds from the sale of shares by the selling
stockholders. After the completion of the offering, the selling stockholders
together will own approximately 40.4% of our Common Stock.
There is no minimum number of shares that must be sold in the offering.
However, the rights offering may be cancelled by the underwriters if certain
conditions are not satisfied. In that event, if you have made any payments to
the rights agent, ChaseMellon Shareholder Services, L.L.C., the full amount of
your payments will be promptly returned to you.
We have filed a Registration Statement with the SEC covering the rights and
the shares of Common Stock. Before this offering, the Common Stock has not been
listed on any stock exchange or The Nasdaq Stock Market. We have filed an
application to have the rights and the Common Stock approved for quotation on
the Nasdaq National Market.
The underwriters may engage in transactions involving the Common Stock
during and after the rights exercise period. As a result, the underwriters may
realize profit in addition to the underwriting compensation received for their
participation in this offering. If there are shares of Common Stock that are not
purchased before the expiration date, the underwriters will be obligated to
purchase all of the remaining shares from us. We expect that we will deliver any
remaining shares on or about , 1997 at the offices of Robert W. Baird &
Co. Incorporated in Milwaukee, Wisconsin.
After the offering, we intend to send annual reports containing financial
statements to all of our stockholders.
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OR
THE RIGHTS OR BOTH AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET,
OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE COMMON
STOCK OF THE COMPANY, INCLUDING INITIATING BIDS OR EFFECTING PURCHASES ON THE
NASDAQ NATIONAL MARKET FOR THE PURPOSE OF PREVENTING OR RETARDING A DECLINE IN
THE MARKET PRICE OF THE COMMON STOCK. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) CONTAINED
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE INFORMATION IN
THIS PROSPECTUS (I) ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT
OPTION, (II) ASSUMES AN EXERCISE PRICE OF $5.00 PER SHARE, (III) GIVES EFFECT TO
A 5-FOR-4 SPLIT OF THE COMMON STOCK EFFECTED AS OF MARCH 19, 1997 AND (IV)
ASSUMES CONVERSION OF ALL OUTSTANDING SHARES OF SERIES A PREFERRED STOCK AND
SERIES B PREFERRED STOCK. UNLESS THE CONTEXT OTHERWISE INDICATES, CHROMAVISION
MEDICAL SYSTEMS, INC., FORMERLY KNOWN AS MICROVISION MEDICAL SYSTEMS, INC., AND
ITS PREDECESSOR DIVISION ARE REFERRED TO HEREIN AS "CHROMAVISION" OR THE
"COMPANY."
THE COMPANY
ChromaVision has developed an automated intelligent microscope system that
uses the Company's proprietary imaging technologies for a wide variety of
diagnostic and research applications. The Company currently markets to research
centers and intends to introduce to the healthcare market its system, the
ChromaVision Microscopic Digital Analyzer (the "ChromaVision Digital Analyzer").
The ChromaVision Digital Analyzer is designed to identify cells with specific
characteristics within a sample of cells by detecting color produced by the
reaction between common laboratory reagents (or stains) and the cells. The
ChromaVision Digital Analyzer uses proprietary imaging software and technology
to capture digital images of cell samples and to detect the presence, count the
number and measure the color intensity of cells containing a particular stain.
The ChromaVision Digital Analyzer offers substantial flexibility because the
software can be configured to identify different stains, thereby allowing the
system to be adapted for use with different reagents to identify a broad range
of target cellular conditions. The Company seeks to establish the ChromaVision
Digital Analyzer as the preferred platform for multiple diagnostic applications.
The Company believes that the ChromaVision Digital Analyzer will be
attractive to healthcare providers and beneficial to their patients because of
its ability to deliver superior diagnostic solutions, thus reducing the need for
more invasive or more costly procedures. Preliminary tests have demonstrated
superior accuracy compared to existing automated microscopy systems, as the
ChromaVision Digital Analyzer can locate a single abnormal cell among 100
million normal cells, compared to a detection rate of one in 100,000 cells for
other automated microscopes currently on the market. This improved detection
capability enables the ChromaVision Digital Analyzer to be applied to a variety
of diagnostic situations, such as high-value rare event detection procedures,
which include the detection of minute quantities of cancer cells that have
spread to parts of the body away from a tumor's primary location.
The Company has identified a broad range of potential applications for the
ChromaVision Digital Analyzer, including prenatal screening for Down syndrome,
quantitative viral load measurement for HIV and cancer detection. The Company
focuses on developing diagnostic applications that are clinically and
economically compelling to patients, providers (laboratories) and payors
(insurance and managed care organizations). The Company has completed clinical
trials and has filed a 510(k) application with the U.S. Food and Drug
Administration (the "FDA") for clearance to market the ChromaVision Digital
Analyzer with a stain (marker) to screen blood for malignancy. The Company plans
to expand this clearance for a higher-value use of the ChromaVision Digital
Analyzer in its intended first commercial application called Triple Plus-TM-, a
procedure using a related stain, Urea Resistant Neutrophil Alkaline Phosphatase
("UR-NAP"), as a marker in the prenatal screening of maternal blood for
indicating the risk of a Down syndrome pregnancy. The current screening
processes falsely indicate an elevated risk of a Down syndrome baby in a
significant number of mothers with normal fetuses (false positives), which
typically leads to performing invasive and expensive amniocenteses. The Company
believes its Triple Plus-TM- application will significantly improve the
diagnostic accuracy of the existing screening process, thereby reducing the
number of amniocenteses performed on mothers with normal fetuses. As a result,
once clearance is received for commercial use, the Triple Plus-TM- application
should result in substantial cost savings to
3
<PAGE>
healthcare providers and improved patient care. The Company is also currently
testing the ChromaVision Digital Analyzer for a number of additional
applications, such as the detection of prostate, breast, lung and colorectal
cancers.
To support its 510(k) application for the Triple Plus-TM- procedure, the
Company anticipates entering into an agreement in May 1997 for multi-site
clinical trials with a number of collaborators including Cambridge University
(Addenbrooke's Hospital, Cambridge, England), Harvard Medical School (Brigham
and Women's Hospital) and The State of California Prenatal Testing Program
(Berkeley). Dr. Sandy Goodburn of Addenbrooke's National Health Services Trust
Department of Medical Genetics and Dr. Tony Andrews of Cambridge University's
Department of Medical Genetics are the co-principal investigators. Dr. Goodburn
was one of the original investigators of a 1990 study that supports the
application of UR-NAP used in the Company's Triple Plus-TM- procedure. While the
study supported the potential superiority of the stain in this application, the
manual process used in the study made it impractical for commercial use.
Recently, Dr. Goodburn has successfully employed the automated ChromaVision
Digital Analyzer system in support of the clinical research relating to the
application of UR-NAP in evaluating prenatally the risk of Down syndrome. The
Company's multi-site clinical trials agreements will enable the Company to
rapidly obtain affected and normal maternal blood specimens and clinical data to
validate the Triple Plus-TM- test for adoption by practitioners and for FDA
submission. The Company anticipates that it will file for clearance from the FDA
for the Triple Plus-TM- and distribute manuscripts for peer-review publication
in early 1998.
The Company initially plans to work directly with its clinical collaborators
to gain acceptance in the medical community of the Triple Plus-TM- procedure.
However, the Company intends to pursue strategic alliances with third parties
capable of effectively distributing the ChromaVision Digital Analyzer and
providing related services on a large-scale basis. The Company believes that
such alliances will enable it to minimize certain risks related to the time,
effort and expense associated with the internal development of similar
distribution capabilities, particularly for international markets. The first
alliance partnership in development is with Sigma Diagnostics ("Sigma"), a St.
Louis based subsidiary of Sigma-Aldrich Corporation, and a manufacturer of
diagnostic instruments and reagents with a worldwide distribution capability. In
March 1997, the Company signed a term sheet setting forth the principal terms of
a strategic distribution and application commercialization relationship with
Sigma focusing on the Triple Plus-TM- test. The Company has also entered into
discussions regarding a possible joint development agreement with Specialty
Laboratories, a privately held specialized testing services provider located in
Santa Monica, California, to leverage their extensive experience and capability
in developing cutting-edge laboratory tests in the areas of cancer, immunology,
microbiology, genetics and molecular biology. Additionally, ChromaVision has
established a non-exclusive cooperative market development relationship with
Centocor, Inc. ("Centocor") to identify market opportunities and requirements
for various rare event detection applications, such as minimal residual disease.
The Company believes that each new application can provide value to all other
ChromaVision strategic alliance partners, as new applications will drive new
platform installations and in turn make the ChromaVision Digital Analyzer an
increasingly attractive means to access the marketplace for new applications.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Description of the Rights Offering..... If you hold Safeguard common shares on ,
1997, you will receive one right to purchase our
Common Stock for every five Safeguard common shares
you own. Fractional rights will be rounded up to
the next whole number in determining the number of
rights to be issued to Safeguard shareholders. Each
right entitles you to purchase one share of our
Common Stock at a purchase price of $5.00. You must
own at least 20 rights to be eligible to exercise
your rights. In other words, if you own fewer than
96 Safeguard common shares, you will receive fewer
than 20 rights and you will not be eligible to
exercise your rights unless you purchase additional
rights in the market. Together with the selling
stockholders, we are offering up to 6,400,000
shares of our Common Stock for purchase through the
exercise of rights.
The Exercise Price of the Rights....... If you wish to exercise your rights to purchase our
Common Stock, the purchase price will be $5.00 per
share of Common Stock.
When You Can Exercise Your Rights...... The rights will only be exercisable from the period
beginning on , 1997 and ending on
, 1997 at 5:00 p.m., New York City time.
How Your Rights Will be Evidenced...... You will receive certificates that represent your
transferable rights, which will expire on
, 1997.
Offer of Unsubscribed Shares to Other
Purchasers........................... In the event that not all of the rights are
exercised, together with the selling stockholders,
we will offer the first 300,000 unsubscribed shares
and any shares of Common Stock subject to rights
that were not distributed, to persons selected by
us. These persons may have a relationship with us,
Safeguard or one of Safeguard's other partnership
companies.
Obligations of the Underwriters........ The underwriters will purchase any shares offered
in the rights offering that have not been purchased
through the exercise of rights and have not
otherwise been sold by us by , 1997, if
any. The underwriters may then offer these shares
to the public.
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Number of Shares of Common Stock
Offered in the Rights Offering....... Of the 6,400,000 shares offered in the rights
offering, we will be selling 6,020,000 shares and
the selling stockholders will be selling 380,000
shares.
Offer of Direct Shares to Direct
Purchasers........................... The selling stockholders are also offering up to
320,000 shares of our Common Stock that are owned
by them to persons selected by us.
Common Stock to be Outstanding After
the Rights Offering.................. After the offering, 17,147,393 shares of Common
Stock will be outstanding, not including 1,539,188
shares issuable upon the exercise of outstanding
stock options at a weighted average exercise price
of $1.96 per share as of March 31, 1997.
How We Intend to Use the Proceeds...... We will use the money received from the sale of
shares to repay our outstanding debt, for the
further development of the ChromaVision Digital
Analyzer, including the financing of clinical
trials and certain pre-marketing activities, for
working capital, for general corporate purposes and
for capital expenditures. We may also use a portion
of the net proceeds for future acquisitions,
although we currently are not engaged in any
acquisition negotiations.
Proposed Nasdaq National Market
Symbols.............................. During the period in which you can exercise your
rights, the rights will trade on the Nasdaq
National Market under the symbol CVSNR and the
Common Stock will trade under the symbol CVSNV on a
when-issued basis. After the expiration of the
rights period, the Common Stock will trade under
the symbol CVSN.
</TABLE>
6
<PAGE>
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------- ---------------------
STATEMENT OF OPERATIONS DATA: 1994 1995 1996 1996 1997
---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Revenue(1).................... $ 296,886 $ 900,000 $ -- $ -- $ --
Cost of revenue............... 232,636 310,103 -- -- --
Operating expenses............ 1,645,556 2,553,084 4,078,582 452,157 1,384,430
Other income (expense)(2)..... -- -- (328,838) 75,000 (22,268)
---------- ---------- ---------- --------- ----------
Net profit (loss)............. $(1,581,306) $(1,963,187) $(4,407,420) $(377,157) $(1,406,698)
---------- ---------- ---------- --------- ----------
---------- ---------- ---------- --------- ----------
Pro forma net profit (loss)
per common share(3)......... $ (0.36) $ (0.20) $ (0.11)
---------- --------- ----------
---------- --------- ----------
Pro forma weighted average
number of common shares
outstanding................. 12,111,580 1,931,250 12,280,331
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
--------------------------
BALANCE SHEET DATA: ACTUAL AS ADJUSTED(4)
---------- --------------
<S> <C> <C>
Cash and cash equivalents.................................................................. $ 65,100 $24,747,280
Total assets............................................................................... 1,187,343 25,869,523
Total indebtedness(5)...................................................................... 2,410,820 --
Total stockholders' equity (deficit)....................................................... (2,063,880) 25,029,120
</TABLE>
- ------------------------
(1) Revenue includes income from prototype research instrument sales and support
services.
(2) Other expenses for 1996 include the value of the Preferred Stock issued to
Centocor as compensation for its clinical collaboration on certain minimal
residual disease applications. Other income relates to reimbursement of the
Company's cost for design work performed as well as interest income.
(3) See Note 2 of the Notes to Financial Statements for information concerning
the calculation of net profit (loss) per common share.
(4) Adjusted to give effect to the sale by the Company of 6,020,000 shares of
Common Stock, the receipt of approximately $27,093,000 in net proceeds from
this offering, after deducting the maximum total underwriting discount with
respect to such shares of approximately $2,107,000 and estimated offering
expenses of approximately $900,000 (including $200,000 representing the
maximum applicable non-accountable expense allowance to the underwriters)
and the application of proceeds to pay off existing indebtedness.
(5) Total indebtedness includes the Company's revolving line of credit and
amounts due to XL Vision of $1,958,432 and $452,388 at March 31, 1997,
respectively.
7
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING
RISK FACTORS, AS WELL AS THE OTHER INFORMATION IN THIS PROSPECTUS, BEFORE
INVESTING IN THE SHARES OF THE COMMON STOCK AND RIGHTS OFFERED HEREBY. THIS
PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. FUTURE EVENTS AND THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THE RESULTS REFLECTED IN THESE FORWARD-LOOKING STATEMENTS.
FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO,
THOSE DISCUSSED IN THE FOLLOWING RISK FACTORS.
DEVELOPMENT STAGE ENTERPRISE; HISTORY OF OPERATING LOSSES; UNCERTAIN
PROFITABILITY
The Company is a development stage enterprise, has no commercialized
products or revenue base and has a limited operating history. Since its
inception in 1993 as a division of XL Vision, Inc. ("XL Vision"), the Company
has incurred losses totaling approximately $10.2 million, principally associated
with the research and development of the ChromaVision Digital Analyzer
technology, conducting clinical trials, preparing regulatory approval filings
and other matters related to the commercialization of its system. The Company
anticipates that it will not realize any material commercial revenues before the
third quarter of 1998 and, therefore, will continue to incur losses for the
foreseeable future. Delays in completing research and clinical tests, receiving
necessary regulatory approvals, establishing a scaled-up manufacturing operation
and developing marketing capabilities may significantly limit or prevent the
Company's future profitability. There can be no assurance that the Company will
be able to achieve profitable operations at any time in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business--Governmental Regulation," "Business--Manufacturing;
Research and Development" and "Business--Marketing."
GOVERNMENT REGULATION
The Company's products, services and manufacturing activities are subject to
extensive and rigorous government regulation in the United States and other
countries. In the United States, the Medical Device Amendments to the Federal
Food, Drug and Cosmetic Act, as amended (the "FDC Act"), and other statutes and
regulations, including various state statutes and regulations, govern the
testing, manufacture, labeling, storage, recordkeeping, distribution, sale,
marketing, advertising and promotion of its products. To the extent that the
Company manufactures or distributes its products in foreign countries, the
Company's products will be subject to similar foreign regulation. Foreign
regulatory approvals or clearances can require extensive testing and data
submissions. Failure to comply with applicable requirements in the United States
or in foreign countries can result in fines, recall or seizure of products,
total or partial suspension of production, withdrawal of existing product
approvals or clearances, refusal to approve or clear new applications or notices
and criminal prosecution. See "Business--Governmental Regulation."
Prior to commercial distribution in the United States, most medical devices,
including the Company's products, must be cleared by the FDA. The process of
obtaining required regulatory clearance can be lengthy, expensive and uncertain.
Moreover, regulatory clearance, if granted, may include significant limitations
on the indicated uses for which a product may be marketed. The Company has not
yet obtained any regulatory clearance to market the ChromaVision Digital
Analyzer or any other product. The Company believes that the FDA will generally
require clearance for each application for the ChromaVision Digital Analyzer. On
March 5, 1997, the Company filed an initial application with the FDA for 510(k)
clearance of the ChromaVision Digital Analyzer product for the Neutrophil
Alkaline Phosphatase ("NAP") stain application. There can be no assurance that
the necessary clearance from the FDA to market the ChromaVision Digital Analyzer
or any of the Company's products will be received in a timely manner, if at all.
See "Business--Governmental Regulation."
The Company intends to pursue FDA clearance for its Triple Plus-TM-
application following its initial clearance for NAP quantification. The Triple
Plus-TM- application uses the same technology and methods as
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the initial NAP quantification application. The filing of a new 510(k) or a PMA
would be costly and time consuming. There can be no assurance that the necessary
clearance from the FDA for the Triple Plus-TM- application will be received in a
timely manner, if at all.
The FDA actively enforces regulations prohibiting marketing of products for
other than research and investigational use without compliance with the
premarket clearance provisions of applicable laws. The effect of governmental
regulation may be to delay for a considerable period of time or to prevent the
marketing and full commercialization of the Company's products or services and
to impose costly requirements on the Company. There can be no assurance that any
of the Company's products will receive clearance by the FDA for manufacture and
distribution in the United States. See "Business--Governmental Regulation."
The FDA also regulates computer software, such as the Company's software
technology, that performs the functions of a regulated device or that is closely
associated with a given device, such as software for imaging or other devices.
The FDA is in the process of reevaluating its regulation of such software, and
the Company cannot predict the extent to which the FDA will regulate such
software in the future. Should the FDA increase regulation of such software, the
Company's software technology could become subject to more extensive regulatory
processes and clearance requirements. As a result, the Company could be required
to devote additional time, resources and effort in the areas of software design,
production and quality control to ensure compliance. No assurance can be given
that compliance with more extensive regulatory processes would be achieved or
that the necessary clearances for such software be obtained by the Company on a
timely basis, if at all. Delay or failure to achieve any required FDA clearance
with respect to such software could have a material adverse effect on the
Company's business, operating results and financial condition. See
"Business--Governmental Regulation."
Manufacturers of medical diagnostic devices are subject to strict federal
regulations regarding validation and the quality of manufacturing, including
periodic FDA inspections of the manufacturing facilities to determine compliance
with its Good Manufacturing Practice ("GMP") regulations. The Company's
manufacturing operations, including any expansion of such operations, will
continue to be required to comply with these and all other applicable
regulations, and with applicable regulations imposed by other governments. The
Company's failure to comply with GMP regulations could result in civil or
criminal penalties or enforcement proceedings being imposed on the Company,
including the recall of a product or a "cease distribution" order requiring the
Company to stop placing its products in service or selling its products, as the
case may be. Similar results could occur if the Company were to violate foreign
regulations. The Company will be required to be in GMP compliance prior to
completing its first commercial product sale. There can be no assurance that the
Company will be able to attain or maintain compliance with GMP requirements.
Failure to attain or maintain compliance with the applicable manufacturing
requirements of various regulatory agencies would have a material adverse effect
on the Company's business, operating results and financial condition. See
"Business--Governmental Regulation" and "Business--Manufacturing; Research and
Development."
Changes in existing regulations or adoption of new regulations could affect
the timing of, or prevent the Company from obtaining, future regulatory
clearance. There can be no assurance that additional regulations will not be
adopted or that current regulations will not be amended in such a manner as will
materially adversely affect the Company.
DEPENDENCE ON SUCCESSFUL COMMERCIALIZATION OF INITIAL PRODUCT APPLICATION
The Company has identified prenatal screening of maternal blood for Down
syndrome in fetuses as its initial commercial diagnostic application for use on
the ChromaVision Digital Analyzer. The Company's business plan contemplates that
the Company will not begin generating material revenues from commercial use of
this application until the third quarter of 1998 and that this application will
generate a significant portion of the Company's revenues for the foreseeable
future.
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The Company's ability to generate revenues from this application is
dependent upon a number of factors, including successful completion of clinical
trials demonstrating that the use of Triple Plus-TM- is superior to alternative
tests for detection of Down syndrome, FDA clearance for the use of the
ChromaVision Digital Analyzer for this application, adoption by the medical
community of this application as its standard of practice, acceptance by the
medical insurance industry of this application as an eligible reimbursable
expense and the Company's development of a sales force, internally or with a
corporate partner, to successfully market Triple Plus-TM- to laboratories and
other users.
Delays in the commercialization of, or the failure to successfully
commercialize, Triple Plus-TM- would have a material adverse effect on the
Company's business, operating results and financial condition.
DEPENDENCE ON SINGLE PRODUCT LINE; UNCERTAIN MARKET ACCEPTANCE
The Company has focused all of its activities to date on the development of
the ChromaVision Digital Analyzer and has performed only limited research on
specific diagnostic applications for this platform. The Company will depend on
the successful development and marketing of such specific applications in order
to establish a commercially viable market. The extent of market acceptance and
penetration achieved by the ChromaVision Digital Analyzer will depend on a
number of variables including but not limited to: cost, ability of the
ChromaVision Digital Analyzer to perform as expected and acceptance by patients,
physicians, third-party payors and laboratories. There can be no assurance that
a viable commercial market for ChromaVision Digital Analyzer applications will
ever develop, that the ChromaVision Digital Analyzer will perform as intended or
that the ChromaVision Digital Analyzer will achieve the desired market
acceptance. See "Business--The ChromaVision Digital Analyzer Advantage."
POTENTIAL INTELLECTUAL PROPERTY DISPUTE
The Company has been made aware that a third party competitor has a dispute
with the Company relating to the Company's UR-NAP application for the
ChromaVision Digital Analyzer. If a claim is successfully asserted against the
Company, the Company could be subject to significant liabilities to such third
party and may be required to license disputed rights from such other party.
There can be no assurance that if a claim is successfully asserted against the
Company, that any license required under any such patent would be available on
terms acceptable to the Company, if at all. The successful assertion of any such
claim against the Company, could have a material adverse effect on the Company's
business, operating results and financial condition. Furthermore, regardless of
the outcome of such claim, the Company could incur substantial costs in
defending itself in legal proceedings brought in connection with such claim or
in suits brought by the Company asserting its patent or proprietary rights
against another party. See "Business--Patents and Proprietary Technology."
UNCERTAINTY REGARDING INSURANCE REIMBURSEMENTS
The Company is attempting to commercialize the ChromaVision Digital Analyzer
by replacing or augmenting existing diagnostic procedures, most if not all of
which are deemed to be eligible expenses and covered by the medical insurance
industry. Accordingly, the Company's success in commercializing the ChromaVision
Digital Analyzer is, in part, dependent on the ChromaVision Digital Analyzer
related diagnostic procedures also being deemed eligible for reimbursement.
Historically, insurance carriers generally have been slow in adopting new
procedures as eligible expenses and, specifically, have been slow in agreeing to
cover other types of automated microscopy diagnostic procedures. There can be no
assurance that insurance carriers will deem the ChromaVision Digital Analyzer
related procedures as reimbursable expenses at any time in the future. See
"Business--Third-Party Reimbursement and Healthcare Legislation."
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LIMITED MANUFACTURING EXPERIENCE
As a development stage company, ChromaVision has limited manufacturing
experience. As such, the Company may encounter significant delays and incur
significant unexpected costs in scaling-up its manufacturing operations. In
addition, the Company may encounter delays and difficulties in hiring and
training the workforce necessary to manufacture the ChromaVision Digital
Analyzer. There can be no assurance that the Company will be able to manufacture
the ChromaVision Digital Analyzer at a cost or in quantities necessary to make
the product commercially viable. The failure to scale-up manufacturing
operations successfully in a timely and cost-effective manner could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Business--Manufacturing; Research and Development."
FUTURE CAPITAL NEEDS AND UNCERTAINTY OF ADDITIONAL FINANCING
The Company currently estimates that its existing capital resources,
together with the net proceeds from this offering, will enable it to sustain
operations for the foreseeable future. The Company has expended and will
continue to expend substantial funds for research and development, clinical
trials, manufacturing and marketing of its system. The timing and amounts of
such capital requirements will depend upon several factors, including the
progress of research and development efforts, the results of clinical trials,
the receipt of regulatory clearances, technological and market developments, the
commercialization of competing products and market acceptance and demand for the
Company's system. Specifically, the Company's need for capital will be
accelerated if the Company is delayed in bringing the NAP screening application
to market or the Company fails to achieve the level of revenues from this
application in the time frame contemplated by its business plan. To the extent
required, the Company may need to seek additional funds through equity or debt
financings, collaborative arrangements with third parties and from other
sources. There can be no assurance that additional financing will be available
on terms acceptable to the Company, if at all. The inability to obtain
sufficient funds may require the Company to delay, scale back or eliminate some
or all of its development activities, clinical studies and/or regulatory
activities or to license to third parties the right to commercialize products or
technologies that the Company would otherwise seek to commercialize itself. See
"Use of Proceeds."
DEPENDENCE ON COLLABORATORS AND STRATEGIC ALLIANCES
The Company's strategy for the development and commercialization of the
ChromaVision Digital Analyzer platform contemplates entering into collaborations
and strategic alliances with third parties. The Company intends to enter into
corporate collaborations for the development of new applications, such as its
arrangement with Centocor, clinical collaborations for testing of the system,
such as its relationship with Cambridge University, and strategic alliances for
the commercialization of its product, such as its proposed alliance with Sigma.
The Company may therefore be dependent upon the subsequent success of third
parties in performing their responsibilities. There can be no assurance that the
Company will be able to enter into arrangements that the Company deems necessary
or appropriate to develop and commercialize its products, or that any of the
contemplated benefits from such arrangements will be realized. Furthermore,
there can be no assurance that any revenues or profits will be derived from the
Company's collaborative and other arrangements. See "Business--Strategic
Alliances."
HEALTHCARE REFORM
From time to time, Congress has considered restructuring the delivery and
financing of healthcare services in the United States. The Company cannot
predict what form such legislation, if any, may take or the effect of such
legislation on its business. It is possible that future legislation will contain
provisions resulting in limitations which may adversely affect the business,
operating results and financial condition of the Company. It is also possible
that future legislation could either result in modifications to the nation's
public and private healthcare insurance systems, which could affect
reimbursement policies in a manner
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adverse to the Company, or encourage integration or reorganization of the
healthcare delivery system in a manner that could adversely affect the Company.
The Company cannot predict what other legislation, if any, relating to its
business or to the healthcare industry may be enacted, including legislation of
third-party reimbursement, or what effect any such legislation may have on its
business, operating results and financial condition. See "Business--Industry
Overview" and "Business--Third-Party Reimbursement and Healthcare Legislation."
RAPID TECHNOLOGICAL CHANGE; DEVELOPMENT OF NEW PRODUCTS
The medical imaging technology market is characterized by rapid
technological change, frequent new product introductions and evolving industry
standards. The introduction of products embodying new technologies and the
emergence of new industry standards can render existing products obsolete and
unmarketable in short periods of time. The Company expects new products and
services, and enhancements to existing products and services, to be developed
and introduced by others, which will compete with the products and services
offered by the Company. The life cycles of the Company's products are difficult
to estimate. The Company's future success will depend upon its ability to
enhance its current products and to develop and introduce new products that keep
pace with technological developments and emerging industry standards and that
address the increasingly sophisticated needs of its customers. There can be no
assurance that the Company will be successful in developing and marketing such
products or produce enhancements that meet these changing demands, that the
Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of these products or that its
new products and product enhancements will adequately meet the demands of the
marketplace and achieve market acceptance. The Company's inability to develop
and introduce new products or product enhancements in a timely manner, or its
failure to achieve market acceptance of a new product will have a material
adverse effect on the Company's business, operating results and financial
condition. See "Business--Competition."
DEPENDENCE ON PATENTS, TRADE SECRETS AND PROPRIETARY TECHNOLOGY
The Company's commercial success will depend in part on its ability to
protect and maintain the Company's proprietary technology and to obtain and
enforce patents on the Company's technology. The Company relies primarily on a
combination of copyright, patent and trademark laws, trade secrets,
confidentiality procedures and contractual provisions to protect its proprietary
rights. No assurance can be given that the Company's efforts will provide
meaningful protection for its proprietary technology against others who
independently develop or otherwise acquire substantially equivalent techniques
or gain access to, misappropriate or disclose the Company's proprietary
technology. The Company has applied for patents with the U.S. Patent & Trademark
Office ("PTO") regarding certain aspects of the ChromaVision Digital Analyzer
software technology. There can be no assurance that any patent applications
filed by the Company will result in the issuance of patents or that any patents
issued to the Company will afford protection against competitors that develop
similar technology.
Substantial elements of the hardware component of the Company's ChromaVision
Digital Analyzer technology were initially developed by XL Vision for
Intelligent Medical Imaging, Inc. ("IMI"). Pursuant to an agreement with IMI, XL
Vision assigned ownership of the technology underlying those hardware elements
to IMI, subject to a perpetual, transferable, non-exclusive fully paid-up
license to XL Vision to use, develop and sell such technology. XL Vision has
transferred this license to the Company. See "Business--Patents and Proprietary
Technology."
The medical device industry has been the subject of extensive litigation
regarding patents and other proprietary rights. Any claims of infringement by
third parties, with or without merit, could be time-consuming, resulting in
costly litigation, cause product shipment delays or require the Company to enter
into royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company, if at all. A
determination that the Company is infringing the
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proprietary rights of others could have a material adverse effect on the
Company's business, operating results and financial condition. See
"Business--Patents and Proprietary Technology."
COMPETITION
The markets in which the Company competes are highly competitive.
Competition exists and potential competition may arise from several sources,
including skilled medical technologists and manufacturers of clinical laboratory
equipment. The Company's existing and potential competitors may possess
substantially greater resources than the Company. The Company believes that the
current primary source of competition for the ChromaVision Digital Analyzer is
existing manual methods of microscopic analysis. To compete effectively, the
Company will need to demonstrate that the ChromaVision Digital Analyzer produces
comparable or better performance relative to existing methods. There can be no
assurance that the Company will be able to compete effectively with existing or
potential competitors. The Company is aware of at least six companies that are
developing or have developed similar products for applications which the Company
does not currently intend to pursue. There can be no assurance, however, that
such companies will not adapt their systems for other applications competing
directly with the ChromaVision Digital Analyzer. See "Business--Competition."
PRODUCT LIABILITY AND UNCERTAINTY OF ADEQUATE INSURANCE; POTENTIAL EXPOSURE TO
CLAIMS
The manufacture and sale of the ChromaVision Digital Analyzer entails an
inherent risk of product liability arising from an inaccurate, or allegedly
inaccurate, test or diagnosis. There can be no assurance that the Company will
be able to maintain or acquire additional product liability insurance in the
future with adequate coverages or at acceptable costs. Any product liability
claim against the Company could have a material adverse effect on the Company's
business, operating results and financial condition. The failure to comply with
the FDA's GMP regulations could have a material adverse effect on the ability of
the Company to defend against product liability lawsuits. See "Business."
DEPENDENCE ON KEY PERSONNEL
The Company believes that its continued success depends to a significant
extent upon the efforts and abilities of its executive officers. The loss of
services of any of the Company's executive officers or senior managers could
have a material adverse effect on the Company's business, operating results and
financial condition. Furthermore, the Company's anticipated growth and expansion
into activities requiring additional expertise will require the addition of
highly skilled technical, management, financial, sales and marketing personnel.
Competition for such personnel is intense, and the failure of the Company to
hire and retain talented personnel or the loss of one or more key employees
could have a material adverse effect on the Company's business, operating
results and financial condition. See "Management."
RISK ASSOCIATED WITH RAPID GROWTH
The Company currently has limited management and administrative resources.
If the Company is successful in implementing its strategy, it may experience a
period of rapid growth and expansion which could place significant additional
demands on the Company's management and administrative resources. The failure by
the Company's management team to manage this potential growth effectively could
have a material adverse effect on the Company's business, operating results and
financial condition. See "Business--Employees."
LIMITED NUMBER OF POTENTIAL CUSTOMERS FOR THE INITIAL DOWN SYNDROME SCREENING
APPLICATION
The Company intends to initially market its products to prenatal care
healthcare providers and laboratories. There are currently a limited number of
such organizations in the marketplace. In particular, with respect to Down
syndrome, approximately 70% of all tests in the United States are performed by
five
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clinical organizations. There can be no assurance that the Company will be able
to market successfully any of its products to any such organizations.
Furthermore, in the event that the Company is successful in marketing its
products to one or more of such organizations, the loss of a significant
customer may have a material adverse effect on the Company. See
"Business--Marketing."
CONTROL BY PRINCIPAL STOCKHOLDERS
After the completion of the offering, XL Vision, Safeguard, Technology
Leaders I and Technology Leaders II (collectively, the "Principal
Stockholders"), will beneficially own in the aggregate approximately 40.4% of
the outstanding Common Stock. In addition, officers of the Principal
Stockholders will own an additional 6.8% of the outstanding Common Stock (before
the exercise of any rights they may receive in the offering). As a result, such
stockholders will collectively have the voting power to substantially control
the election of the Company's entire Board of Directors and all votes on matters
requiring stockholder approval. See "Management--Executive Officers and
Directors" and "Management--Certain Relationships," "Principal and Selling
Stockholders," "Certain Transactions" and "Shares Eligible for Future Sale."
DILUTION
The average price per share paid upon the original issuance by the Company
of Common Stock prior to the offering was $0.66. Purchasers of the Common Stock
of the Company offered hereby will suffer an immediate dilution of $3.54 in the
net tangible book value per share of the Common Stock from the exercise price of
the rights and the offering price for the shares of Common Stock offered hereby.
See "Dilution."
REQUIREMENTS FOR LISTING SECURITIES ON THE NASDAQ NATIONAL MARKET; APPLICATION
OF THE PENNY STOCK RULES
The Company has applied with the Nasdaq National Market to have the Common
Stock and rights (the "Listed Securities") approved for listing (upon completion
of the Offering with respect to the Common Stock and from the date of this
Prospectus through 5:00 p.m., New York City time, on , 1997 (the
"Expiration Date") with respect to the rights). If the Company is unable to
maintain the standards for continued listing, the Listed Securities could be
subject to delisting from the Nasdaq National Market. Trading, if any, in the
Listed Securities would thereafter be conducted on the Nasdaq Small Cap Market.
If, however, the Company did not meet the requirements of the Nasdaq Small Cap
Market, trading of the Listed Securities would be conducted on an electronic
bulletin board established for securities that do not meet the Nasdaq listing
requirements or in what is commonly referred to as the "pink sheets." As a
result, an investor may find it more difficult to dispose of, or to obtain
accurate quotations as to the price of, the Company's securities.
In addition, if the Company's securities were delisted, they would be
subject to the so-called penny stock rules that impose additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and accredited investors (generally defined as an investor
with a net worth in excess of $1,000,000 or annual income exceeding $200,000, or
$300,000 together with a spouse). For transactions covered by this rule, the
broker-dealer must make a special suitability determination for the purchaser
and must have received the purchaser's written consent to the transaction prior
to sale. Consequently, delisting, if it occurred, may affect the ability of
broker-dealers to sell the Company's securities and the ability of purchasers in
the offering to sell their securities in the secondary market.
The Securities and Exchange Commission (the "Commission") has adopted
regulations that define a "penny stock" to be any equity security that has a
market price (as defined in the regulations) of less than $5.00 per share or an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules require the
delivery, prior to the transaction, of a disclosure schedule relating to the
penny stock market. The broker-dealer also must disclose the commissions payable
to both the broker-dealer and the registered representative, current quotations
for
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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. As a result, if the Common Stock is determined
to be "penny stock," an investor may find it more difficult to dispose of the
Company's Common Stock.
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the offering, there has been no public market for the Common Stock
or the rights, and there can be no assurance that an active public market will
develop or be sustained. The exercise price of the rights and purchase price of
the Common Stock has been determined solely by negotiations between the Company
and the underwriters and does not necessarily reflect the price at which shares
of Common Stock may be sold in the public market during or after the offering.
See "The Offering--Why We are Selling Shares Through a Rights Offering" for a
discussion of the factors considered in determining the exercise price. The
public markets, in general, have from time to time experienced extreme price and
volume fluctuations, which have in some cases been unrelated to the operating
performance of particular companies, and the market for information technology,
healthcare technology and biotechnology stocks, such as the Common Stock, can be
subject to greater price volatility than the stock market in general. In
addition, factors such as announcements of technological innovations, new
products by the Company's competitors or third parties, potential litigation,
healthcare reform initiatives, strategic alliances of the Company's competitors,
the status of the Company's regulatory applications, regulatory action and
market conditions in the medical imaging industry may have a significant impact
on the market price of the Common Stock.
CANCELLATION OF RIGHTS OFFERING
If the conditions precedent to the sale of shares of Common Stock to the
underwriters, set forth in the standby underwriting agreement entered into by
the Company, the selling stockholders and the underwriters (the "Standby
Underwriting Agreement"), are not satisfied, the underwriters may elect, on or
before the sixth business day after the Expiration Date (the "Closing Date"), to
cancel the rights offering and the Company and the selling stockholders will not
have any obligations with respect to the rights except to return, without
interest, any payment received in respect of the exercise price. See
"Underwriting." The Company has been advised by the NASD that trades in the
rights and the when-issued shares of Common Stock in the market would be
canceled if the rights offering is not consummated.
SHARES ELIGIBLE FOR FUTURE SALE
A substantial number of outstanding shares of Common Stock and shares of
Common Stock issuable upon exercise of outstanding stock options will become
eligible for future sale in the public market at various times. In addition to
the factors affecting the stock market in general and the market for the Common
Stock discussed above, sales of substantial amounts of Common Stock in the
public market, or the perception that such sales could occur, could adversely
affect the market price of the Common Stock. Upon completion of the offering,
the Company will have 17,147,393 shares of Common Stock outstanding, excluding
1,539,188 shares of Common Stock subject to stock options outstanding as of
March 31, 1997 and any stock options granted by the Company after March 31,
1997. Of these shares, the Common Stock sold by the Company in the offering,
except for certain shares described below, will be freely tradeable without
restriction or further registration under the Securities Act of 1933, as amended
(the "Act"). The remaining 11,127,393 shares of Common Stock (the "Restricted
Shares") were sold by the Company in reliance on exemptions from the
registration requirements of the Act and are "restricted securities" as defined
in Rule 144 under the Act ("Rule 144") and may not be sold in the absence of
registration under the Act unless an exemption is available, including an
exemption afforded by Rule 144 or Rule 701 ("Rule 701") under the Act. Without
considering the contractual restrictions described below, (i) 10,788,455
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Restricted Shares will be eligible for sale ninety days after the date of this
Prospectus, subject to volume and other resale conditions imposed by Rule 144,
and (ii) 338,938 Restricted Shares will be eligible for future sale subject to
the holding period and other conditions imposed by Rule 144. Rule 144 was
recently amended to, among other things, reduce the holding period to one year
(two years with respect to Rule 144(k)). Certain restrictions on shares of
Common Stock are applicable to (i) any shares of Common Stock purchased in the
offering by affiliates of the Company, which may generally only be sold in
compliance with the limitations of Rule 144, except for the holding period
requirements thereunder, and (ii) the shares of Common Stock beneficially owned
by the Principal Stockholders all of which, together with the shares of Common
Stock beneficially owned by the executive officers of the Company, each director
of the Company and 280,000 shares of Common Stock beneficially owned by Warren
V. Musser (and/or his assignees), are subject to lock-up agreements (the
"Lock-Up Agreements") and pursuant to such agreements will not be eligible for
sale or other disposition until 180 days after the Expiration Date (the "Lock-Up
Expiry Date") without the prior written consent of the Underwriters. In
addition, the Company has granted certain registration rights to its
shareholders whereby they may cause the Company to register shares of Common
Stock. See "Shares Eligible for Future Sale."
It is anticipated that a registration statement (the "Form S-8 Registration
Statement") covering the Common Stock that may be issued pursuant to the
exercise of options awarded by the Company will be filed and become effective
prior to the Lock-Up Expiry Date, and that shares of Common Stock that are so
acquired or offered thereafter pursuant to the Form S-8 Registration Statement
generally may be resold in the public market without restriction or limitation.
Subject to the provisions of any Lock-Up Agreement, shares of Common Stock may
be resold in the public market beginning 90 days after the date of this
Prospectus pursuant to Rule 701 (i) by persons who are not affiliates of the
Company, without compliance with the public information, holding period, volume
limitation or notice provisions of Rule 144 and (ii) by affiliates of the
Company, without compliance with the holding period requirements of Rule 144.
See "Management--Equity Compensation Plan," "Shares Eligible for Future
Sale--Stock Options" and "Underwriting."
POSSIBLE ISSUANCES OF PREFERRED STOCK
Shares of preferred stock may be issued by the Company in the future without
stockholder approval and upon such terms as the Board of Directors may
determine. The rights of the holders of the Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any preferred stock
that may be issued in the future. The issuance of preferred stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from acquiring, a
majority of the outstanding stock of the Company and potentially prevent the
payment of a premium to stockholders in an acquisition transaction. The Company
has no present plans to issue any shares of preferred stock and all shares of
the Company's preferred stock which are currently outstanding will be converted
to Common Stock prior to the consummation of the offering. See "Description of
Capital Stock--Preferred Stock."
NO DIVIDENDS
To date, the Company has not paid any cash dividends on its Common Stock.
The Company currently intends to retain future earnings for use in its business
and, therefore, does not expect to declare or pay any cash or other dividends in
the foreseeable future. See "Dividend Policy."
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THE OFFERING
WHY WE ARE SELLING SHARES THROUGH A RIGHTS OFFERING
We have agreed with Safeguard and the other selling stockholders to make a
rights offering to holders of Safeguard common shares. Although a rights
offering is essentially an initial public offering directed first to Safeguard
shareholders and then to the general public, we believe that the rights offering
provides several advantages over a traditional initial public offering. We
believe that this type of offering gives us the opportunity to offer our Common
Stock to investors who, as Safeguard shareholders, already have some knowledge
of our business, to distribute the securities to a broader, more stable
shareholder base and to minimize costly underwriting discounts and commissions.
In addition, Safeguard prefers the rights offering to a traditional initial
public offering because it affords its shareholders the opportunity to purchase
shares of our Common Stock at the initial offering price before the shares are
offered to the general public by the underwriters.
We determined the exercise price through negotiations with the selling
stockholders and the underwriters. In making this determination, we considered
such factors as our future prospects and historical financial data, our industry
in general and our position in the industry; market valuations of the securities
of companies engaged in activities similar to ours; the quality of our
management team; and, the advice of our underwriters. We will also obtain two
independent appraisals to further support the determination of the final
exercise and offering price.
WHAT YOU CAN DO WITH YOUR RIGHTS
Until , 1997, you may purchase one share of Common Stock for each
right you receive, or you may sell your rights in the market. However, you may
not exercise rights for fewer than 20 shares of Common Stock in an account,
unless you have previously exercised rights for at least 20 shares in the same
account and you provide a letter to ChaseMellon stating that you have already
exercised at least 20 rights. If you hold Safeguard common shares in multiple
accounts, you must meet the minimum purchase requirement for each account. You
may, however, consolidate your rights into one account. If you receive fewer
than 20 rights, you should consider purchasing enough additional rights to be
eligible to exercise your rights or selling your rights in the market. You
should consult with your regular investment advisor and carefully consider your
alternatives.
WHAT IF THE NUMBER OF SAFEGUARD COMMON SHARES YOU OWN IS NOT DIVISIBLE BY FIVE
If the number of Safeguard common shares you own is not evenly divisible by
five, we will round up to the next highest whole number in calculating the
number of rights that you are entitled to receive. For example, if you hold 96
Safeguard common shares, you will receive 20 rights. If you are a nominee for
beneficial holders of Safeguard common shares, we will round the number of
rights that you will receive based upon the amount held by each beneficial
holder individually.
WHEN YOU CAN EXERCISE YOUR RIGHTS
You can exercise your rights at any time during the period beginning on
, 1997 and ending at 5:00 p.m., New York City time, on , 1997. After
that date, you will not be able to exercise or transfer your rights and they
will be worthless. We will not honor any rights received for exercise by
ChaseMellon after , 1997, regardless of when you sent your rights to
ChaseMellon for exercise.
HOW YOU CAN TRANSFER YOUR RIGHTS
You may transfer all or a portion of your rights by endorsing and delivering
to ChaseMellon (at the addresses set forth below) your rights certificate. You
must properly endorse the certificate for transfer,
17
<PAGE>
your signature must be guaranteed by a bank or securities broker and your
certificate must be accompanied by instructions to reissue the rights you want
to transfer in the name of the person purchasing the rights. ChaseMellon will
reissue certificates for the transferred rights to the purchaser, and will
reissue a certificate for the balance, if any, to you if it is able to do so
before , 1997. You will be responsible for the payment of any commissions,
fees and other expenses (including brokerage commissions and any transfer taxes)
incurred in connection with the purchase or sale of your rights. We believe that
a market for the rights may develop during the period in which the rights may be
exercised. To facilitate the market, we have applied with the Nasdaq National
Market to have the rights approved for quotation for the period , 1997
through , 1997. We have reserved "CVSNR" as the Nasdaq symbol under which
the rights will trade. If you have any questions regarding the transfer of
rights, you should contact ChaseMellon at P.O. Box 798, Midtown Station, New
York, New York 10018, Attention: Reorganization Department, telephone number
(800) 223-6554.
HOW YOU CAN EXERCISE YOUR RIGHTS
You may exercise your rights by completing and signing the election to
purchase form that appears on the back of each rights certificate. You must send
the completed and signed form, along with payment in full of the exercise price
for all shares that you wish to purchase to ChaseMellon. ChaseMellon must
receive these documents and the payment before , 1997. We will not honor
any exercise of rights received by ChaseMellon after that date.
We will, however, accept your exercise if ChaseMellon has received full
payment of the exercise price for shares to be purchased through the exercise of
rights, and has received a letter or telegraphic notice from a bank, trust
company or member firm of the New York Stock Exchange or the American Stock
Exchange setting forth your name, address and taxpayer identification number,
the number of shares you wish to purchase, and guaranteeing that a properly
completed and signed election to purchase form will be delivered to ChaseMellon
by , 1997. If the properly executed documents are not received by ,
1997, the subscriptions will not be accepted.
We suggest, for your protection, that you deliver your rights to ChaseMellon
by overnight or express mail courier. If you mail your rights, we suggest that
you use registered mail. If you wish to exercise your rights, you should mail or
deliver your rights and payment for the exercise price to ChaseMellon as
follows:
<TABLE>
<S> <C>
By Mail: By Hand/Overnight:
ChaseMellon Shareholder Services, L.L.C. ChaseMellon Shareholder Services, L.L.C.
Reorganization Department Reorganization Department
P.O. Box 798 120 Broadway, 13th Floor
Midtown Station New York, New York 10271
New York, New York 10018
</TABLE>
You must pay the exercise price in U.S. dollars by cash, check or money
order payable to the "Safeguard Escrow Account." Until the offering is closed,
your payment will be held in escrow by Mellon Bank N.A., who will serve as the
escrow agent of the Safeguard Escrow Account.
ChaseMellon will issue certificates to you representing the Common Stock
purchased through the exercise of rights by , 1997. Until that date,
ChaseMellon will hold all funds received in payment of the exercise price in
escrow and will not deliver any funds to us or to the selling stockholders until
the shares of Common Stock have been issued.
If you are a broker or depository who holds Safeguard common shares for the
account of others and you receive rights certificates for the account of more
than one beneficial owner, you should provide copies of this Prospectus to the
beneficial owners. You should also carry out their intentions as to the exercise
or transfer of their rights.
18
<PAGE>
Safeguard will decide all questions as to the validity, form, eligibility
(including times of receipt, beneficial ownership and compliance with minimum
exercise provisions), and the acceptance of subscription forms and the exercise
price will be determined by Safeguard. We will not accept any alternative,
conditional or contingent subscriptions. Safeguard reserves the absolute right
to reject any subscriptions not properly submitted. In addition, Safeguard may
reject any subscription if the acceptance of the subscription would be unlawful.
Safeguard also may waive any irregularities (or conditions) in the subscription
of shares of Common Stock, and their interpretations of the terms (and
conditions) of the rights offering shall be final and binding.
If you are given notice of a defect in your subscription, you will have five
business days after the giving of notice to correct it. You will not, however,
be allowed to cure any defect later than , 1997. We are not obligated to
give you notification of defects in your subscription. We will not consider an
exercise to be made until all defects have been cured or waived. If your
exercise is rejected, your payment of the exercise price will be promptly
returned by ChaseMellon.
HOW YOU CAN OBTAIN ADDITIONAL INFORMATION
If you wish to receive additional copies of this Prospectus or additional
information concerning the offering, you should contact Patrick T. Wasser at
Robert W. Baird & Co. Incorporated, telephone number (414) 298-7358 or Thomas
Cochran at Adams, Harkness & Hill, Inc., telephone number (617) 371-3900.
EXPECTED EXERCISE OF RIGHTS BY SAFEGUARD CEO
Warren V. Musser, the Chairman and Chief Executive Officer of Safeguard (or
his assignees), is expected to exercise all rights distributed to him. As a
result, he is expected to acquire approximately 560,000 shares of our Common
Stock through the rights offering.
WHAT HAPPENS TO THE UNSUBSCRIBED SHARES
If there are any shares of Common Stock that are not subscribed for at the
end of the rights exercise period, along with the selling stockholders, we will
offer the first 300,000 unsubscribed shares at an anticipated purchase price of
$5.00 per share to persons selected by us. These persons may have a relationship
with us, Safeguard or one of Safeguard's other partnership companies. We expect
to enter into agreements with these persons to purchase the unsubscribed shares
before the end of the rights exercise period. If there are less than 300,000
unsubscribed shares at the end of the rights exercise period, the number of
unsubscribed shares offered to each of these persons will be adjusted
accordingly.
To the extent that any unsubscribed shares remain unsold after the offer to
these persons, the underwriters will purchase these shares at the exercise price
less the underwriting discount. The underwriters must purchase these shares no
later than , 1997.
In connection with this offering, the underwriters will receive a financial
advisory fee of 3% of the exercise price for each share of Common Stock being
offered in the offering, regardless of whether they purchase any shares in the
offering. In addition, if the underwriters purchase any shares in the offering
or through the exercise of rights that are purchased in the open market in
stabilizing transactions, they may purchase the shares at the exercise price
less a discount of 4% of the exercise price. The underwriters will offer shares
of Common Stock purchased by them to the public at prices which may vary from
the exercise price. The selling stockholders have granted to the underwriters an
option to purchase an additional 640,000 shares of Common Stock to cover
over-allotments, if any, during the 20-day period beginning on , 1997. The
underwriters will be entitled to purchase these over-allotment shares at the
exercise price less the 4% underwriters' discount.
19
<PAGE>
We intend to supplement the Prospectus after the rights exercise period is
over to set forth the results of the rights offering, the transactions by the
underwriters during the exercise period, the number of unsubscribed shares
purchased, if any, and any resale transactions.
WHAT HAPPENS IF THE RIGHTS OFFERING IS CANCELLED
The underwriters have the right to cancel the rights offering if certain
conditions are not satisfied or if certain circumstances exist prior to the
closing date of the offering. If you exercise rights and the rights offering is
cancelled, ChaseMellon will promptly return to you, without interest, any
payment received in respect of the exercise price, and you will not receive any
shares of our Common Stock. Along with the selling stockholders, we have
established an escrow account with ChaseMellon to hold funds received prior to
the closing date of the offering. The NASD has advised us that trades in the
rights and the when-issued shares of Common Stock in the market would be
canceled if the offering is not consummated.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
affecting holders of Safeguard common shares receiving rights in the offering.
In the opinion of Morgan, Lewis & Bockius LLP, the distribution of the rights by
the Company to holders of Safeguard common shares may constitute a taxable
transaction under the Internal Revenue Code of 1986, as amended (the "Code"),
and may also be subject to state or local income taxes. Because of the
complexity of the provisions of the Code referred to below and because tax
consequences may vary depending upon the particular facts relating to each
holder of Safeguard common shares, such holders should consult their own tax
advisors concerning their individual tax situations and the tax consequences of
the offering under the Code and under any applicable state, local or foreign tax
laws.
Safeguard has been advised by Morgan, Lewis & Bockius LLP that, under
current interpretations of case law, the Code, and applicable regulations
thereunder, the federal income tax consequences applicable to holders of
Safeguard common shares receiving rights in the offering generally are as
follows:
DISTRIBUTION OF RIGHTS TO HOLDERS OF SAFEGUARD SHARES
The rights, representing the right to acquire shares of Common Stock from
the Company, can be considered as constituting "property" within the meaning of
Section 317(a) of the Code. The federal income tax consequences of a
distribution of the rights by the Company to holders of Safeguard common shares,
as determined under the Code and the regulations thereunder, are as follows: (i)
each noncorporate holder of Safeguard common shares will be deemed to have
received a distribution from Safeguard, generally taxable as ordinary dividend
income, in an amount equal to the fair market value (if any) of the rights, as
of the date of distribution, (ii) each corporate holder of Safeguard common
shares (other than foreign corporations and S corporations) will be deemed to
have received a distribution from Safeguard (generally taxable as a dividend
subject to the dividends received deduction for corporations (generally 70%, but
80% under certain circumstances)) in an amount equal to the fair market value
(if any) of the rights, as of the date of distribution; and (iii) the tax basis
of the rights in the hands of each holder (whether corporate or noncorporate) of
Safeguard common shares will be equal to the fair market value (if any) of the
rights as of the date of distribution. Because of the predominantly factual
nature of determining the fair market value, if any, of the rights, Morgan,
Lewis & Bockius LLP has expressed no opinion with respect to the fair market
value of the rights.
Since the fair market value of the rights will determine the amount of
taxable income deemed received by the holders of Safeguard common shares, the
determination of the fair market value of each Right as of the date of
distribution is critical. The exercise price was determined through arms-length
negotiations among the Company and the underwriters. Based on these
negotiations, Safeguard's Board of Directors believes that the per share value
of Common Stock represented by the rights at the date of the
20
<PAGE>
commencement of the offering approximates the exercise price, and that the
rights should have no value for federal income tax purposes. However, the
Internal Revenue Service is not bound by this determination. See "The
Offering--Why We are Selling Shares Through a Rights Offering."
EXERCISE OF RIGHTS
Holders of rights, whether corporate or noncorporate, will recognize neither
gain nor loss upon the exercise of the rights. A holder of rights who receives
shares of Common Stock upon the exercise of the rights will acquire a tax basis
in such shares equal to the sum of the exercise price paid under the offering
and the tax basis (if any) of the holder of rights in the rights.
TRANSFER OF RIGHTS
The transferable nature of the rights will permit a holder of rights to sell
rights prior to exercise. Pursuant to Section 1234 of the Code, a rights holder
who sells rights prior to exercise will be entitled to treat the difference
between the amount received for the rights and the adjusted tax basis (if any)
of the holder of rights in the rights as a short-term capital gain or capital
loss, provided that Common Stock subject to the rights would have been a capital
asset in the hands of the holder had it been acquired by him. The gain or loss
so recognized will be short-term since the rights will have been held for less
than twelve months.
NON-EXERCISE OF RIGHTS
The income tax treatment applicable to holders of rights who fail to
exercise or transfer their rights prior to the Expiration Date also is set forth
in Section 1234 of the Code. Holders of rights who allow their rights to lapse
are deemed under the Code to have sold their rights on the date on which the
rights expire. Since upon such lapse no consideration will be received by a
holder of rights, and since the rights will have been held for less than twelve
months, a short-term capital loss equal to the tax basis (if any) in the rights
will be sustained by the holder on such lapse, provided that Common Stock
subject to the rights would have been a capital asset in the hands of the holder
had it been acquired by him.
21
<PAGE>
THE COMPANY
The Company began operations in 1993 as the MicroVision division of XL
Vision, a Delaware corporation, located in Sebastian, Florida. In March 1996, XL
Vision formed MicroVision Medical Systems, Inc. as a subsidiary and transferred
to the Company all rights held by XL Vision to the ChromaVision Digital Analyzer
technology. Since that time, the Company has been operating as a separate
entity. The Company was incorporated in the State of Delaware on March 28, 1996.
The Company changed its corporate name to ChromaVision Medical Systems, Inc. on
April 23, 1997. The Company's principal executive offices are located at 33171
Paseo Cerveza, San Juan Capistrano, California 92675 and its telephone number is
1-888-776-4276.
USE OF PROCEEDS
The minimum net proceeds to the Company from the sale of the 6,020,000
shares of Common Stock offered by the Company hereby are estimated to be
approximately $27,093,000 after deducting estimated offering expenses allocable
to and payable by the Company (including the maximum applicable non-accountable
expense allowance to the underwriters) and assuming the sale of all such shares
pursuant to the Standby Underwriting Agreement and the payment to the
underwriters of the total underwriting discount with respect to the shares sold
by the Company pursuant to the Standby Underwriting Agreement. In the event more
of the shares of Common Stock offered hereby are sold pursuant to the exercise
of rights, the Company will not be obligated to pay the underwriting discount
with respect to such shares and will, therefore, realize an amount of net
proceeds greater than approximately $27,093,000. See "The Offering--What Happens
to the Unsubscribed Shares" and "Underwriting."
The Company intends to use $2,410,820 of the net proceeds of this offering
to repay the outstanding balance on its revolving line of credit and amounts due
to XL Vision as of March 31, 1997. The Company's $5.0 million revolving line of
credit bears interest at a rate of LIBOR plus 2.1% and comes due on January 31,
1998. The remainder of the net proceeds will be used for the further development
of the ChromaVision Digital Analyzer technology, including clinical trials and
certain pre-marketing activities, working capital, general corporate purposes
and capital expenditures. The Company has not determined the amounts it intends
to utilize on each of such uses, or the timing of such uses. The amounts
actually expended for each use may vary significantly depending upon a number of
factors, including future revenue growth, if any, the amount of cash generated
or used by the Company's operations and the status of acquisition opportunities,
if any, presented to the Company. The Company believes that the net proceeds
from the sale of the Common Stock offered hereby, together with its current cash
balances will be sufficient to fund its operating requirements for the
foreseeable future. Pending such uses, the net proceeds of the offering will be
invested in short-term, investment-grade, interest-bearing securities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation--Liquidity and Capital Resources."
DIVIDEND POLICY
To date, the Company has not paid any dividends on its Common Stock. The
Company currently intends to retain future earnings for use in its business and,
therefore, does not anticipate paying any dividends in the foreseeable future.
The payment of future dividends, if any, will depend, among other things, on the
Company's results of operations and financial condition and on such other
factors as the Company's Board of Directors may, in its discretion, consider
relevant.
22
<PAGE>
CAPITALIZATION
The following table sets forth the total capitalization of the Company as of
March 31, 1997, and as adjusted to reflect the sale of 6,020,000 shares of
Common Stock by the Company pursuant to the offering and the application of the
estimated minimum net proceeds of approximately $27,093,000 therefrom. This
table should be read in conjunction with the financial statements and related
notes thereto and other financial information included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
-----------------------------
ACTUAL AS ADJUSTED(1)
------------- --------------
<S> <C> <C>
Total indebtedness(2).............................................................. $ 2,410,820 $ --
Stockholders' equity (deficit):
Preferred Stock, par value $0.01 per share; 8,000,000 shares authorized, and no
shares issued and outstanding actual and as adjusted(4)........................ -- --
Common Stock, par value $0.01 per share; 50,000,000 shares authorized, and
11,127,393 shares issued and outstanding actual and 17,147,393 shares issued
and outstanding as adjusted(3)(4).............................................. 111,274 171,474
Additional paid-in capital(3).................................................... 3,261,807 30,294,607
Accumulated deficit.............................................................. (5,436,961) (5,436,961)
------------- --------------
Total stockholders' equity (deficit)........................................... (2,063,880) 25,029,120
------------- --------------
Total capitalization......................................................... $ 346,940 $ 25,029,120
------------- --------------
------------- --------------
</TABLE>
- ------------------------
(1) Adjusted to give effect to the sale by the Company of 6,020,000 shares of
Common Stock and the receipt and application of approximately $27,093,000 in
net proceeds from the offering, after deducting the maximum total
underwriting discount with respect to such shares of approximately
$2,107,000 and offering expenses of approximately $900,000 (including
$200,000 representing the maximum applicable non-accountable expense
allowance to the underwriters).
(2) Total indebtedness includes the Company's revolving line of credit and
amounts due to XL Vision, $1,958,432 and $452,388 at March 31, 1997,
respectively.
(3) Excludes as of March 31, 1997, 1,539,188 shares of Common Stock issuable
upon the exercise of options at a weighted average exercise price of $1.96
per share (of which options to purchase 291,204 shares were exercisable as
of March 31, 1997). See "Management--Stock Options."
(4) Assumes conversion of all outstanding shares of Series A Preferred Stock and
Series B Preferred Stock.
23
<PAGE>
DILUTION
As of March 31, 1997, the Company had a net tangible book value of
$(2,063,880) or $(0.19) per share of Common Stock. Net tangible book value per
share of Common Stock represents the amount of the Company's tangible assets
less its total liabilities, divided by the total number of shares of Common
Stock outstanding. Without taking into account any changes in net tangible book
value after March 31, 1997, other than to give effect to the items described in
Note 1 appearing immediately below the following table, the pro forma net
tangible book value of the Company as of March 31, 1997, would have been
$25,029,120 or $1.46 per share. This represents an immediate increase in such
pro forma net tangible book value of $1.65 per share to existing stockholders
and an immediate dilution of $3.54 per share to investors purchasing Common
Stock at the exercise price in the offering. New stockholders that acquire
Common Stock from the underwriters at a price greater than the exercise price
will experience greater dilution. The following table illustrates this per share
dilution in net tangible book value:
<TABLE>
<S> <C> <C>
Exercise Price.............................................................. $ 5.00
Net tangible book value per share as of March 31, 1997.................... $ (0.19)
Increase per share attributable to new stockholders(1).................... 1.65
---------
Pro forma net tangible book value per share as of March 31, 1997............ 1.46
---------
Dilution per share to new stockholders...................................... $ 3.54
---------
---------
</TABLE>
- ------------------------
(1) Reflects the conversion of all outstanding shares of Series A Preferred
Stock and Series B Preferred Stock, the sale by the Company of 6,020,000
shares of Common Stock and the receipt of approximately $27,093,000 in net
proceeds from the offering, after deducting the maximum total underwriting
discount with respect to such shares of approximately $2,107,000 and
offering expenses of approximately $900,000 (including $200,000 representing
the maximum applicable non-accountable expense allowance to the
underwriters).
The following table sets forth, on an adjusted basis as of March 31, 1997,
the number of shares of Common Stock issued by the Company, the total
consideration paid and the average price per share paid upon original issuance
to stockholders prior to the offering and by new investors before deducting the
underwriters' compensation and estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION(1)
------------------------ ------------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE(1)
------------ ---------- ------------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................. 11,127,393 64.9% $ 7,378,646(2) 19.7% $ 0.66(2)
New stockholders...................... 6,020,000 35.1 30,100,000 80.3 5.00
<CAPTION>
------------ ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Total............................. 17,147,393 100.0% $ 37,478,646 100.0% 2.19
<CAPTION>
------------ ---------- ------------- ----------
------------ ---------- ------------- ----------
</TABLE>
- ------------------------
(1) Reflects gross consideration from the issuance of stock, and therefore does
not reflect deductions for stock issuance costs, underwriting discount and
offering expenses.
(2) Does not reflect value attributed to the release of rights and claims by
Centocor related to the issuance of 770,192 shares of Series A Preferred
Stock to Centocor, which is convertible into 962,740 shares of Common Stock.
See Note 11 to the Notes to the Financial Statements.
The foregoing tables assume no exercise of outstanding options. As of March
31, 1997, there were outstanding options to purchase an aggregate of 1,539,188
shares of Common Stock (of which 291,204 were exercisable at March 31, 1997) at
a weighted average exercise price of $1.96 per share, and the Company had an
additional 173,563 shares of Common Stock available for future grants and other
issuances under its Equity Compensation Plan. See "Management" and Note 9 to the
Notes to the Financial Statements appearing elsewhere in this Prospectus.
24
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below for the years ended December 31,
1995 and 1996 are derived from the financial statements of the Company, which
have been audited by KPMG Peat Marwick LLP, independent certified public
accountants. The audited balance sheets as of December 31, 1995 and 1996 and the
related statements of operations, stockholders' equity and cash flows for each
of the years in the three-year period ended December 31, 1996 and the KPMG Peat
Marwick LLP report thereon are included elsewhere in this Prospectus. The
selected financial data for the period ended December 31, 1994 is derived from
the Company's financial statements not included herein, which have also been
audited by KPMG Peat Marwick LLP. The selected financial data as of March 31,
1996 and 1997 is unaudited. The following information should be read in
conjunction with the Financial Statements and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------- ---------------------------
1994 1995 1996 1996 1997
------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
STATEMENTS OF OPERATIONS DATA:
Revenue(1)................................... $ 296,886 $ 900,000 $ -- $ -- $ --
Cost of revenue.............................. 232,636 310,103 -- -- --
------------- ------------- ------------- ------------ -------------
Gross profit................................. 64,250 589,897 -- -- --
Operating expenses:
Selling, general and administrative.......... 787,167 1,040,070 2,979,252 216,579 784,622
Research and development..................... 858,389 1,513,014 1,099,330 235,578 599,808
------------- ------------- ------------- ------------ -------------
Total operating expenses................... 1,645,556 2,553,084 4,078,582 452,157 1,384,430
Total other income (expense)(2)............ -- -- (328,838) 75,000 (22,268)
------------- ------------- ------------- ------------ -------------
Net profit (loss)............................ $ (1,581,306) $ (1,963,187) $ (4,407,420) $ (377,157) $ (1,406,698)
------------- ------------- ------------- ------------ -------------
------------- ------------- ------------- ------------ -------------
Pro forma net profit (loss) per common
share(3)................................... $ (0.36) $ (0.20) $ (0.11)
------------- ------------ -------------
------------- ------------ -------------
Pro forma weighted average number of common
shares outstanding......................... 12,111,580 1,931,250 12,280,331
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------ MARCH 31,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................................. $ -- $ 124,092 $ 65,100
Total assets........................................................... 345,664 880,430 1,187,343
Total liabilities(4)................................................... 4,744,264 2,535,937 3,251,223
Accumulated deficit(5)................................................. (4,398,600) (4,030,263) (5,436,961)
Total stockholders' equity (deficit)................................... (4,398,600) (1,655,507) (2,063,880)
</TABLE>
- ------------------------
(1) Revenue includes income from prototype instrument sales and support
services.
(2) Other expenses for 1996 include the value of the Preferred Stock issued to
Centocor as compensation for its clinical collaboration on the Minimal
Residual Disease applications. Other income relates to reimbursement of the
Company's cost for design work performed as well as interest income.
(3) See Note 2 of the Notes to the Financial Statements for information
concerning the calculation of net profit (loss) per common share.
(4) Includes the outstanding balance on the revolving line of credit and amounts
due to XL Vision. The balance of the Company's revolving line of credit and
amounts due to XL Vision as of March 31, 1997 were $1,958,432 and $452,388,
respectively.
(5) Includes the elimination of the division deficit of $4,775,757 in 1996. See
Note 1 of the Notes to the Financial Statements.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS
AND NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS. THE COMPANY'S FISCAL
YEAR ENDS ON DECEMBER 31. THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. FUTURE EVENTS AND THE COMPANY'S
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS REFLECTED IN THESE
FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE,
BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS."
OVERVIEW
From inception on April 1, 1993 until March 28, 1996, the Company operated
as a business division of XL Vision. On March 28, 1996, XL Vision established
the Company as an incorporated subsidiary to which it transferred all its rights
to the ChromaVision Digital Analyzer. The Company continues to utilize certain
XL Vision resources including administrative support, marketing and development.
The Company has produced fifteen ChromaVision Digital Analyzer systems currently
being used in various research and clinical trial applications, but has not yet
received FDA clearance to commercially market the ChromaVision Digital Analyzer
in the United States. Since inception through March 31, 1997, the Company had
accumulated losses totaling approximately $10.2 million. The financial
statements included in this Prospectus reflect the Company's operations since
inception as if it had been a separate entity. Until the Company begins to
realize significant revenue associated with its planned operations, the Company
will be considered in the development stage.
The Company has developed and intends to introduce to the healthcare market
the ChromaVision Digital Analyzer, a computer-based, automated microscopy
system. The Company is currently seeking regulatory clearance through an FDA
510(k) predicate device filing. An initial filing was submitted on March 5, 1997
for the use of NAP quantification, a blood cell application with the
ChromaVision Digital Analyzer. The Company believes this clearance, if obtained,
will be a valuable baseline measure from which to further pursue FDA clearance
for its first commercial application, the Triple Plus-TM- application for
prenatal screening of maternal blood for Down syndrome in fetuses.
In March, 1997, the Company executed a letter of intent to form a strategic
distribution alliance with Sigma Diagnostics in order to leverage its worldwide
distribution capabilities and reagent manufacturing capabilities in an attempt
to gain rapid market acceptance of the ChromaVision Digital Analyzer. As the
Company continues to pursue commercialization of the ChromaVision Digital
Analyzer, and develop new enhancements and applications for the ChromaVision
Digital Analyzer, the Company expects selling, general and administration
expenses and research and development expenses to increase accordingly. Upon
completion of the clinical trials for the Triple Plus-TM- application, the
Company intends to seek peer-review publication, which will enable the Company
to commercialize the product in certain international markets. The Company also
plans to file a second 510(k) application with the FDA to gain clearance for the
Triple Plus-TM- application with the ChromaVision Digital Analyzer in order to
commercially market the ChromaVision Digital Analyzer in the United States. No
assurance can be made that the ChromaVision Digital Analyzer will achieve market
acceptance or that the Company will generate significant revenue or
profitability.
The Company believes that charging laboratories and other potential users of
the ChromaVision Digital Analyzer on a per slide or a "per click" basis as
opposed to selling the system outright will result in faster market adoption of
the product and recurring revenues for the Company. The Company believes that
laboratories will be more willing to adopt the ChromaVision Digital Analyzer if
they are required to pay only for system usage, rather than commit the capital
required for the purchase of a full system. The "per click" pricing model
includes all necessary operator training, maintenance and system upgrades. The
per click approach contemplates that the Company will retain ownership of the
ChromaVision Digital Analyzer systems placed at customer sites and consequently
will require a significant capital commitment to purchase the equipment and
components required to manufacture the ChromaVision Digital Analyzer.
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Each ChromaVision Digital Analyzer system, upon placement with the customer,
will be classified as depreciable equipment and will be depreciated on a
straight line basis over its estimated useful life, anticipated to be three
years. The Company anticipates increasing its level of expenditures for sales,
marketing, customer support, regulatory compliance activities including clinical
trials, research and development, manufacturing and administrative expenses.
Therefore, the Company expects to incur negative cash flow from operations and
additional losses for the foreseeable future.
In March 1997, the Company relocated its headquarters and principal
executive offices from Sebastian, Florida to San Juan Capistrano, California.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31,
1996
REVENUE. The Company is a development stage company and had no revenue for
the three months ended March 31, 1997 and March 31,1996.
GROSS PROFIT. The Company had no gross profits for the three-month periods
ended March 31, 1997 and March 31, 1996 because there were no revenues during
these periods.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Expenses increased $568,043
to $784,622 as compared to $216,579 in 1996. This increase is due primarily to
relocation costs, totaling $223,781, incurred in moving the Company to
California. Additionally, management and administrative personnel increased by
three to a total of four people.
RESEARCH AND DEVELOPMENT EXPENSES. Expenses increased $364,230 to $599,808
as compared to $235,578 in 1996. This increase was attributable to the clinical
trial costs and the preparation of the necessary information for the submission
of the 510(k) filing with the FDA. The increase was also primarily attributable
to additional headcount which is necessary to further develop the Company's
products.
OTHER EXPENSES. Other expenses were $22,268 as compared to other income of
$75,000 in 1996. This was attributable to the recording of an installment
payment received from IMI for royalties totaling $75,000.
1996 COMPARED TO 1995 AND 1994
REVENUE. The Company is a development stage company and had no revenue in
1996. Revenue of $900,000 for 1995 consisted of the sale of six prototype
ChromaVision Digital Analyzer systems and support services for research
activities. Revenue of $296,886 for 1994 consisted of the sale of two prototype
ChromaVision Digital Analyzer systems and support service for research
activities.
GROSS PROFIT. Gross profit of $589,897 for 1995 consisted of profit
associated with the manufacture of six ChromaVision Digital Analyzer systems and
support services. Gross profit of $64,250 for 1994 consisted of profit
associated with the manufacture of two ChromaVision Digital Analyzer systems and
support services.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Expenses increased $2.0
million to $3.0 million for 1996 as compared to $1.0 million for 1995 and
increased by $212,800 for 1995 as compared to $787,167 for 1994. The increase in
1996 was due primarily to $912,050 in severance costs associated with the
resignation of the Company's former President, including $443,700 for the
repurchase of vested stock options. The balance of the increase was associated
with the hiring of additional management, marketing and technical personnel.
These costs are expected to increase in the future as the Company builds the
necessary infrastructure to support its anticipated growth. The increase in 1995
was due primarily to the continuing development of the Company.
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RESEARCH AND DEVELOPMENT EXPENSES. Expenses decreased $413,684 to $1.1
million for 1996 as compared to $1.5 million for 1995 and increased $641,625 for
1995 as compared to $858,389 for 1994. The decrease in 1996 was due primarily to
the completion of the initial development of the ChromaVision Digital Analyzer.
The increase in 1995 was primarily due to an increase in the overall activity
surrounding the development of the Company. This decrease is due primarily to
the completion of the initial development of the ChromaVision Digital Analyzer.
The Company anticipates that such expenses will increase in the future due to
costs related to the development of new applications, the application for
regulatory clearances and the continuation of technological advances to the
ChromaVision Digital Analyzer system.
OTHER EXPENSES. Other expenses of $328,838 for 1996 consisted of $770,192
at value of the Preferred Stock issued to Centocor as compensation for its
clinical collaboration on the minimal residual disease application (see Note 11
of the Notes to Financial Statements), other income of $423,525 related to the
reimbursement of the Company's cost for design work performed for IMI (see Note
4 of the Notes to Financial Statements) and interest income of $17,829. There
were no comparable expenses for the previous periods.
LIQUIDITY AND CAPITAL RESOURCES
Prior to March 28, 1996, the Company operated as a business division of, and
was funded by, XL Vision. In June 1996, the Company completed a private
placement, raising $6.4 million. From these proceeds approximately $4.8 million
was paid to XL Vision for the rights and ownership of the ChromaVision Digital
Analyzer technology and for certain net assets. The $4.8 million was treated as
a repayment of the losses incurred up to the incorporation date of the Company
and for financial statement presentation purposes, was netted against the $6.4
million of additional paid in capital. The remaining funds supported the ongoing
operations and capital requirements of the Company. At March 31, 1997, the
Company had $65,100 of cash and cash equivalents.
In April 1997, the Company renegotiated its existing revolving line of
credit to increase its borrowing limit to $5.0 million. The revolving line of
credit, which is guaranteed by Safeguard, bears interest at LIBOR plus 2.1%,
which is payable monthly. The full amount of the outstanding balance is due on
January 31, 1998. The outstanding balance of the Company's line of credit was
$1,958,432 at March 31, 1997. The Company intends to repay any amounts
outstanding under this loan from proceeds of the Offering.
As a development stage company, the business has not been capital intensive
and capital asset expenditures in any year have not been significant. Capital
expenditures for the year ended December 31, 1996 were $44,117 and related
primarily to the purchase of computers and computer software for employees.
Capital expenditures are expected to be approximately $610,000 in 1997, and are
expected to be primarily related to the Company's relocation to California. As
the Company begins to generate commercial revenues, capital expenditures
associated with the manufacture of the ChromaVision Digital Analyzer will also
be necessary.
The Company anticipates that net proceeds of the Offering will be sufficient
to satisfy its operating cash needs for the foreseeable future. Management
expects that losses from operations and increases in working capital
requirements will produce significant negative cash flows from operations for
the foreseeable future. The Company's business plan anticipates manufacturing
the ChromaVision Digital Analyzer instruments, placing them with users at no
charge and charging a "per click" fee for each use of the instrument. The
manufacture of these instruments will require a significant outlay of cash for
which revenues will not be recognized until future periods. As a result, the
Company intends to arrange third-party financing for the instruments. In
addition, to support the Company's future cash needs it intends to consider, but
not be limited to, additional debt, or equity financing. However there can be no
assurance that any such financings will be available to the Company, or that
adequate funds for the Company's operations will be available when needed, or on
terms attractive to the Company. If the Company is unable to obtain sufficient
additional funds, the Company may have to delay, scale back or eliminate some or
all of its development activities, clinical studies and/or regulatory
activities.
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BUSINESS
OVERVIEW
ChromaVision has developed an automated intelligent microscope system that
uses the Company's proprietary imaging technologies for a wide variety of
diagnostic and research applications. The Company currently markets to research
centers and intends to introduce to the healthcare market its system, the
ChromaVision Digital Analyzer. The ChromaVision Digital Analyzer is designed to
identify cells with specific characteristics within a sample of cells by
detecting color produced by the reaction between common laboratory reagents (or
stains) and the cells. The ChromaVision Digital Analyzer uses proprietary
imaging software and technology to capture digital images of cell samples and to
detect the presence, count the number and measure the color intensity of cells
containing a particular stain. The ChromaVision Digital Analyzer offers
substantial flexibility because the software can be configured to identify
different stains, thereby allowing the system to be adapted for use with
different reagents to identify a broad range of target cellular conditions. The
Company seeks to establish the ChromaVision Digital Analyzer as the preferred
platform for multiple diagnostic applications.
The Company believes that the ChromaVision Digital Analyzer will be
attractive to healthcare providers and beneficial to their patients because of
its ability to deliver superior diagnostic solutions, thus reducing the need for
more invasive or more costly procedures. Preliminary tests have demonstrated
superior accuracy compared to existing automated microscopy systems, as the
ChromaVision Digital Analyzer can locate a single abnormal cell among 100
million normal cells, compared to a detection rate of one in 100,000 cells for
other automated microscopes currently on the market. This improved detection
capability enables the ChromaVision Digital Analyzer to be applied to a variety
of diagnostic situations, such as high-value rare event detection procedures,
which include the detection of minute quantities of cancer cells that have
spread to parts of the body away from a tumor's primary location.
The Company has identified a broad range of potential applications for the
ChromaVision Digital Analyzer, including prenatal screening for Down syndrome,
quantitative viral load measurement for HIV and cancer detection. The Company
focuses on developing diagnostic applications that are clinically and
economically compelling to patients, providers (laboratories) and payors
(insurance and managed care organizations). The Company has completed clinical
trials and has filed a 510(k) application with the FDA for clearance to market
the ChromaVision Digital Analyzer with a stain (marker) to screen blood for
malignancy. The Company plans to expand this clearance for a higher-value use of
the ChromaVision Digital Analyzer in its intended first commercial application
called Triple Plus-TM-, a procedure using a related cytochemical measurement,
UR-NAP, as a marker in the prenatal screening of maternal blood for indicating
the risk of Down syndrome in fetuses. The current screening processes falsely
indicate an elevated risk of a Down syndrome baby in a significant number of
mothers with normal fetuses (false positives), which typically leads to
performing invasive and expensive amniocenteses. The Company believes its Triple
Plus-TM- application will significantly improve the diagnostic accuracy of the
existing screening process, thereby reducing the number of amniocenteses
performed on mothers with normal fetuses. As a result, once clearance is
received for commercial use, the Triple Plus-TM- application should result in
substantial cost saving to healthcare providers and improved patient care. The
Company will commence clinical trials for its Triple Plus-TM- application in May
1997. Assuming the Company receives FDA clearance of its initial 510(k)
application and its clinical trials for UR-NAP are successfully completed, the
Company anticipates that it will file for FDA clearance of the Triple Plus-TM-
application in early 1998. The Company is also currently testing the
ChromaVision Digital Analyzer for a number of additional applications, such as
the detection of prostate, breast, lung and colorectal cancers.
INDUSTRY OVERVIEW
The healthcare industry, for which total expenditures in the United States
are estimated to have exceeded one trillion dollars in 1996, is experiencing a
shift from predominantly a fee-for-service system to
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a managed care system. The pricing structure under the managed care system is
based on "firm-fixed" pricing, as compared to the "cost-plus" pricing under the
fee-for-service system. This change in pricing structure is effectively shifting
much of the economic liability for healthcare from employers and individuals to
insurance companies, healthcare delivery systems, hospitals and physicians.
Unlike the fee-for-service system, in which each diagnostic examination and each
treatment procedure results in a fee, the cost of many diagnostic examinations
and treatment procedures is not directly reimbursable under the managed care
system, which in turn results in reduced revenue and lower profits for health
care providers as service utilization increases. Consequently, healthcare
providers are increasingly seeking more efficient and more accurate methods of
disease diagnosis in order to improve patient care and eliminate many
unnecessary and costly examinations and procedures.
A critical aspect in the diagnosis of many diseases and genetic disorders is
the detection of abnormal cells, or cells and organisms with specific
characteristics, during a microscopic examination of biological specimens taken
from patients. Estimates place the number of diagnostic procedures performed in
the United States at over one billion. The biotechnology industry has responded
to this opportunity by rapidly developing a growing number of highly specific
and increasingly sensitive reagents. Currently, the cell detection process in
the vast majority of microscopic examinations is performed manually by a human
observer. Typically, a biological specimen such as blood, urine, bone marrow,
lymph nodes, sputum or other sample is placed on a microscope slide and treated
with a specific reagent that is reactive to cells or organisms which have
specific characteristics or which are affected by disease or other pathological
conditions. Manual examinations are currently being performed in approximately
10,800 clinical laboratories in the United States, and approximately 31,000
clinical laboratories worldwide.
The manual method of sample review requires a trained technologist or
physician to examine individual cells in the illuminated area of each microscope
slide while attempting to identify target cells or objects relative to normal
cells. The manual method requires a slide containing a specimen sample to be
placed on the stage of a microscope and then manually scanned for cells or
objects of interest one field of view at a time. Most microscopes contain a
mechanical stage that is designed to be manipulated by a series of knobs which
control the X and Y axis of the slide being scanned. To thoroughly scan the
entire area of the slide that is of interest, the observer must tediously
manipulate the stage slide controls. Since most of the specimens look similar
from field to field, there are few visual cues to indicate that an area has not
or has already been examined. These characteristics of the manual process can
inadvertently lead to scans which miss critical diagnostic areas of the slide
potentially resulting in incorrect diagnoses.
The ability of the microscopist to remain focused on the details of a large
number of cells contained in a field of view, while retaining a full knowledge
of all fields examined and to be examined on each slide, is generally accepted
as extremely difficult to accomplish without error by even the most skilled
technologist or physician. The difficulty of a technologist's or physician's
task is compounded by the need to examine high volumes of slides on a daily
basis. In addition, many microscopists remove the mechanical controls from the
stage so that they can manually move the slide over the stage platform at
greater speed. As a result, the microscopist must rely on even greater manual
dexterity which can further increase the probability of missing critical areas
of the slide. These potential sources of error can result in incorrect diagnoses
and lead to inadequate or unnecessary treatment.
Recently, several companies have introduced automated morphology-based
microscopes (i.e. discriminating cells based on size and shape) to the market,
primarily to perform adjunct Pap smear testing for cervical cancer.
Morphology-based systems are inherently complex as they must simultaneously
differentiate a myriad of subtle cellular features, which are not necessarily
unique to each specific disease. Because of this complexity, the Company
believes that morphology-based systems are difficult to adapt to multiple
diagnostic applications.
In addition, as a result of the shift to managed care, healthcare service
providers are developing information systems technology capable of providing
healthcare business managers and clinicians with
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patient-focused data in a format commonly referred to as the "Computerized
Patient Record" or CPR. The Company believes that automated microscopes capable
of integrating digital images and associated patient data into the CPR will
eventually become the industry standard.
THE CHROMAVISION DIGITAL ANALYZER ADVANTAGE
The ChromaVision Digital Analyzer is a fully automated, computer-based
microscope designed to detect and count cells based on color and measure
specific diagnostic characteristics of rare cellular events. The ChromaVision
Digital Analyzer is designed to enable diagnostic procedures that would be
impractical or impossible by using manual methods. Additionally, the Company
believes that the ChromaVision Digital Analyzer can replace the most time
consuming and costly part of many manual microscopic procedures as a result of
its ability to scan large amounts of biological material quickly, accurately and
consistently with minimal operator supervision. The Company believes that the
ChromaVision Digital Analyzer will enable healthcare providers to improve the
consistency and accuracy of patient diagnosis, enhance overall patient care and
lower costs. The key benefits of the ChromaVision Digital Analyzer include:
SUPERIOR SOLUTIONS AT LOWER COST. The Company believes that the increased
speed and accuracy of the ChromaVision Digital Analyzer will lower healthcare
costs by enabling better and more timely diagnoses, which will enable healthcare
providers to avoid more expensive and typically invasive procedures.
Furthermore, as a highly automated system, the ChromaVision Digital Analyzer is
capable of operating continuously with limited human supervision and
maintenance. The Company believes that the ChromaVision Digital Analyzer can
significantly improve the speed, accuracy and consistency of laboratory results
by automating certain steps involved in the basic microscopic procedure, such as
the loading, positioning, focusing, identification, quantification and scanning
of slides thereby enabling labs to provide superior service to physicians,
hospitals and healthcare systems. The ChromaVision Digital Analyzer can
automatically scan and process up to 100 slides while operating unattended. As
each slide is processed, the ChromaVision Digital Analyzer automatically stores
the coordinates of each targeted cell or object enabling the subsequent
examination of cells on the slide, or a stored digital image of the cell on a
computer monitor. The instrument can simultaneously quantify cell and color
characteristics which have prognostic and diagnostic significance. The
ChromaVision Digital Analyzer enables diagnosticians to quickly and efficiently
arrive at accurate diagnoses by reviewing relevant data or stored images of the
cells which have been automatically captured, analyzed and stored.
IMPROVED SENSITIVITY AND ACCURACY. Unlike certain other automated
microscope systems currently available (which primarily discriminate cells on
the basis of morphology), the ChromaVision Digital Analyzer employs
sophisticated proprietary software and algorithms capable of advanced color
detection to identify abnormal cells, specific cells and other objects of
interest using common laboratory stains. The instrument relies on the inherent
sensitivity and specificity of the color characteristics of the reagent reaction
product used in a particular application. This internally developed proprietary
technology was invented by scientists experienced in satellite-based imagery,
reconnaissance and aerial imagery, and complex color space transformations which
are used to yield maximum detail from image-based data. Because of the
sophistication of these software programs and algorithms, the ChromaVision
Digital Analyzer technology provides enhanced detection sensitivity for use in
clinical applications. The ChromaVision Digital Analyzer can rapidly scan large
fields of view at low magnification to detect the presence of specific color
characteristics and then return under high magnification to capture and store
the targeted cells. By contrast, morphology-based microscopes require higher
resolution imaging and are inherently more complex than the ChromaVision Digital
Analyzer due to the need to carefully scrutinize each cell for subtle
differences in morphology.
Preliminary tests using specific color-yielding reagents have shown that the
ChromaVision Digital Analyzer is capable of consistently detecting one abnormal
cell in a population of 100 million normal cells during "spiking" experiments in
which a known number of malignant cells were mixed with a known
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quantity of normal cells. In addition to highly sensitive detection, the
Company's advanced technology can quantify the color characteristics of each
targeted cell, thereby enabling the measurement of the likelihood or severity of
the disease or condition. Through this capability, the Company believes that the
ChromaVision Digital Analyzer can enhance the speed, accuracy and consistency of
test results, thus leading to improved overall patient care and reduction in the
liabilities associated with diagnostic errors. In certain cases, the use of less
sensitive systems which are incapable of detecting conditions in which an
extremely limited number of abnormal cells are present (rare event detection),
can result in false negative diagnoses. In contrast, the ChromaVision Digital
Analyzer is capable of extremely high levels of sensitivity making significantly
more reliable "rare event detection" possible. For example, the Company believes
that the superior accuracy and precision of the ChromaVision Digital Analyzer
can be effectively used to detect cases of "micrometastases" in patients with
previously undiagnosed and untreated conditions, and "minimal residual disease"
in patients with previously diagnosed and treated conditions, such as cancer.
Both of these conditions are characterized by minute quantities of tumor cells
which have spread to other distant parts of the body away from the tumor (e.g.,
bone marrow).
The Company believes that the ChromaVision Digital Analyzer's sensitivity
and accuracy will facilitate not only better diagnoses, but better patient
outcomes as well. In particular, the Company believes that the speed, accuracy
and consistency of the ChromaVision Digital Analyzer can be valuable in aiding
researchers and diagnosticians in characterizing the degree to which cancer has
either been contained (localized) or spread to distant locations (metastasized)
in a patient. This characterization process, known as "cancer staging" is often
dependent upon finding relatively small numbers of tumor cells among large
numbers of normal cells in various samples including peripheral blood, bone
marrow, lymph nodes and other tissues. The Company believes that the
ChromaVision Digital Analyzer has the ability to detect cancer cells from a wide
variety of locations and samples within patients, and in turn will become a
valuable tool in the staging process.
ADAPTABLE PLATFORM FOR EXPANSION. The Company's technology supports a
variety of established reagents and stains, and as a result the Company believes
its technology can be readily adapted for use in multiple applications. To the
extent new reagents and stains are introduced, the ChromaVision Digital Analyzer
is designed to be "reconfigured" to detect new colors, thus giving the
ChromaVision Digital Analyzer a technological flexibility unique among currently
available automated microscope systems. The ability to add new applications can
further increase cost savings for healthcare providers and patients by
minimizing the need for specialized machines performing individual procedures.
The Company believes these capabilities will enable the ChromaVision Digital
Analyzer to penetrate potential markets quickly and will enable the Company to
commercialize a broad spectrum of healthcare markets.
INFORMATION SYSTEM INTEGRATION. Recently, healthcare providers have begun
to develop information system technologies capable of providing patient-focused
data in a format known as the Computerized Patient Record. Microscopy is one of
the last systems within medical technology to be integrated into such
patient-focused information systems. The Company has designed the ChromaVision
Digital Analyzer to capture, store, display and print cellular images and
related data in digital format, which can be integrated into the Computerized
Patient Record. As a result, this portion of patient data may be stored,
retrieved, printed or displayed across local and wide area networks. The Company
believes that providing for more timely, improved diagnostics and collaboration
consistent with the emerging trends in medical technology can result in
significantly enhanced patient care.
STRATEGY
The Company seeks to introduce selected "high-value" applications on the
ChromaVision Digital Analyzer and develop a foundation from which to establish
the ChromaVision Digital Analyzer as the preferred platform for multiple
microscopic diagnostic applications. The Company plans to pursue this objective
through the following strategic initiatives:
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DELIVER VALUE THROUGH SUPERIOR DIAGNOSTIC SOLUTIONS. ChromaVision intends
to offer the ChromaVision Digital Analyzer based applications with the specific
goal of enabling clinical laboratories to deliver value to healthcare providers
through superior diagnostic solutions. The Company believes that the
ChromaVision Digital Analyzer can provide value to all of the constituents of
the healthcare industry by (i) detecting disease sooner (rare event detection)
and thereby enabling the appropriate treatment, (ii) monitoring therapeutic
response, (iii) employing an adaptable platform which supports multiple
applications to achieve cost-effectiveness, (iv) eliminating costly and invasive
procedures and (v) improving throughput with consistent and rapid results.
Consequently, the Company believes it is well-positioned to benefit from the
increased emphasis on cost and quality driven by both healthcare providers and
patients.
FOCUS INITIAL LAUNCH ON DOWN SYNDROME APPLICATION. ChromaVision is focusing
its initial commercialization efforts for the ChromaVision Digital Analyzer on
the Triple Plus-TM- application for prenatal screening of maternal blood
indicating the risk of Down syndrome in fetuses. In 1990, pilot tests indicated
that UR-NAP screening could increase the detection rate while significantly
reducing the occurrence of false positives from the current Triple Screen test.
One conclusion drawn from these pilot tests, however, was that the
commercialization of the UR-NAP application was not feasible without the
development of an automated microscope because of the impractical and subjective
nature of the manual examination for UR-NAP. The Company is collaborating with
the initial investigator of the pilot study to conduct multi-centered clinical
trials using the ChromaVision Digital Analyzer technology to evaluate the
utility of Triple Plus-TM- for commercial use. The Company estimates that this
enhanced screening test could lead to cost savings of approximately $85 million
per year as a result of the elimination of as many as 85,000 amniocentesis
procedures in the United States alone. The Triple Plus-TM-, which the Company
believes will enhance the widely used Triple Screen, was chosen as the initial
application for the ChromaVision Digital Analyzer to pursue near term market
acceptance due to the significant improvement in predictive value and dramatic
reduction in costly and potentially dangerous amniocenteses. Additionally, this
application is particularly attractive as an entry into the automated microscopy
market due to the relatively concentrated distribution of laboratories currently
performing the Triple Screen test. The Company estimates that in the United
States, over 70% of all Triple Screen tests are provided by five laboratory
enterprises, and the balance are provided by an additional 200 hospital-based
laboratories. The Company believes that this concentration of users is ideal for
rapid penetration into the market. The Company further believes that similar
market demographics in Europe also make Triple Plus-TM- an ideal initial
application for developing international markets for the ChromaVision Digital
Analyzer. In conjunction with its sales effort, the Company intends to create
awareness with obstetricians and gynecologists on the clinical efficacy, safety
and economic value of Triple Plus-TM-through peer-reviewed publications,
selected involvement in clinical trials and other appropriate educational
materials in order to facilitate worldwide market acceptance. See "
Business--ChromaVision Digital Analyzer Applications--Triple Plus-TM-
Application."
IMPLEMENT "PER CLICK" PRICING. ChromaVision believes that, by providing
laboratories with the ChromaVision Digital Analyzer on a "per click" basis, the
Company will be able to introduce its color-based technology to its targeted
markets rapidly and enhance its long-term revenue potential. The Company
believes that laboratories will be more willing to adopt the ChromaVision
Digital Analyzer if they are required to pay only for system usage, rather than
commit the capital required for the purchase of a full system. The "per click"
pricing model also includes all necessary operator training, maintenance and
system upgrades. Using a "per click" approach allows the Company to better
monitor and control the use of its technology to ensure proper use, obtain
customer feedback and implement product upgrades, including new applications.
PURSUE ADDITIONAL APPLICATIONS. ChromaVision intends to pursue additional
applications for the ChromaVision Digital Analyzer technology in the diagnosis
of breast, prostate, lung, colorectal and other cancers, as well as infectious
agents, genetically-based abnormalities and other diseases. Because the
underlying technology used in the ChromaVision Digital Analyzer is based on
color detection, the ChromaVision Digital Analyzer offers significant
flexibility to aid in the diagnosis and treatment of
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multiple diseases. Furthermore, the Company believes that the ChromaVision
Digital Analyzer may be effectively used in the identification of abnormal cells
or cells with specific characteristics within a wide variety of sample types
including blood, urine, bone marrow, lymph node and fine needle aspirates. The
Company will continue to devote significant time and resources developing
certain of these applications, including those related to the evaluation of
cancer pervasiveness and avoidance of unnecessary invasive procedures. In
addition, the Company also intends to examine market opportunities for an
enhanced ChromaVision Digital Analyzer architecture with "front-end" slide
preparation handling components and "back-end" information system interfaces.
See "Business--Other Potential Applications."
FORM STRATEGIC ALLIANCES. ChromaVision intends to develop and pursue new
applications for the ChromaVision Digital Analyzer system through strategic
alliances. The Company is seeking to form strategic alliances with reagent
manufacturers, researchers and other third parties to market reagents using the
ChromaVision Digital Analyzer as the platform of choice for the detection and
quantification of such reagents. These application specific alliances will focus
on integrating the reagents and other color-based detection probes with the
ChromaVision Digital Analyzer platform in a manner which provides quality and
economic value to patients, laboratories and healthcare payors. In addition, the
Company intends to enhance its distribution capabilities through alliances.
The Company initially plans to work directly with its clinical collaborators
to gain acceptance in the medical community for the Triple Plus-TM- procedure.
However, in capturing market share for this application and pursuing other
applications in which distribution would be more widely disbursed, the Company
intends to pursue relationships with third parties capable of effectively
distributing ChromaVision Digital Analyzer and providing related services on a
large-scale basis. The Company believes that such alliances will enable it to
minimize certain risks related to the time, effort and expenses associated with
the internal development of similar distribution capabilities, particularly for
international markets. The first application partnership in development is with
Sigma, a St. Louis based diagnostic instrument and reagent manufacturer with a
worldwide distribution capability. In March 1997, the Company signed a term
sheet setting forth the principal terms of a strategic distribution and
application commercialization relationship with Sigma focusing on the Down
syndrome screening test using UR-NAP. The Company has also entered discussions
regarding a possible joint development agreement with Specialty Laboratories, a
privately held specialized testing services provider located in Santa Monica,
California, to leverage their extensive experience and capability in developing
cutting edge laboratory tests in the areas of cancer, immunology, microbiology,
genetics and molecular biology. In addition, ChromaVision has established a
nonexclusive cooperative market development relationship with Centocor to
identify market opportunities and requirements for various minimal residual
disease applications. The Company believes that each new application alliance
can provide value to all other ChromaVision application partners as new
applications will drive new platform installations, and in turn make the
ChromaVision Digital Analyzer an increasingly attractive means to access the
marketplace. See "Business--Strategic Alliances."
EXPEDITIOUSLY GAIN NECESSARY REGULATORY CLEARANCES. ChromaVision intends to
pursue the most expeditious course of regulatory clearance available for the
ChromaVision Digital Analyzer by seeking necessary regulatory approvals through
an FDA 510(k) predicate device filing. The Company believes this filing
procedure may be the most time-effective means of achieving regulatory clearance
due to the existence of certain other systems which the Company believes the FDA
should consider to be "substantially equivalent" in terms of general safety and
effectiveness. Furthermore, the Company believes that due to the conceptual
maturity and discrete nature of color-based software algorithms, such as those
employed by the ChromaVision Digital Analyzer, the ChromaVision Digital Analyzer
may receive more timely regulatory examination from the FDA than competing,
primarily subjective morphology-based, systems. The Company has completed
clinical trials and filed a 510(k) application with the FDA for clearance of the
use of the ChromaVision Digital Analyzer with an NAP marker to screen blood for
malignancy. This FDA filing has been submitted to primarily establish the
various key operational parameters of the ChromaVision Digital Analyzer,
including sensitivity and reproducibility. The Company
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believes that the NAP filing will provide the FDA with a certain level of
familiarity and a set of baseline information that will facilitate subsequent
filings. ChromaVision also intends to pursue necessary clearance required to
sell the ChromaVision Digital Analyzer in certain international markets, which
can be accomplished through peer-reviewed publications or through governmental
agency applications. See "Risk Factors--Government Regulations."
CHROMAVISION DIGITAL ANALYZER APPLICATIONS
The Company believes that its technology can be used in the identification
of abnormal cells within blood, urine, bone marrow, lymph node, fine needle
aspirates and other sample types and may be used to aid in the diagnosis of
breast, prostate, lung, colorectal and other cancers, as well as infectious
agents, genetically-based abnormalities and other diseases. The following are
the initial target applications being pursued by the Company:
TRIPLE PLUS-TM- APPLICATION
The Company is focusing its initial commercialization efforts for the
ChromaVision Digital Analyzer on the Triple Plus-TM- application. Through its
use in prenatal screening, women who are at high risk of a Down syndrome
pregnancy will be more effectively identified for a diagnostic amniocentesis.
The Triple Plus-TM- test makes use of the cytochemical marker UR-NAP either
alone or in combination with one or more of the biochemical components of the
current Triple Screen. Triple Plus-TM- is intended to become the successor to
the Triple Screen test, which is currently the most commonly used prenatal
screen of maternal blood to indicate the degree of risk of carrying a fetus
affected with Down syndrome. The Triple Screen test is considered to be the
"standard of practice" for pregnant women under the age of 35 years, and the
Company believes that it is performed approximately 2.5 million times per year
in the United States and approximately 6 million times per year worldwide.
In the case of prenatal screening for Down syndrome, the patient is usually
under the care of a primary care physician, most commonly an obstetrics and
gynecology specialist or, less frequently, a family physician. Based on the age
of the patient and the results of the Triple Screen test, the patient is
evaluated for the need of undergoing an amniocentesis to diagnose a Down
syndrome fetus. Down syndrome risk estimates are currently derived by a complex
mathematical process that combines results of the Triple Screen with the known
odds of a Down syndrome fetus based on maternal age. The combined risk indicates
likelihood of Down syndrome affecting a pregnancy, and thus the need for
amniocentesis. Approximately 85% of the patients identified as patients with a
high risk pregnancy by the Triple Screen test choose to undergo amniocentesis.
Members of the research team that documented the utility of the UR-NAP test
in 1990 are currently evaluating a test using NAP and UR-NAP as a screening
marker for Down syndrome using the ChromaVision Digital Analyzer system. This
new test is designed to improve the existing predictive value and to
significantly lower the overall false positive rates in initial screens for Down
syndrome. Clinical trials are currently being conducted using samples collected
at more than a dozen sites worldwide. In the 1990 study, tests indicated that
UR-NAP is capable of producing better than a 68% detection rate with a false
positive rate of approximately 1%. An improvement in the detection rate will
increase the screening efficacy and reduce the number of undetected Down
syndrome pregnancies over the Triple Screen test, which is capable of producing
a detection rate between 60-65%, with a false positive rate of 5%. In addition,
achievement of a 1% false positive rate could reduce the number of amniocenteses
with normal fetuses by 80% or approximately 85,000 annually in the United States
and 200,000 worldwide. Based on an average price of $1,000 for an amniocentesis,
the Company estimates that the reduction in the number of amniocenteses
performed would yield a cost savings of approximately $85 million annually in
the United States and $200 million worldwide. Additionally, the Company believes
that the Triple Plus-TM- test would reduce the number of fetal deaths resulting
from amniocenteses which, based on an estimated fetal loss rate of 0.5%--0.8%
(GUIDE TO CLINICAL PREVENTATIVE SERVICES), the Company estimates to be between
425 to
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680 fetal deaths per year in the United States and 1,000 to 1,600 fetal deaths
per year worldwide. The Company believes that the significant cost savings to
healthcare providers and improvement to patient care will provide an economic
and clinical incentive for healthcare providers to select laboratories offering
the ChromaVision Digital Analyzer based Triple Plus-TM- test.
Women 35 years of age or older are generally not considered as candidates
for the initial screen for Down syndrome because the high risk of carrying a
Down syndrome fetus for women in that age group requires higher detection rates
than can be obtained by the current screening test. Pregnant women in the over
35 year age group are typically offered amniocentesis as the test for Down
syndrome. The Company believes, however, that Triple Plus-TM- represents a
significantly more effective alternative to using age alone as a screening
marker for Down syndrome in women in this age group. By targeting those
pregnancies that are at a high risk of Down syndrome on the basis of the Triple
Plus-TM- test, amniocenteses are more effectively assigned to those women most
likely to be carrying a Down syndrome fetus, thus increasing the detection rate
while dramatically reducing the number of unnecessary amniocenteses. For
example, in a test of women 35 years of age and older using the original Triple
Screen, it was demonstrated that (i) at a 5% false positive rate, the detection
rate of Down syndrome was 59%, (ii) at a 15% false positive rate the detection
rate was 78%, and (iii) at a 25% false positive rate the detection rate was 89%.
UR-NAP alone has been documented to provide a detection rate of 89% at a false
positive rate of only 12%. It is estimated that such an improvement has the
potential to significantly reduce the number of amniocenteses for women over 35
years of age.
The Company anticipates entering into an agreement in May 1997 for
multi-site clinical trials with a number of collaborators including Cambridge
University (Addenbrooke Hospital, Cambridge, England), Harvard Medical School
(Brigham and Womens Hospital), and the State of California Prenatal Testing
Program (Berkeley). Dr. Sandy Goodburn of Addenbrooke's National Health Services
Trust Department of Medical Genetics, and Dr. Tony Andrews of Cambridge
University Department of Medical Genetics are the co-principal investigators.
Dr. Goodburn was one of the original investigators in the 1990 UR-NAP study. The
Company believes that this multi-site clinical trial will enable it to rapidly
obtain affected and normal maternal blood specimens and clinical data to
validate the Triple Plus-TM- test for adoption by practitioners and for FDA
submission. The Company anticipates that it will file for clearance from the FDA
and distribute manuscripts for peer-review publication in early 1998.
CANCER APPLICATIONS
The Company is currently evaluating the use of the ChromaVision Digital
Analyzer for various cancer applications including prostate, breast, lung and
colorectal cancer. The applications currently under investigation are referred
to as micrometastases ("MM"), minimal residual disease ("MRD") and hematologic
malignancies. Scientists researching MM and MRD during the last 15 years have
had to employ manual microscopy to test samples from patients with many forms of
cancer. Researchers attempting to detect and quantify MM or MRD seek to address
issues such as the location and pervasiveness of various forms of cancer, and
the effectiveness of treatments in preventing the relapse of a disease.
Typically, MM and MRD require the search for a few tumor cells on slides with
one million or more cells and the tedious manual examination required for such
diseases has hindered clinical acceptance and usefulness of test procedures. The
Company believes that the speed, accuracy and consistency made possible by the
ChromaVision Digital Analyzer can have a material impact on addressing clinical
issues such as the location and pervasiveness of various forms of cancer, and
further, can hasten the clinical practicality and acceptance of the procedure.
Such information is important during the on-going monitoring of a patient's
condition as it may contribute to the categorization or "staging" of the
cancer's status. This monitoring and staging procedure is generally regarded as
critical to prescribing appropriate treatments. Preliminary results from tests
conducted for the Company by Centocor at the University of Rotterdam
(Netherlands) and at the Kenneth Norris Cancer Center at the University of
Southern California indicate that the
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ChromaVision Digital Analyzer may not only be useful in MM and MRD applications,
but in fact may make MM and MRD applications practical on a broader scale than
had previously been possible.
The Company is focusing initially on prostate and breast cancer for
micrometastases and minimal residual disease applications, as well as blood and
lymph node malignancies for diagnosis and prognosis. Due to the time required to
conduct clinical trials, determine viability, review outcomes and gain FDA
clearance, the Company does not anticipate that it will be able to commercialize
the ChromaVision Digital Analyzer for any of the following applications, if at
all, until after 1998.
PROSTATE CANCER
The Company, in collaboration with Centocor, is examining the feasibility of
using the ChromaVision Digital Analyzer to detect MM in patients diagnosed with
prostate cancer. Prostate cancer is the second leading cause of death among
adult males in the United States. A common form of current treatment is the
radical prostatectomy (surgical removal of the prostate gland), which is
performed 95,000 times annually in the United States and estimated to be
conducted over 200,000 times annually worldwide. Prostatectomies can result in
severe side effects, including impotence in 20% of patients and incontinence in
2% of patients. Furthermore, one-third of prostate cancer patients are
clinically understaged (cancer has spread outside of the prostate gland)
potentially making the prostatectomy unnecessary. In such cases, surgical
removal of the prostate could be avoided if an improved diagnostic tool, such as
the ChromaVision Digital Analyzer, is employed. At an average cost of $15,000
per prostatectomy procedure in the United States, the Company estimates that the
potential savings attributable to the elimination of unnecessary operations
would be significant.
BREAST CANCER
Approximately 182,000 new cases of breast cancer occur annually in the
United States. The impressive success of chemotherapy for treating early-stage,
operable breast cancer has stimulated significant interest in prognostic factors
for breast cancer. Prognostic factors are important tools to predict patients
destined for recurrence, and those that are likely to remain disease free. This
distinction is clinically critical because patients who will likely experience a
recurrence can be selected for systemic chemotherapy, while patients who will
not have a recurrence can avoid the significant side effects of a treatment that
offers no benefit and great risk. During breast cancer surgery, axillary lymph
nodes are typically removed for analysis to determine whether the cancer has
spread beyond the breast. Unfortunately, approximately 30% of patients with
primary breast cancer and no apparent axillary lymph node contamination by the
tumor at the time of surgery will relapse within 10 years and 10-20% of the
patients with distant metastases will be lymph node negative at surgery.
Alternatively, recent studies have demonstrated that finding tumor cells in
bone marrow biopsies is a valuable prognostic tool for predicting the risk of
cancer recurrence in patients with early stage breast cancer. In these studies,
tumor cells were detected in 31% of patients who had no tumor cells in their
lymph node glands at the time of surgery. Consequently, those patients who had
no tumor cells in their lymph nodes would have been presumed to have no
additional disease present, even though 31% of the time a bone marrow diagnosis
would have found tumor cells indicating that their disease had spread outside of
the breast. The finding of tumor cells in bone marrow of patients with no tumor
in their lymph nodes suggests that these patients should receive additional
treatment. In fact, among patients with tumors less than two cm, tumor cells in
bone marrow were the most powerful predictor of outcome. Preliminary clinical
trials with the ChromaVision Digital Analyzer device have revealed its
superiority to manual screening in cost, accuracy, reproducibility and
sensitivity at detecting tumor cells in bone marrow. The Company believes that
these preliminary studies indicate the potential for the ChromaVision Digital
Analyzer device to make micrometastasis examinations practical in the clinical
arena and intends to aggressively pursue this application.
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BLOOD AND LYMPH NODE MALIGNANCIES
Malignancies involving blood and lymphoid tissue are called leukemias and
lymphomas, respectively. In 1996, 27,600 new leukemia cases and 74,600 new
lymphoma cases occurred. Proper treatment of these patients requires
classification of these leukemias and lymphomas into specific subtypes to
determine proper therapy. Manually identifying special stains on slides or using
automated technology known as flow cytometry are two methods most commonly used
to assist subtyping these tumors. The former is manual and the latter is
expensive, complex and destroys the specimen. Alternatively, the ChromaVision
Digital Analyzer can enhance and automate these determinations without
destroying the specimen and does not require expensive maintenance or personnel.
QUANTITATIVE VIRAL LOAD (HIV, HPV, CMV)
The Center for Disease Control estimates that approximately 1,000,000
Americans are currently infected with HIV, the virus responsible for Acquired
Immune Deficiency Syndrome (AIDS). Early studies quickly identified the value of
following the levels of certain types of blood cells, known as CD4 and CD8
T-cells, to predict patient prognosis. The absolute level of CD4 T-cells and the
ratio of CD4 to CD8 T-cells are markers of disease progression and prognosis.
The determination of these markers currently requires flow cytometry and
hematology analyzers. More recent studies have demonstrated the value of
directly measuring the amount of virus in the bloodstream to predict disease
progression and monitor therapy. However, most of the virus is inside cells and
current methods only measure virus that is shed into the blood fluid. The
ChromaVision Digital Analyzer can perform viral load quantification at the
cellular level and simultaneous CD4 and CD8 T-cell determinations, allowing more
accurate assessment of prognosis and therapeutic response. The technology also
has application to cervical cancer screening by identifying and quantifying
certain types of Human Papilloma Virus (HPV) in cervical cells that are
associated with a high risk of progression to cervical cancer. Cytomegalovirus
(CMV) is a virus that can cause blindness in immune deficient patients. CMV
serum markers are unreliable in diagnosing active disease and only demonstration
of actual virus in cells allows treatment to be initiated.
OTHER POTENTIAL APPLICATIONS
The Company is evaluating the potential use of the ChromaVision Digital
Analyzer in other applications, including colon cancer (225,900 new cases per
year), lung cancer (169,900 new cases per year), blood screening for various
contaminants and mycobacteria (tuberculosis). As with all applications, the
Company intends to employ the ChromaVision Digital Analyzer color detection as
the primary means of cellular detection. While the Company believes that the
ChromaVision Digital Analyzer may be effective for these potential applications,
additional tests are required to address the clinical efficacy, value
propositions, regulatory requirements and other issues associated with each
application. There can be no assurance that the Company will successfully
develop the ChromaVision Digital Analyzer for any of these applications.
THE CHROMAVISION DIGITAL ANALYZER TECHNOLOGY
In 1993, XL Vision developed and produced an automated microscope. This
internally developed, proprietary technology was developed by scientists
experienced in satellite-based imagery, reconnaissance and aerial imagery, and
color space transformations used to extract maximum detail from image-based
data. In 1996, XL Vision sold the rights to the technology to ChromaVision for
$4.8 million and 1,545,000 shares of Common Stock of ChromaVision.
SOFTWARE. The technology underlying the ChromaVision Digital Analyzer is
the Company's internally developed software which enables it to detect colored
objects (i.e. stained cells) dramatically better than the human eye and with
greater accuracy and sensitivity than morphology-based automated systems. The
Company's software utilizes advanced imaging concepts referred to as "color
spaces" and "color space
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conversion." In this manner, the ChromaVision Digital Analyzer reduces the cell
detection problem to finding bright objects on a dark background. The
ChromaVision Digital Analyzer's ability to locate stained objects is not limited
to any specific reagent color nor is it affected by the brightness of the
background. Additionally, the sophisticated autofocus algorithms, fast image
acquisition and proprietary color space transformations occur at rapid
processing speeds, thereby making possible rare event detection and "imaging on
the fly."
HARDWARE. The hardware components used in the ChromaVision Digital Analyzer
consist primarily of (i) an optically superior visible light microscope, (ii) a
color CCD camera, (iii) an automated, precision robotics slide transport system,
(iv) a central processor unit with a specialized image processor subsystem and
(v) system interfaces including two monitors, trackball or mouse, keyboard,
serial dial-up and local area network ports and color printer. The Company
employs a development and manufacturing strategy which uses "state of the art"
components which are generally available off-the-shelf to make development,
service and upgrades less costly.
The ChromaVision Digital Analyzer is designed to enable a laboratory
technician to operate the system using simple "point and click" commands. The
system interface includes one monitor for system commands and status, and one
monitor for viewing high quality color images of the cells. Initial setup of the
system is configurable through extensive preference and configuration menus so
that scanning magnifications, stain types and other operations may be tailored
to the application.
During normal operation, a laboratory technologist mounts prepared
microscope slides onto a specially designed slide carrier, which has the
capacity to hold up to four slides. Up to 25 slide carriers can be loaded into
the ChromaVision Digital Analyzer slide transport system. The operator may
specify the size, shape and location of the area on the microscope slide to be
scanned or alternatively, the system will automatically locate the relevant
area. The scanning process begins with the automatic loading of the first
carrier of slides onto the microscope stage. During this stage of the process,
the ChromaVision Digital Analyzer automatically reads bar codes affixed to the
slides to facilitate patient data storage and access. During scanning, the
ChromaVision Digital Analyzer automatically focuses each field of the object,
images the object using the CCD camera and processes the resulting digital image
through the image processor. Slides are then scanned at a "low" optical
magnification (typically 20x objective) to identify objects of interest based
primarily on their color characteristics. The locations of suspected cells are
stored until scanning is completed. When the "low" power scanning is completed,
the system automatically returns to each suspected object, reimages it at "high"
power (typically 60x objective), verifies that it is a proper cell candidate,
and stores a digital image of the cell for scoring and later review by the
laboratory technician or pathologist.
After scanning is completed, the operator is able to view a montage of all
stored images for interpretation of the detected objects, along with
quantitative information, such as the number of objects detected. If desired,
the operator may also directly view a detected object through oculars using the
ChromaVision Digital Analyzer's automatic repositioning feature, which
automatically repositions the slide according to the previously stored cell
coordinates. Upon completion of this review, a report containing relevant images
identified by the ChromaVision Digital Analyzer may be printed. Images may be
saved on a removable hard disk, optical disk or archived on magnetic tape. The
ChromaVision Digital Analyzer can be configured to support the transmission and
reception of images via local area network and wide area network communications
facilities, including the Internet. The Company believes that by presenting
clinical information in a digital format, including relevant cell images, the
ChromaVision Digital Analyzer is potentially capable of integrating cell-based
laboratory information with Computerized Patient Records.
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PATENTS AND PROPRIETARY TECHNOLOGY
Substantial elements of the hardware component of the Company's ChromaVision
Digital Analyzer were initially developed by XL Vision for IMI. Pursuant to an
agreement with IMI, XL Vision assigned ownership of the technology underlying
those hardware elements to IMI, subject to a perpetual, transferable,
non-exclusive, fully paid-up license to XL Vision to use, develop and sell such
technology. At the inception of the Company, XL Vision transferred this license
to the Company.
The Company's commercial success will depend in part on its ability to
protect and maintain its proprietary technology and to obtain and enforce
patents on its technology. The Company has applied for two patents with the PTO
regarding certain aspects of the ChromaVision Digital Analyzer software
technology. There can be no assurance that any patent will be issued. The
Company is not aware of any patents held by others that would prevent the
Company from manufacturing and commercializing ChromaVision Digital Analyzer in
the United States and abroad. However, the Company has not performed an
exhaustive worldwide search. There can be no assurance that any patent
applications filed by the Company will result in the issuance of patents or that
any patents issued to the Company will afford protection against competitors
that develop similar technology, or that a competitor will not reverse-engineer
the Company's software. The Company is aware of an existing patent regarding the
UR-NAP test. Although the Company has been made aware that a third party
competitor has a dispute with the Company relating to this technology, the
Company believes that the use of the Company's Triple Plus-TM- application for
the ChromaVision Digital Analyzer product will not infringe upon or violate any
third-party rights. The Company entered into an agreement with such third-party
competitor dated April 17, 1997, by which the Company and the third party
competitor agreed to negotiate in good faith their dispute over the patent for a
period of six months. During this period, each party agreed that it will not
initiate any lawsuit or other proceeding based on such dispute.
The Company currently relies on a combination of trade secrets, proprietary
knowledge, technological advances and disclosure, confidentiality and
non-competition agreements entered into with its employees and certain
consultants to protect its proprietary rights. No assurance can be given that
the Company's efforts will provide meaningful protection for its unpatented
proprietary technology against others who independently develop or otherwise
acquire substantially equivalent technologies or gain access to misappropriate
or disclose the Company's proprietary technology.
There can be no assurance that other parties will not in the future make
claims or threaten to take legal action against the Company alleging
infringement of patents by the Company. The medical device industry has been the
subject of extensive litigation regarding patents and other rights. Patent
litigation can be costly and time consuming, and there can be no assurance that
the Company's litigation expenses will not increase in the future. If the
Company were determined to be infringing any patent, the Company could be
required to pay damages, alter its products or processes, obtain licenses and/or
cease certain activities. In addition, if patents are issued to others which
contain claims that cover subject matter made, used or sold by the Company, the
Company may be required to obtain licenses to these patents, to develop or
obtain alternative technology or to cease using such technology. If the Company
is required to obtain any licenses, there can be no assurance that the Company
will be able to do so on terms acceptable to the Company, if at all. A
determination that the Company is infringing the patents of others could have a
material adverse effect on the Company's business and results of operations.
MARKETING
The Company intends to focus its marketing efforts on independent reference
laboratories, hospital laboratories and Health Maintenance Organization
laboratories by offering the ChromaVision Digital Analyzer on a "per click"
basis. This strategy is intended to simplify customer procurement decisions,
facilitate the introduction of new diagnostic tests as they become available and
develop recurring revenue for the Company.
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Currently, the Company intends to market and distribute its Down syndrome
screening product (Triple Plus-TM-), through an agreement under negotiation with
Sigma. Sigma has a worldwide distribution and service capability in conjunction
with its parent, Sigma-Aldrich. The Company believes that significant advantages
exist as a result of its relationship with Sigma, which will greatly enhance the
time to market and reduce the cost of sales. The current Triple Screen
application is performed by a relatively concentrated market. The Company
estimates that in the United States, approximately 70% of all tests are
performed by five laboratory enterprises. An additional 30% of the tests are
performed at approximately 70 hospital laboratories. Similar characteristics
exist for the European market. The Company believes that these market
characteristics make the Triple Plus-TM- test the ideal application to introduce
the ChromaVision Digital Analyzer device to the healthcare market and to use as
a platform to subsequently launch follow-on applications.
The Company currently has two executive officers with combined experience of
over 20 years in the marketing and sales of healthcare services, including 11
years in the business development of digital imaging systems for healthcare
applications. The Company's clinical collaboration will facilitate the
commercialization efforts through professional and clinical market development
programs including the on-going publication of clinical results and other
related information. The Company's marketing and sales personnel will work
closely with Sigma to assist laboratory customers to develop their local
marketing campaign to generate referrals among physicians and managed care
providers.
The Company intends to broaden the applicability of the ChromaVision Digital
Analyzer as the market recognizes the system's ability to operate effectively in
identifying rare events and the resulting reduction in costs associated with
more timely and cost-effective treatments. Additionally, the Company believes
that the expected improvement in patient outcomes generated by the ChromaVision
Digital Analyzer will eventually be viewed as giving managed care providers a
strategic advantage in their effort to attract more subscribers based on
superior quality of care.
STRATEGIC ALLIANCES
As part of its business strategy, the Company intends to develop and pursue
new applications for the ChromaVision Digital Analyzer product and enhance its
distribution, marketing and manufacturing capabilities through strategic
alliances. These application specific alliances will focus on integrating the
reagents and other color-based detection probes with the ChromaVision Digital
Analyzer platform in a manner which provides quality and economic value to
patients, laboratories and healthcare payors. The Company is seeking to form
strategic alliances with reagent manufacturers, researchers and other third
parties under which the ChromaVision Digital Analyzer will be used as the
platform of choice for the detection and quantification of such reagents. The
Company believes that each new application alliance can provide value to all
other ChromaVision application partners as new applications drive new platform
installations, and in turn make the ChromaVision Digital Analyzer an
increasingly attractive means to access the marketplace for new applications.
The Company initially plans to work directly with its clinical collaborators
to gain acceptance in the medical community for the Triple Plus-TM- procedure.
In order to capture market share for this application and other applications in
which distribution would be more widely disbursed, the Company intends to pursue
relationships with third parties capable of effectively distributing the
ChromaVision Digital Analyzer and providing related services on a large-scale
basis. The Company believes that such alliances will enable it to minimize
certain risks related to the time, effort and expenses associated with the
internal development of similar distribution capabilities, particularly for
international markets.
In March 1997, the Company agreed to a term sheet setting forth the
principal terms of a strategic distribution and application commercialization
relationship with Sigma focusing on the Down syndrome test using UR-NAP. In
addition to manufacturing the primary reagents used for the test, Sigma also has
worldwide marketing and sales capabilities. Sigma is a vertically integrated,
ISO 9000 certified, in vitro
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device manufacturer. Sigma was the first in vitro diagnostics manufacturer to
kit chemistries for the clinical diagnostics market. For the past 50 years,
Sigma-Aldrich, the parent company of Sigma, has developed a worldwide
distribution and communication network that serves as the basis for an extensive
distribution capability for Sigma. This capability gives Sigma a greater sales
and distribution reach than it would normally have for a manufacturer of its
size. Sigma is able to utilize the more than 30 subsidiaries of Sigma-Aldrich
throughout the world and their distributors to promote its products in over 140
countries. In the subsidiaries located in Western Europe including France,
Germany, United Kingdom, Italy, the Netherlands and Luxembourg, Sigma maintains
support capabilities for both reagents and instruments. All Sigma distributors
are trained and qualified to support their product lines.
The Company has entered into a term sheet and expects to enter into a joint
development agreement with Specialty Laboratories, a privately held specialized
testing services provider located in Santa Monica, California, to leverage their
extensive experience and capability in developing laboratory tests in the areas
of cancer, immunology, microbiology, genetics and molecular biology on the
ChromaVision Digital Analyzer device and also pursue joint ventures where
appropriate. Specialty Laboratories serves approximately 5,000 clients worldwide
including hospitals, reference laboratories, clinics, physicians, universities
and the pharmaceutical industry.
ChromaVision has established a nonexclusive cooperative market development
relationship with Centocor to identify market opportunities and requirements for
various minimal residual disease applications. The Centocor relationship is
focused on applying various reagents to the ChromaVision Digital Analyzer
platform in a manner which provides quality and economic value to patients,
laboratories, and healthcare payors. Based upon the results of clinical trials
being conducted on the ChromaVision Digital Analyzer platform by Centocor
researchers and Centocor's academic research partners, ChromaVision and Centocor
intend to pursue further arrangements for offering Centocor oncology reagents
and the ChromaVision Digital Analyzer platform either through a combination of
Centocor and ChromaVision distribution channels, or through one or more third
parties. At this time, the Centocor relationship is focused on application and
market development activities.
GOVERNMENTAL REGULATION
The Company's products are subject to stringent governmental regulation in
the United States and other countries. In the United States, the Medical Device
Amendments to the FDC Act, and other statutes and regulations, including various
state statutes and regulations, govern the testing, manufacture, labeling,
storage, recordkeeping, distribution, sale, marketing, advertising and promotion
of such products. Failure to comply with applicable requirements can result in
fines, recall or seizure of products, total or partial suspension of production,
withdrawal of existing product approvals or clearances, refusal to approve or
clear new applications or notices and criminal prosecution.
Prior to commercial sale in the United States, most medical devices,
including ChromaVision Digital Analyzer, must be cleared by the FDA. The
regulatory process can be lengthy, expensive and uncertain. Securing FDA
clearance may require the submission of extensive clinical data together with
other supporting information to the FDA. Any clinical testing of medical devices
must be conducted in conformity with applicable FDA regulations. In addition,
state and local approvals may be required for some clinical activities.
Under the FDC Act, medical devices are classified into one of three classes
on the basis of the controls necessary to reasonably ensure their safety and
effectiveness. Class I devices are those whose safety and effectiveness can
reasonably be ensured through general controls, such as labeling, premarket
notification and adherence to FDA-mandated GMP. Class II devices are those whose
safety and effectiveness can reasonably be ensured through "special controls,"
such as performance standards, post-market surveillance, patient registries and
FDA guidelines. Class III devices are devices that must receive premarket
approval ("PMA") by the FDA to ensure their safety and effectiveness. They are
generally life-
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sustaining, life-supporting or implantable devices, and also include most
devices that were not on the market before May 18, 1976 and for which the FDA
has not made a finding of substantial equivalence based upon a 510(k).
Before a new device can be introduced to the market, the manufacturer
generally must obtain FDA clearance of a 510(k) or approval of a PMA
application. Following submission of the 510(k), the manufacturer may not market
the new device until an order is issued by the FDA finding the device to be
"substantially equivalent" to a legally marketed medical device, i.e., a legally
marketed Class I or Class II medical device or a legally marketed Class III
medical device for which the FDA has not called for PMA applications ("predicate
device"). The FDA has no specific time limit by which it must respond to a
510(k). It generally takes from three to nine months from the date of submission
for the FDA to respond with a clearance for a 510(k) application depending on
the complexity of the technology and the level of review the FDA employs for
evaluating the 510(k), but it may take longer. The FDA may determine that the
proposed device is not substantially equivalent, or that additional clinical or
other data are needed before a substantial equivalence determination can be
made. Modification or enhancement of a product that has been cleared through the
510(k) process requires clearance of a new 510(k) if the modification or
enhancement could significantly affect the safety or effectiveness of the
original device.
The Company intends to pursue a regulatory course under which it has filed
and will seek FDA clearances via a 510(k). The Company filed a 510(k) for NAP
clearance based on the fact that the Company's product is considered to be
substantially equivalent, in terms of safety and effectiveness, to the legally
marketed predicate devices. In particular, the Company intends to reference the
IMI model IMS-200, Nikon Biostation-TM-, and Sigma Diagnostics reagent kit 85-1
as the predicate devices. Subsequently, the Company plans on developing new,
and/or enhanced capabilities and will file the needed 510(k)s or PMAs as
required.
Should the FDA determine that ChromaVision Digital Analyzer is not
substantially equivalent to the IMS-200 or other 510(k) predicate devices, the
Company may be required to file for a PMA. The PMA process is significantly more
complex, expensive and time consuming than the 510(k) process. The PMA process
generally requires the performance of well-controlled clinical investigations in
order to obtain FDA clearance, although other kinds of valid scientific evidence
may be sufficient to determine the effectiveness of some devices. The PMA
process typically requires two years, and may never result in approval.
Determination by the FDA that any of the Company's products or applications are
subject to the PMA process could have a material adverse effect on the Company's
business, results of operations and financial condition. Nonetheless, should a
PMA be required, a business benefit can accrue in the sense that a PMA can serve
as a competitive barrier to entry. Although no time frames can be assured for
either a 510(k) or PMA clearance, it is generally assumed that a 510(k) may be
more readily obtained. The time allocated to clinical testing accounts for a
considerable amount of the difference in 510(k) versus PMA clearance.
The FDC Act requires that medical devices be manufactured in accordance with
the FDA's current GMP regulations. These regulations require, among other
things, that (i) the manufacturing process must be regulated and controlled by
the use of written procedures and (ii) the ability to produce devices which meet
the manufacturer's specifications be validated by extensive and detailed testing
of every aspect of the process. They also require investigation of any
deficiencies in the manufacturing process or in the products produced and
detailed record keeping. Manufacturing facilities are therefore subject to FDA
inspection on a periodic basis to monitor compliance with GMP requirements. If
violations of the applicable regulations are noted during FDA inspections of the
Company's manufacturing facilities or the manufacturing facilities of its
contract manufacturers, there may be a material adverse effect on the continued
marketing of the Company's products.
Other applicable requirements include the medical device reporting
regulation, which requires that the Company provide information to the FDA on
deaths or serious injuries alleged to have been associated
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with the use of its devices, as well as product malfunctions that would likely
cause or contribute to a death or serious injury if the malfunction were to
recur.
The FDA regulates certain computer products as medical devices, such as
control software for imaging or other diagnostic devices, including the
Company's ChromaVision Digital Analyzer software. The FDA is in the process of
reevaluating its regulation of such software, and if the FDA undertakes
increased or more rigorous regulation of such software (which the Company cannot
predict), the Company's ChromaVision Digital Analyzer software may become
subject to further regulatory processes and clearance requirements. The Company
is currently in full compliance with FDA guidelines with respect to its
software. No assurance can be given that compliance with more extensive
regulatory processes will be achieved or that the necessary clearances for such
software will be obtained by the Company on a timely basis, if at all. The
Company may, as a result, be required to expend additional time, resources and
effort in the areas of software design, production and quality control to ensure
full technical compliance.
Laws and regulations regarding the manufacture, sale and use of medical
devices are subject to change and depend heavily on administrative
interpretations. There can be no assurance that future changes in regulations or
interpretations made by the FDA or other regulatory bodies, with possible
retroactive effect, will not adversely affect the Company.
The Company and its products may be subject to a variety of other laws and
regulations in those states and countries where its products are or will be
marketed. These restrictions may hinder the Company's ability to market its
products in those states or countries. Use of the Company's products may further
be subject to periodic inspection, quality control, quality assurance,
proficiency testing, documentation and safety reporting standards pursuant to
the Joint Commission on Accreditation of Healthcare Organizations.
If the FDA believes that the Company is not in compliance with the law, the
FDA can take one or more of the following actions: withdraw previously approved
applications; require notification to users regarding newly found, unreasonable
risks; request repair or refund of faulty devices; request corrective
advertisements, formal recalls or temporary marketing suspension; refuse to
review or clear applications to market any of the Company's future products in
the United States or to allow the Company to enter into government supply
contracts; or institute legal proceedings to detain or seize products, enjoin
future violations or assess criminal or civil penalties against the Company, its
officers or employees. Any such action by the FDA could result in disruption of
the Company's operations for an indeterminate period of time. Various states in
which the Company's product may be sold in the future may impose additional
regulatory requirements.
In addition, the Company's products are subject to a variety of regulations
in certain international markets. Depending on circumstances, including but not
limited to Company strategies and discussions with potential distribution
partners, the Company may develop a distribution strategy that initiates
marketing in international markets prior to marketing in the United States.
THIRD-PARTY REIMBURSEMENT AND HEALTHCARE LEGISLATION
The willingness of hospitals, laboratories and other healthcare providers to
purchase or lease the ChromaVision Digital Analyzer may depend on the extent to
which such providers limit capital expenditures due to cost reimbursement
regulations, including regulations promulgated by the Health Care Finance
Association and other regulatory agencies, and general uncertainty about
government healthcare policy. In addition, sales volumes and prices of the
Company's products will depend in part upon the level of reimbursement available
to hospitals, laboratories and other healthcare providers for automated
microscopic blood tests from third-party payors, such as government and private
insurance plans, health maintenance organizations and preferred provider
organizations. There can be no assurance that existing reimbursement levels will
not be decreased in the future and that any such decrease will not reduce the
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demand for, or the price of, the Company's products. Healthcare reform measures
adopted by the federal government or state governments could adversely affect
the price of medical devices in the United States or the amount of reimbursement
available, and, consequently, could have a material adverse effect on the
Company's business, results of operations and financial condition. No prediction
can be made as to the outcome of any reform initiatives or their impact on the
Company.
COMPETITION
The Company believes that the primary current source of competition for the
ChromaVision Digital Analyzer is the use of medical technicians to perform
microscopic analysis. Additionally, the Company is aware of six potential
competitors that are substantially engaged in efforts to automate microscope
examinations. Five of the six are currently focused primarily on the use of
morphology for specific clinical applications, as opposed to the color-based
approach to addressing multiple applications that has been developed by
ChromaVision. Four of the primarily morphology-based companies identified,
Morphometrix, Inc., Neuromedical Systems, Inc. ("NSI"), Neopath, Inc., and
Autocyte, Inc. are focused on Pap smear testing. The fifth potential competitor,
IMI, is focused on white blood cell differential tests and uses morphology and
neural networks. Several elements of the hardware components and robotics
control of the IMI system are similar to those used in the ChromaVision Digital
Analyzer. ChromaVision has developed completely different and proprietary image
analysis application software which includes the algorithms used by the
ChromaVision Digital Analyzer to detect objects based primarily on color, a
technique that the Company believes is more sensitive and flexible than
morphology alone. This color-based technique differentiates the Company from
other automated microscopy manufacturers that target labor savings as the
primary value proposition by enabling a platform that can use the multitude of
available reagents to color cells or objects resulting in multiple applications
and markets.
The sixth potential competitor, Intelligent Remote Imaging Systems Inc.
utilizes flow cytometry to image cellular material for various urine and blood
applications. Flow cytometry does not use a glass slide to preserve samples, but
rather destroys samples as cells are imaged. Additionally, the Company believes
that the sensitivity of the ChromaVision Digital Analyzer substantially exceeds
that of flow cytometry.
Although each of these companies is initially focusing on one application or
a limited set of specific applications, each has expressed a desire to pursue
multiple applications as part of their respective strategies for product and
market development.
SERVICE
The Company intends to offer service and maintenance to ChromaVision Digital
Analyzer customers as part of the "per click" pricing structure. The Company has
developed a support, field service, and parts distribution plan designed with
the goal of enabling greater than 98% system functionality for its customers.
This plan will offer the following services as part of the "per click" fee
structure: (i) installation, (ii) customer training, (iii) a 24-hour a day,
seven-day per week customer help desk available via a toll free number, (iv) the
ability to remotely diagnose ChromaVision Digital Analyzer units and load new
software via dial-up modems with a goal of correcting 80% of customer problems
on a remote basis, and (v) on-site field service and parts replacement utilizing
regionally based ChromaVision field engineers which will be supported by
headquarters development and engineering staff. To achieve customer
response-time and system up-time requirements, the Company plans to employ both
preventive maintenance programs and as-needed service by deploying one field
engineer for approximately every 20 ChromaVision Digital Analyzer units in
operation. In addition, the Company may enter into agreements with third parties
to provide service and support to the Company's customers.
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RESEARCH AND DEVELOPMENT
The Company's core competency to date has been centered on research and
development, specifically in the area of advanced imaging as applied to the
detection and quantification of reagent-stained cellular material. Currently,
the Company has seven employees dedicated to research and development, including
several scientists who hold Ph.D. degrees in various disciplines, primarily in
the areas of image science and software algorithms. The senior members of the
research and development staff have experience in the development of
sophisticated imaging systems including those used in the Strategic Defense
Initiative and the Cruise Missile program. ChromaVision's research and
development staff is experienced in the rapid prototyping and development of
advanced software-based, electro-optical-mechanical systems. The Company intends
to continue to invest heavily in the recruitment of experienced scientists and
engineers with an emphasis on achieving a balance between research and
development innovation and support of focused, market driven requirements.
MANUFACTURING
As a development stage company, the Company currently has limited commercial
scale manufacturing capabilities. The ChromaVision Digital Analyzer is currently
developed and manufactured at the Company's headquarters in San Juan Capistrano,
California. At the San Juan Capistrano facility, components are assembled, the
microscope is optically aligned, software is loaded, and the system is tested.
Components of the system are either manufactured by the Company, purchased
off-the-shelf, or manufactured by subcontractors to the Company's
specifications. The system uses an off-the-shelf CCD camera and an
Intel/Microsoft-based personal computer. The system can be adapted for use with
most popular microscopes and related optical accessories. A proprietary video
capture and processing board is used along with proprietary color detection
techniques developed by ChromaVision researchers. The Company intends to enhance
its manufacturing capabilities to coincide with the commercialization of the
ChromaVision Digital Analyzer. The Company is required to be GMP compliant prior
to completing its first product. The Company is working toward, but has not yet
achieved GMP compliance.
FACILITIES
The Company's executive and development and manufacturing facilities are
located in San Juan Capistrano, California, in approximately 21,000 square feet.
The Company leases the space at an annual rent of approximately $123,000. This
lease expires on February 28, 2000. Management of the Company believes that this
facility will be adequate to meet the Company's needs through the year 2000.
EMPLOYEES
As of March 31, 1997, the Company employed 13 persons in product development
and engineering, four persons in manufacturing, four persons in finance,
executive and administrative capacities and one person in sales and marketing.
In addition to the above 22 employees, pursuant to the Administrative Services
Agreement with XL Vision, the Company currently has access to certain resources
of XL Vision, including accounting, shipping and receiving and payroll
functions. Such services may be utilized by ChromaVision on an "as needed"
basis. ChromaVision intends to continue this relationship until such time as
ChromaVision's growth dictates the hiring of such additional personnel. The
Company is not subject to any collective bargaining agreements and the Company
believes that the relationship with its employees is good. See "Certain
Transactions."
LEGAL PROCEEDINGS
Currently, the Company is not a party to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The names, ages and positions held by the executive officers and directors
of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Douglas S. Harrington, M.D........................... 44 Chief Executive Officer and Director
Kenneth S. Garber.................................... 43 Vice President of Marketing and Sales and Business
Development
Kevin C. O'Boyle..................................... 41 Vice President and Chief Financial Officer
Michael G. Schneider................................. 47 Vice President of Manufacturing and Service
John S. Scott, Ph.D.................................. 45 Chairman of the Board of Directors
Christopher Moller, Ph.D.(1)(2)...................... 43 Director
Richard C. E. Morgan(2).............................. 53 Director
Charles A. Root(1)................................... 64 Director
</TABLE>
- ------------------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
DOUGLAS S. HARRINGTON, M.D. has been Chief Executive Officer since December
1996. From 1995 until he joined the Company in 1996, Dr. Harrington served as
Chairman and President of Strategic Business Solutions, Inc., a privately held
company specializing in commercialization of biotechnology, and as a Principal
in Douglas S. Harrington and Associates, a strategic consulting firm. From 1992
to 1995, Dr. Harrington served as President of Nichols Institute, a publicly
traded healthcare laboratory services provider, now part of Quest Diagnostics,
Inc., a publicly traded laboratory services provider. Prior to 1992, Dr.
Harrington held various management positions within Nichols Institute including
Vice President of Operations and Medical Director. Dr. Harrington currently sits
on the Boards, Advisory Boards, or Scientific Advisory Boards of ten healthcare
and medical device companies and is an Associate Professor of Clinical and
Anatomic Pathology at the University of Nebraska Medical Center. Dr. Harrington
has over 18 years experience in the commercialization of healthcare technology
and has published over 80 peer-reviewed publications.
KENNETH S. GARBER has been Vice President of Marketing, Sales and Business
Development of the Company since March 1996. From 1994 to 1996, Mr. Garber was
Vice President and General Manager of the Imagelink Business Unit for Kodak
Health Imaging Systems, Inc. In 1993, he was Assistant to the President of Kodak
Health Imaging Systems and during 1992 was Director of Strategic Sales
Development for Kodak Health Imaging Systems, Inc. From 1990 to 1991, Mr. Garber
also was Director of Strategic Sales Development for Vortech Data, Inc. He
previously held sales management and sales positions with Hughes Network
Systems, Satellite Business Systems and Federal Data.
KEVIN C. O'BOYLE has been Vice President and Chief Financial Officer of the
Company since December 1996. From 1990 to 1994, Mr. O'Boyle was the Chief
Financial Officer and from 1994 to 1996, he was Sr. Vice President of Operations
for Albert Fisher North America, a publicly traded international food processor
and distributor. From 1984 to 1990, Mr. O'Boyle served as the Vice President and
Controller of American Cablesystems, a publicly traded cable television firm. He
previously held various accounting positions on the audit and tax staff with
Pannell, Kerr & Forster, a public accounting firm.
MICHAEL G. SCHNEIDER has been Vice President of Manufacturing and Service
since June 1996. From 1995 to May 1996, Mr. Schneider was Vice President of
Manufacturing at Kodak Health Imaging Systems, Inc. From 1993 to 1995, Mr.
Schneider was Director of Worldwide Service at Kodak's Customer Service
Division. From 1990 to 1993, Mr. Schneider was Manager of Services Support at
Kodak's Health Science Division. Mr. Schneider has twenty-four years of
experience in manufacturing and service management.
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JOHN S. SCOTT has been Chairman of the Board of the Company since March
1996. Since May 1993, he has also been Chairman of the Board, Chief Executive
Officer and President of XL Vision. From 1991 until July 1993, Dr. Scott was the
President of Lenzar Electro-Optics, Inc., a manufacturer of imaging devices. Dr.
Scott has a Ph.D. in both physics (turbulence and particle acceleration,
associated space-borne instrumentation, plasma physics and electro-optical
sensor system development) and astrophysics. He has designed and developed
scanners for a wide range of media types including intelligence imagery,
microfiche, microfilm, fingerprint cards, aerial photos, voter registration
cards and medical x-rays.
CHRISTOPHER MOLLER has been a director of the Company since June 1996. Since
1994, Mr. Moller has served as Managing Director of Technology Leaders II
Management L.P. and, in various capacities since 1990 with its predecessors. Mr.
Moller is also a director of ViroPharma, Inc., a publicly-traded biotechnology
company.
RICHARD C. E. MORGAN has been a director of the Company since March 1996.
Mr. Morgan has been the Managing General Partner of Wolfensohn Partners L.P., a
venture capital firm, since 1986 and the Chairman and Chief Executive Officer of
Lasertechnics, Inc., which manufactures and distributes small secure card
printing systems and related equipment and small character coding systems. From
1990 to 1996, Mr. Morgan was the Chairman of MediSense, Inc., a manufacturer and
distributor of a wide range of rapid diagnostic devices. Mr. Morgan has been a
director of Quidel Corporation, a manufacturer and distributor of rapid
diagnostic devices, for the past five years and, since July 1995, has served as
Chairman. Mr. Morgan is also a director and member of the executive committee of
Celgene Corporation, and a director of Sequus Pharmaceuticals, Inc., both
biopharmaceutical companies.
CHARLES A. ROOT has been a director of the Company since March 1996. Since
1986, Mr. Root has served as an Executive Vice President of Safeguard. From 1988
until March 1994, Mr. Root served as Chairman and Chief Executive Officer of
Coherent Communications Systems Corporation, a manufacturer of
telecommunications equipment and teleconferencing products, where he continues
to serve as Chairman. Mr. Root is Chairman of the Board of CompuCom Systems,
Inc. ("CompuCom"), and a director of USDATA Corporation and Tangram Enterprise
Solutions, Inc. ("Tangram"). CompuCom and Tangram are majority-owned
subsidiaries of Safeguard.
Each director is elected to hold office until the next annual meeting of
stockholders and until his or her respective successor is elected and qualified.
The Board of Directors has a Compensation Committee, which makes recommendations
concerning salaries and incentive compensation for employees of and consultants
to the Company, and an Audit Committee, which reviews the results and scope of
the audit and other services provided by the Company's independent auditors. In
consideration for his service on the Board of Directors, Mr. Morgan received
options to purchase 83,750 shares of Common Stock, that vest over a four year
period beginning in December 1997. These options expire in December 2003. All
non-employee directors are reimbursed for travel and other expenses related to
their service on the Board of Directors.
ADVISORY BOARD
The Company's Advisory Board consists of individuals with expertise in the
medical diagnostic technology field who advise the Company concerning long-term
scientific planning, research and development, personnel and technological
matters. The members of the Advisory Board are:
DAVID A. THOMPSON is currently Chairman of the Board and Chief Executive
Officer of Diagnostic Marketing Strategies, a management consulting firm. From
1994 until his retirement in June 1995, Mr. Thompson served as Senior Vice
President, Strategic Improvement Processes at Abbott Laboratories. From 1990 to
1994, he served as President, Diagnostics Division and Senior Vice President,
Diagnostic Operations at Abbott Laboratories.
JEFFREY K. COHEN, M.D. is currently a urologist and Assistant Professor at
the Medical College of Pennsylvania and Allegheny University. Mr. Cohen is also
a member of the Executive Committee of the Medical Staff and the Operating Room
Committee, and a Board member of the Integrated Health Care
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Systems at Allegheny General Hospital. From 1994 until 1995, Mr. Cohen served as
President of Integrated Health Care Systems, and from 1990 until 1994, he served
as Medical Director of the Short Procedure Unit.
HENRY T. PIETRASZEK is currently President and Chief Executive Officer of
Ventana Medial Systems, a manufacturer of autostaining equipment. From 1994 to
1996, Mr. Pietraszek served as President and Chief Executive Officer of Biostar,
Inc., a medical diagnostic company. From 1975 to 1994, Mr. Pietraszek served as
President and Chief Executive Officer of Tap Pharmaceuticals, a joint venture
between Abbott Laboratories and Dainippon Pharmaceutical Company of Japan
engaged in research, product development, manufacturing and marketing of U.S.
pharmaceuticals.
ERIK HORNAESS has been Divisional Vice President & General Manager at Abbott
Diagnostics Division, a subsidiary of Abbott Laboratories located in
Wiesbaden-Delkenheim, Germany, since October 1982. Mr. Hornaess has over thirty
years of experience in the international medical diagnostic industry, most
recently focused on Europe, Africa and the Middle East.
ANEAL S. MASIH, M.D. is currently a Staff Pathologist at Space Coast
Pathologists, and also serves as an outside consultant to the Company. From
January 1992 to December 1994, Dr. Masih was an Assistant Professor in the
Pathology Department at the University of Florida. From January 1992 to December
1994, Dr. Masih served as medical consultant at Veterans Administration Medical
Center and the Eastern Cooperative Oncology Group.
None of the members of the Advisory Board is employed by the Company, and
members may have other commitments to or consulting or advisory contracts with
their employers or other entities which may conflict or compete with their
obligations to the Company. Accordingly, such persons are expected to devote
only a portion of their time to the Company and are not expected to participate
actively in the Company's affairs or in the development of the Company's
technology. Members of the Company's Advisory Board receive options to purchase
the Company's Common Stock. As of December 31, 1996, the Company has granted
options to purchase 71,875 shares of the Company's Common Stock to members of
its Advisory Board. Advisory Board members are reimbursed for travel and other
expenses in connection with their services on the Advisory Board.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 1996, the Company did not have a Compensation Committee or any other
committee of the Board of Directors performing similar functions.
Recommendations concerning the aggregate of the Company's employees were made to
the Board of Directors by the Company's Chief Executive Officer. There are
currently no compensation committee interlocks with other entities or insider
participation on the Compensation Committee.
CERTAIN RELATIONSHIPS
Technology Leaders Management L.P., a limited partnership, is the sole
general partner of Technology Leaders L.P. and a co-general partner of
Technology Leaders Offshore C.V. Technology Leaders L.P. and Technology Leaders
Offshore C.V. are venture capital funds that are required by their governing
documents to make all investment, voting and disposition actions in tandem.
Technology Leaders L.P. and Technology Leaders Offshore C.V. are referred to
collectively in this Prospectus as "Technology Leaders I." Technology Leaders
Management L.P. has sole responsibility for all investment, voting and
disposition decisions for Technology Leaders I. The general partners of
Technology Leaders Management L.P. are (i) Technology Leaders Management, Inc.,
a privately held subsidiary of Safeguard, (ii) TL Partners I, a general
partnership among Technology Leaders Management, Inc. and the Managing Directors
of Technology Leaders Management, Inc., other than Mark J. DeNino, and (iii)
four other corporations (the "TLA Corporations") owned by individuals, one of
whom serves as a director of Safeguard, and three of whom are not currently
otherwise affiliated with Safeguard or the Company. Technology Leaders
Management L.P. is managed by an executive committee, by whose decisions the
general partners have agreed to
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be bound, that consists of seven voting members including (i) Warren V. Musser,
Robert E. Keith, Jr. and Gary J. Anderson, M.D., each of whom are designees of
Technology Leaders Management, Inc., and (ii) one designee of each of the TLA
Corporations. Clayton S. Rose is a non-voting member of that executive
committee. Technology Leaders Management, Inc. is the administrative manager of
Technology Leaders, subject to the control and direction of the executive
committee of Technology Leaders Management L.P. Mr. Musser is the chairman and
Mr. Keith is president and chief executive officer of Technology Leaders
Management, Inc. and Mr. Keith, Ira M. Lubert, Dr. Anderson, Mr. DeNino and
Christopher Moller, Ph.D., are the managing directors of Technology Leaders
Management, Inc. Mr. Keith, Mr. Lubert and Dr. Anderson are former officers of
Safeguard and Mr. Keith is a director of Safeguard.
Technology Leaders II Management L.P., a limited partnership, is the sole
general partner of Technology Leaders II L.P. and a co-general partner of
Technology Leaders II Offshore C.V. Technology Leaders II L.P. and Technology
Leaders II Offshore C.V. are venture capital funds that are required by their
governing documents to make all investment, voting and disposition actions in
tandem. Technology Leaders II L.P. and Technology Leaders II Offshore C.V. are
referred to in this Prospectus as "Technology Leaders II." Technology Leaders II
Management L.P. has sole authority and responsibility for all investment, voting
and disposition decisions for Technology Leaders II. The general partners of
Technology Leaders II Management , L.P. are (i) Technology Leaders Management,
Inc., a wholly-owned subsidiary of Safeguard, (ii) Robert E. Keith, Jr., Gary J.
Anderson, M.D., Ira M. Lubert, Mark J. DeNino and Christopher Moller, a director
of the Company, and (iii) four other corporations (the "TLA Corporations") owned
by natural persons, one of whom is a director of Safeguard. Technology Leaders
II Management L.P. is managed by an executive committee, by whose decisions the
general partners have agreed to be bound, which consists of ten voting members
including (i) Warren V. Musser, who is a designee of Technology Leaders
Management, Inc., (ii) Mr. Keith, Dr. Anderson, Mr. Lubert, Mr. DeNino,
Christopher Moller, individually, and (iii) one designee of each of the TLA
Corporations and (as a non-voting member) Clayton S. Rose. Technology Leaders
Management, Inc. is the administrative manager of Technology Leaders II, subject
to the control and direction of the executive committee of Technology Leaders II
Management L.P. Mr. Keith is a director of Safeguard.
Safeguard Scientifics (Delaware), Inc., a privately held subsidiary of
Safeguard, is a limited partner in Technology Leaders L.P. and Technology
Leaders II, holding 3.3% of the aggregate limited partnership interest in
Technology Leaders L.P. and 4.4% of the aggregate limited partnership interest
in Technology Leaders II L.P. Technology Leaders Management, Inc. holds directly
or indirectly 31% of the general partnership interests in Technology Leaders
Management L.P. and 39% of the general partnership interests in Technology
Leaders II Management L.P.
Safeguard, Technology Leaders I and Technology Leaders II collectively
beneficially own approximately 32% of the voting common stock of XL Vision and
approximately 97% of the non-voting convertible preferred stock of XL Vision,
and have the right to designate two of the nine members of XL Vision's Board of
Directors. After the Company was spun out from XL Vision in March 1996, it
raised its initial equity capital through a private offering of its Series A
Preferred Stock primarily to XL Vision's stockholders.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Dr. Douglas S.
Harrington as of December 30, 1996, which obligates him to serve as Chief
Executive Officer until December 30, 1997. The agreement provides for the
payment of an annual base salary of $160,000 and bonuses up to 100% of his base
salary upon the achievement of certain targets. Dr. Harrington's employment will
continue on an at-will basis after December 30, 1997, subject to severance pay
upon termination under certain conditions. Upon any change of control of the
Company, Dr. Harrington will be entitled to immediate vesting of all stock
options or the payment of an amount equal to the difference between the exercise
price and the fair market value for each share of Common Stock which underlies
an option which cannot vest and, if his employment terminates, one year salary
continuation and payment of his maximum bonus for such year. In
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addition, upon the expiration of the Employment Agreement or the termination of
employment after the expiration of the Employment Agreement, the Company has the
option to retain Dr. Harrington as a consultant whereby Dr. Harrington would be
entitled to receive monthly consulting fees equal to his prior monthly salary
upon the provision of up to 20 hours of consulting services each month.
On February 15, 1996, the Company entered into an at-will employment
agreement with Kenneth S. Garber. Mr. Garber agreed to serve as Vice President
of Marketing and Sales and Business Development in return for an annual salary
of $130,000 and the opportunity to earn additional compensation in the form of
commissions upon the achievement of certain performance objectives. Upon a
termination of Mr. Garber's employment by the Company for any reason other than
cause, one-half of Mr. Garber's non-vested stock options automatically become
vested, all performance-related compensation becomes immediately payable and the
Company may elect to pay Mr. Garber his base salary for up to an 18-month period
in return for Mr. Garber's agreement not to engage in activities in competition
with the Company during such period. Upon any change of control of the Company,
Mr. Garber will be entitled to immediate vesting of all stock options or the
payment of the in-the-money value of all unvested options.
On November 27, 1996, the Company entered into an at-will employment
agreement with Kevin O'Boyle. Mr. O'Boyle agreed to serve as Vice President and
Chief Financial Officer in return for the payment of an annual salary of
$130,000 and the opportunity to earn additional compensation in the form of
bonuses. Upon a termination of Mr. O'Boyle's employment by the Company for any
reason other than cause, one-half of Mr. O'Boyle's non-vested stock options
automatically become vested, all performance related compensation becomes
immediately payable and the Company will pay Mr. O'Boyle his base salary for a
12-month period in return for Mr. O'Boyle's agreement not to engage in
activities in competition with the Company during such period. Upon any change
of control of the Company, Mr. O'Boyle will be entitled to immediate vesting of
all stock options or the payment of the in-the-money value of all unvested
options.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
paid or accrued from the inception of the Company through December 31, 1996 with
respect to the Company's Chief Executive Officer, its former President and its
other most highly compensated executive officer as of December 31, 1996
(collectively, the "Named Officers"):
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL -------------
COMPENSATION(1) SECURITIES ALL
NAME AND -------------------- UNDERLYING OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
- ------------------------------------------------------- --------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Douglas S. Harrington, M.D.(2)......................... 1996 $ -- $ -- 737,500 $ 83,160
Chief Executive Officer
Kenneth S. Garber(3)................................... 1996 110,000 37,500 277,313 --
Vice President of
Marketing and Sales and
Business Development
Michael S. Shiff(4).................................... 1996 146,565 -- 554,625 468,350
Former President
</TABLE>
- ------------------------
(1) The annual compensation described in this table reflects actual salary and
bonus paid to such executive officers from the inception of the Company
through December 31, 1996. In 1996, Messrs. Shiff and Garber were paid based
upon an annual salary of $150,000 and $130,000, respectively. The
compensation described in this table does not include medical, group life
insurance or other benefits received by the Named Officers which are
available generally to all salaried employees of the Company and certain
perquisites and other personal benefits,
51
<PAGE>
securities or property received by the Named Officers which do not exceed
the lesser of $50,000 or 10% of the aggregate of any such Named Officer's
salary and bonus.
(2) Dr. Harrington joined the Company on December 30, 1996. Dr. Harrington is
paid a base salary of $160,000. Prior to that time, Dr. Harrington served on
the Company's Advisory Board, in consideration for which Dr. Harrington was
granted options to purchase 12,500 shares of the Company's Common Stock. In
addition, Dr. Harrington received $83,160 in 1996 as payment for consulting
services provided to the Company and reimbursement for expenses related
thereto, which appears under the caption "All Other Compensation." Dr.
Harrington received options to purchase 25,000 shares of the Company's
Common Stock in January 1997.
(3) Mr. Garber joined the Company in March 1996. Mr. Garber earned a bonus of
$37,500 in 1996, which has not yet been paid.
(4) Mr. Shiff resigned as President of the Company as of December 10, 1996. The
amounts in the table above reflect salary earned during the period beginning
in March 1996 and ending on December 10, 1996. Upon resigning from the
Company, Mr. Shiff received a cash severance payment of $468,350, which is
listed in the table above under the caption "All Other Compensation."
The following table provides information on stock options granted by the
Company in 1996 to the Named Officers. All Company option grants depicted below
were made pursuant to the 1996 Equity Compensation Plan.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERCENT OF REALIZABLE POTENTIAL VALUE
TOTAL AT
OPTIONS ASSUMED ANNUAL RATE OF
NUMBER OF GRANTED TO STOCK PRICE APPRECIATION
SHARES EMPLOYEES FOR
UNDERLYING IN EXERCISE OPTION TERM(1)
OPTIONS FISCAL PRICE PER EXPIRATION --------------------------
NAME GRANTED YEAR SHARE DATE 5.0% 10.0%
- ----------------------------------- ---------- ---------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Douglas S. Harrington, M.D.(2)..... 12,500 0.6% $0.80 6/13/2003 $ 4,071 $ 9,487
725,000 37.7 2.40 12/12/2006 1,094,277 2,773,112
Kenneth S. Garber(3)............... 277,313 14.4 0.80 6/13/2003 90,315 210,473
Michael S. Shiff(4)................ 554,625 28.8 0.80 6/13/2003 180,630 420,945
</TABLE>
- ------------------------
(1) The amounts shown are calculated assuming that the market value of the
Common Stock was equal to the exercise price per share as of the date of
grant of the options. This value is the approximate price per share at which
shares of the Common Stock would have been sold in private transactions on
or about the date on which the options were granted. The dollar amounts
under these columns assume a compounded annual market price increase for the
underlying shares of the Common Stock from the date of grant to the end of
the option term of 5% and 10%. This format is prescribed by the Commission
and is not intended to forecast future appreciation of shares of the Common
Stock. The actual value, if any, a Named Officer may realize, will depend on
the excess of the market price for shares of the Common Stock on the date
the option is exercised over the exercise price. Accordingly, there is no
assurance that the value realized by a Named Officer will be at or near the
value estimated above.
(2) Dr. Harrington received options to purchase 12,500 shares of the Company's
Common Stock in June 1996 in consideration for his service as a member of
the Company's Advisory Committee vesting 50% on March 31, 1997 and 50% on
March 31, 1998. In December 1996, Dr. Harrington received options to
purchase 725,000 shares of the Company Common Stock in connection with his
employment as Chief Executive Officer, vesting in four equal annual
installments beginning on December 12, 1996. Vesting accelerates in whole,
or in part upon certain events including a termination without cause and a
change of control. Dr. Harrington received options to purchase 25,000 shares
of the Company's Common Stock in January 1997 at an exercise price of $2.40
per share.
(3) Mr. Garber's options vest in equal installments over a four-year period
beginning December 30, 1996, provided that 50% of the unvested options will
vest upon closing of the Company's initial public offering and the first
anniversary of the closing date. Vesting also will accelerate in whole or in
part upon certain other events including a termination without cause and a
change of control.
(4) Mr. Shiff resigned as President of the Company as of December 10, 1996. In
connection with his resignation from the Company, the Company repurchased
all of Mr. Shiff's vested options for an aggregate purchase price of
52
<PAGE>
$443,700. In addition, effective upon his resignation, all of Mr. Shiff's
unvested options (exercisable for 277,313 shares of Common Stock)
automatically terminated.
The following table sets forth information concerning options exercised
during 1996 and the number and the hypothetical value of certain unexercised
options of the Company held by the Named Officers as of December 31, 1996. This
table is presented solely for purposes of complying with the Commission rules
and does not necessarily reflect the amounts the optionees will actually receive
upon any sale of the shares acquired upon exercise of the options.
AGGREGATED OPTION EXERCISES AND
LAST FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-
OPTIONS AT MONEY OPTIONS AT
SHARES DECEMBER 31, 1996 DECEMBER 31, 1996(1)
ACQUIRED VALUE ------------------------- --------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------- ----------- ---------- ---------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Douglas S. Harrington, M.D......... -- $ -- 187,500 550,000 $ 497,500 $ 1,505,000
Kenneth S. Garber.................. -- -- 69,328 207,985 291,178 873,537
Michael S. Shiff................... 277,313 443,700(2) -- -- -- --
</TABLE>
- ------------------------
(1) Assumes, for presentation purposes only, a per share fair market value of
$5.00.
(2) Reflects the actual value realized by Mr. Shiff upon the sale of 277,313
shares to the Company as of December 27, 1996, at a purchase price of $2.40,
less the $0.80 exercise price per share.
EQUITY COMPENSATION PLAN
The Company has adopted the ChromaVision Medical Systems, Inc. 1996 Equity
Compensation Plan (the "Plan") pursuant to which it has awarded and may in the
future award stock options and equity compensation awards to its employees,
officers, non-employee directors and independent contractors.
The Plan provides for the issuance to employees, non-employee directors and
eligible independent contractors of up to 1,291,688 shares of Common Stock
pursuant to the grant of incentive stock options ("ISOs"), non-qualified stock
options ("NQSOs"), Stock Appreciation Rights ("SARs") and restricted stock
awards. The maximum aggregate number of shares of stock that shall be subject to
grants under the Plan to any recipient may not exceed 875,000. The Plan is
administered by a Committee of two or more non-employee directors appointed by
the Board of Directors (the "Committee"). Subject to the provisions of the Plan,
the Committee has the authority to determine to whom stock options and equity
compensation awards will be granted and the terms of the awards granted,
including the number of shares subject to each award, vesting provisions and the
duration of an award, to amend the terms of any outstanding award and to
generally deal with any other matters arising under the Plan. Prior to the
adoption of the Plan, the Company also granted NQSOs to purchase 975,688 shares
of Common Stock.
As of March 31, 1997, options to purchase a total of 1,539,188 shares of
Common Stock, at a weighted average exercise price per share of $1.96, were
outstanding. Of these options, options to purchase 284,954 shares were fully
vested and exercisable as of March 31, 1997. As of March 31, 1997, the Company
had an additional 173,563 shares of Common Stock available for future grants and
other issuances under the Plan.
The option price per share of stock under the Plan shall be determined by
the Committee at the time of each grant, provided, however, that the option
price per share for any ISO shall not be less than 100% of the fair market value
of the stock at the time of the grant. If a 10% stockholder receives an ISO, the
exercise price shall not be less than 110% of the fair market value at the time
of grant. The term of each stock option shall be fixed by the Committee, but may
not exceed ten years. In the case of a 10% stockholder, the term may not exceed
five years. Stock options shall be exercisable at such time or times as shall be
determined by the Committee. Payment for the exercise of an option shall be made
by cash, check
53
<PAGE>
or other instrument as the Committee may accept, including, in the discretion of
the Committee, unrestricted stock of the Company. The Committee may also agree
to allow an optionholder to elect to cash out the excess of the fair market
value over the option price of all or a portion of a stock option. The Committee
may also grant, in its sole discretion, a "cashless exercise" feature for the
exercise of stock options.
The Board of Directors may amend or revise the terms of the Plan in any
respect whatsoever, provided, that certain amendments of the Plan are subject to
shareholder approval. Unless sooner terminated, the Plan will terminate in 2006.
Under Section 162(m) of the Code, the Company may be precluded from claiming
a federal income tax deduction for total remuneration in excess of $1,000,000
paid to the Chief Executive Officer or to any of the other four most highly
compensated officers in any one year. Total remuneration would include amounts
received upon the exercise of stock options granted under the Plan. An exception
does exist, however, for "performance-based compensation," including amounts
received upon the exercise of stock options pursuant to a plan approved by
stockholders that meets certain requirements. The Plan is intended to meet the
requirements of Treasury Regulation section 1.162-27(f), and the options granted
under the Plan are intended to meet the requirements of "performance-based
compensation."
CERTAIN TRANSACTIONS
The Company's business commenced as an unincorporated business division of
XL Vision in 1993 to develop an automated intelligent microscopy system. From
the inception of the business through its incorporation as a separate entity in
March 1996, the Company incurred approximately $4.8 million in development
costs. On March 28, 1996, XL Vision transferred the assets of the business to
the Company in exchange for 1,931,250 shares of the Company's Common Stock and
the assumption of the $4.8 million intercompany debt.
In 1996, the Company sold 6,364,872 shares of Series A Preferred Stock to
certain stockholders of XL Vision, including Safeguard, Technology Leaders I,
Technology Leaders II, John S. Scott and Charles A. Root, and certain officers
and advisors of the Company, including Michael S. Shiff and Kenneth S. Garber.
All of the shares were sold at a purchase price of $1.00 per share. The Company
used a portion of the proceeds from the private placement to repay a portion of
the intercompany debt to XL Vision. In connection with the purchase of shares in
the private placement, the purchasers were granted certain registration rights.
See "Shares Eligible for Future Sale--Registration Rights." In addition, the
holders of Series A Preferred Stock are entitled to elect two members of the
Company's Board of Directors for as long as the Series A Preferred Stock remains
outstanding. The holders entered into an agreement to vote their shares of
Series A Preferred Stock to elect one designee of Safeguard and one designee of
Technology Leaders I and Technology Leaders II, together, to the Company's Board
of Directors. Also, the Company agreed with Safeguard to make a rights offering
to holders of Safeguard common shares.
In August 1996, the Company issued 770,192 shares of Series A Preferred
Stock to Centocor as partial consideration for the release and assignment of
certain rights that Centocor may have had related to the ChromaVision Digital
Analyzer resulting from the joint development arrangements between the Company
and Centocor. The Company continues to collaborate with Centocor on a
nonexclusive basis to develop certain applications for the ChromaVision Digital
Analyzer. Pursuant to the agreement with Centocor, as amended, the Company is
obligated to provide to Centocor, at no charge, technical support through
September 30, 1997 and software development services through December 31, 1997
related to the ChromaVision Digital Analyzer.
In December 1996, Michael S. Shiff resigned as President of the Company. In
connection with his separation, the Company repurchased Mr. Shiff's vested stock
options for an aggregate purchase price of $443,700 and paid a severance payment
of $468,350 plus the continuation of his base salary for three months. The
Company financed such payments through the sale of 221,850 shares of Series B
Preferred Stock to Safeguard for an aggregate purchase price of $998,325.
54
<PAGE>
Upon consummation of the rights offering, all outstanding shares of Series A
Preferred Stock and Series B Preferred Stock will automatically convert into
shares of Common Stock.
Since the Company's incorporation in March 1996, XL Vision has provided
certain personnel and administrative services to the Company at cost.
Administrative expenses incurred in 1996 were approximately $740,600. The
Company anticipates that this arrangement will cease after June 1997, however,
the Company may continue to utilize XL Vision personnel thereafter on a cost
reimbursement basis. In addition, the Company subleased office and manufacturing
space from XL Vision in Sebastian, Florida at a total cost of $72,200 during
1996. In March 1997, the Company relocated to San Juan Capistrano, California,
and does not anticipate incurring any additional lease expenses to XL Vision.
The Company entered into an Administrative Services Agreement with XL Vision
and Safeguard, as of January 1, 1997. Under this agreement, XL Vision and
Safeguard are obligated to provide the Company with administrative support
services, including management consultation, investor relations, legal services
and tax planning. In consideration for these services, the Company will pay an
annual fee of 0.75% of the Company's gross revenues each year to each of XL
Vision and Safeguard up to a maximum of $300,000 a year. Fees will accrue until
the Company achieves a positive cash flow from operations. The agreement extends
through January 31, 2002 and continues thereafter unless terminated by either
party.
The Company also entered into a Direct Charge Administrative Services
Agreement with XL Vision, as of January 1, 1997. Under this agreement, XL Vision
provides administrative services to the Company on an hourly basis at the
request of the Company. The Company pays the Company for these services based
upon an hourly fee. The agreement is month-to-month and may be terminated by
either party.
55
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of the date of this Prospectus and as adjusted
to reflect the sale of the shares offered hereby (i) by each selling
stockholder, (ii) by each person who is known by the Company to own beneficially
more than 5% of the outstanding shares of Common Stock, (iii) by each director
of the Company, (iv) by each Named Officer and (v) by all directors and
executive officers of the Company as a group. Unless otherwise indicated below,
to the knowledge of the Company, all persons listed below have sole voting and
investment power with respect to their shares of Common Stock, except to the
extent authority is shared by spouses under applicable law.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
PRIOR TO THE NUMBER OF BENEFICIAL OWNERSHIP
OFFERING(1) SHARES AFTER THE OFFERING(1)
---------------------- TO BE SOLD ----------------------
NUMBER OF IN NUMBER OF
NAME AND ADDRESS SHARES PERCENTAGE THE OFFERING SHARES PERCENTAGE
- ---------------------------------------------- ---------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Safeguard Scientifics, Inc.(2)................ 4,159,517 37.4% 381,780 3,777,737 22.0%
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
XL Vision, Inc.(3)............................ 1,737,500 15.6 159,530 1,577,070 9.2
10305 102nd Terrace
Sebastian, FL 32958
Centocor, Inc................................. 962,740 8.7 -- 962,740 5.6
244 Great Valley Parkway
Malvern, PA
Technology Leaders II(3)...................... 891,668 8.0 81,900 809,768 4.7
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Technology Leaders I(3)....................... 836,718 7.5 76,790 759,928 4.4
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
John S. Scott, Ph.D.(4)....................... 470,625 4.2 -- 470,625 2.7
Douglas S. Harrington, M.D.(5)................ 193,750 1.7 -- 193,750 1.1
Kenneth S. Garber(6).......................... 204,134 1.8 -- 204,134 1.2
Charles A. Root(7)............................ 49,219 * -- 49,219 *
Christopher Moller(8)......................... -- -- -- -- --
Richard C.E. Morgan........................... -- -- -- -- --
All executive officers and directors
as a group (8 persons)(9)..................... 956,790 8.3 -- 956,790 5.5
</TABLE>
- ------------------------
* Less than 1% of the outstanding Common Stock.
(1) Solely for the purpose of the percentage ownership calculation for each
beneficial owner depicted herein, the number of shares of Common Stock
deemed outstanding prior to the offering (i) assumes shares of Common Stock
outstanding as of the date of this Prospectus, (ii) the conversion of all
shares of Preferred Stock outstanding as of the date of this prospectus and
(iii) includes additional shares issuable pursuant to options held by such
owner which may be exercised within 60 days after the date of this
Prospectus ("presently exercisable options"), as set forth below. Solely for
the purpose of the percentage ownership calculation for each beneficial
owner depicted herein, the number of shares of Common Stock deemed
outstanding after the offering (i) assumes 17,147,393 shares of Common Stock
will be outstanding upon the successful completion of the offering, and (ii)
includes
56
<PAGE>
additional shares issuable pursuant to presently exercisable options held by
such owner. The beneficial ownership after the offering does not account for
the exercise of rights by such stockholders in the offering.
(2) The shares are held of record by Safeguard Scientifics (Delaware), Inc., a
wholly-owned subsidiary of Safeguard. Excludes all shares of Common Stock
beneficially owned by Technology Leaders I, Technology Leaders II and XL
Vision, Inc., in each of which Safeguard has a beneficial interest. See
"Management--Certain Relationships" for a description of the relationships
between Safeguard, Technology Leaders I, Technology Leaders II and XL
Vision. The largest shareholder of Safeguard is Warren V. Musser, the
chairman and chief executive officer of Safeguard, who is the record holder
of approximately 9.5% of the total Safeguard Common Shares outstanding.
(3) See "Management--Certain Relationships" for a description of the
relationships between Safeguard and Technology Leaders I, Technology Leaders
II and XL Vision.
(4) Includes 343,750 shares held by a family partnership and 12,500 shares held
by immediate family members, for which Dr. Scott disclaims beneficial
ownership. Excludes shares owned by XL Vision, of which Dr. Scott is
Chairman and CEO.
(5) Represents shares of Common Stock issuable pursuant to presently exercisable
options or options exercisable within 60 days of the date hereof.
(6) Includes 173,320 shares of Common Stock issuable pursuant to presently
exercisable options.
(7) Excludes shares owned by Safeguard, of which Mr. Root is Executive Vice
President. Mr. Root disclaims beneficial ownership of such shares.
(8) Excludes shares owned by Technology Leaders I and Technology Leaders II, for
each of which Mr. Moller serves as an indirect general partner. Mr. Moller
disclaims beneficial ownership of such shares.
(9) Includes 406,134 shares of Common Stock issuable pursuant to presently
exercisable options or options exercisable within 60 days of the date
hereof.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock, par value $.01 per share, and 8,000,000 shares of Preferred Stock,
par value $.01 per share.
COMMON STOCK
As of March 31, 1997, there were 11,127,393 shares of Common Stock
outstanding, after giving effect to the conversion to the shares of Preferred
Stock. After giving effect to the issuance of the 6,020,000 shares of Common
Stock offered by the Company hereby, there will be 17,147,393 shares of Common
Stock outstanding.
Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders and do not have
cumulative voting rights. The election of directors is determined by a plurality
of the votes cast and, except as otherwise required by law, all other matters
are determined by a majority of the votes cast. Accordingly, holders of a
majority of the shares of Common Stock entitled to vote in any election of
directors may elect all of the directors standing for election. See "Risk
Factors--Control by Principal Stockholders." Holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared by the
Board of Directors out of funds legally available therefor, subject to any
preferential dividend rights of outstanding Preferred Stock. Upon the
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to receive ratably the net assets of the Company available
after the payment of all debts and other liabilities. Holders of the Common
Stock have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of Common Stock are, and the shares offered by the Company in
the Offering will be, when issued and paid for, fully paid and nonassessable.
The rights, preferences and privileges of holders of Common Stock are subject
to, and may be adversely affected by, the rights of the holders of shares of any
series of
57
<PAGE>
Preferred Stock which the Company may designate and issue in the future. See
"Description of Capital Stock--Preferred Stock."
RIGHTS
The Company is granting on the date hereof the rights to the holders of
Safeguard common shares. The rights, subject to minimum exercise requirements,
are each exercisable for one share of Common Stock at an exercise price of $5.00
per share. Persons may not exercise rights for fewer than 20 shares of Common
Stock. For purposes of the offering, a person that holds Safeguard common shares
in multiple accounts must meet the 20 share minimum purchase requirement in each
account. Accordingly, persons holding fewer than 20 rights in an account should
consider the advisability of consolidating the rights in one account, selling
rights, or purchasing additional rights to comply with the minimum exercise
requirements of the offering. Rights may be transferred, in whole or in part, by
endorsing and delivering to Chase Mellon Shareholder Services, L.L.C. a rights
certificate that has been properly endorsed for transfer, with instructions to
reissue the rights, in whole or in part, in the name of the transferee. Chase
Mellon Shareholder Services, L.L.C. will reissue certificates for the
transferred rights to the transferee, and will reissue a certificate for the
balance, if any, to the holder of the rights, in each case to the extent it is
able to do so prior to the Expiration Date. The offering will terminate and the
rights will expire at 5:00 p.m., New York City time, on the Expiration Date,
which is , 1997. After the Expiration Date, unexercised rights will be
null and void. For more information about the rights and the offering process,
reference should be made to "The Offering" and to "Risk Factors--Cancellation of
Rights Offering."
PREFERRED STOCK
The Company, by resolution of the Board of Directors and without any further
vote or action by the stockholders, has the authority, subject to certain
limitations prescribed by law, to issue from time to time up to an aggregate of
8,000,000 shares of Preferred Stock in one or more classes or series and to
determine the designation and the number of shares of any class or series as
well as the voting rights, preferences, limitations and special rights, if any,
of the shares of any such class or series, including the dividend rights,
dividend rates, conversion rights and terms, voting rights, redemption rights
and terms, and liquidation preferences. The issuance of Preferred Stock may have
the effect of delaying, deferring or preventing a change of control of the
Company. As of the date of this Prospectus, assuming the conversion of all
outstanding shares of Series A Preferred Stock and Series B Preferred Stock into
Common Stock, there are no shares of Preferred Stock outstanding, and the
Company has no plans to issue any shares of Preferred Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C., 85 Challenger Road, Overpeck Centre, Ridgefield
Park, New Jersey 07660.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, the Company will have 17,147,393 shares of
Common Stock outstanding, excluding 1,539,188 shares of Common Stock subject to
stock options outstanding as of March 31, 1997 and any stock options granted by
the Company after March 31, 1997. Of these shares, the Common Stock sold in the
offering, except for certain shares described below, will be freely tradeable
without restriction or further registration under the Act. The remaining
10,427,393 shares of Common Stock (the "Restricted Shares") were sold by the
Company in reliance on exemptions from the registration requirements of the Act
and are "restricted securities" as defined in Rule 144 and may not be sold in
the absence of registration under the Act unless an exemption is available,
including an exemption afforded by Rule 144 or Rule 701. See "Risk
Factors--Shares Eligible for Future Sale."
58
<PAGE>
In general, under Rule 144 as currently in effect, if two years have elapsed
since the date of acquisition of restricted securities from the Company or any
affiliate and the acquiror or subsequent holder is not deemed to have been an
affiliate of the Company for at least 90 days prior to a proposed transaction,
such person would be entitled to sell such shares under Rule 144(k) without
regard to the limitations described below. If one year has elapsed since the
date of acquisition of restricted securities from the Company or any affiliate,
the acquiror or subsequent holder thereof (including persons who may be deemed
affiliates of the Company) is entitled to sell within any three-month period a
number of shares that does not exceed the greater of 1% of the then-outstanding
shares of Common Stock or the average weekly trading volume in the Common Stock
on the Nasdaq National Market during the four calendar weeks preceding such
sale. Sales under Rule 144 are also subject to certain provisions regarding the
manner of sale, notice requirements and the availability of current public
information about the Company. Without considering the contractual restrictions
described below, approximately 10,427,393 Restricted Shares will be eligible for
sale ninety days after the date of this Prospectus, subject to manner of sale
and other resale conditions imposed by Rule 144. Certain restrictions apply to
any shares of Common Stock purchased in the offering by affiliates of the
Company, which may generally only be sold in compliance with the limitations of
Rule 144, except for the holding period requirements thereunder. See "Risk
Factors--Shares Eligible for Future Sale."
Rule 144A under the Act provides a nonexclusive safe harbor exemption from
the registration requirements of the Act of specified resales of restricted
securities to certain institutional investors. In general, Rule 144A allows
unregistered resales of restricted securities to a "qualified institutional
buyer," which generally includes an entity, acting for its own account or for
the account of other qualified institutional buyers, that in the aggregate owns
or invests at least $100 million in securities that, when issued, were of the
same class as securities listed on a national securities exchange or quoted on
Nasdaq. The shares of Common Stock outstanding as of the date of this Prospectus
would be eligible for resale under Rule 144A because such shares, when issued,
were not of the same class as any listed or quoted securities.
STOCK OPTIONS
As of March 31, 1997, there were outstanding options to purchase an
aggregate of 1,539,188 shares of Common Stock (of which 284,954 were exercisable
at March 31, 1997), at a weighted average exercise price of $1.96 per share. As
of March 31, 1997, the Company had an additional 173,563 shares of Common Stock
available for future grants and other issuances under the Plan. After the
offering, the holders of options to purchase a total of 1,292,313 shares will be
subject to Lock-Up Agreements, which restrict, until after the Lock-Up Expiry
Date (without the underwriters' prior written consent), the holders' ability to
sell or otherwise dispose of Common Stock acquired upon the exercise of such
options. See "Management-- Stock Option Plan."
The Company issued options and underlying shares of Common Stock to
employees of the Company who were not executive officers and directors of the
Company pursuant to Rule 701. Under Rule 701, such employees of the Company who
prior to the Offering purchased shares pursuant to the Stock Option Plan are
entitled to sell such shares without having to comply with the public
information, holding period, volume limitation or notice provisions of Rule 144
commencing 90 days after the date of this Prospectus. Rule 701 also permits the
shares subject to unexercised options under such Plan to be sold upon exercise
without having to comply with such provisions of Rule 144. As of March 31, 1997,
approximately 175,000 shares of Common Stock subject to unexercised options will
be eligible for sale under Rule 701 by Company employees (subject to applicable
vesting provisions).
It is anticipated that a Form S-8 Registration Statement covering the Common
Stock that may be issued pursuant to the exercise of options after the
effectiveness of the Form S-8 Registration Statement will be filed and declared
effective prior to the Lock-Up Expiry Date and that shares of Common Stock that
are so acquired and offered thereafter pursuant to the Form S-8 Registration
Statement generally may
59
<PAGE>
be resold in the public market without restriction or limitation, except in the
case of affiliates of the Company, which generally may only resell such shares
in compliance with Rule 144, except for the holding period requirements
thereunder.
LOCK-UP AGREEMENTS
The Principal Stockholders, Centocor, each executive officer and each
director of the Company, who will in the aggregate own 8,438,799 shares of
Common Stock after the completion of the offering and will be deemed to
beneficially own an additional 388,946 shares of Common Stock, have agreed with
the Underwriters that they will not sell or otherwise dispose of any shares of
Common Stock until after the Lock-Up Expiry Date without the prior written
consent of the underwriters. See "Management--Equity Compensation Plan" and
"Shares Eligible for Future Sale." In addition, Warren V. Musser has agreed that
he and/or his assignees will not sell or otherwise dispose of 280,000 shares of
Common Stock without the prior written consent of the Underwriters. See
"Management--Stock Options" and "Shares Eligible for Future Sale."
REGISTRATION RIGHTS
The Company has granted certain piggyback and demand registration rights to
holders of Preferred Stock. Holders of at least 1,200,000 shares of Preferred
Stock have the right to request that the Company effect the registration, under
the Securities Act, of the Common Stock issuable upon the conversion of the
Preferred Stock, provided that the securities to be registered have a value of
at least $3,000,000. These registration rights become exercisable six months
after the completion of this offering. In addition, the holders of Preferred
Stock have the right to include their securities in the offerings of the
Company's securities under the Securities Act. By exercising such registration
rights, subject to certain limitations, such holders could cause a significant
number of shares to be registered and sold in the public market. Such sales may
have an adverse effect on the market price for the Common Stock and could impair
the Company's ability to raise capital through an offering of its equity
securities. All of the holders of registration rights have waived their
respective rights to participate in this offering.
60
<PAGE>
UNDERWRITING
The Company and the underwriters have entered into the Standby Underwriting
Agreement on the date hereof, pursuant to which the underwriters are required,
subject to certain terms and conditions (all of which are set forth below), to
purchase the shares of Common Stock offered in the rights offering and not
purchased (the "Excess Unsubscribed Shares") in accordance with the percentages
set forth below. If all of the rights are exercised there will be no Excess
Unsubscribed Shares and the underwriters will not be required to purchase any
shares of Common Stock.
<TABLE>
<CAPTION>
% OF UNDERWRITER
UNDERWRITERS SHARES
- ------------------------------------------------------------------------------------------ ----------------------
<S> <C>
Robert W. Baird & Co. Incorporated........................................................
Adams, Harkness & Hill, Inc...............................................................
</TABLE>
The underwriters have agreed, severally and not jointly, subject to the
condition that the Company complies with its obligations under the Standby
Underwriting Agreement and subject to the Underwriter's right to terminate their
obligations under the Standby Underwriting Agreement (as specified below), to
purchase all of the Excess Unsubscribed Shares. The Company will pay the
underwriters the financial advisory fee equal to 3% of the exercise price for
each share of Common Stock included in the offering. The financial advisory fee
is for services and advice rendered in connection with the structuring of the
offering, valuation of the business of the Company, and financial advice to the
Company before and during the offering. An additional fee of 4% of the exercise
price will be paid to the underwriters (i) for each share of Common Stock
purchased by the underwriters pursuant to the Standby Underwriting Agreement and
(ii) for each share of Common Stock purchased upon the underwriters' exercise of
rights if such rights were purchased by the underwriters at a time when the
Common Stock was trading (on a "when issued" basis) at a per share price of less
than 120% of the exercise price or if the underwriters purchase such rights with
Safeguard's prior acknowledgment that it would be entitled to receive the
underwriting discount for Common Stock purchased pursuant to the exercise of
such rights. In addition, the Company has agreed to pay the underwriters a
non-accountable expense allowance in the aggregate amount of $200,000, provided,
however, such non-accountable expense allowance shall be reduced to $100,000 or
zero if, on the Expiration Date, the closing price for the Common Stock traded
on a "when issued" basis is at least $7.25 per share or greater than $8.25 per
share, respectively. The selling stockholders have granted to the underwriters a
20-day option commencing on the Expiration Date to purchase a maximum of 640,000
additional shares of Common Stock at a per share price equal to the exercise
price less the financial advisory fee and the underwriting discount. The
underwriters may exercise such option in whole or in part only to cover
over-allotments made in connection with the sale of shares of Common Stock by
the underwriters.
Prior to the Expiration Date, the underwriters may offer shares of Common
Stock on a when-issued basis, including shares to be acquired through the
purchase and exercise of rights, at prices set from time to time by the
underwriters. It is not contemplated that the offering price set on any calendar
day will be increased more than once during such day. After the Expiration Date,
the underwriters may offer shares of Common Stock, whether acquired pursuant to
the Standby Underwriting Agreement, the exercise of the rights or the purchase
of Common Stock in the market, to the public at a price or prices to be
determined. The underwriters may thus realize profits or losses independent of
the underwriting discount and the financial advisory fee. Shares of Common Stock
subject to the Standby Underwriting Agreement will be offered by the
underwriters when, as and if sold to, and accepted by, the underwriters and will
be subject to their right to reject orders in whole or in part.
Prior to the offering, there has been no public market for the Common Stock
or the rights. Consequently, the exercise price was determined by negotiations
among the Company and the underwriters. In determining the exercise price, the
underwriters and the Board of Directors of the Company considered such factors
as the future prospects and historical growth rate in revenues and earnings of
the Company, its industry in general and the Company's position in its industry;
revenues, earnings and certain other financial and operating information of the
Company in recent periods; market valuations of the
61
<PAGE>
securities of companies engaged in activities similar to those of the Company;
the management of the Company; and, with respect to the Company, the advice of
the underwriters.
The underwriters will be prohibited from engaging in any market making
activities with respect to the Company's when-issued Common Stock and Common
Stock until the underwriters have completed their participation in the
distribution of shares offered hereby. As a result, the underwriters may be
unable to provide a market for the Company's when-issued Common Stock and Common
Stock should it desire to do so, during certain periods while the rights are
exercisable.
In connection with the offering, the underwriters and certain selling group
members may engage in stabilizing, syndicate short covering transactions or
other transactions that stabilize, maintain or otherwise effect the market price
of the Common Stock. After the opening of quotations for the Common Stock on the
Nasdaq National Market, stabilizing bids for the purpose of preventing or
retarding a decline in the market price may be initiated by the underwriters or
selling group members in any market at a price no higher than the last
independent transaction price for the Common Stock and then maintained, reduced
or raised to follow the independent market. Such transactions may stabilize the
market price of the Common Stock at a level above that which might otherwise
prevail and, if commenced, may be discontinued at any time.
The Company has agreed to indemnify the underwriters against certain
liabilities arising out of or based upon misstatements or omissions in this
Prospectus or the Registration Statement of which this Prospectus is a part and
certain other liabilities, including liabilities under the Act, and to
contribute to certain payments that the underwriters may be required to make.
The underwriters may terminate their obligations under the Standby
Underwriting Agreement (i) if any calamitous domestic or international event or
act or occurrence has disrupted or, in the underwriters' opinion, will in the
immediate future materially disrupt, the general securities market in the United
States; (ii) if trading in the Common Stock (on a when-issued basis) shall have
been suspended by the Commission or Nasdaq; (iii) if trading on the New York
Stock Exchange, the American Stock Exchange or the Nasdaq National Market or in
the over-the-counter market shall have been suspended, or minimum or maximum
prices for trading shall have been fixed, or maximum ranges for prices for
securities shall have been required on the over-the-counter market by the NASD
or by order of the Commission or any other government authority having
jurisdiction; (iv) if the United States shall have become involved in a war or
major hostilities which, in the underwriters' opinion, will affect the general
securities market in the United States; (v) if a banking moratorium has been
declared by a California, New York, Pennsylvania, Massachusetts, Wisconsin or
federal authority; (vi) if a moratorium in foreign exchange trading has been
declared; (vii) if the Company shall have sustained a loss material to the
Company by fire, flood, accident, hurricane, earthquake, theft, sabotage or
other calamity or malicious act, whether or not such loss shall have been
insured, or from any labor dispute or any legal or governmental proceeding;
(viii) if there shall be such material adverse market conditions (whether
occurring suddenly or gradually between the date of this Prospectus and the
closing of the offering) affecting markets generally, or technology or
healthcare issues particularly, as in the underwriters' reasonable judgment
would make it inadvisable to proceed with the offering, sale or delivery of the
shares of Common Stock offered hereby; or (ix) if there shall have been such
material adverse change, or any development involving a prospective material
adverse change, in the condition (financial or otherwise), business prospects,
net worth or results of operations of the Company since December 31, 1996, or
that materially impacts the Standby Underwriting Agreement.
The Company has agreed that, without the prior written consent of the
underwriters, it will not offer, sell, grant any option for the sale of, or
otherwise dispose of any shares of Common Stock (or securities convertible into
shares of Common Stock) (collectively, the "Securities") acquired in the
offering or held by it as of the date hereof until after the Lock-Up Expiry
Date, other than (i) Common Stock to be sold in the offering, and (ii) Company
option issuances and sales of Common Stock pursuant to the Stock Option Plan and
(iii) Securities issued as consideration for an acquisition if the party being
issued the Securities agrees not to transfer, sell, offer for sale, contract or
otherwise dispose of such Securities until after the Lock-Up Expiry Date. The
Principal Stockholders, Centocor, each executive officer and each director of
62
<PAGE>
the Company, who will in the aggregate own 8,438,799 shares of Common Stock
after the completion of the Offering and will be deemed to beneficially own an
additional 388,946 shares of Common Stock, have agreed with the Underwriters
that they will not sell or otherwise dispose of any shares of Common Stock until
after the Lock-Up Expiry Date without the prior written consent of the
underwriters. See "Management--Equity Compensation Plan" and "Shares Eligible
for Future Sale." In addition, Warren V. Musser has agreed that he and/or his
assignees will not sell or otherwise dispose of 280,000 shares of Common Stock
without the prior written consent of the Underwriters. See "Management--Stock
Options" and "Shares Eligible for Future Sale."
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania.
Certain legal matters in connection with the Offering are being passed upon for
the Underwriters by Drinker Biddle & Reath LLP, Philadelphia, Pennsylvania.
EXPERTS
The financial statements of ChromaVision Medical Systems, Inc. as of
December 31, 1996 and 1995 and for each of the three years ended December 31,
1996 included in this Prospectus and elsewhere in the Registration Statement
have been included herein in reliance on the report of KPMG Peat Marwick LLP,
independent accountants, given upon the authority of said firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (including all amendments thereto, the "Registration Statement") under the
Act with respect to the Common Stock and rights offered hereby. As permitted by
the rules and regulations of the Commission, this Prospectus omits certain
information contained in the Registration Statement. For further information
with respect to the Company and the Common Stock and rights offered hereby,
reference is hereby made to the Registration Statement and to the exhibits and
schedules filed therewith. Statements contained in this Prospectus regarding the
contents of any agreement or other document filed as an exhibit to the
Registration Statement are not necessarily complete, and in each instance
reference is made to the copy of such agreement filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. The Registration Statement, including the exhibits and schedules
thereto, may be inspected at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, DC 20549, and copies of all or
any part thereof may be obtained from such office upon payment of the prescribed
fees. In addition, the Commission maintains a Web site at http://www.sec.gov
that contains reports, proxy statements, information statements and other
information regarding the Company.
63
<PAGE>
CHROMAVISION MEDICAL SYSTEMS, INC.
(FORMERLY MICROVISION MEDICAL SYSTEMS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report.......................................................... F-2
Balance Sheets as of December 31, 1995 and 1996 and March 31, 1997 (unaudited)........ F-3
Statements of Operations for the years ended December 31, 1994, 1995 and 1996 and for
the three months ended March 31, 1996 and 1997 (unaudited).......................... F-4
Statements of Stockholders' Deficit at Decenber 31, 1995 and 1996 and March 31, 1997
(unaudited)......................................................................... F-5
Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996 and for
the three months ended March 31, 1996 and 1997 (unaudited).......................... F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
ChromaVision Medical Systems, Inc.:
(formerly MicroVision Medical Systems, Inc.):
We have audited the accompanying balance sheets of ChromaVision Medical
Systems, Inc. (a development stage enterprise) as of December 31, 1996 and 1995
and the related statements of operations, stockholders' deficit and cash flows
for each of the years in the three year period ended December 31, 1996 and for
the cumulative development stage from April 1, 1993 (inception) through December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ChromaVision Medical
Systems, Inc. (a development stage enterprise) at December 31, 1996 and 1995 and
the results of its operations and its cash flows for each of the years in the
three year period ended December 31, 1996 and for the cumulative development
stage from April 1, 1993 (inception) through December 31, 1996, in conformity
with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Orlando, Florida
March 19, 1997
F-2
<PAGE>
CHROMAVISION MEDICAL SYSTEMS, INC.
(FORMERLY MICROVISION MEDICAL SYSTEMS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
ASSETS 1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
(UNAUDITED)
Current assets:
Cash and cash equivalents............................ $ -- $ 124,092 $ 65,100
Accounts receivable.................................. 200,000 550 550
Inventory............................................ 74,202 502,511 468,411
Prepaid expenses..................................... -- 27,677 42,422
Capitalized offering costs........................... -- 144,760 344,760
---------- ---------- ----------
Total current assets............................... 274,202 799,590 921,243
Deposits............................................... -- -- 35,682
Property and equipment, net............................ 71,462 80,840 230,418
---------- ---------- ----------
Total assets........................................... $ 345,664 $ 880,430 $1,187,343
---------- ---------- ----------
---------- ---------- ----------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
<S> <C> <C> <C>
Current liabilities:
Revolving line of credit............................. $ -- $ -- $1,958,432
Due to XL Vision, Inc................................ 4,726,635 380,439 452,388
Accounts payable..................................... 8,783 183,373 318,973
Accrued liabilities:
Salaries and benefits.............................. 8,846 89,066 158,522
Severance costs.................................... -- 912,050 --
Warranty costs..................................... -- 60,000 60,000
Offering costs..................................... -- 105,000 273,000
Other.............................................. -- -- 29,908
---------- ---------- ----------
Total current liabilities........................ 4,744,264 1,729,928 3,251,223
Revolving line of credit............................. -- 806,009 --
---------- ---------- ----------
Total liabilities................................ 4,744,264 2,535,937 3,251,223
---------- ---------- ----------
Commitments and contingencies
Stockholders' deficit:
Series A preferred stock, $.01 par value, authorized
7,246,000 shares, issued and outstanding 7,135,064
shares in 1996 and 1997............................ -- 71,351 71,351
Series B preferred stock, $.01 par value, authorized
221,850 shares, issued and outstanding -0- shares
in 1996 and 221,850 shares in 1997................. -- -- 2,219
Common stock $.01 par value, authorized 50,000,000
shares, issued and outstanding 1,931,250 shares in
1996 and 1997...................................... -- 19,313 19,313
Additional paid-in capital........................... -- 2,284,092 3,280,198
Division deficit during the development stage........ (4,398,600) -- --
Accumulated deficit during the development stage..... -- (4,030,263) (5,436,961)
---------- ---------- ----------
Total stockholders' deficit...................... (4,398,600) (1,655,507) (2,063,880)
---------- ---------- ----------
Total liabilities and stockholders' deficit............ $ 345,664 $ 880,430 $1,187,343
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
CHROMAVISION MEDICAL SYSTEMS, INC.
(FORMERLY MICROVISION MEDICAL SYSTEMS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 1, 1993 THREE MONTHS
(INCEPTION) ENDED
YEARS ENDED DECEMBER 31, THROUGH MARCH 31,
---------------------------------------- DECEMBER 31, -------------------------
1994 1995 1996 1996 1996 1997
------------ ------------ ------------ ------------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenue................................. $ 296,886 $ 900,000 $ -- $ 1,196,886 $ -- $ --
Cost of revenue......................... 232,636 310,103 -- 542,739 -- --
------------ ------------ ------------ ------------------ ----------- ------------
Gross profit.......................... 64,250 589,897 -- 654,147 -- --
------------ ------------ ------------ ------------------ ----------- ------------
Operating expenses:
Selling, general and administrative... 787,167 1,040,070 2,979,252 5,111,440 216,579 784,622
Research and development.............. 858,389 1,513,014 1,099,330 4,019,889 235,578 599,808
------------ ------------ ------------ ------------------ ----------- ------------
Total operating expenses............ 1,645,556 2,553,084 4,078,582 9,131,329 452,157 1,384,430
------------ ------------ ------------ ------------------ ----------- ------------
Profit (loss) from operations....... (1,581,306) (1,963,187) (4,078,582) (8,477,182) (452,157) (1,384,430)
------------ ------------ ------------ ------------------ ----------- ------------
Other income (expense):
Interest income (expense)............. -- -- 17,829 17,829 -- (22,278)
Other income (note 4) -- -- 423,525 423,525 75,000 10
Other expense (note 11)............... -- -- (770,192) (770,192) -- --
------------ ------------ ------------ ------------------ ----------- ------------
Total other income (expense)........ -- -- (328,838) (328,838) 75,000 (22,268)
------------ ------------ ------------ ------------------ ----------- ------------
Profit (loss) before income taxes... (1,581,306) (1,963,187) (4,407,420) (8,806,020) (377,157) (1,406,698)
Income tax expense (benefit)............ -- -- -- -- -- --
------------ ------------ ------------ ------------------ ----------- ------------
Net profit (loss)................... $ (1,581,306) $ (1,963,187) $ (4,407,420) $ (8,806,020) $ (377,157) $ (1,406,698)
------------ ------------ ------------ ------------------ ----------- ------------
------------ ------------ ------------ ------------------ ----------- ------------
Pro forma net loss per common share..... $ (0.36) $ (0.20) $ (0.11)
------------ ----------- ------------
------------ ----------- ------------
Pro forma weighted average number of
common shares outstanding............. 12,111,580 1,931,250 12,280,331
<CAPTION>
PERIOD FROM
APRIL 1, 1993
(INCEPTION)
THROUGH
MARCH 31,
1997
-------------
<S> <C>
(UNAUDITED)
Revenue................................. $ 1,196,886
Cost of revenue......................... 542,739
-------------
Gross profit.......................... 654,147
-------------
Operating expenses:
Selling, general and administrative... 5,896,062
Research and development.............. 4,619,697
-------------
Total operating expenses............ 10,515,759
-------------
Profit (loss) from operations....... (9,861,612)
-------------
Other income (expense):
Interest income (expense)............. (4,449)
Other income (note 4) 423,535
Other expense (note 11)............... (770,192)
-------------
Total other income (expense)........ (351,106)
-------------
Profit (loss) before income taxes... (10,212,718)
Income tax expense (benefit)............ --
-------------
Net profit (loss)................... $ (10,212,718)
-------------
-------------
Pro forma net loss per common share.....
Pro forma weighted average number of
common shares outstanding.............
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
CHROMAVISION MEDICAL SYSTEMS, INC.
(FORMERLY MICROVISION MEDICAL SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
PREFERRED STOCK
--------------------------------------------- DIVISION
DEFICIT
SERIES A SERIES B COMMON STOCK ADDITIONAL DURING THE
--------------------- ---------------------- --------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE
---------- --------- --------- ----------- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1993........................ -- $ -- -- $ -- -- $ -- $ -- $ (854,107)
Net profit (loss)............. -- -- -- -- -- -- -- (1,581,306)
---------- --------- --------- ----------- ---------- --------- ------------ ------------
Balances at December 31,
1994........................ -- -- -- -- -- -- -- (2,435,413)
Net profit (loss)............. -- -- -- -- -- -- -- (1,963,187)
---------- --------- --------- ----------- ---------- --------- ------------ ------------
Balances at December 31,
1995........................ -- -- -- -- -- -- -- (4,398,600)
Net profit (loss)............. -- -- -- -- -- -- -- (377,157)
Issuance of common stock...... -- -- -- -- 1,545,000 15,450 -- --
Sale of preferred stock....... 6,364,872 63,649 -- -- -- -- 6,301,222 --
Elimination of division
deficit..................... -- -- -- -- -- -- (4,775,757) 4,775,757
Issuance of preferred stock
for release of rights and
claims (note 11)............ 770,192 7,702 -- -- -- -- 762,490 --
Five-for-four common stock
split (note 12)............. -- -- -- -- 386,250 3,863 (3,863) --
---------- --------- --------- ----------- ---------- --------- ------------ ------------
Balances at December 31,
1996........................ 7,135,064 71,351 -- -- 1,931,250 19,313 2,284,092 --
Sale of preferred stock
(unaudited)................. -- -- 221,850 2,219 -- -- 996,106 --
Net profit (loss)
(unaudited)................. -- -- -- -- -- -- -- --
---------- --------- --------- ----------- ---------- --------- ------------ ------------
Balances at March 31, 1997
(unaudited)................. 7,135,064 $ 71,351 221,850 $ 2,219 1,931,250 $ 19,313 $ 3,280,198 $ --
---------- --------- --------- ----------- ---------- --------- ------------ ------------
---------- --------- --------- ----------- ---------- --------- ------------ ------------
<CAPTION>
ACCUMULATED
DEFICIT
DURING HE
DEVELOPMENT
STAGE TOTAL
------------ ------------
<S> <C> <C>
Balances at December 31,
1993........................ $ -- $ (854,107)
Net profit (loss)............. -- (1,581,306)
------------ ------------
Balances at December 31,
1994........................ -- (2,435,413)
Net profit (loss)............. -- (1,963,187)
------------ ------------
Balances at December 31,
1995........................ -- (4,398,600)
Net profit (loss)............. (4,030,263) (4,407,420)
Issuance of common stock...... -- 15,450
Sale of preferred stock....... -- 6,364,871
Elimination of division
deficit..................... -- --
Issuance of preferred stock
for release of rights and
claims (note 11)............ -- 770,192
Five-for-four common stock
split (note 12)............. -- --
------------ ------------
Balances at December 31,
1996........................ (4,030,263) (1,655,507)
Sale of preferred stock
(unaudited)................. -- 998,325
Net profit (loss)
(unaudited)................. (1,406,698) (1,406,698)
------------ ------------
Balances at March 31, 1997
(unaudited)................. $(5,436,961) $ (2,063,880)
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
CHROMAVISION MEDICAL SYSTEMS, INC.
(FORMERLY MICROVISION MEDICAL SYSTEMS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
APRIL 1, APRIL 1,
1993 THREE MONTHS 1993
(INCEPTION) ENDED (INCEPTION)
YEARS ENDED DECEMBER 31, THROUGH MARCH 31, THROUGH
---------------------------------- DECEMBER 31, --------------------- MARCH 31,
1994 1995 1996 1996 1996 1997 1997
---------- ---------- ---------- ------------ --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Cash flows from development stage
activities:
Net profit (loss)............... $(1,581,306) $(1,963,187) $(4,407,420) $(8,806,020) $(377,157) $(1,406,698) ($10,212,718)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization................ 27,159 54,417 34,739 116,315 6,080 9,605 125,920
Non-cash issuance of preferred
stock....................... -- -- 770,192 770,192 -- -- 770,192
Write-off of note
receivable.................. -- 40,000 -- 40,000 -- -- 40,000
Changes in operating assets
and liabilities:
Accounts receivable......... (100,000) (100,000) 199,450 (550) 200,000 -- (550)
Inventory................... (1,646) (52,556) (428,309) (502,511) (1,888) 34,100 (468,411)
Prepaid expenses............ -- -- (27,677) (27,677) -- (14,745) (42,422)
Deposits.................... -- -- -- -- -- (35,682) (35,682)
Accounts payable............ 466 8,317 174,590 183,373 -- 135,600 318,973
Accrued liabilities......... 1,110 5,080 1,157,270 1,166,116 21,514 (644,686) 521,430
---------- ---------- ---------- ------------ --------- ---------- ------------
Net cash used in operating
activities................ (1,654,217) (2,007,929) (2,527,165) (7,060,762) (151,451) (1,922,506) (8,983,268)
---------- ---------- ---------- ------------ --------- ---------- ------------
Cash flows from investing
activities:
Notes receivable................ (785,000) -- -- (825,000) -- -- (825,000)
Collections on notes
receivable.................... -- 785,000 -- 785,000 -- -- 785,000
Purchases of property and
equipment..................... (146,841) (6,197) (44,117) (197,155) (348) (159,183) (356,338)
---------- ---------- ---------- ------------ --------- ---------- ------------
Net cash provided by (used
in) investing
activities................ (931,841) 778,803 (44,117) (237,155) (348) (159,183) (396,338)
---------- ---------- ---------- ------------ --------- ---------- ------------
Cash flows from financing
activities:
Due to (from) XL Vision, Inc.... 2,586,058 1,229,126 (4,346,196) 380,439 136,349 71,949 452,388
Sale of common stock............ -- -- 15,450 15,450 15,450 -- 15,450
Borrowing under revolving line
of credit..................... -- -- 806,009 806,009 -- 1,152,423 1,958,432
Sale of preferred stock......... -- -- 6,364,871 6,364,871 -- 998,325 7,363,196
Capitalized offering costs...... -- -- (144,760) (144,760) -- (200,000) (344,760)
---------- ---------- ---------- ------------ --------- ---------- ------------
Net cash provided by
financing activities...... 2,586,058 1,229,126 2,695,374 7,422,009 151,799 2,022,697 9,444,706
---------- ---------- ---------- ------------ --------- ---------- ------------
Net increase (decrease) in
cash and cash
equivalents............... -- -- 124,092 124,092 -- (58,992) 65,100
Cash and cash equivalents--
beginning of period............. -- -- -- -- -- 124,092 --
---------- ---------- ---------- ------------ --------- ---------- ------------
Cash and cash equivalents--end of
period.......................... $ -- $ -- $ 124,092 $ 124,092 $ -- $ 65,100 $ 65,100
---------- ---------- ---------- ------------ --------- ---------- ------------
---------- ---------- ---------- ------------ --------- ---------- ------------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
CHROMAVISION MEDICAL SYSTEMS, INC.
(FORMERLY MICROVISION MEDICAL SYSTEMS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS OF MARCH 31, 1997 IS UNAUDITED
(1) ORGANIZATION
ChromaVision Medical Systems, Inc. (formerly MicroVision Medical Systems,
Inc.) (a development stage enterprise) ("ChromaVision" or the "Company") is a
Delaware corporation. Prior to the formation of the Company on March 28, 1996,
the Company's business was conducted as the MicroVision Medical Systems Division
(the "Division") of XL Vision, Inc. ("XL Vision").
The accompanying financial statements for the period from April 1, 1993,
inception, through March 27, 1996, reflects operations within XL Vision.
Significant management assumptions were made in allocating indirect costs from
XL Vision in order to present the balance sheet and statement of operations for
those periods. Upon incorporation, the Company issued to XL Vision 1,545,000
shares of common stock in the new corporation. In March 1996, XL Vision
transferred the net assets of the Division to the new corporation for
approximately $4.8 million. Proceeds from the private placement in 1996 were
used primarily to fund the repayment of amounts due to XL Vision.
The Company was established to develop medical imaging technologies and to
introduce a computer-based microscope for the healthcare services market. From
inception on April 1, 1993 through December 31, 1996, the Company has devoted
substantially all of its resources to the development of the ChromaVision
Digital Analyzer ChromaVision Digital Analyzer technology.
The ChromaVision Digital Analyzer is designed to identify cells with
specific characteristics within a sample of cells by detecting color produced by
the reaction between common laboratory reagents (or stains) in the cells. The
ChromaVision Digital Analyzer uses proprietary imaging software and technology
to capture digital images of cell samples and detect the presence, count the
number and measure the color intensity of cells containing a particular stain.
The Company believes the ChromaVision Digital Analyzer offers flexibility
because the software can be configured to identify different stains; thereby
allowing the system to be adapted for use with different reagents to identify a
broad range of cellular conditions. The Company intends to establish the
ChromaVision Digital Analyzer as the preferred platform for multiple microscopic
diagnostic applications.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) DEVELOPMENT STAGE
From the inception of ChromaVision on April 1, 1993, the Company was
considered to be in the development stage as defined by the Statement of
Financial Accounting Standards ("SFAS") No. 7, "ACCOUNTING AND REPORTING BY
DEVELOPMENT STAGE ENTERPRISES". Until the Company begins to realize significant
revenue associated from its planned operations, the Company will be considered
in the development stage.
(B) MANAGEMENT'S PLANS
At March 31, 1997, the Company had a working capital deficiency of
$2,329,980 and a stockholders' deficit of $2,063,880. Management expects
additional working capital requirements as the Company continues its marketing
and development efforts leading to initial revenues from its ChromaVision
Digital Analyzer. Management expects initial system revenues to begin in 1998.
The Company's business plans
F-7
<PAGE>
CHROMAVISION MEDICAL SYSTEMS, INC.
(FORMERLY MICROVISION MEDICAL SYSTEMS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF MARCH 31, 1997 IS UNAUDITED
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
anticipate manufacturing the ChromaVision Digital Analyzer instruments, placing
them with users at no charge and charging a "per click" fee for each use of the
instruments. The manufacturing of these instruments will require a significant
outlay of cash for which revenues will not be recognized until future periods.
As a result, the Company intends to arrange third-party financing for the
instruments. In addition, to support the Company's future cash needs, it may
consider additional debt or equity financing. Although management believes that
its initial public offering ("IPO") will be successful, there can be no
assurances that it will be achieved or that the Company will be successful in
raising other financing. The Company anticipates that net proceeds from its
planned IPO of common stock (see note 13) will be sufficient to satisfy its
operating cash needs for at least twelve months following the IPO. If the
Company is unable to obtain sufficient additional funds, the Company may have to
delay, scale back or eliminate some or all of its development activities and
clinical studies.
(C) INTERIM FINANCIAL INFORMATION
The financial statements for the three months ended March 31, 1997 and 1996
are unaudited but reflect adjustments which are, in the opinion of management,
necessary for the fair presentation of financial position and results of
operations. Operating results for the three months ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997.
(D) CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of amounts held as bank deposits and
marketable securities with a maturity of three months or less.
(E) INVENTORIES
Inventories are stated at standard cost which approximates the lower of
first-in, first-out cost or market.
(F) DEPRECIATION AND AMORTIZATION
Demonstration equipment and property and equipment are stated at cost.
Depreciation of property and equipment is computed using the straight-line
method over the estimated useful lives of the assets which are generally 7-10
years for production and engineering equipment, and 5-7 years for all other
assets. Demonstration equipment is amortized over a 3 year period.
(G) INCOME TAXES
The Company accounts for income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
F-8
<PAGE>
CHROMAVISION MEDICAL SYSTEMS, INC.
(FORMERLY MICROVISION MEDICAL SYSTEMS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF MARCH 31, 1997 IS UNAUDITED
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Prior to March 28, 1996, the Company operated as a division of XL Vision
and, as such, did not record any income tax benefit for losses prior to that
date.
(H) STOCK-BASED COMPENSATION
During 1996, the Company adopted SFAS No. 123, "ACCOUNTING FOR STOCK-BASED
COMPENSATION", which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net earnings and pro
forma earnings per share disclosures for stock option grants made in 1996 and
future years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
(I) USE OF ESTIMATES
The preparation of the Company's financial statements, in conformity with
generally accepted accounting principles, requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities and the reported amounts of
revenues and expenses. Actual results could differ from those estimates. In
particular, as further described in note 1, significant assumptions were made to
allocate indirect costs from XL Vision to ChromaVision for periods prior to
incorporation.
(J) PRO FORMA LOSS PER SHARE
Pursuant to the requirements of the Securities and Exchange Commission,
common shares and common equivalent shares issued at prices below the estimated
public offering price during the 12 months immediately preceding the date of the
initial filing of the registration statement have been included in the
calculation of common shares and common share equivalents, using the treasury
stock method, as if they were outstanding for all periods presented whether they
are antidilutive or not. Calculation of pro forma loss per share assumes that
all outstanding preferred shares have been converted into common shares.
(K) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash, accounts receivable, accounts payable and
accrued liabilities reflected in the financial statements approximates fair
value due to the short-term maturity of these instruments.
The carrying value of the Company's line of credit approximates fair value
as the underlying interest rate fluctuates with current market rates.
F-9
<PAGE>
CHROMAVISION MEDICAL SYSTEMS, INC.
(FORMERLY MICROVISION MEDICAL SYSTEMS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF MARCH 31, 1997 IS UNAUDITED
(3) INVENTORY
The following is a summary of inventory:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1995 1996 1997
--------- ---------- ----------
<S> <C> <C> <C>
Raw materials.................................................................. $ 74,202 $ 105,520 $ 85,987
Finished goods................................................................. -- 396,991 382,424
--------- ---------- ----------
$ 74,202 $ 502,511 $ 468,411
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
(4) NOTES RECEIVABLE
In June 1993, the Company executed a letter of understanding with
Intelligent Medical Imaging, Inc. ("IMI") under which ChromaVision agreed in
principle to manufacture IMI's Micro21 System design units. During 1993,
ChromaVision advanced $40,000 to IMI in contemplation of an equity investment in
IMI. During 1994, an additional $785,000 was advanced. In addition to amounts
advanced, ChromaVision incurred costs in developing hardware for the Micro21
System. The parties were unable to agree to definitive terms for the equity
investment and their manufacturing relationship. On July 23, 1994, a settlement
agreement was reached whereby IMI issued an $825,000 secured convertible
promissory note payable (the "$825,000 note"), a $500,000 noninterest bearing
secured promissory note payable (the "$500,000 note") and a $220,000 purchase
order (the "purchase order") to ChromaVision. During 1994 the purchase order was
paid in full. In 1995, ChromaVision accepted $785,000 in full payment of the
$825,000 note.
The $500,000 note was issued by IMI for support services but was not
recognized as income based upon doubts as to its collectibility. During 1996,
ChromaVision accepted $423,525 in full payment of the $500,000 note which has
been reflected in other income in the year ended December 31, 1996.
(5) PROPERTY AND EQUIPMENT
The following is a summary of property and equipment:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Demonstration equipment...................................................... $ 140,000 $ 140,000 $ 140,000
Office and computer equipment................................................ 8,067 46,771 164,982
Furniture and fixtures....................................................... 4,971 5,874 5,874
Engineering and manufacturing equipment...................................... -- 4,510 16,286
Leasehold improvements....................................................... -- -- 29,196
---------- ---------- ----------
153,038 197,155 356,338
Less: accumulated depreciation and amortization.............................. 81,576 116,315 125,920
---------- ---------- ----------
Total property and equipment, net............................................ $ 71,462 $ 80,840 $ 230,418
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-10
<PAGE>
CHROMAVISION MEDICAL SYSTEMS, INC.
(FORMERLY MICROVISION MEDICAL SYSTEMS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF MARCH 31, 1997 IS UNAUDITED
(6) LINE OF CREDIT
The Company has an unsecured line of credit with a bank under which it may
borrow up to $3,000,000 at the LIBOR plus 2.1% (7.76% at December 31, 1996). The
outstanding balance on the line of credit was $806,009 at December 31, 1996. The
line of credit is due on January 31, 1998. The line of credit is guaranteed by
Safeguard Scientifics, Inc. ("Safeguard"). A default by Safeguard on their
existing line of credit agreement with another bank would constitute default by
the Company.
As of March 31, 1997, the outstanding balance on the line of credit was
$1,958,432. Availability under the line of credit was increased to $5,000,000
during April 1997.
(7) PREFERRED STOCK
As of December 31, 1996, the Company had authorized the issuance of
8,000,000 shares of preferred stock. The Company has designated 7,246,000 and
221,850 shares as Series A and Series B preferred shares, respectively. Series B
shares are junior to Series A shares.
SERIES A--The Company sold 6,364,872 shares of convertible Series A
preferred stock in an offering based upon a private placement memorandum dated
May 17, 1996 for $1 per share. Each share of Series A preferred stock is
convertible into 1.25 shares of common stock at the option of the holder or upon
the vote of holders of two-thirds of the Series A preferred shares outstanding.
The Series A preferred stock is required to be converted upon a qualified
initial public offering of at least $10 million with a Company valuation of at
least $30 million or a public rights offering of the Company to shareholders of
Safeguard Scientifics, Inc. ("Safeguard") (see note 13). The holders of
preferred stock are entitled to vote as a separate class to elect two directors
to the Board of Directors of the Company. The Series A shares are entitled to a
liquidation preference before any distribution to common stockholders equal to
the greater of (a) $1.00 per share plus an additional $.10 per year from June
30, 1996, or (b) the amount which would be distributed if all of the preferred
stock of the Company were converted to common stock prior to liquidation.
SERIES B--Each share of Series B preferred stock is convertible into 1.25
shares of common stock at the option of the holder or upon the vote of holders
of two-thirds of the Series B preferred shares outstanding. The Series B
preferred stock is required to be converted upon a qualified initial public
offering of at least $10 million with a Company valuation of at least $30
million or a public rights offering of the Company to shareholders of Safeguard
Scientifics, Inc. ("Safeguard") (see note 13). The Series B shares are entitled
to a liquidation preference before any distribution to common stockholders equal
to the greater of (a) $4.50 per share plus an additional $.10 for each year per
year from January 1, 1997, or (b) the amount which would be distributed if all
of the preferred stock of the Company were converted to common stock prior to
liquidation. The Company sold 221,850 shares of convertible Series B preferred
stock to Safeguard for $4.50 per share in January 1997.
(8) INCOME TAXES
Prior to March 28, 1996 (incorporation), the Company operated as a division
of XL Vision and as such was not directly subject to income taxes. Accordingly,
no income tax disclosures are presented for periods prior to 1996. The results
of the Company's operations will be included in consolidated income tax returns
F-11
<PAGE>
CHROMAVISION MEDICAL SYSTEMS, INC.
(FORMERLY MICROVISION MEDICAL SYSTEMS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF MARCH 31, 1997 IS UNAUDITED
(8) INCOME TAXES (CONTINUED)
of XL Vision for the period January 1, 1996 through May 17, 1996, when XL Vision
was no longer deemed to control the Company for income tax purposes. The amount
of net operating loss carryforward that will be allocated to the Company is
estimated to be approximately $3,000,000. As the Company is a development stage
enterprise, deferred tax benefits generated by deferred tax assets are offset by
a corresponding valuation allowance.
As ChromaVision was not a legal entity prior to incorporation, the transfer
of funds to XL Vision of approximately $4,800,000 was deemed, for income tax
purposes, to be the cost of the technology transfer from XL Vision (see note 1).
For income tax purposes, this amount is considered to be an intangible asset
which is being amortized over a fifteen year period.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes.
Significant components of the Company's deferred income tax assets and
liability are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Deferred tax assets:
Net operating loss carryforward................................................................... $1,185,019
Intangible asset, net of amortization............................................................. 1,701,363
Accrued liabilities............................................................................... 40,883
------------
Deferred tax assets........................................................................... 2,927,265
Deferred tax liability:
Depreciation...................................................................................... (1,859)
------------
Total......................................................................................... 2,925,406
Less valuation allowance for deferred tax assets.................................................... (2,925,406)
------------
Deferred tax assets (liability), net.......................................................... $ --
------------
------------
</TABLE>
The difference between the "expected" tax benefit (computed by applying the
federal corporate income rate of 34% to the loss before income taxes) and the
actual tax benefit is due to limitations on the benefit for the net operating
losses recognized, resulting from allocations of the consolidated income tax
results of XL Vision for the year ended December 31, 1996, and the effect of the
valuation allowance.
(9) STOCK OPTIONS
In June 1996, the Company granted 975,688 stock options to officers, key
employees and advisors, including 443,700 stock options which were issued to the
former president of the Company.
In December 1996, the Company adopted a stock option plan (the "Plan")
pursuant to which the Company's Board of Directors may grant stock options to
officers and key employees. The Plan authorizes grants of options to purchase up
to 1,291,688 shares of authorized but unissued common stock. The Company granted
949,375 options under the Plan in December 1996 with an exercise price equal to
the
F-12
<PAGE>
CHROMAVISION MEDICAL SYSTEMS, INC.
(FORMERLY MICROVISION MEDICAL SYSTEMS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF MARCH 31, 1997 IS UNAUDITED
(9) STOCK OPTIONS (CONTINUED)
stock's fair market value at the date of grant. Stock options granted during
1996 have a maximum of ten year terms and have vesting schedules which are at
the discretion of the Company and determined on the effective date of the grant.
At December 31, 1996, there were 342,313 additional shares available for
grant under the Plan. The per share weighted-average fair value of stock options
granted during 1996 was $1.59 on the date of grant using the Black Scholes
option-pricing model with the following weighted-average assumptions: expected
dividend yield 0%, risk-free interest rate of 6.35%, expected volatility of 0%,
and an expected life of 6.75 years.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. While the resulting pro forma compensation cost may
not be representative of that expected in future years, had the Company
determined compensation cost based on the fair value at the grant date for its
stock options under SFAS No. 123, the Company's net loss would have been
increased to the pro forma amounts indicated below:
<TABLE>
<S> <C>
Net loss as reported............................................................ $(4,407,420)
Pro forma net loss.............................................................. (4,689,283)
Net loss per share.............................................................. $ (0.36)
Pro forma net loss per share.................................................... (0.39)
</TABLE>
During 1996 the Company granted 1,925,063 stock options, of which 1,647,750
stock options were outstanding as of December 31, 1996. As of December 31, 1996,
the range of exercise prices of outstanding options were $0.80 to $2.40.
Additionally, 591,324 of the outstanding options were exercisable and the
weighted average exercise price of those options was $1.39.
During the three months ended March 31, 1997, the Company granted an
additional 168,751 stock options. As of March 31, 1997, there were 1,539,188
stock options outstanding with exercise prices ranging from $0.80 to $2.40.
Additionally, 291,204 of the outstanding options were exerciseable and the
weighted average exercise price of those options was $1.72.
(10) RELATED PARTY TRANSACTIONS
Prior to April 1, 1996, personnel and other administrative services were
provided by XL Vision and allocated to ChromaVision. Administrative service fees
incurred between April 1, 1996 and December 31, 1996 were approximately
$740,600.
In addition, the Company subleased its main facility in Sebastian, Florida
from XL Vision under a facilities agreement effective April 1, 1996. Rental and
facility costs totaled approximately $72,200 through December 31, 1996.
The Company also shares its main facility with XL Vision and is responsible
for certain allocated operating and maintenance costs of the facility.
F-13
<PAGE>
CHROMAVISION MEDICAL SYSTEMS, INC.
(FORMERLY MICROVISION MEDICAL SYSTEMS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF MARCH 31, 1997 IS UNAUDITED
(10) RELATED PARTY TRANSACTIONS (CONTINUED)
As of December 31, 1995 and 1996 and March 31, 1997, the Company owed XL
Vision $4,726,635, $380,439 and $452,388 respectively. The advances from XL
Vision do not provide for interest.
Effective January 1997, the Company entered into an administrative service
agreement which specifies a fee based upon a percentage of gross revenues. The
fee is payable quarterly. The fee is payable to Safeguard and XL Vision based
upon an aggregate of 1.5% of gross revenues subject to an annual limit of
$300,000. The fee is payable upon achievement of positive cash flow from
operations. The agreement extends through January 31, 2002 and continues
thereafter unless terminated by either party.
(11) COMMITMENTS AND CONTINGENCY
AGREEMENT WITH CENTOCOR. The Company and Centocor previously collaborated on
the development of cancer and cancer related applications utilizing the
ChromaVision Digital Analyzer. On July 12, 1996, the Company entered into an
agreement with Centocor for the release of rights and claims against the
Company. Among other considerations, the Company issued 770,192 shares of Series
A preferred stock to Centocor and also agreed to repurchase six instruments
previously sold to Centocor totaling $800,000 at Centocor's discretion. On
February 25, 1997, the Company's agreement with Centocor was amended to
eliminate the obligation to repurchase any of the instruments based on the an
understanding that the Company had fulfilled its obligations under the agreement
during 1996.
As a result of this agreement, the Company has recognized as expense
$770,192 for the value attributed to its preferred stock that was issued to
Centocor in the accompanying statements of operations as other expenses.
VOLUNTARY EMPLOYEE SAVINGS 401(K) PLAN. The Company established a voluntary
employee savings 401(k) plan in 1996 which is available to all full time
employees 21 years or older. The plan provides for a matching by the Company of
the employee's contribution to the plan for 50% of the first 6% of the
employee's annual compensation. The Company matching contributions were
approximately $12,000 for the year ended December 31, 1996.
LEASE COMMITMENT. In conjunction with a planned relocation of the Company to
California, the Company entered into a lease beginning on March 1, 1997 and
ending on February 28, 2000 for office space with monthly base rent of $10,227
and provisions for increases based on the cost of living indices.
UNASSERTED CLAIM. The Company has been made aware of an unasserted claim
relating to an application for its ChromaVision Digital Analyzer. In the opinion
of management this claim is without merit. While the Company could vigorously
defend against any such dispute, the successful assertion of such a claim could
have a material adverse effect on the Company's financial position.
(12) STOCK SPLIT
On March 19, 1997, the Company authorized a five-for-four common stock
split. As of December 31, 1996 preferred stock conversion factors, stock options
outstanding and common shares outstanding have been adjusted to reflect
retroactive effect of this stock split.
F-14
<PAGE>
CHROMAVISION MEDICAL SYSTEMS, INC.
(FORMERLY MICROVISION MEDICAL SYSTEMS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF MARCH 31, 1997 IS UNAUDITED
(13) SUBSEQUENT EVENT
INITIAL PUBLIC OFFERING. On March 26, 1997, the Company's Board of Directors
authorized the filing of a registration statement on Form S-1. This will be
conducted as a 6,400,000 rights offering primarily to Safeguard's stockholders
and will result in the expected sale of new common shares totaling 6,020,000, to
be sold in an initial public offering. Costs directly related to the proposed
offering, $144,760, have been capitalized as of December 31, 1996. As of March
31, 1997, offering costs capitalized totaled $344,760.
F-15
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR
DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary................................... 3
Risk Factors......................................... 8
The Offering......................................... 17
Federal Income Tax Consequences...................... 20
The Company.......................................... 22
Use of Proceeds...................................... 22
Dividend Policy...................................... 22
Capitalization....................................... 23
Dilution............................................. 24
Selected Financial Data.............................. 25
Management's Discussion and Analysis of Financial
Condition and Results
of Operations...................................... 26
Business............................................. 29
Management........................................... 47
Certain Transactions................................. 54
Principal and Selling Stockholders................... 56
Description of Capital Stock......................... 57
Shares Eligible for Future Sale...................... 58
Underwriting......................................... 61
Legal Matters........................................ 63
Experts.............................................. 63
Additional Information............................... 63
Index to Financial Statements........................ F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE HEREOF), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
6,720,000 SHARES
(AND RIGHTS TO ACQUIRE
UP TO 6,400,000 OF SUCH SHARES)
CHROMAVISION MEDICAL
SYSTEMS, INC.
[LOGO]
COMMON STOCK
-----------------
PROSPECTUS
-----------------
ROBERT W. BAIRD & CO.
Incorporated
ADAMS, HARKNESS & HILL, INC.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses (other than underwriting discounts and commissions and
underwriters' non-accountable expense allowance) payable in connection with the
offering of the rights and the sale of the Common Stock offered hereby are as
follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................ $ 11,152
NASD filing fee.................................................... 4,180
Nasdaq filing fee.................................................. *
Printing and engraving expenses.................................... *
Legal fees and expenses............................................ *
Accounting fees and expenses....................................... *
Blue Sky fees and expenses (including legal fees).................. *
Transfer agent and rights agent and registrar fees and expenses.... *
Miscellaneous...................................................... *
Total.............................................................. *
</TABLE>
- ------------------------
* To be filed by amendment.
The foregoing, except for the Securities and Exchange Commission
registration fee, the NASD filing fee, and the Nasdaq filing fee, are estimates.
All of the foregoing expenses will be borne by the Registrant.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's By-laws require the Registrant to indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed proceeding by reason of the fact that he is or was a director or
officer of the Registrant or is or was serving at the request of the Registrant
as a director, officer, employee, fiduciary or agent of another corporation,
trust or other enterprise against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such proceeding if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Registrant, and, with respect to any such criminal proceeding, had no
reasonable cause to believe his conduct was unlawful. Such indemnification as to
expenses is mandatory to the extent the individual is successful on the merits
of the matter. Delaware law permits the Registrant to provide similar
indemnification to employees and agents who are not directors or officers. The
determination of whether an individual meets the applicable standard of conduct
may be made by the disinterested directors, independent legal counsel or the
stockholders. Delaware law also permits indemnification in connection with a
proceeding brought by or in the right of the Registrant to procure a judgment in
its favor. Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers, or persons controlling the Registrant
pursuant to the foregoing provisions, the Registrant has been informed that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in that Act and is therefore unenforceable.
The Registrant expects to obtain a directors and officers liability insurance
policy prior to the effective date of this Registration Statement.
The Standby Underwriting Agreement provides that the Underwriters are
obligated, under certain circumstances, to indemnify directors, officers and
controlling persons of the Registrant against certain liabilities, including
liabilities under the Act. Reference is made to Section 8 of the form of Standby
Underwriting Agreement which will be filed by amendment as Exhibit 1.1 hereto.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this registration statement, the
Registrant has issued the following securities that were not registered under
the Act (the following information reflects the 5-for-4 split of the Company's
Common Stock described in the prospectus):
Since its inception, the Company has sold to employees and certain other
persons, (i) an aggregate of 1,931,250 shares of Common Stock, (ii) an aggregate
of 7,135,064 shares of Series A Preferred Stock, at a price of $1.00 per share,
and (iii) an aggregate of 221,850 shares of Series B Preferred Stock at a price
of $1.00 per share. All of such sales were made under the exemption from
registration provided under Section 4(2) of the Act.
Pursuant to the Company's Equity Compensation Plan, the Company has granted
options to purchase a total of 1,539,188 shares of Common Stock to its employees
and certain other persons during the past three fiscal years at a weighted
average exercise price of $1.96 per share. For a more detailed description of
the Company's Equity Compensation Plan, see "Management--Stock Options" in this
registration statement. In granting the options and selling the underlying
securities upon exercise of the options, the Company is relying upon exemptions
from registration set forth in Rule 701 and Section 4(2) of the Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- ----------------- -------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Standby Underwriting Agreement.#
3.1 Certificate of Incorporation of the Company (as amended).*
3.2 By-laws of the Company.*
5.1 Opinion of Morgan, Lewis & Bockius LLP.#
8.1 Opinion of Morgan, Lewis & Bockius LLP regarding tax matters.#
10.1 ChromaVision Medical Systems, Inc. 1996 Equity Compensation Plan.*
10.2 Stock Option Grant Letter (Dr. Douglas S. Harrington).*
10.3 Stock Option Grant Letter (Kevin C. O'Boyle).*
10.4 Stock Option Grant Letter (Michael G. Schneider).*
10.5 Stock Option Grant Letter (Kenneth S. Garber).*
10.6 Employment Agreement between Dr. Douglas S. Harrington and the Company, as of December 30, 1996.*
10.7 Employment Agreement between Kenneth S. Garber and the Company, dated February 15, 1996.*
10.8 Employment Agreement between Kevin C. O'Boyle and the Company, dated November 27, 1996.*
10.9 Separation Agreement between Michael S. Shiff and the Company, dated December 27, 1996.*
10.10 Stock Purchase Agreement between the Company and the Series A Preferred Stockholders, dated as of
June 6, 1996.*
10.11 Registration Rights Agreement between the Company and the Series A Preferred Stockholders, dated
as of June 6, 1996.*
10.12 Stockholders' Agreement between the Company and the Series A Preferred Stockholders, dated as of
June 6, 1996.*
10.13 Loan Agreement between the Company and the Barnett Bank, N.A., dated December 24, 1996.*
10.14 Unconditional and Unlimited Guaranty Agreement between Safeguard Scientifics, Inc. and Barnett
Bank, N.A., dated December 24, 1996.*
10.15 Promissory Note by the Company to Barnett Banks, N.A., dated December 24, 1996.#
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- ----------------- -------------------------------------------------------------------------------------------------
<C> <S>
10.16 Tax Indemnity Agreement between the Company and Barnett Bank, N.A., dated December 24, 1996.*
10.17 Administrative Services Agreement among the Company, XL Vision, Inc. and Safeguard Scientifics,
Inc., dated as of March 21, 1997.*
10.18 Direct Charge Administrative Services Agreement between the Company and XL Vision, Inc., dated as
of March 21, 1997.*
10.19 Lease Agreement between the Company and XL Vision, Inc., dated as of March 7, 1996.*
10.20 Subscription Agreement between the Company and Safeguard Scientifics, Inc., dated as of December
31, 1996.*
10.21 Contribution Agreement between the Company and XL Vision, Inc., dated as of May 13, 1996.*
10.22 Collaboration Agreement between the Company, XL Vision, Inc. and Centacor, Inc., as amended, as
of February 25, 1997.*
11.1 Statement Regarding Computation of Earnings Per Share.*
21.1 Subsidiaries of the Registrant.*
23.1 Consent of KPMG Peat Marwick LLP.*
23.2 Consent of Morgan, Lewis & Bockius LLP (to be included in Exhibit 5.1).#
23.3 Consent of Morgan, Lewis & Bockius LLP (to be included in Exhibit 8.1).#
24.1 Power of Attorney (included on signature page).#
27.1 Financial Data Schedule.*
</TABLE>
- ------------------------
* Filed herewith.
# To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES
All information for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission is either included in the
financial statements or is not required under the related instructions or are
inapplicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in "Calculation of Registration Fee" table in the
effective registration statement;
II-3
<PAGE>
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement; and
(iv) To reflect the results of the Offering.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to provisions described in Item 14 above, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes (1) to provide to the
underwriters at the closing specified in the standby underwriting agreement
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser; (2) that for
purposes of determining any liability under the Act, the information omitted
from the form of prospectus filed as part of a registration statement in
reliance upon Rule 430A and contained in the form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be
deemed to be part of this registration statement as of the time it was declared
effective; and (3) that for the purpose of determining any liability under the
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to supplement the prospectus,
after the expiration of the subscription period, to set forth the results of the
subscription offer, the transactions by the underwriters during the subscription
period, the amount of unsubscribed securities to be purchased by the
underwriters, and the terms of any subsequent reoffering thereof. If any public
offering by the underwriters is to be made on terms differing from those set
forth on the cover page of the prospectus, a post-effective amendment will be
filed to set forth the terms of such offering.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in San Juan Capistrano, California on
April 30, 1997.
CHROMAVISION MEDICAL SYSTEMS, INC.
BY: /S/ DOUGLAS S. HARRINGTON
-----------------------------------------
Douglas S. Harrington
CHIEF EXECUTIVE OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John S. Scott and Douglas S. Harrington, or
either of them acting alone, his or her true and lawful attorney-in-fact and
agent, with full power of substitution and revocation, for him or her and in his
or her name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement
and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, full power and authority to do and perform
each and every act and thing requisite and necessary to be done as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or his or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURES TITLE(S) DATE
- ------------------------------ --------------------------- -------------------
/s/ DOUGLAS S. HARRINGTON Chief Executive Officer and
- ------------------------------ Director (Principal April 30, 1997
Douglas S. Harrington Executive Officer)
Vice President and Chief
/s/ KEVIN O'BOYLE Financial Officer
- ------------------------------ (Principal Financial and April 30, 1997
Kevin O'Boyle Accounting Officer)
/s/ JOHN S. SCOTT Chairman of the Board of
- ------------------------------ Directors April 30, 1997
John S. Scott
/s/ CHRISTOPHER MOLLER Director
- ------------------------------ April 30, 1997
Christopher Moller
/s/ RICHARD MORGAN Director
- ------------------------------ April 30, 1997
Richard Morgan
/s/ CHARLES A. ROOT Director
- ------------------------------ April 30, 1997
Charles A. Root
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION PAGE NO.
- ----------------- --------------------------------------------------------------------------------------- -------------
<C> <S> <C>
1.1 Form of Standby Underwriting Agreement.#
3.1 Certificate of Incorporation of the Company (as amended).*
3.2 By-laws of the Company.*
5.1 Opinion of Morgan, Lewis & Bockius LLP.#
8.1 Opinion of Morgan, Lewis & Bockius LLP regarding tax matters.#
10.1 ChromaVision Medical Systems, Inc. 1996 Equity Compensation Plan.*
10.2 Stock Option Grant Letter (Dr. Douglas S. Harrington).*
10.3 Stock Option Grant Letter (Kevin C. O'Boyle).*
10.4 Stock Option Grant Letter (Michael G. Schneider).*
10.5 Stock Option Grant Letter (Kenneth S. Garber).*
10.6 Employment Agreement between Dr. Douglas S. Harrington and the Company, as of December
30, 1996.*
10.7 Employment Agreement between Kenneth S. Garber and the Company, dated February 15,
1996.*
10.8 Employment Agreement between Kevin C. O'Boyle and the Company, dated November 27,
1996.*
10.9 Separation Agreement between Michael S. Shiff and the Company, dated December 27,
1996.*
10.10 Stock Purchase Agreement between the Company and the Series A Preferred Stockholders,
dated as of June 6, 1996.*
10.11 Registration Rights Agreement between the Company and the Series A Preferred
Stockholders, dated as of June 6, 1996.*
10.12 Stockholders' Agreement between the Company and the Series A Preferred Stockholders,
dated as of June 6, 1996.*
10.13 Loan Agreement between the Company and the Barnett Bank, N.A., dated December 24,
1996.*
10.14 Unconditional and Unlimited Guaranty Agreement between Safeguard Scientifics, Inc. and
Barnett Bank, N.A., dated December 24, 1996.*
10.15 Promissory Note by the Company to Barnett Banks, N.A., dated December 24, 1996.#
10.16 Tax Indemnity Agreement between the Company and Barnett Bank, N.A., dated December 24,
1996.*
10.17 Administrative Services Agreement among the Company, XL Vision, Inc. and Safeguard
Scientifics, Inc. dated as of March 31, 1997.*
10.18 Direct Charge Administrative Services Agreement between the Company and XL Vision,
Inc., dated as of March 31, 1997.*
10.19 Lease Agreement between the Company and XL Vision, Inc., dated as of March 7, 1996.*
10.20 Subscription Agreement between the Company and Safeguard Scientifics, Inc., dated as of
December 31, 1996.*
10.21 Contribution Agreement between the Company and XL Vision, Inc., dated as of May 13,
1996.*
10.22 Collaboration Agreement between the Company, XL Vision, Inc. and Centacor, Inc., as
amended, as of February 25, 1997.*
11.1 Statement Regarding Computation of Earnings Per Share.*
21.1 Subsidiaries of the Registrant.*
23.1 Consent of KPMG Peat Marwick LLP.*
23.2 Consent of Morgan, Lewis & Bockius LLP (to be included in Exhibit 5.1).#
23.3 Consent of Morgan, Lewis & Bockius LLP (to be included in Exhibit 8.1).#
24.1 Power of Attorney (included on signature page).#
27.1 Financial Data Schedule.*
</TABLE>
- ------------------------
* Filed herewith.
# To be filed by amendment.
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
MICROVISION MEDICAL SYSTEMS, INC.
1. The name of the corporation is MicroVision Medical Systems, Inc.
2. The address of its registered office in the State of Delaware
is 1013 Centre Road, in the city of Wilmington and the County of New Castle,
Zip Code 19899. The name of its registered agent at such address is the
Corporation Service Company.
3. The nature of the business or purposes to be conducted or
promoted is:
To engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of the State of Delaware and
to possess and exercise all of the powers and privileges granted by such law
and any other law of Delaware.
4. The aggregate number of shares that the corporation shall have
authority to issue is Twenty Million shares (20,000,000), of which Twelve
Million shares (12,000,000) will be Common Stock, par value One Cent ($.01)
per share and Eight Million shares (8,000,000Eight Million shares (8,000,000)
will be Preferred stock, par value One Cent ($.01) per share. The board of
directors shall have the full authority permitted by law to divide the
authorized and unissued shares of Preferred stock into classes or series, or
both, and to determine for any such class or series its designation and the
number of shares of the class or series and the voting rights, preferences,
limitations and special rights, if any, of the shares of the class or series.
5. The name and mailing address of the sole incorporator is as
follows:
Name Address
Marilyn D. Adelman c/o Safeguard Scientifics, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
6. The corporation is to have perpetual existence.
7. In furtherance of and not in limitation of the powers conferred
by statute, the board of directors is expressly authorized to make, alter or
repeal the bylaws of the corporation.
8. The directors of the corporation shall be entitled to the
benefits of all limitations on the liability of directors generally that are
now or hereafter become available under the General Corporation Law of
Delaware. Without limiting the generality of the foregoing, no director of
the corporation shall be personally liable to the corporation or to any
stockholder of the corporation for monetary damages for breach of fiduciary
duty as a director, provided that this provision shall not limit the
liability of a director (i) for any breach of the director's duty of loyalty
to the corporation or its stockholders, (ii) for acts of omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the General Corporation Law of the State of
Delaware, or (iv) for any transaction from which the director derived an
improper personal benefit.
<PAGE>
9. Elections of directors need not be by written ballot unless the
bylaws of the corporation shall so provide.
10. Meetings of stockholders may be held within or without the
State of Delaware, as the bylaws may provide.
11. The books of the corporation may be kept (subject to any
provision contained in the statutes) outside the State of Delaware at such
place or places as may be designated from time to time by the board of
directors or in the bylaws of the corporation.
12. The corporation shall, to the maximum extent permitted from
time to time under the laws of the State of Delaware, indemnify and upon
request shall advance expenses to any person who is or was a party or is
threatened to be made a party to any threatened, pending or completed action,
suit, proceeding or claim, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was or has agreed to be a
director or officer of the corporation or while a director or officer is or
was serving at the request of or as the agent of the corporation as a
director, officer or the agent of any other corporation, partnership, joint
venture, trust or other enterprise, including service with respect to
employee benefit plans, against any and all expenses (including attorney's
fees and expenses), judgments, fines, penalties and amounts paid in
settlement or incurred in connection with the investigation, preparation to
defend or defense of such action, suit, proceeding or claim; provided,
however, that the foregoing shall not require the corporation to indemnify or
advance expenses to any person in connection with any action, suit,
proceeding, claim or counterclaim initiated by or on behalf of such person.
Such rights shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of directors or stockholders or otherwise and shall
inure to the benefit of the heirs and legal representatives of such person.
Any repeal or modification of the foregoing provisions of this Article 12
shall not adversely affect any right or protection of a director or officer
of this corporation existing at the time of such repeal or modification.
13. The corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate of incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
I, THE UNDERSIGNED, being the sole incorporator hereinbefore named,
for the purpose of forming a corporation pursuant to the General Corporation
Law of the State of Delaware, do make this certificate, hereby declaring and
certifying that this is my act and deed and the facts herein stated are true,
and accordingly have hereunto set my hand this 28th day of March, 1996.
\s\ Marilyn D. Adelman
---------------------------------------
Marilyn D. Adelman, Incorporator
<PAGE>
CERTIFICATE OF AMENDMENT
to the
CERTIFICATE OF INCORPORATION
of
MICROVISION MEDICAL SYSTEMS, INC.
MicroVision Medical Systems, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware
(the "Company"), does hereby certify:
FIRST: That at a meeting of the board of directors held on December 12,
1996, a resolution was duly adopted setting forth a proposed amendment to the
Certificate of Incorporation of the Company, declaring said amendment to be
advisable and calling for consideration of said proposed amendment by the
stockholders of the Company. The resolution setting forth the amendment is
as follows:
RESOLVED, that the first sentence of Article 4 of the Certificate of
Incorporation be amended to read as follows:
4. The aggregate number of shares that the corporation
shall have authority to issue is Fifty Million (58,000,000)
shares, of which Fifty Million shares are of one class and
are designated as Common Stock and the par value of each
share is One Cent ($.01); and Eight Million (8,000,000)
shares, all of which are of one class and are designated as
Preferred Stock and the par value of each share is One Cent
($.01).
SECOND: That thereafter, pursuant to the resolution of the board of
directors, the proposed amendment was approved by the stockholders of the
Company by written consent dated March 11, 1997.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 and 228 of the General Corporation Law of the State
of Delaware.
IN WITNESS WHEREOF, the Company has caused this Certificate to be
executed by Douglas S. Harrington, its Chief Executive Officer on this 11th
day of March, 1997.
MICROVISION MEDICAL SYSTEMS, INC.
By: \s\ Douglas S. Harrington
------------------------------------------------
Douglas S. Harrington, Chief Executive Officer
<PAGE>
Certificate of Designation of Series A Preferred Stock
1. Designation. A total of 7,246,000 shares of the Corporation's
Preferred Stock shall be designated the "Series A Preferred Stock". As used
herein, the term "Preferred Stock" used without reference to the Series A
Preferred Stock means the shares of Preferred Stock, without distinction as
to series, except as otherwise expressly provided for herein, or as the
context otherwise requires.
2. Restrictions on Distributions. Except to the extent in any instance
approval is provided in writing by the holders of two-thirds of the
outstanding shares of Series A Preferred Stock (voting as a separate class),
the Corporation shall not declare or pay any dividends, or purchase, redeem,
retire, or otherwise acquire for value any shares of its capital stock (or
rights, options or warrants to purchase such shares) now or hereafter
outstanding, return any capital to its stockholders as such, or make any
distribution of assets to its stockholders as such, or permit any Subsidiary
to do any of the foregoing. "Subsidiary" or "Subsidiaries" means any
corporation, partnership or joint venture of which the Company and/or any of
its other Subsidiaries (as herein defined) directly or indirectly owns at the
time at least fifty percent (50%) of the outstanding voting shares or similar
interests other than directors' qualifying shares.
Notwithstanding the foregoing, Subsidiaries may declare and make
payment of cash and stock dividends, return capital and make distributions of
assets to the Corporation, and nothing contained in the foregoing shall
prevent the Corporation from: (i) effecting a stock split or declaring or
paying any dividend consisting of shares of any class of capital stock paid
to the holders of shares of such class of capital stock; (ii) complying with
any specific provision of the terms of any subsequently designated series of
Preferred Stock in accordance with its terms; (iii) redeeming or repurchasing
any stock of a deceased stockholder out of proceeds of insurance held by the
Corporation on that stockholder's life; or (iv) redeeming or repurchasing any
stock of any director, officer, employee, advisor, consultant or other person
or entity, pursuant to a stock repurchase agreement or stock restriction
agreement under which the Corporation has the right or obligation to
repurchase such shares in the event of death, termination of employment or of
the consulting arrangement, or other similar discontinuation of a business
relationship.
3. Liquidation, Dissolution or Winding Up.
3.1 Treatment at Liquidation, Dissolution or Winding Up.
3.1.1 In the event of any liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary, or in the event of
its insolvency, before any distribution or payment is made to any holders of
Common Stock or any other class or series of capital stock of the Corporation
designated to be junior to the Series A Preferred Stock in liquidation
preference, and subject to the liquidation rights and preferences of any
class or series of Preferred Stock designated in the future to be senior to,
or on a parity with, the Series A Preferred Stock with respect to liquidation
preference, the holders of each share of Series A
<PAGE>
Preferred Stock shall be entitled to be paid first out of the assets of the
Corporation available for distribution to holders of the Corporation's
capital stock of all classes, whether such assets are capital, surplus or
earnings ("Available Assets"), the greater of (i) an amount per share of
Series A Preferred Stock equal to $1.00, plus $.10 for each year (pro rated
for partial years) from June 30, 1996 until the date of distribution of
Available Assets, (subject to equitable adjustment for any stock dividend,
stock split, combination, reorganization, recapitalization, reclassification
or other similar event involving a change in the capital structure of the
Preferred Stock), or (ii) such amount per share of Series A Preferred Stock
as would have been payable had each share of Preferred Stock which is
convertible into Common Stock been so converted immediately prior to such
liquidation, dissolution or winding up.
If, upon liquidation, dissolution or winding up of the Corporation,
the Available Assets shall be insufficient to pay the holders of Series A
Preferred Stock and of any other series of Preferred Stock on parity with the
Series A Preferred Stock with respect to liquidation preference the full
amounts to which they otherwise would be entitled, the holders of Series A
Preferred Stock and such other series of Preferred Stock shall share ratably
in any distribution of Available Assets pro rata in proportion to the
respective liquidation preference amounts which would otherwise be payable
upon liquidation preference amounts which would otherwise be payable upon
liquidation with respect to the outstanding shares of the Series A Preferred
Stock and such other series of Preferred Stock if all liquidation preference
dollar amounts with respect to such shares were paid in full.
3.2 Treatment of Reorganization, Consolidation, Merger, or Sale of
Assets. Any merger, consolidation or other corporate reorganization or
combination to which the Corporation is a non-surviving party, and any sale
of all or substantially all of the assets of the Corporation, shall be
regarded as a liquidation, dissolution or winding up of the affairs of the
Corporation for purposes of this Section 3; provided, however that, in the
case of any such transaction to which the provisions of Section 5.6 also
apply, the holders of a majority of the outstanding shares of Series A
Preferred Stock (voting together as a single class) shall have the right to
elect the benefits of the provisions of Section 5.6 hereof for all of the
Series A Preferred Stock in lieu of receiving payment in liquidation,
dissolution or winding up of the Corporation pursuant to this Section 3.
The provisions of this Section 3.2 shall not apply to (i) any
reorganization, merger or consolidation involving only a change in the state
of incorporation of the Corporation, (ii) a merger of the Corporation with or
into a wholly-owned Subsidiary of the Corporation that is incorporated in the
United States of America, or (iii) a merger, reorganization, consolidation or
other combination, of which the Corporation is substantively the surviving
corporation and operates as a going concern, with another corporation
incorporated in the United States of America and which does not involve a
recapitalization, reorganization, reclassification or other similar change in
the capital structure of the Corporation.
3.3 Distributions Other than Cash. Whenever the distribution
provided for in this Section 3 shall be payable in whole or in part in
property other than cash, the value of any property distributed shall be the
fair market value of such property as reasonably determined in
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good faith by the Board of Directors of the Corporation. All distributions
of property other than cash made hereunder shall be made, to the maximum
extent possible, pro rata with respect to each series and class of Preferred
Stock and Common Stock in accordance with the liquidation amounts payable
with respect to each such series and class.
4. Voting Power.
4.1 General. Except as otherwise required by applicable law or as
otherwise provided herein, (i) each holder of Series A Preferred Stock shall
be entitled to vote on all matters submitted to a vote of the stockholders of
the Corporation (including election of directors to the extent not otherwise
expressly provided for) and shall be entitled to that number of votes equal
to the largest number of whole shares of Common Stock into which such
holder's shares of Series A Preferred Stock could be converted, and (ii) the
holders of shares of Series A Preferred Stock and Common Stock shall vote
together (or render written consents in lieu of a vote) as a single class on
all matters submitted to the stockholders of the Corporation (including
election of directors to the extent not otherwise expressly provided for).
Each holder of Series A Preferred Stock shall be entitled to notice of any
stockholders' meeting in accordance with the by-laws of this Corporation at
the same time and in the same manner as notice is given to all other
stockholders entitled to vote at such meetings.
4.2 Limitations During First Three Years. Notwithstanding
paragraph 4.1, for a period of three years from the date of the initial
filing of this Certificate of Designation, the holders of Series A Preferred
Stock shall not have any voting rights, other than as required by law and as
provided in paragraph 4.3 and Section 6 below.
4.3 Director Election Rights. So long as any shares of Series A
Preferred Stock remain outstanding, the holders of the Series A Preferred
Stock, voting as a separate class, shall have the right to elect two
directors of the Corporation (the "Series A Directors"). If any shares of
Series A Preferred Stock remain outstanding after the third anniversary of
the initial date of filing of this Certificate of Designation, then the
holders of the Series A Preferred Stock, voting as a separate class, shall
thereafter have the right to elect a majority of the directors of the
Corporation. At any annual or special meeting of the Corporation held for
the purpose of electing directors, the presence in person or by proxy (or by
written consent) of the holders of a majority of the outstanding shares of
Series A Preferred Stock shall constitute a quorum for the election of the
Series A Directors.
5. Conversion Rights. The holders of the Series A Preferred Stock
shall have the following rights and be subject to the following obligations
with respect to the conversion of such shares into shares of Common Stock:
5.1 Voluntary Conversion. Subject to and in compliance with the
provisions of this Section 5, any shares of the Series A Preferred Stock may,
at the option of the holder thereof, be converted at any time and from time
to time into fully-paid and non-assessable shares of Common Stock. The
number of shares of Common Stock which a holder of Series A Preferred Stock
shall be entitled to receive upon conversion shall be the product obtained by
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multiplying (i) the number of shares of Series A Preferred Stock being
converted at any time, by (ii) the rate (the "Series A Conversion Rate")
equal to the quotient obtained by dividing $1.00 by the "Series A Conversion
Value." The Series A Conversion Value in effect from time to time, except as
adjusted in accordance with this Section 5, shall be $1.00.
5.2 Automatic Conversion.
5.2.1 Events Causing Conversion. Immediately (A) prior to
the effectiveness of a registration statement filed by the Company pursuant
to the Securities Act of 1933, as amended, (other than on Form S-4 or S-8 on
any successor forms thereto) covering the offer and sale of Common Stock in
an underwritten public offering on a firm commitment basis in which the gross
proceeds of the offering will equal or exceed $10,000,000 (calculated before
deducting underwriters' discounts and commissions and other offering
expenses), and in which the public offering price per share of Common Stock
(calculated before deducting underwriters' discounts and commissions) results
in a valuation of the total number of outstanding shares of capital stock of
the Company immediately prior to the closing of the public offering of at
least $30,000,000, but subject to the closing of such public offering, (B)
prior to the effectiveness of a registration statement filed by the Company
pursuant to the Securities Act of 1933 coveing the offer and sale of Common
Stock in a rights offering to shareholders of Safeguard Scientifics, Inc.,
but subject to the closing of such rights offering, or (C) upon the election,
set forth in a written notice to the Corporation, of holders of Series A
Preferred Stock to convert at least two-thirds of the outstanding shares of
Series A Preferred Stock to Common Stock; all outstanding shares of Series A
Preferred Stock shall be converted automatically into the number of fully
paid, non-assessable shares of Common Stock into which such shares of Series
A Preferred Stock are convertible pursuant to this Section 5 as of the
closing and consummation of such underwritten public offering or the date of
such approval, without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to
the Corporation or its transfer agent.
5.2.2 Surrender of Certificates Upon Mandatory Conversion.
Upon the occurrence of the conversion event specified in paragraph 5.2.1, the
holders of the Series A Preferred Stock shall, upon notice from the
Corporation, surrender the certificates representing such shares at the
office of the Corporation or its transfer agent for the Common Stock.
Thereupon, there shall be issued and delivered to such holder a certificate
or certificates for the number of shares of Common Stock into which the
shares of Series A Preferred Stock so surrendered were convertible on the
date on which the conversion occurred. The Corporation shall not be
obligated to issue such certificates unless certificates evidencing such
shares of Series A Preferred Stock being converted are either delivered to
the Corporation or any such transfer agent, or the holder notifies the
Corporation that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Corporation to indemnify the
Corporation from any loss incurred by it in connection therewith.
5.3 Anti-Dilution Adjustments.
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5.3.1 Upon Dilutive Issuances. If the Corporation shall,
while there are any shares of Series A Preferred Stock outstanding, issue or
sell shares of its Common Stock or "Common Stock Equivalents" (as defined in
Section 5.3.2.1 below) without consideration or at a price per share or "Net
Consideration Per Share" (as defined in Section 5.3.3 below) less than the
Series A Conversion Value in effect immediately prior to such issuance or
sale, then in each such case the Series A Conversion Value, except as
hereinafter provided, shall be lowered so as to be equal to an amount
determined by multiplying such Series A Conversion Value by the following
fraction:
N0 + N1
------------
N0 + N2
Where:
N0 = the number of shares of Common Stock outstanding
immediately prior to the issuance of such additional shares of Common
Stock or Common Stock Equivalents (calculated on a fully-diluted basis
assuming the exercise or conversion of all then exercisable or
convertible options, warrants, purchase rights and convertible
securities).
N1 = the number of shares of Common Stock which the
aggregate consideration, if any, (including the Net Consideration Per
Share with respect to the issuance of Common Stock Equivalents)
received or receivable by the Corporation for the total number of such
additional shares of Common Stock so issued or deemed to be issued
would purchase at the Series A Conversion Value in effect immediately
prior to such issuance.
N2 = the number of such additional shares of Common Stock so
issued or deemed to be issued.
Example:
initial capital 1,000,000
initial conversion price $1.00
new shares issued 1,000,000 total new consideration $500,000
new issue price $0.50 new shares which would be
issued at initial conversion price 500,000
new conversion price $0.75
The provisions of this Section 5.3.1 may be waived as to all
shares of Series A Preferred Stock in any instance (without the necessity of
convening any meeting of stockholders of the Corporation) upon the written
agreement of the holders of two-thirds of the outstanding shares of Series A
Preferred Stock.
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5.3.2 Common Stock Equivalents.
5.3.2.1 General. For the purposes of this Section 5.3, the
issuance of any warrants, options, subscription or purchase rights with
respect to shares of Common Stock and the issuance of any securities
convertible into or exchangeable for shares of Common Stock and the issuance
of any warrants, options, subscription or purchase rights with respect to
such convertible or exchangeable securities (collectively, "Common Stock
Equivalents"), shall be deemed an issuance of Common Stock. Any obligation,
agreement or undertaking to issue Common Stock Equivalents at any time in the
future shall be deemed to be an issuance at the time such obligation,
agreement or undertaking is made or arises. No adjustment of the Series A
Conversion Value shall be made under this Section 5.3 upon the issuance of
any shares of Common Stock which are issued pursuant to the exercise,
conversion or exchange of any Common Stock Equivalents.
5.3.2.2 Adjustments for Adjustment, Cancellation or Expiration
of Common Stock Equivalents. Should the Net Consideration Per Share of any
such Common Stock Equivalents be decreased from time to time other than as a
result of the application of anti-dilution provisions substantially similar
to the provisions of this Section 5.3, then, upon the effectiveness of each
such change, the Series A Conversion Value will be that which would have been
obtained (1) had the adjustments made pursuant to Section 5.3.2.1 upon the
issuance of such Common Stock Equivalents been made upon the basis of the new
Net Consideration Per Share of such securities, and (2) had the adjustments
made to the Series A Conversion Value since the date of issuance of such
Common Stock Equivalents been made to such Series A Conversion Value as
adjusted pursuant to clause (1) above. Any adjustment of the Series A
Conversion Value which relates to any Common Stock Equivalent shall be
disregarded if, as, and when such Common Stock Equivalent expires or is
canceled without being exercised, or is repurchased by the Company at a price
per share at or less than the original purchase price, so that the Series A
Conversion Value effective immediately upon such cancellation or expiration
shall be equal to the Series A Conversion Value that would have been in
effect (1) had the expired or canceled Common Stock Equivalent not been
issued, and (2) had the adjustments made to the Series A Conversion Value
since the date of issuance of such Common Stock Equivalents been made to the
Series A Conversion Value which would have been in effect had the expired or
canceled Common Stock Equivalent not been issued.
5.3.3 Net Consideration Per Share. For purposes of this
Section 5.3, the "Net Consideration Per Share" which shall be receivable by
the Corporation for any Common Stock issued upon the exercise or conversion
of any Common Stock Equivalents shall be determined as follows:
5.3.3.1 The "Net Consideration Per Share" shall mean the
amount equal to the total amount of consideration, if any, received by the
Corporation for the issuance of such Common Stock Equivalents, plus the
minimum amount of consideration, if any, payable to the Corporation upon
exercise, or conversion or exchange thereof, divided by the
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aggregate number of shares of Common Stock that would be issued if all such
Common Stock Equivalents were exercised, exchanged or converted.
5.3.3.2 The "Net Consideration Per Share" which shall be
receivable by the Corporation shall be determined in each instance as of the
date of issuance of Common Stock Equivalents without giving effect to any
possible future upward price adjustments or rate adjustments which may be
applicable with respect to such Common Stock Equivalents.
5.3.4 Stock Dividends for Holders of Capital Stock Other Than
Common Stock. In the event that the Corporation shall make or issue
(otherwise than to holders of Common Stock), or shall fix a record date for
the determination of holders of any capital stock of the Corporation other
than holders of Common Stock entitled to receive, a dividend or other
distribution payable in Common Stock or securities of the Corporation
convertible into or otherwise exchangeable for shares of Common Stock of the
Corporation, then such Common Stock or other securities issued in payment of
such dividend shall be deemed to have been issued for a consideration of
$.01, except for dividends payable to the holders of Series A Preferred Stock.
5.3.5 Consideration Other than Cash. For purposes of this
Section 5.3, if a part or all of the consideration received by the
Corporation in connection with the issuance of shares of the Common Stock or
the issuance of any of the securities described in this Section 5.3 consists
of property other than cash, such consideration shall be deemed to have a
fair market value as is reasonably determined in good faith by the Board of
Directors of the Corporation.
5.3.6 Exceptions to Anti-dilution Adjustments; Basket for
Reserved Employee Shares. This Section 5.3 shall not apply (A) under any of
the circumstances which would constitute an Extraordinary Common Stock Event
(as described below), or (B) to any issuance or sale of shares of Common
Stock and/or Common Stock Equivalents in an underwritten public offering not
requiring conversion of the Series A Preferred Stock. Further, this Section
5.3 shall not apply with respect to the issuance or sale of shares of Common
Stock, or the grant or options exercisable therefor, to directors, officers,
employees and consultants of the Corporation or any subsidiary pursuant to
any qualified or non-qualified stock option plan or agreement, stock purchase
plan or agreement, stock restriction agreement, employee stock ownership plan
(ESOP), consulting agreement, or such other options, issuances, arrangements,
agreements or plans intended principally as a means of providing compensation
for employment or services or of providing additional compensation to a
financial institution in connection with the Corporation obtaining equipment
lease/financing, provided that in each such case such plan, agreement, or
other arrangement or issuance is approved by the vote or consent of
two-thirds of the Board of Directors or by the written consent of the holders
of two-thirds of the outstanding shares of Series A Preferred Stock.
5.4 Adjustment Upon Extraordinary Common Stock Event. Upon
the happening of an Extraordinary Common Stock Event (as hereinafter
defined), the Series A
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Conversion Value shall, simultaneously with the happening of such
Extraordinary Common Stock Event, be adjusted by multiplying the Series A
Conversion Value by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such Extraordinary
Common Stock Event and the denominator of which shall be the number of shares
of Common Stock outstanding immediately after such Extraordinary Common Stock
Event, and the product so obtained shall thereafter be the Series A
Conversion Value, which, as so adjusted, shall be readjusted in the same
manner upon the happening of any successive Extraordinary Common Stock Event
or Events.
An "Extraordinary Common Stock Event" shall mean (i) the issue
of additional shares of Common Stock as a dividend or other distribution on
outstanding shares of Common Stock, (ii) a subdivision of outstanding shares
of Common Stock into a greater number of shares of Common Stock, or (iii) a
combination or reverse stock split of outstanding shares of Common Stock into
a smaller number of shares of the Common Stock.
5.5 Adjustment Upon Certain Dividends. In the event the
Corporation shall make or issue, or shall fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution (other than a distribution in liquidation or other
distribution otherwise provided for herein) with respect to the Common Stock
payable in (i) securities of the Corporation other than shares of Common
Stock, or (ii) other assets (excluding cash dividends or distributions), then
and in each such event provision shall be made so that the holders of the
Series A Preferred Stock shall receive upon conversion thereof in addition to
the number of shares of Common Stock receivable thereupon, the number of
securities or such other assets of the Corporation which they would have
received had their Series A Preferred Stock been converted into Common Stock
on the date of such event and had they thereafter, during the period from the
date of such event to and including the Conversion Date, retained such
securities or such other assets receivable by them, giving application to all
other adjustments called for during such period under this Section 5.
5.6 Adjustment Upon Capital Reorganization or
Reclassification. If the Common Stock shall be changed into the same or
different number of shares of any other class or classes of capital stock,
whether by capital reorganization, recapitalization, reclassification or
otherwise (other than an Extraordinary Common Stock Event), then and in each
such event the holder of each share of Series A Preferred Stock shall have
the right thereafter to convert such share into, in lieu of the number of
shares of Common Stock which the holder would otherwise have been entitled to
receive, the kind and amount of shares of capital stock and other securities
and property receivable upon such reorganization, recapitalization,
reclassification or other change by the holders of the number of shares of
Common Stock into which such shares of Series A Preferred Stock could have
been converted immediately prior to such reorganization, recapitalization,
reclassification or change, all subject to further adjustment as provided
herein. The provision for such conversion right shall be a condition
precedent to the consummation by the Corporation of any such transaction
unless the election described below is made.
In the case of a transaction to which both this Section 5.6
and Section 3.2 apply, the holders of a majority of the outstanding shares of
Series A Preferred Stock (voting together as
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a single class) shall have the option of electing treatment for the Series A
Preferred Stock under this Section 5.6, notice of which election shall be
submitted in writing to the Corporation at its principal office no later than
five (5) business days before the effective date of such event. If no such
election shall be made, the provisions of Section 3.2, and not this Section
5.6, shall apply.
5.7 Certificate as to Adjustments; Notice by Corporation. In
each case of an adjustment or readjustment of the Series A Applicable
Conversion Rate, the Corporation at its expense will furnish each holder of
Series A Preferred Stock so affected with a certificate prepared by the
Treasurer or Chief Financial Officer of the Corporation, showing such
adjustment or readjustment, and stating in detail the facts upon which such
adjustment or readjustment is based.
5.8 Exercise of Conversion Privilege. To exercise its
conversion privilege, a holder of Series A Preferred Stock shall surrender
the certificate or certificates representing the shares being converted to
the Corporation at its principal office, and shall give written notice to the
Corporation at that office that such holder elects to convert such shares.
Such notice shall also state the name or names (with address or addresses) in
which the certificate or certificates for shares of Common Stock issuable
upon such conversion shall be issued. The certificate or certificates for
shares of Series A Preferred Stock surrendered for conversion shall be
accompanied by proper assignment thereof to the Corporation or in blank. The
date when such written notice is received by the Corporation, together with
the certificate or certificates representing the shares of Series A Preferred
Stock being converted, shall be the "Conversion Date". As promptly as
practicable after the Conversion Date, the Corporation shall issue and
deliver to the holder of the shares of Series A Preferred Stock being
converted, or on its written order, such certificate or certificates as it
may request for the number of whole shares of Common Stock issuable upon the
conversion of such shares of Series A Preferred Stock in accordance with the
provisions of this Section 5, and cash, as provided in Section 5.9, in
respect of any fraction of a share of Common Stock issuable upon such
conversion. Such conversion shall be deemed to have been effected
immediately prior to the close of business on the Conversion Date, and at
such time the rights of the holder as holder of the converted shares of
Series A Preferred Stock shall cease and the person(s) in whose name(s) any
certificate(s) for shares of Common Stock shall be issuable upon such
conversion shall be deemed to have become the holder or holders of record of
the shares of Common Stock represented thereby.
5.9 Cash in Lieu of Fractional Shares. No fractional shares
of Common Stock or scrip representing fractional shares shall be issued upon
the conversion of shares of Series A Preferred Stock. Instead of any
fractional shares of Common Stock which would otherwise be issuable upon
conversion of Series A Preferred Stock, the Corporation shall pay to the
holder of the shares of Series A Preferred Stock which were converted a cash
adjustment in respect of such fractional shares in an amount equal to the
same fraction of the market price per share of the Common Stock (as
determined in a reasonable manner prescribed by the Board of Directors) at
the close of business on the Conversion Date. The determination as to
whether or not any fractional shares are issuable shall be based upon the
aggregate number of shares of Series A Preferred Stock being converted at any
one time by any holder thereof, not upon each share of Series A Preferred
Stock being converted.
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5.10 Partial Conversion. In the event some but not all of the
shares of Series A Preferred Stock represented by a certificate(s)
surrendered by a holder are converted, the Corporation shall execute and
deliver to or on the order of the holder, at the expense of the Corporation,
a new certificate representing the number of shares of Series A Preferred
Stock which were not converted.
5.11 Reservation of Common Stock. The Corporation shall at
all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series A Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series A Preferred Stock
(including any shares of Series A Preferred Stock represented by any
warrants, options, subscription or purchase rights for Series A Preferred
Stock), and if at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series A Preferred Stock (including any shares of
Series A Preferred Stock represented by any warrants, options, subscriptions
or purchase rights for such Series A Preferred Stock), the Corporation shall
take such action as may be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for
such purpose.
6. Restrictions and Limitations on Corporate Action.
The Corporation shall not take any corporate action or amend
its Certificate of Incorporation or this Certificate of Designation (except
to reduce the number of shares designated as Series A Preferred Stock to the
number of such shares which are then issued and outstanding) without the
approval by vote or written consent of the holders of at least a majority of
the then outstanding shares of Series A Preferred Stock, voting as a single
class, each share of Series A Preferred Stock to be entitled to one vote in
each instance, if such corporate action or amendment would change any of the
rights, preferences, privileges of or limitations provided for herein for the
benefit of any shares of Series A Preferred Stock. Without limiting the
generality of the preceding sentence, the Corporation will not amend its
Certificate of Incorporation or this Certificate of Designation or take any
other corporate action without the approval by the holders of at least a
majority of the then outstanding shares of Series A Preferred Stock, voting
as a single class, if such amendment or corporate action would:
(a) cause or authorize the Corporation to redeem, purchase or otherwise
acquire for value (or pay into or set aside for a sinking fund for such
purpose), any share or shares of equity securities of the Corporation
other than as provided for in Section 2 hereof; or
(b) authorize, create or issue, or obligate the Corporation to
authorize, create or issue, additional shares of Series A Preferred Stock
or of any class of stock ranking senior to or on a parity with the Series
A Preferred Stock with respect to liquidation preferences, dividend
rights or containing redemption rights; or
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(c) reduce the amount payable to the holders of Series A Preferred
Stock upon the voluntary or involuntary liquidation, dissolution or
winding up of the Corporation; or
(d) adversely affect the liquidation preferences, dividend rights or
voting rights of the holders of Series A Preferred Stock; or
(e) cancel or modify the conversion rights of the holders of Series A
Preferred Stock provided for in Section 5 herein; or
(f) provide for the voluntary liquidation, dissolution,
recapitalization, reorganization or winding up of the Corporation; or
(g) authorize, approve or cause any merger, consolidation, sale of
all or substantially all of the assets of the Corporation, corporate
reorganization, recapitalization or other business combinations which
could be deemed to be a liquidation, dissolution or winding up of the
Corporation pursuant to Section 3.2 hereof.
7. No Dilution or Impairment. The Corporation will not, by
amendment of its Certificate of Incorporation or through any reorganization,
transfer of capital stock or 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 of the Preferred
Stock set forth herein, but will at all times in good faith assist in the
carrying out of all such terms. Without limiting the generality of the
foregoing, the Corporation (a) will not increase the par value of any shares
of stock receivable on the conversion of the Preferred Stock above the amount
payable therefor on such conversion, and (b) will take such action as may be
necessary or appropriate in order that the Corporation may validly and
legally issue fully paid and nonassessable shares of stock on the conversion
of all Preferred Stock from time to time outstanding.
8. Notices of Record Date. In the event of
(a) any taking by the Corporation of a record of the holders of
any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividends or other
distribution, or any right to subscribe for, purchase or otherwise
acquire any shares of capital stock of any class or any other
securities or property, or to receive any other right, or
(b) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the
Corporation, any merger or consolidation of the Corporation, or any
transfer of all or substantially all of the assets of the
Corporation to any other corporation, or any other entity or person,
or
(c) any voluntary or involuntary dissolution, liquidation or
winding up of the Corporation,
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then and in each such event the Corporation shall mail or cause to be mailed
to each holder of Preferred Stock a notice specifying (i) the date on which
any such record is to be taken for the purpose of such dividend, distribution
or right and a description of such dividend, distribution or right, (ii) the
date on which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding up is
expected to become effective, and (iii) the time, if any, that is to be
fixed, as to when the holders of record of Common Stock (or other securities)
shall be entitled to exchange their shares of Common Stock (or other
securities) for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding up. Such notice shall be mailed
by first class mail, postage prepaid, at least 15 days prior to the date
specified in such notice on which action is being taken.
9. Status of Converted or Repurchased Series A Preferred
Stock. Any share or shares of Series A Preferred Stock acquired by the
Corporation by reason of redemption, purchase, conversion or otherwise shall
be returned to the status of authorized but unissued shares of undesignated
Preferred Stock. Upon the cancellation of all outstanding shares of Series A
Preferred Stock, the provisions of this Certificate of Designation of Series
A Preferred Stock shall terminate and have no further force and effect.
IN WITNESS WHEREOF, MicroVision Medical Systems, Inc. has
caused this certificate to be signed by Michael S. Shiff, its President and
attested by David P. Szostak its Secretary, on the 14 day of June,
1996.
MICROVISION MEDICAL SYSTEMS, INC.
By: /s/ Michael S. Shiff
___________________________
Michael S. Shiff, President
Attest:
/s/ David P. Szostak
_____________________________
David P. Szostak, Secretary
[Seal]
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CERTIFICATE OF DESIGNATION
OF
SERIES "B" PREFERRED STOCK
OF
MICROVISION MEDICAL SYSTEMS, INC.
Pursuant to Section 151(g) of the Delaware General Corporation Law, it is
hereby certified that:
1. The name of the corporation (hereinafter called the
"corporation") is:
MicroVision Medical Systems, Inc.
2. The certificate of incorporation of the corporation authorizes
the issuance of 8,000,000 shares of Preferred Stock of a par value of
One Cent ($.01) each and expressly vests in the Board of Directors of the
corporation the authority provided therein to issue any or all of said shares
in one or more series and by resolution or resolutions, the designation,
number, full or limited voting powers, or the denial of voting powers,
preferences and relative, participating, optional, and other special rights
and the qualifications, limitations, restrictions, and other distinguishing
characteristics of each series to be issued.
3. The Board of Directors of the corporation, pursuant to the
authority expressly vested in it as aforesaid, has adopted the following
resolutions creating a Series "B" issue of Preferred Stock at set forth in
Exhibit A attached hereto.
IN WITNESS WHEREOF, the corporation has caused this Certificate of
Designation to be duly adopted in accordance with the provisions of Section
151(g) of the General Corporation Law of the State of Delaware and the
Certificate of Incorporation and to be executed in its corporate name on the
2 day of January 1997.
MICROVISION MEDICAL SYSTEMS, INC.
/s/ John S. Scott
_____________________________________
John S. Scott, Chairman
<PAGE>
EXHIBIT A
RESOLVED, that pursuant to the authority vested in the
Board of Directors of the Company by the Delaware General
Corporation Law ("DGCL") and the Company's Certificate of
Incorporation, the Board of Directors hereby fixes and
determines the voting rights, designations, preferences,
qualifications, privileges, limitations, restrictions,
options, conversion rights and other special or relative
rights of the Series B Preferred Stock of the Company,
all of which is set forth on Exhibit A-1 hereto; and it
is further
RESOLVED, that the Series B Preferred Stock will have
substantially the same terms as the existing Series A
Preferred Stock except that it will have junior
liquidation preference; and it is further
RESOLVED, that the proper officers of the Company,
together and individually, are hereby authorized,
empowered and directed, on behalf of the Company and in
its name, to execute and deliver any and all documents in
connection with the foregoing, to execute, deliver and
file with the Secretary of State of the State of Delaware
in accordance with the requirements of the DGCL, a
Certificate of Designation of Rights and Preferences with
respect to the Series B Preferred Stock; and to take any
and all actions as they or any of them may deem necessary
to appropriate in connection with the foregoing, all on
such terms and conditions as they or any of them deem
necessary or appropriate to effectuate the issuance and
sale of the Series B Preferred Stock as hereinbefore
described.
<PAGE>
CERTIFICATE OF CORRECTION OF
CERTIFICATE OF DESIGNATION OF SERIES "B" PREFERRED STOCK
OF
MICROVISION MEDICAL SYSTEMS, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "corporation")
is MicroVision Medical Systems, Inc.
2. The Certificate of Designation of the corporation, which was filed
by the Secretary of State of Delaware on January 3, 1997, is hereby
corrected.
3. The inaccuracy to be corrected in said instrument is as follows:
Section numbers and references to Section 5
4. The entire Certificate of Designation of Series "B" Preferred Stock
in corrected form is attached hereto as Exhibit A.
Signed on March 2, 1997.
/s/ John S. Scott
___________________________________
John S. Scott, Chairman
<PAGE>
CERTIFICATE OF AMENDMENT
to the
CERTIFICATE OF INCORPORATION
of
MICROVISION MEDICAL SYSTEMS, INC.
MicroVision Medical Systems, Inc., a corporation organized
and existing under and by virtue of the General Corporation Law
of the State of Delaware (the "Company"), does hereby certify:
FIRST: That at a meeting of the board of directors held on
December 12, 1996, a resolution was duly adopted setting forth a
proposed amendment to the Certificate of Incorporation of the
Company, declaring said amendment to be advisable and calling for
consideration of said proposed amendment by the stockholders of
the Company. The resolution setting forth the amendment is as
follows:
RESOLVED, that the first sentence of Article 1 of the
Certificate of Incorporation be amended to read as follows:
1. The name of the corporation is ChromaVision Medical
Systems, Inc.
SECOND: That thereafter, pursuant to the resolution of the board
of directors, the proposed amendment was approved by the
stockholders of the Company by written consent dated April 22,
1997.
THIRD: That said amendment was duly adopted in accordance with
the provisions of Section 242 and 228 of the General Corporation
Law of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Certificate
to be executed by Douglas S. Harrington, its Chief Executive Officer on this
22nd day of April, 1997.
MICROVISION MEDICAL SYSTEMS, INC.
By: /s/ Douglas Harrington
______________________________
Douglas S. Harrington,
Chief Executive Officer
<PAGE>
BYLAWS
OF
MicroVision Medical Systems, Inc.
(a Delaware corporation)
ARTICLE I
Offices and Fiscal Year
SECTION 1.01. Registered Office. The registered office of the corporation
shall be in the City of Wilmington, County of New Castle, State of Delaware
until otherwise established by a vote of a majority of the board of directors in
office, and a statement of such change is filed in the manner provided by
statute.
SECTION 1.02. Other Offices. The corporation may also have offices at
such other places within or without the State of Delaware as the board of
directors may from time to time determine or the business of the corporation
requires.
SECTION 1.03. Fiscal Year. The fiscal year of the corporation shall end
on the 31st of December in each year.
ARTICLE II
Meetings of Stockholders
SECTION 2.01. Place of Meeting. All meetings of the stockholders of the
corporation shall be held at the registered office of the corporation, or at
such other place within or without the State of Delaware as shall be designated
by the board of directors in the notice of such meeting.
SECTION 2.02. Annual Meeting. The board of directors may fix the date and
time of the annual meeting of the stockholders, but if no such date and time is
fixed by the board, the meeting for any calendar year shall be held on the third
Tuesday of May in such year, if not a legal holiday, and if a legal holiday then
on the next succeeding business day at 10:00 o'clock A.M., and at said meeting
the stockholders then entitled to vote shall elect directors and shall transact
such other business as may properly be brought before the meeting.
SECTION 2.03. Special Meetings. Special meetings of the stockholders of
the corporation for any purpose or purposes for which meetings may lawfully be
called, may be called at any time by the chairman of the board, a majority of
the board of directors, the president, or at the request, in writing, of
stockholders owning individually or together ten percent or more of the entire
capital stock of the corporation issued and outstanding and entitled to vote.
At any time, upon written request of any person or persons who have duly called
a special meeting, which written request shall state the purpose or purposes of
the meeting, it shall be the duty of the secretary to fix the date of the
meeting to be held at such date and time as the secretary may fix, not less than
ten nor more than sixty days after the receipt of the request, and to give due
notice thereof. If the secretary shall neglect or refuse to fix the time and
date of such meeting and give notice thereof, the person or persons calling the
meeting may do so.
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SECTION 2.04. Notice of Meetings. Written notice of the place, date and
hour of every meeting of the stockholders, whether annual or special, shall be
given to each stockholder of record entitled to vote at the meeting not less
than ten nor more than sixty days before the date of the meeting. Every notice
of a special meeting shall state the purpose or purposes thereof.
SECTION 2.05. Quorum, Manner of Acting and Adjournment. The holders of a
majority of the stock issued and outstanding (not including treasury stock) and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute, by the certificate of
incorporation or by these bylaws. If, however, such quorum shall not be present
or represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At any such
adjourned meeting, at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. If the adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting. When a quorum is present at any meeting, the
vote of the holders of the majority of the stock having voting power present in
person or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which, by express provision of the
applicable statute, the certificate of incorporation or these bylaws, a
different vote is required in which case such express provision shall govern and
control the decision of such question. Except upon those questions governed by
the aforesaid express provisions, the stockholders present in person or by proxy
at a duly organized meeting can continue to do business until adjournment,
notwithstanding withdrawal of enough stockholders to leave less than a quorum.
SECTION 2.06. Organization. At every meeting of the stockholders, the
chairman of the board, if there be one, or in the case of a vacancy in the
office or absence of the chairman of the board, one of the following persons
present in the order stated: the vice chairman, if one has been appointed, the
president, the vice presidents in their order or rank, a chairman designated by
the board of directors or a chairman chosen by the stockholders entitled to cast
a majority of the votes which all stockholders present in person or by proxy are
entitled to cast, shall act as chairman, and the secretary, or, in his absence,
an assistant secretary, or in the absence of the secretary and the assistant
secretaries, a person appointed by the chairman, shall act as secretary.
SECTION 2.07. Voting. Each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of
capital stock having voting power held by such stockholder. No proxy shall be
voted or acted upon after three years from its date, unless the proxy provides
for a longer period. Every proxy shall be executed in writing by the
stockholder or by his duly authorized attorney-in-fact and filed with the
secretary of the corporation. A proxy, unless coupled with an interest, shall
be revocable at will, notwithstanding any other agreement or any provision in
the proxy to the contrary, but the revocation of a proxy shall not be effective
until notice thereof has been given to the secretary of the corporation. A duly
executed proxy shall be irrevocable if it states that it is irrevocable and if,
and only as long as, it is coupled with an interest sufficient in law to support
an irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the corporation generally. A proxy shall not be
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revoked by the death or incapacity of the maker unless, before the vote is
counted or the authority is exercised, written notice of such death or
incapacity is given to the secretary of the corporation.
SECTION 2.08. Consent of Stockholders in Lieu of Meeting. Any action
required to be taken at any annual or special meeting of stockholders of the
corporation, or any action which may be taken at any annual or special meeting
of such stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty days of the
earliest dated consent delivered in the manner required above to the
corporation, written consent, signed by a sufficient number of holders or
members to take action are delivered to the corporation by delivery to its
registered office in Delaware, its principal place of business, or an officer or
agent of the corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to a corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. Prompt notice of the taking of the corporate action without
a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
SECTION 2.09. Voting Lists. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting. The list shall be arranged in alphabetical order showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 2.10. Judges of Election. All elections of directors shall be by
written ballot, unless otherwise provided in the certificate of incorporation;
the vote upon any other matter need not be by ballot. In advance of any meeting
of stockholders, the board of directors may appoint judges of election, who need
not be stockholders, to act at such meeting or any adjournment thereof. If
judges of election are not so appointed, the chairman of any such meeting may,
and upon the demand of any stockholder or his proxy at the meeting and before
voting begins shall, appoint judges of election. The number of judges shall be
either one or three, as determined, in the case of judges appointed upon demand
of a stockholder, by stockholders present entitled to cast a majority of the
votes which all stockholders present are entitled to cast thereon. No person
who is a candidate for office shall act as a judge. In case any person
appointed as judge fails to appear or fails or refuses to act, the vacancy may
be filled by appointment made by the board of directors in advance of the
convening of the meeting, or at the meeting by the chairman of the meeting.
If judges of election are appointed as aforesaid, they shall determine the
number of shares outstanding and the voting power of each, the shares
represented at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies, receive votes or ballots, hear and determine all
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<PAGE>
challenges and questions in any way arising in connection with the right to
vote, count and tabulate all votes, determine the result, and do such acts as
may be proper to conduct the election or vote with fairness to all
stockholders. If there be three judges of election, the decision, act or
certificate of a majority shall be effective in all respects as the decision,
act or certificate of all.
On request of the chairman of the meeting or of any stockholder or his
proxy, the judges shall make a report in writing of any challenge or question or
matter determined by them, and execute a certificate of any fact found by them.
ARTICLE III
Board of Directors
SECTION 3.01. Powers. The board of directors shall have full power to
manage the business and affairs of the corporation; and all powers of the
corporation, except those specifically reserved or granted to the stockholders
by statute, the certificate of incorporation or these bylaws, are hereby granted
to and vested in the board of directors.
SECTION 3.02. Number and Term of Office. The board of directors shall
consist of one or more members as determined from time to time by resolution of
the board of directors. Each director shall serve until the next annual meeting
of the stockholders and until his successor shall have been elected and
qualified, except in the event of his death, resignation or removal. All
directors of the corporation shall be natural persons, but need not be residents
of Delaware or stockholders of the corporation.
SECTION 3.03. Vacancies. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director, and the directors so chosen shall hold office until
the next annual election and until their successors are duly elected and shall
qualify, unless sooner displaced. If there are no directors in office, then an
election of directors may be held in the manner provided by statute. Whenever
the holders of any class or classes of stock or series thereof are entitled to
elect one or more directors by the provisions of the certificate of
incorporation, vacancies and newly created directorships of such class or
classes or series may be filled by a majority of the directors elected by such
class or classes or series thereof then in office, or by a sole remaining
director so elected.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office shall constitute less than a majority of the whole
board (as constituted immediately prior to any such increase), the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten percent of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office.
SECTION 3.04. Resignations. Any director of the corporation may resign at
any time by giving written notice to the president or the secretary of the
corporation. Such resignation shall take effect at the date of the receipt of
such notice or at any later time specified therein and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
SECTION 3.05. Organization. At every meeting of the board of directors,
the chairman of the board, if there be one, or, in the case of a vacancy in the
office or absence of the chairman of the board, one of the following officers
present in the order stated: the vice chairman of the board, if there be one,
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<PAGE>
the president, the vice presidents in their order of rank and seniority, or a
chairman chosen by a majority of the directors present, shall preside, and the
secretary, or, in his absence, an assistant secretary, or in the absence of the
secretary and the assistant secretaries, any person appointed by the chairman of
the meeting, shall act as secretary.
SECTION 3.06. Place of Meeting. The board of directors may hold its
meeting, both regular and special, at such place or places within or without the
State of Delaware as the board of directors may from time to time appoint, or as
may be designated in the notice calling the meeting.
SECTION 3.07. Organization Meeting. The first meeting of each newly
elected board of directors shall be held at such time and place as shall be
fixed by the vote of the stockholders at the annual meeting and no notice of
such meeting shall be necessary to the newly elected directors in order legally
to constitute the meeting, provided a quorum shall be present. In the event of
the failure of the stockholders to fix the time or place of such first meeting
of the newly elected board of directors, or in the event such meeting is not
held at the time and place so fixed by the stockholders, the meeting may be held
at such time and place as shall be specified in a notice given as hereinafter
provided for special meetings of the board of directors, or as shall be
specified in a written waiver signed by all of the directors.
SECTION 3.08. Regular Meetings. Regular meetings of the board of
directors may be held without notice at such time and place as shall be
designated from time to time by resolution of the board of directors. If the
date fixed for any such regular meeting be a legal holiday under the laws of the
State where such meeting is to be held, then the same shall be held on the next
succeeding business day, not a Saturday, or at such other time as may be
determined by resolution of the board of directors. At such meetings, the
directors shall transact such business as may properly be brought before the
meeting.
SECTION 3.09. Special Meetings. Special meetings of the board of
directors shall be held whenever called by the president or by two or more of
the directors. Notice of each such meeting shall be given to each director by
telephone or in writing at least 24 hours (in the case of notice by telephone)
or 48 hours (in the case of notice by telegram) or five days (in the case of
notice by mail) before the time at which the meeting is to be held. Each such
notice shall state the time and place of the meeting to be so held.
SECTION 3.10. Quorum, Manner of Acting and Adjournment. At all meetings
of the board a majority of the directors shall constitute a quorum for the
transaction of business and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the board of
directors, except as may be otherwise specifically provided by statute or by the
certificate of incorporation. If a quorum shall not be present at any meeting
of the board of directors, the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present.
Unless otherwise restricted by the certificate of incorporation or these
bylaws, any action required or permitted to be taken at any meeting of the board
of directors or of any committee thereof may be taken without a meeting, if all
members of the board consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the board.
SECTION 3.11. Executive and Other Committees. The board of directors may,
by resolution adopted by a majority of the whole board, designate an executive
committee and one or more other committees, each committee to consist of two or
more directors. The board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
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any meeting of the committee. In the absence of disqualification of a member,
and the alternate or alternates, if any, designated for such member, of any
committee the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another director to act at the meeting in the place of any
such absent or disqualified member.
Any such committee to the extent provided in the resolution establishing
such committee shall have and may exercise all the power and authority of the
board of directors in the management of the business and affairs of the
corporation, including the power or authority to declare a dividend or to
authorize the issuance of stock, and may authorize the seal of the corporation
to be affixed to all papers which may require it; but no such committee shall
have the power or authority in reference to amending the certificate of
incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151 (a) of the Delaware General
Corporation Law ("DGCL"), fix any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation), adopting an agreement of
merger or consolidation under Section 251 or 252 of the DGCL, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
bylaws of the corporation; and, unless the resolution expressly so provides, no
such committee shall have the power or authority to declare a dividend, to
authorize the issuance of stock or to adopt a certificate of ownership and
merger pursuant to Section 253 of the DGCL. Such committee or committees shall
have such name or names as may be determined from time to time by resolution
adopted by the board of directors. Each committee so formed shall keep regular
minutes of its meetings and report the same to the board of directors when
required.
SECTION 3.12. Compensation of Directors. Unless otherwise restricted by
the certificate of incorporation, the board of directors shall have the
authority to fix the compensation of directors. The directors may be paid their
expenses, if any, of attendance at each meeting of the board of directors and
may be paid a fixed sum for attendance at each meeting of the board of directors
or a stated salary as director. No such payment shall preclude any director
from serving the corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
ARTICLE IV
Notice - Waivers - Meetings
SECTION 4.01. Notice, What Constitutes. Whenever, under the provisions of
the statutes of Delaware or the certificate of incorporation or of these bylaws,
notice is required to be given to any director or stockholder, it shall not be
construed to mean personal notice, but such notice may be given in writing, by
mail, addressed to such director or stockholder, at his address as it appears on
the records of the corporation, with postage thereon prepaid, and such notice
shall be deemed to be given at the time when the same shall be deposited in the
United States mail. Notice to directors may also be given in accordance with
Section 3.09 of Article III hereof.
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SECTION 4.02. Waivers of Notice. Whenever any written notice is required
to be given under the provisions of the certificate of incorporation, these
bylaws, or by statute, a waiver thereof in writing, signed by the person or
persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice. Except in the
case of a special meeting of stockholders, neither the business to be transacted
at, nor the purpose of, any regular or special meeting of the stockholders,
directors, or members of a committee of directors need be specified in any
written waiver of notice of such meeting.
Attendance of a person, either in person or by proxy, at any meeting, shall
constitute a waiver of notice of such meeting, except where a person attends a
meeting for the express purpose of objecting to the transaction of any business
because the meeting was not lawfully called or convened.
SECTION 4.03. Conference Telephone Meetings. One or more directors may
participate in a meeting of the board, or of a committee of the board, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other. Participation in
a meeting pursuant to this section shall constitute presence in person at such
meeting.
ARTICLE V
Officers
SECTION 5.01. Number, Qualifications and Designation. The officers of the
corporation shall be chosen by the board of directors and shall be a president,
one or more vice presidents, if any, a secretary, a treasurer, and such officers
as may be elected in accordance with the provisions of Section 5.03 of this
Article. One person may hold more than one office. Officers may be, but need
not be, directors or stockholders of the corporation. The board of directors
may elect from among the members of the board a chairman of the board and a
vice chairman of the board who shall be officers of the corporation.
SECTION 5.02. Election and Term of Office. The officers of the
corporation, except those elected by delegated authority pursuant to Section
5.03 of this Article, shall be elected annually by the board of directors, and
such other officer shall hold his office until his successor shall have been
elected and qualified, or until his earlier resignation or removal. Any officer
may resign at any time upon written notice to the corporation.
SECTION 5.03. Subordinate Officers, Committees and Agents. The board of
directors may from time to time elect such other officers and appoint such
committees, employees or other agents as it deems necessary, who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as are provided in these bylaws, or as the board of directors may from
time to time determine. The board of directors may delegate to any officer or
committee the power to elect subordinate officers and to retain or appoint
employees or other agents, or committees thereof, and to prescribe the authority
and duties of such subordinate officers, committees, employees or other agents.
SECTION 5.04. The Chairman and Vice Chairman of the Board. The chairman
of the board or in his absence, the vice chairman of the board, shall preside at
all meetings of the stockholders and of the board of directors, and shall
perform such other duties as may from time to time be assigned to them by the
board of directors.
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SECTION 5.05. The President. The president shall perform such duties and
shall have such rights and responsibilities as may from time to time be assigned
to him by the board of directors.
SECTION 5.06. The Vice Presidents. The vice presidents, if any, shall
perform the duties of the president in his absence and such other duties as may
from time to time be assigned to them by the board of directors or by the
president.
SECTION 5.07. The Secretary. The secretary, or an assistant secretary,
shall attend all meetings of the stockholders and of the board of directors and
shall record the proceedings of the stockholders and of the directors and of
committees of the board in a book or books to be kept for that purpose; see that
notices are given and records and reports properly kept and filed by the
corporation as required by law; be the custodian of the seal of the corporation
and see that it is affixed to all documents to be executed on behalf of the
corporation under its seal; and, in general, perform all duties incident to the
office of the secretary, and such other duties as may from time to time be
assigned to him by the board of directors or the president.
SECTION 5.08. The Treasurer. The treasurer or an assistant treasurer
shall have or provide for the custody of the funds or other property of the
corporation and shall keep a separate book account of the same to his credit as
treasurer; collect and receive or provide for the collection and receipt of
moneys earned by or in any manner due to or received by the corporation; deposit
all funds in his custody as treasurer in such banks or other places of deposit
as the board of directors may from time to time designate; whenever so required
by the board of directors, render an account showing his transactions as
treasurer and the financial condition of the corporation; and, in general,
discharge such other duties as may from time to time be assigned to him by the
board of directors of the president.
SECTION 5.09. Officers' Bonds. No officer of the corporation need provide
a bond to guarantee the faithful discharge of his duties unless the board of
directors shall by resolution so require a bond in which event such officer
shall give the corporation a bond (which shall be renewed if and as required) in
such sum and with such surety or sureties as shall be satisfactory to the board
of directors for the faithful performance of the duties of his office.
SECTION 5.10. Salaries. The salaries of the officers and agents of the
corporation elected by the board of directors shall be fixed from time to time
by the board of directors.
ARTICLE VI
Certificates of Stock, Transfer, Etc.
SECTION 6.01. Issuance. Each stockholder shall be entitled to a
certificate or certificate for shares of stock of the corporation owned by him
upon his request therefor. The stock certificates of the corporation shall be
numbered and registered in the stock ledger and transfer books of the
corporation as they are issued. They shall be signed by the president or a
vice president and by the secretary or an assistant secretary or the treasurer
or an assistant treasurer, and shall bear the corporate seal, which may be a
facsimile, engraved or printed. Any of or all the signatures upon such
certificate may be a facsimile, engraved or printed. In case any officer,
transfer agent or registrar who has signed, or whose facsimile signature has
been placed upon, any share certificate shall have ceased to be such officer,
transfer agent or registrar, before the certificate is issued, it may be issued
with the same effect as if he were such officer, transfer agent or registrar
at the date of its issue.
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SECTION 6.02. Transfer. Upon surrender to the corporation or the transfer
agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books. No transfer shall be made which would be
inconsistent with the provisions of Article 8, Title 6 of the Delaware Uniform
Commercial Code-Investment Securities.
SECTION 6.03. Stock Certificates. Stock certificates of the corporation
shall be in such form as provided by statute and approved by the board of
directors. The stock record books and the blank stock certificates books shall
be kept by the secretary or by any agency designated by the board of directors
for that purpose.
SECTION 6.04. Lost, Stolen, Destroyed or Mutilated Certificates. The
board of directors may direct a new certificate or certificates to be issued in
place of any certificate or certificates theretofore issued by the corporation
alleged to have been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the person claiming the certificate of stock to be lost, stolen
or destroyed. When authorizing such issue of a new certificate or certificates,
the board of directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require and/or to give the corporation a bond in such
sum as it may direct as indemnity against any claim that may be against the
corporation with respect to the certificate alleged to have been lost, stolen or
destroyed.
SECTION 6.05. Record Holder of Shares. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of Delaware.
SECTION 6.06. Determination of Stockholders of Record. In order that the
corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, the board of directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the board of directors, and
which record date shall not be more than sixty or less than ten days before the
date of such meeting. If no record date is fixed by the board of directors, the
record date for determining stockholders shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the board of directors may fix a new record
date for the adjourned meeting.
In order that the corporation may determine the stockholders entitled to
consent to corporate action in writing without a meeting, the board of directors
may fix a record date, which record date shall not be more than ten days after
the date upon which the resolution fixing the record date is adopted by the
board of directors. If no record has been fixed by the board of directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the board of directors is
required by the DGCL, shall be the first date on which a signed
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written consent setting forth the action taken or proposed to be taken is
delivered to the corporation by delivery to its registered office in
Delaware, its principal place of business, or an officer or agent of the
corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to a corporation's registered office
shall be by hand or by certified or registered mail, return receipt
requested. If no record date has been fixed by the board of directors and
prior action by the board of directors is required by the DGCL, the record
date for determining stockholders entitled to consent to corporate action in
writing without a meeting shall be at the close of business on the day on
which the board of directors adopts the resolution taking such prior action.
In order that the corporation may determine the stockholders entitled to
receive payment of any dividend or other distribution or allotment of any rights
of the stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the board of directors may fix a record date, which record date shall not
precede the date upon the resolution fixing the record date is adopted, and
which record date shall not be more than sixty days prior to such action. If no
record date is fixed, the record date for determining stockholders for any such
purpose shall be at the close of the business on the day on which the board of
directors adopts the resolution relating thereto.
ARTICLE VII
Indemnification of Directors, Officers and
Other Authorized Representatives
SECTION 7.01. Indemnification of Authorized Representatives in Third
Party Proceedings. The corporation shall indemnify any person who was or is
an authorized representative of the corporation, and who was or is a party or
is threatened to be made a party to any corporation proceeding, by reason of
the fact that such person was or is an authorized representative of the
corporation, against expenses judgments, penalties, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such third party proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in, or not opposed to, the best
interests of the corporation and, with respect to any criminal third party
proceeding (including any action or investigation which could or does lead to
a criminal third party proceeding) had no reasonable cause to believe such
conduct was unlawful. The termination of any third party proceeding by
judgment, order, settlement, indictment, conviction or upon a plea of nolo
contendere or its equivalent, shall not of itself create a presumption that
the authorized representative did not act in good faith and in a manner which
such person reasonably believed to be in or not opposed to, the best
interests of the corporation, and, with respect to any criminal third party
proceeding, had reasonable cause to believe that such conduct was unlawful.
SECTION 7.02. Indemnification of Authorized Representatives in Corporate
Proceedings. The corporation shall indemnify any person who was or is an
authorized representative of the corporation and who was or is a party or is
threatened to be made a party to any corporate proceeding by reason of the fact
that such person was or is an authorized representative of the corporation,
against expenses actually and reasonably incurred by such person in connection
with the defense or settlement of such corporate action if such person acted in
good faith and in a manner reasonably believed to be in, or not opposed to, the
best interests of the corporation, except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless
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and only to the extent that the Court of Chancery or the court in which such
corporate proceeding was pending shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such authorized representative is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
SECTION 7.03. Mandatory Indemnification of Authorized Representatives. To
the extent that an authorized representative of the corporation has been
successful on the merits or otherwise in defense of any third party or corporate
proceeding or in defense of any claim, issue or matter therein, such person
shall be indemnified against expenses actually and reasonably incurred by such
person in connection therewith.
SECTION 7.04. Determination of Entitlement to Indemnification. Any
indemnification under Section 7.01, 7.02 or 7.03 of this Article (unless ordered
by a court) shall be made by the corporation only as authorized in the specific
case upon a determination that indemnification of the authorized representative
is proper in the circumstances because such person has either met the applicable
standard of conduct set forth in Section 7.01 or 7.02 or has been successful on
the merits or otherwise as set forth in Section 7.03 and that the amount
requested has been actually and reasonably incurred. Such determination shall
be made:
(1) By the board of directors by a majority of a quorum
consisting of directors who were not parties to such third party or corporate
proceeding, or
(2) If such a quorum is not obtainable, or, even if obtainable,
a majority vote of such quorum so directs, by independent legal counsel in a
written opinion, or
(3) By the stockholders.
SECTION 7.05. Advancing Expenses. Expenses actually and reasonably
incurred in defending a third party or corporate proceeding shall be paid on
behalf of a director by the corporation in advance of the final disposition of
such third party or corporate proceeding upon receipt of an undertaking by or on
behalf of the director to repay such amount if it shall ultimately be determined
that such person is not entitled to be indemnified by the corporation as
authorized in this Article.
Expenses actually and reasonably incurred in defending a third party
or corporate proceeding shall be paid on behalf of an authorized representative
other than a director by the corporation in advance of the final disposition of
such third party or corporate proceeding as authorized by the board of directors
upon receipt of an undertaking by or on behalf of such authorized representative
to repay if it shall ultimately be determined that such person is not entitled
to be indemnified by the corporation as authorized in this Article.
The financial ability of any authorized representative to make a
repayment contemplated by this Section shall not be a prerequisite to the making
of an advance.
SECTION 7.06. Definitions. For purposes of this Article:
(1) "authorized representative" shall mean a director or officer of
the corporation, or a person serving at the request of the
corporation as a director, officer, or trustee, of another
corporation, partnership, joint venture, trust or other
enterprise;
(2) "corporation" shall include in addition to the resulting
corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have
had power and authority to indemnify its directors, officers,
employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation,
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or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions
of this Article with respect to the resulting or surviving
corporation as such person would have with respect to such
constituent corporation if its separate existence had continued.
(3) "corporate proceeding" shall mean any threatened, pending or
completed action or suit by or in the right of the corporation to
procure a judgment in its favor or investigative proceeding by
the corporation;
(4) "criminal third party proceedings" shall include any action or
investigation which could or does lead to a criminal third party
proceeding;
(5) "expenses" shall include attorney's fees and disbursements;
(6) "fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan;
(7) "not opposed to the best interests of the corporation" shall
include such actions taken in good faith and in a manner the
authorized representative reasonably believed to be in the
interest of the participants and beneficiaries of a benefit plan;
(8) "other enterprises" shall include employee benefit plans;
(9) "party" shall include the giving of testimony or similar
involvement;
(10) "serving at the request of the corporation" shall include any
service as a director, officer or employee of the corporation
which imposes duties on, or involves service by, such director,
officer or employee with respect to an employee benefit plan, its
participants, or beneficiaries; and
(11) "third party proceeding" shall mean any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative, or investigative, other than an action by or in
the right of the corporation.
SECTION 7.07. Insurance. The corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in such a capacity, or arising out of his status as
such, whether or not the corporation would have the power or the obligation to
indemnify such person against such liability under the provisions of this
Article.
SECTION 7.08. Scope of Article. The indemnification of authorized
representatives and advancement of expenses, as authorized by the preceding
provisions of this Article, shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses may be entitled
under any statute, agreement, vote of stockholders or disinterested directors or
otherwise, both as to the action in an official capacity and as to action in
another capacity. The indemnification and advancement of expenses provided by
or granted pursuant to this Article shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be an
authorized representative and shall inure to the benefit of the heirs, executors
and administrators of such a person.
SECTION 7.09. Reliance on Provisions. Each person who shall act as an
authorized representative of the corporation shall be deemed to be doing so in
reliance upon rights of indemnification provided by this Article.
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ARTICLE VIII
General Provisions
SECTION 8.01. Dividends. Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of incorporation,
if any, may be declared by the board of directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock of the corporation, subject to the provisions of
the certificate of incorporation. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the directors from time to time, in their absolute discretion,
think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the directors shall think conducive
to the interest of the corporation, and the directors may modify or abolish
any such reserve in the manner in which it was created.
SECTION 8.02. Annual Statements. The board of directors shall present
at each annual meeting, and at any special meeting of the stockholders when
called for by vote of the stockholders, a full and clear statement of the
business and condition of the corporation.
SECTION 8.03. Contracts. Except as otherwise provided in these bylaws,
the board of directors may authorize any officer or officers including the
chairman and vice chairman of the board of directors, or any agent or agents, to
enter into any contract or to execute or deliver any instrument on behalf of the
corporation and such authority may be general or confined to specific instances.
SECTION 8.04. Checks. All checks, notes, bills of exchange or other
orders in writing shall be signed by such person or persons as the board of
directors may from time to time designate.
SECTION 8.05. Corporate Seal. The corporate seal shall have inscribed
thereon the name of the corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or in any other manner reproduced.
SECTION 8.06. Deposits. All funds of the corporation shall be deposited
from time to time to the credit of the corporation in such banks, trust
companies, or other depositories as the board of directors may approve or
designate, and all such funds shall be withdrawn only upon checks signed by such
one or more officers or employees as the board of directors shall from time to
time determine.
SECTION 8.07. Corporate Records. At least ten days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of and number
of shares registered in the name of each stockholder, shall be open to the
examination of any stockholder, for any purpose germane to the meeting, either
at a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
Every stockholder shall, upon written demand, under oath stating the
purpose thereof, have a right to examine, in person or by agent or attorney,
during the usual hours for business, for any proper purpose, the stock ledger,
books or records of account, and records of the proceedings of the stockholders
and directors, and make copies or extracts therefrom. A proper purpose shall
mean a purpose reasonably related to such person's interest as a stockholder.
In every instance where an attorney or other agent shall
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be the person who seeks the right to inspection, the demand under oath shall
be accompanied by a power of attorney or such other writing which authorizes
the attorney or other agent to so act on behalf of the stockholder. The
demand under oath shall be directed to the corporation at its registered
office in Delaware or at its principal place of business. Where the
stockholder seeks to inspect the books and records of the corporation, other
than its stock ledger or list of stockholders, the stockholder shall first
establish (1) compliance with the provisions of this section respecting the
form and manner of making demand for inspection of such document; and (2)
that the inspection sought is for a proper purpose. Where the stockholder
seeks to inspect the stock ledger or list of stockholders of the corporation
and has complied with the provisions of this section respecting the form and
manner of making demand for inspection of such documents, the burden of proof
shall be upon the corporation to establish the inspection sought is for an
improper purpose.
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders and its other books and records for a purpose
reasonably related to his position as a director. The Court of Chancery is
hereby vested with the exclusive jurisdiction to determine whether a director is
entitled to the inspection sought. The court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger and the stock list and to make copies or extracts therefrom. The
court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the court
may deem just and proper.
SECTION 8.08. Amendment of Bylaws. These bylaws may be altered, amended
or repealed or new bylaws may be adopted by the vote of more than fifty percent
of the stockholders or by a majority of the whole board of directors, when such
power is conferred upon the board of directors by the certificate of
incorporation, at any regular meeting of the stockholders or of the board of
directors or at any special meeting of the stockholders of the board of
directors if notice of such alteration, amendment, repeal or adoption of new
bylaws be contained in the notice of such special meeting.
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EXHIBIT 10.1
MICRO VISION MEDICAL SYSTEMS, INC.
1996 EQUITY COMPENSATION PLAN
[As adopted by the Board of Directors on December 12, 1996 and as approved by
the stockholders on January 20, 1997]
SECTION 1. Purpose; Definitions
The purpose of the Micro Vision Medical Systems, Inc. 1996 Equity
Compensation Plan (the "Plan") is to provide employees (including employees
who are also officers or directors), non-employee directors, advisory board
members and Eligible Independent Contractors (as hereinafter defined) of
Micro Vision Medical Systems, Inc. (the "Company") with the opportunity to
receive grants of incentive stock options, nonqualified stock options, stock
appreciation rights and restricted stock awards. The Company believes that
the Plan will enable the Company to attract, retain and motivate its
employees, non-employee directors, advisory board members and Eligible
Independent Contractors, will encourage Plan participants to contribute
materially to the growth of the Company for the benefit of the Company's
stockholders, and will align the economic interests of the Plan participants
with those of the stockholders.
For the purposes of the Plan, the following terms shall be defined as
set forth below:
a. "Board" means the Board of Directors of the Company.
b. "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and any successor thereto.
c. "Committee" means the Committee designated by the Board to
administer the Plan.
d. "Company" means Micro Vision Medical Systems, Inc., its
subsidiaries or any successor organization.
e. "Disability" means permanent and total disability within the
meaning of Section 22(e)(3) of the Code.
f. "Eligible Independent Contractor" means an independent consultant
or advisor hired by the Company to provide bona fide services for the Company
that are not in connection with the offer or sale of securities in a
capital-raising transaction.
g. "Employed by the Company" shall mean employment as an employee,
Eligible Independent Contractor, member of any advisory board, or member of
the Board, so that for purposes of exercising Stock Options and Stock
Appreciation Rights and satisfying conditions with respect to Restricted
Stock Grants, a Participant shall not be considered to have terminated
employment until the Participant ceases to be an employee, Eligible
Independent Contractor, member of any advisory board, or
<PAGE>
member of the Board; provided, however, that the Committee may determine
otherwise as may be specified in an individual Participant's Grant Letter.
h. "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
i. "Fair Market Value" means the fair market value of the Stock as
determined by the Committee in good faith based on the best available facts
and circumstances at the time; provided, however, that where there is a
public market for the Stock and the Stock is registered under the Exchange
Act, Fair Market Value shall mean the per share or aggregate value of the
Stock as of any given date, determined as follows: (i) if the principal
trading market for the Stock is a national securities exchange or the Nasdaq
National Market, the last reported sale price thereof on the relevant date
or, if there were no trades on that date, the latest preceding date upon
which a sale was reported, or (ii) if the Stock is not principally traded on
such exchange or market, the mean between the last reported "bid" and "asked"
prices of Stock on the relevant date, as reported on Nasdaq or, if not so
reported, as reported by the National Daily Quotation Bureau, Inc. or as
reported in a customary financial reporting service, as applicable and as the
Committee determines.
j. "Grant" means any Stock Option, Stock Appreciation Right or
Restricted Stock award granted pursuant to the Plan.
k. "Incentive Stock Option" means any Stock Option intended to be and
designated as an "Incentive Stock Option" within the meaning of Section 422
of the Code.
l. "Insider" means a Participant who is subject to Section 16 of the
Exchange Act.
m. "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
n. "Participant" means an employee, non-employee director or Eligible
Independent Contractor to whom an award is granted pursuant to the Plan.
o. "Plan" means the Micro Vision Medical Systems, Inc. 1996 Equity
Compensation Plan, as hereinafter amended from time to time.
p. "Restricted Stock" means an award of shares of Stock that is
subject to restrictions pursuant to Section 7 below.
q. "Securities Act" shall mean the Securities Act of 1933, as amended.
r. "Securities Broker" means the registered securities broker
acceptable to the Company who agrees to effect the cashless exercise of an
Option pursuant to Section 5(d) hereof.
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s. "Stock" means the Common Stock of the Company, $.01 par value per
share.
t. "Stock Appreciation Right" means the right, pursuant to an award
granted under Section 6 below, to surrender to the Company all (or a portion)
of a Stock Option in exchange for an amount in cash and/or shares of Stock
equal in value to the excess of (i) the Fair Market Value, as of the date
such right is exercised and the related Stock Option (or such portion
thereof) is surrendered, of the shares of Stock covered by such Stock Option
(or such portion thereof), over (ii) the aggregate exercise price of such
Stock Appreciation Right (or such portion thereof).
u. "Stock Option" or "Option" means any option to purchase shares of
Stock (including Restricted Stock, if the Committee so determines) granted
pursuant to Section 5 below.
v. "Termination for Cause" shall mean, except to the extent specified
otherwise by the Committee, a finding by the Committee that the Participant
has breached his or her employment or service contract, non-competition or
other obligation with the Company, or has been engaged in disloyalty to the
Company, including, without limitation, fraud, embezzlement, theft,
commission of a felony or proven dishonesty in the course of his or her
employment or service, or has disclosed trade secrets or confidential
information of the Company to persons not entitled to receive such
information.
SECTION 2. Administration
The Plan shall be administered by a Committee which shall consist of two
or more non-employee directors appointed by the Board. In the absence of the
designation of a Committee to administer the Plan, the Plan shall be
administered by the full Board.
The Committee shall have the authority to:
(a) select the Participants to whom Grants may from time to time be
made hereunder;
(b) determine the type, size and terms of the Grants to be made to each
such Participant;
(c) determine the time when the Grants will be made and the duration of
any applicable exercise or restriction period, including the criteria for
exercisability and the acceleration of exercisability;
(d) amend the terms of any outstanding award (with the consent of the
Participant) to reflect terms not otherwise inconsistent with the Plan,
including, but not limited to, amendments concerning vesting acceleration or
forfeiture waiver regarding any award or the extension of a Participant's
right with respect to Grants under the Plan as a result of termination of
employment or service or otherwise,
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based on such factors as the Committee shall determine, in its sole
discretion, or substitution of new Stock Options for previously granted Stock
Options, including previously granted Stock Options having high option prices;
(e) establish from time to time any policy or program to encourage or
require Participants to achieve or maintain equity ownership in the Company
through the use of the Plan upon such terms and conditions as the Committee
may determine in its sole discretion, and thereafter to amend, modify or
terminate such policy or program as the Committee may from time to time deem
appropriate; and
(f) deal with any other matters arising under the Plan.
The Committee shall have full power and authority to administer and
interpret the Plan and any Grant made under the Plan, to make factual
determinations and to adopt, alter and repeal such administrative rules,
guidelines, practices, agreements and instruments for implementing the Plan
and for the conduct of its business as it deems necessary or advisable, in
its sole discretion. All decisions made by the Committee pursuant to the
provisions of the Plan shall be final and binding on all persons having any
interest in the Plan or in any Grants made hereunder. All power of the
Committee shall be executed in its sole discretion, in the best interest of
the Company, not as a fiduciary, and in keeping with the objectives of the
Plan.
No member of the Board or the Committee shall be liable for any action
or determination made in good faith with respect to the Plan or any Grant
made under it. Nothing herein shall be deemed to expand the personal
liability of a member of the Board or Committee beyond that which may arise
under any applicable standards set forth in the Company's Articles of
Incorporation, by-laws and Pennsylvania law, nor shall anything herein limit
any rights to indemnification or advancement of expenses to which any member
of the Board or the Committee may be entitled under any applicable law, the
Company's Articles of Incorporation or by-laws, agreement, vote of the
stockholders or directors, or otherwise.
SECTION 3. Stock Subject to the Plan
(a) The aggregate number of shares of Stock that may be issued or
transferred under the Plan is 1,035,000 subject to adjustment pursuant to
Section 3(b) below. Such shares may be authorized but unissued shares or
reacquired shares of Stock, including shares purchased by the Company on the
open market for purposes of the Plan. In the event the number of shares of
Stock issued under the Plan and the number of shares of Stock subject to
outstanding awards equals the maximum number of shares of Stock authorized
under the Plan, no further awards shall be made unless the Plan is amended to
increase the number of shares of Stock issuable and transferable hereunder or
additional shares of Stock become available for further awards under the
Plan. If and to the extent that Options or Stock Appreciation Rights granted
under the Plan terminate, expire or are canceled, forfeited, exchanged or
surrendered without having been exercised, or if any shares of Restricted
Stock are forfeited, the shares subject to such Grants shall again be
available for subsequent awards under the Plan.
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(b) If there is any change in the number or kind of shares of Company
Stock outstanding (i) by reason of a stock dividend, spin off,
recapitalization, stock split, or combination or exchange of shares, (ii) by
reason of a merger, reorganization or consolidation in which the Company is
the surviving corporation, (iii) by reason of a reclassification or change in
par value, or (iv) by reason of any other extraordinary or unusual event
affecting the outstanding Company Stock as a class without the Company's
receipt of consideration, or if the value of outstanding shares of Company
Stock is substantially reduced as a result of a spin off or the Company's
payment of an extraordinary dividend or distribution, then unless such event
or change results in the termination of all outstanding awards under the
Plan, the Committee shall preserve the value of the outstanding awards by
adjusting the maximum number and class of shares issuable under the Plan to
reflect the effect of such event or change in the Company's capital
structure, and by making appropriate adjustments to the number and class of
shares subject to an outstanding award and/or the option price of each
outstanding Option and Stock Appreciation Right, except that any fractional
shares resulting from such adjustments shall be eliminated by rounding any
portion of a share equal to .5 or greater up, and any portion of a share
equal to less than .5 down, in each case to the nearest whole number.
SECTION 4. Eligibility; Participant Limitations Concerning Issuances
All employees, non-employee directors and Eligible Independent
Contractors are eligible to participate in the Plan. The maximum aggregate
number of shares of Stock that shall be subject to Grants made under the Plan
to any Participant shall not exceed 700,000. The terms and provisions of
Grants made under the Plan may vary between Participants or as to the same
Participant to whom more than one Grant may be awarded.
SECTION 5. Stock Options
Stock Options may be granted alone, in addition to, or in tandem with
other awards granted under the Plan. Any Stock Option granted under the Plan
shall be in such form as the Committee may from time to time approve. Stock
Options granted under the Plan may be of two types: (i) Incentive Stock
Options and (ii) Non-Qualified Stock Options.
The Committee shall have the authority to grant Incentive Stock Options,
Non-Qualified Stock Options or both types of Stock Options (in each case with
or without Stock Appreciation Rights). To the extent that any Stock Option
does not qualify as an Incentive Stock Option, it shall constitute a
Non-Qualified Stock Option.
Anything in the Plan to the contrary notwithstanding, no term of this
Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be so
exercised, so as to disqualify the Plan under Section 422 of the Code, or,
without the consent of the Participant affected, to disqualify any Incentive
Stock Option under Section 422.
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Options granted under the Plan shall be subject to the following terms
and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem
appropriate:
(a) Option Price. The option price per share of Stock purchasable
under a Stock Option shall be determined by the Committee at the time of
grant, provided, however, that the option price per share for any Incentive
Stock Option shall be not less than 100% of the Fair Market Value of the
Stock at the time of grant.
Any Incentive Stock Option granted to any Participant who, at the
time the Option is granted, owns more than 10% of the voting power of all
classes of stock of the Company or of a Parent or Subsidiary corporation
(within the meaning of Section 424 of the Code), shall have an exercise price
no less than 110% of the Fair Market Value per share on the date of the grant.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Stock Option shall be exercisable more than ten years after
the date the Stock Option is granted. However, any Incentive Stock Option
granted to any Participant who, at the time the Option is granted, owns more
than 10% of the voting power of all classes of stock of the Company or of a
Parent or Subsidiary corporation may not have a term of more than five years.
No Stock Option may be exercised by any person after expiration of the term
of the Stock Option.
(c) Exercisability. Stock Options shall be exercisable at such time or
times and subject to such terms and conditions as shall be determined by the
Committee at or after grant. If the Committee provides, in its discretion,
that any Stock Option is exercisable only in installments, the Committee may
waive such installment exercise provisions at any time at or after grant in
whole or in part, based on such factors as the Committee shall determine, in
its sole discretion.
(d) Method of Exercise. Subject to whatever installment exercise
provisions apply under Section 5(c), Stock Options may be exercised, in whole
or in part at any time and from time to time during the Option period, by
giving written notice of exercise to the Company specifying the number of
shares to be purchased. Such notice shall be accompanied by payment in full
of the purchase price, either by cash, check, or such other instrument as the
Committee may accept. As determined by the Committee, in its sole
discretion, at or after grant, payment in full or in part may also be made in
the form of unrestricted Stock already owned by the Participant (including
Company Stock acquired in connection with the exercise of an Option, subject
to such restrictions as the Committee deems appropriate); provided, however,
that (i) in the case of an Incentive Stock Option, the right to make a
payment in the form of unrestricted Stock already owned by the Participant
may be authorized only at the time the Option is granted and (ii) the Company
may require that the Stock has been owned by the Participant for the
requisite period of time necessary to avoid a charge to the Company's
earnings for financial reporting purposes and adverse accounting consequences
to the Company with respect to the Option.
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If specified by the Committee in the agreement governing a Stock
Option at the time of grant, the Committee may, in its sole discretion, upon
receipt of such Participant's written notice to exercise, elect to cash out
all or part of the portion of the Stock Option to be exercised by paying the
Participant an amount, in cash or Stock, equal to the excess of the Fair
Market Value of the Stock over the option price on the effective date of such
cash-out.
To the extent permitted under the applicable laws and regulations,
at the request of the Participant and if authorized by the Committee, in its
sole discretion, at or after grant, the Company agrees to cooperate in a
"cashless exercise" of a Stock Option. The cashless exercise shall be
effected by the Participant delivering to the Securities Broker instructions
to sell a sufficient number of shares of Stock to cover the cost and expenses
associated therewith.
No shares of Stock shall be issued until full payment therefor has
been made. A Participant shall not have any right to dividends or other
rights of a stockholder with respect to shares subject to the Option until
such time as Stock is issued in the name of the Participant following
exercise of the Option in accordance with the Plan.
(e) Stock Option Agreement. Each Option granted under this Plan shall
be evidenced by an appropriate Stock Option agreement, which agreement shall
expressly specify whether such Option is an Incentive Stock Option or a
Non-Qualified Stock Option and shall be executed by the Company and the
Participant. The agreement shall contain such terms and provisions, not
inconsistent with the Plan, as shall be determined by the Committee.
(f) Replacement Options. The Committee may, in its sole discretion and
at the time of the original option grant, authorize the Participant to
automatically receive replacement Options pursuant to this part of the Plan.
Any such replacement option shall be granted upon such terms and subject to
such conditions and limitations as the Committee may deem appropriate. Any
replacement option shall cover a number of shares determined by the
Committee, but in no event more than the number of shares equal to the number
of shares of the original option exercised. The per share exercise price of
any replacement option shall equal the then current Fair Market Value of a
share of Stock, and shall have a term as determined by the Committee at the
time of grant of the original Option.
The Committee shall have the right, and may reserve the right in
any Option grant, in its sole discretion and at any time, to discontinue the
automatic grant of replacement options if it determines the continuance of
such grants to no longer be in the best interest of the Company.
(g) Non-transferability of Options. Except as provided below, no Stock
Option shall be transferable by the Participant other than by will or by the
laws of descent and distribution, and all Stock Options shall be exercisable,
during the Participant's lifetime, only by the Participant. When a
Participant dies, the representative or other person entitled to succeed to
the rights of the Grantee may
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exercise such rights, subject to the Company receiving satisfactory proof of
his or her right to receive the Grant under the Participant's will or under
the applicable laws of descent and distribution. Notwithstanding the
foregoing, the Committee may provide, at or after Grant, that a Participant
may transfer Nonqualified Stock Options pursuant to a domestic relations
order or to family members or other persons or entities according to such
terms as the Committee may determine.
(h) Termination of Employment; Disability; Death
(i) Unless otherwise determined by the Committee at or after
grant, in the event of a Participant's termination of employment
(voluntary or involuntary) for any reason other than as provided below,
any Stock Option held by such Participant may thereafter be exercised by
the Participant, to the extent it was exercisable at the time of such
termination or on such accelerated basis as the Committee may determine
at or after grant, for a period of three months (or such shorter period
as the Committee may specify at grant) from the date of such termination
of employment or until the expiration of the stated term of such Stock
Option, whichever period is shorter.
(ii) Unless otherwise determined by the Committee at or after
grant, if any Participant ceases to be employed by the Company on
account of a Termination for Cause by the Company, any Stock Option held
by such Participant shall terminate as of the date the Participant
ceases to be employed by the Company, and the Participant shall
automatically forfeit all Stock underlying any exercised portion of an
Option for which the Company has not yet delivered the share
certificates, upon refund by the Company of the Exercise Price paid by
the Participant for such Stock.
(iii) Unless otherwise determined by the Committee at or
after grant, if a Participant's employment by the Company terminates by
reason of Disability, any Stock Option held by such Participant may
thereafter be exercised by the Participant, to the extent it was
exercisable at the time of termination, or on such accelerated basis as
the Committee may determine at or after grant, for a period of one year
(or such shorter period as the Committee may specify at grant) from the
date of such termination of employment or until the expiration of the
stated term of such Stock Option, whichever period is shorter.
(iv) Unless otherwise determined by the Committee at or after
grant, if any Participant dies while employed by the Company or within
three months after the date on which the Participant ceases to be
employed by the Company on account of termination of employment
specified in Section 5(h)(i) above (or within such other period of time
as may be specified by the Committee), any Stock Option held by such
Participant may thereafter be exercised, to the extent then exercisable
or on such accelerated basis as the Committee may determine at or after
grant, by the legal representative of the estate or by the legatee of
the Participant under the will of the Participant, for a period of one
year (or such shorter period as the Committee may specify at grant) from
the
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date of such termination of employment or until the expiration of
the stated term of such Stock Option, whichever period is shorter.
(i) Incentive Stock Option Limitation. The aggregate Fair Market Value
(determined as of the time of grant) of the Stock with respect to which
Incentive Stock Options are exercisable for the first time by the Participant
during any calendar year under the Plan and/or any other stock option plan of
the Company shall not exceed $100,000. An Incentive Stock Option shall not
be granted to any person who is not an employee of the Company or a parent or
subsidiary (within the meaning of section 424(f) of the Code).
(j) Issuance of Shares. Within a reasonable time after exercise of an
Option, the Company shall cause to be delivered to the Participant a
certificate for the Stock purchased pursuant to the exercise of the Option.
SECTION 6. Stock Appreciation Rights
(a) Grant and Exercise. Stock Appreciation Rights may be granted
either separately or in tandem with all or part of any Stock Option granted
under the Plan. The provisions of Stock Appreciation Rights awarded under
the Plan need not be the same with respect to each Participant. In the case
of a Non-Qualified Stock Option, such rights may be granted either at the
grant of such Stock Option or at any time thereafter while the Option remains
outstanding. In the case of an Incentive Stock Option, such rights may be
granted only at the time of the grant of such Stock Option. The Committee
shall establish the base amount of the Stock Appreciation Rights at the time
the Stock Appreciation Right is granted. Unless the Committee determines
otherwise, the base amount of each Stock Appreciation Right shall be equal to
the per share option price of the related Stock Option or, if there is no
related Stock Option, the Fair Market Value of a share of Stock as of the
date of grant of such Stock Appreciation Right.
A Stock Appreciation Right or applicable portion thereof granted
with respect to a given Stock Option shall terminate and no longer be
exercisable upon the termination or exercise of the related Stock Option,
except that, unless otherwise determined by the Committee, in its sole
discretion, at the time of grant, a Stock Appreciation Right granted with
respect to less than the full number of shares covered by a related Stock
Option shall not be reduced until the number of shares covered by an exercise
or termination of the related Stock Option exceeds the number of shares not
covered by the Stock Appreciation Right.
A Stock Appreciation Right may be exercised by a Participant, in
accordance with Section 6(b), by surrendering the applicable portion of the
related Stock Option. Upon such exercise and surrender, the Participant
shall be entitled to receive an amount determined in the manner prescribed in
Section 6(b). Stock Options which have been so surrendered, in whole or in
part, shall no longer be exercisable to the extent the related Stock
Appreciation Rights have been exercised.
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(b) Terms and Conditions. Stock Appreciation Rights shall be subject
to such terms and conditions, not inconsistent with the provisions of the
Plan, as shall be determined from time to time by the Committee, including
the following:
(i) Stock Appreciation Rights shall be exercisable only at such
time or times and to the extent that the Stock Options to which they
relate, if any, shall be exercisable in accordance with the provisions
of Section 5 and this Section 6 of the Plan.
(ii) Upon the exercise of a Stock Appreciation Right, a Participant
shall be entitled to receive up to, but not more than, an amount in cash
and/or shares of Stock equal in value to the excess of the Fair Market
Value of one share of Stock (as of the date the Stock Appreciation Right
is exercised and the related Stock Option is surrendered) over the
exercise price of the Stock Appreciation Right, multiplied by the number
of shares of Stock in respect of which the Stock Appreciation Right
shall have been exercised, with the Committee having the right to
determine the form of payment.
(iii) Stock Appreciation Rights shall be transferable only when
and to the extent that the underlying Stock Option would be transferable
under Section 5(g) of the Plan.
(iv) A Stock Appreciation Right granted in connection with an
Incentive Stock Option may be exercised only if and when the market
price of the Stock subject to the Incentive Stock Option exceeds the
exercise price of such Stock Option.
SECTION 7. Restricted Stock
(a) Administration. Shares of Restricted Stock may be issued either
alone or in addition to other awards granted under the Plan. The Committee
shall determine the employees, non-employee directors or Eligible Independent
Contractors to whom, and the time or times at which, grants of Restricted
Stock will be made, the number of shares to be awarded, the price (if any) to
be paid by the recipient of Restricted Stock (subject to Section 7(b)), the
time or times within which such awards may be subject to forfeiture, and all
other conditions of the awards. The Committee may condition the grant of
Restricted Stock upon the attainment of specified performance goals or such
other factors as the Committee may determine, in its sole discretion. The
provisions of Restricted Stock awards need not be the same with respect to
each Participant.
(b) Awards and Certificates. The prospective recipient of a Restricted
Stock award shall not have any rights with respect to such award unless and
until such recipient has executed an agreement evidencing the award and has
delivered a fully executed copy thereof to the Company, and has otherwise
complied with the applicable terms and conditions of such award.
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<PAGE>
(i) The purchase price for shares of Restricted Stock shall be
established by the Committee and may be zero.
(ii) Awards of Restricted Stock may be accepted within a period of
60 days (or such shorter period as the Committee may specify at grant)
after the grant date, by executing a Restricted Stock award agreement
and paying whatever price (if any) is required under Section 7(b)(i).
(iii) Each Participant receiving a Restricted Stock award shall
be issued a certificate in respect of such shares of Restricted Stock.
Such certificate shall be registered in the name of such Participant,
and shall bear an appropriate legend referring to the terms, conditions,
and restrictions applicable to such award, substantially in the
following form:
"The transferability of this certificate
and the shares of stock represented
hereby are subject to the terms and
conditions (including forfeiture) of the
Micro Vision Medical Systems, Inc. 1996
Equity Compensation Plan and an Agreement
entered into between the registered owner
and Micro Vision Medical Systems, Inc.
Copies of such Plan and Agreement are on
file at the offices of Micro Vision
Medical Systems, Inc."
(iv) The Committee shall require that the certificates evidencing
such Restricted Stock be held in custody by the Company until the
restrictions thereon shall have lapsed, and that, as a condition of any
Restricted Stock award, the Participant shall have delivered a stock
power, endorsed in blank, relating to the Stock covered by such award.
(c) Restrictions and Conditions. The shares of Restricted Stock
awarded pursuant to this Section 7 shall be subject to the following
restrictions and conditions:
(i) Subject to the provisions of this Plan and the
Restricted Stock award agreement, during a period set by the Committee
commencing with the date of such award (the "Restriction Period"), the
Participant shall not be permitted to sell, transfer, pledge, assign or
otherwise encumber shares of Restricted Stock awarded under the Plan.
Within these limits, the Committee, at its sole discretion, may provide
for the lapse of such restrictions in installments and may accelerate or
waive such restrictions in whole or in part, based on service,
performance and/or such other factors or criteria as the Committee may
determine, in its sole discretion.
(ii) Except as provided in this paragraph (ii) and Section 7(c)(i),
the Participant shall have, with respect to the shares of Restricted
Stock, all of the rights of a stockholder of the Company, including the
right to vote the shares and the right to receive any cash dividends.
The Committee, in its sole discretion, as determined at the time of
award, may permit or require the payment of cash dividends to be
deferred and, if the Committee so determines,
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<PAGE>
reinvested in additional Restricted Stock to the extent shares are
available under Section 3.
(iii) Subject to the applicable provisions of the
Restricted Stock award agreement and this Section 7, upon
termination of a Participant's employment with the Company for any
reason during the Restriction Period, all shares still subject to
restriction shall be forfeited by the Participant, subject to any
payments for such shares as may be provided in the Restricted Stock
award agreement.
(iv) The Committee may, in its sole discretion, waive in whole or
in part any or all remaining restrictions with respect to such
Participant's shares of Restricted Stock, based on such factors as the
Committee may deem appropriate.
(v) If and when the Restriction Period expires without a prior
forfeiture of the Restricted Stock subject to such Restriction Period,
the certificates for such shares shall be delivered to the Participant
promptly.
SECTION 8. Withholding and Use of Shares to Satisfy Tax Obligations
(a) Required Withholding. All Grants under the Plan shall be subject
to applicable federal (including FICA), state and local withholding
requirements. The Company shall have the right to deduct from all Grants
paid in cash, or from other wages paid to the Participant, any federal, state
or local taxes required by law to be withheld with respect to such Grants.
In the case of Grants paid in Company Stock, the Company may require the
Participant or other person receiving such Stock to pay to the Company the
amount of any such taxes that the Company is required to withhold with
respect to such Grants, or the Company may deduct from other wages paid by
the Company the amount of any withholding taxes due with respect to such
Grants.
(b) Election to Withhold Shares. If the Committee so permits, a
Participant may elect to satisfy the Company's income tax withholding
obligation with respect to a Grant paid in Company Stock by having shares
withheld up to an amount that does not exceed the Participant's maximum
marginal tax rate for federal (including FICA), state and local tax
liabilities. The election must be in a form and manner prescribed by the
Committee and shall be subject to the prior approval of the Committee.
SECTION 9. Amendments and Termination
The Board may amend or terminate the Plan at any time and from time to
time, but no amendment or termination shall be made which would impair the
rights of a Participant under a Grant theretofore awarded without the
Participant's consent; and provided, further, that the Board shall not amend
the Plan without stockholder approval if such approval is required pursuant
to the Code or the rules of any national securities exchange or
over-the-counter market on which the Company's Stock is then listed or
included. Subject to the above provisions, the Board shall have
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<PAGE>
broad authority to amend the Plan to take into account changes in applicable
tax laws, securities laws and accounting rules, as well as other developments.
SECTION 10. Unfunded Status of Plan
The Plan is intended to constitute an "unfunded" plan. The Company
shall not be required to establish any special or separate fund or to make
any other segregation of assets to assure the payment of any Grants under
this Plan. In no event shall interest be paid or accrued on any Grant,
including unpaid installments of Grants.
SECTION 11. General Provisions
(a) The Committee may require each person purchasing shares pursuant to
a Stock Option or receiving Stock upon the expiration of any Restriction
Period under the Plan to represent to and agree with the Company in writing
that the Participant is acquiring the shares for investment and not with a
view to distribution thereof and that such Participant will not dispose of
such Stock in any manner that would involve a violation of applicable
securities laws. In such event no Stock shall be issued to such Participant
unless and until the Company is satisfied with such representation. The
certificates for such shares may include any legend which the Committee deems
appropriate to reflect any restrictions on transfer under the Securities Act
or any state securities law.
All certificates for shares of Stock or other securities delivered
under the Plan shall be subject to such stop-transfer orders and other
restrictions as the Committee may deem advisable under the rules, regulations
and other requirements of the Securities Act, the Exchange Act, any stock
exchange or over-the-counter market upon which the Stock is then listed or
included, and any applicable federal or state securities law, and the
Committee may cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions.
(b) Nothing contained in this Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required, and such arrangements may
be either generally applicable or applicable only in specific cases.
(c) The adoption of the Plan shall not confer upon any Participant any
right to continued employment with the Company nor shall it interfere in any
way with the right of the Company to terminate its relationship with any of
its employees, directors or independent contractors at any time.
(d) At the time of grant, the Committee may provide in connection with
any grant made under this Plan that (i) the shares of Stock received as a
result of such grant shall be subject to a right of first refusal, pursuant
to which the Participant shall be required to offer to the Company any shares
that the Participant wishes to sell, with the price being the then Fair
Market Value of the Stock, subject to such other terms and conditions as the
Committee may specify at the time of grant; and (ii) the shares of Stock
received or to be received as a result of such grant shall be
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<PAGE>
subject to repurchase by the Company upon termination of employment, subject
to a repurchase price and such other terms and conditions as the Committee may
specify at the time of grant.
(e) The reinvestment of dividends in additional Restricted Stock at the
time of any dividend payment shall only be permissible if sufficient shares
of Stock are available under Section 3 for such reinvestment.
(d) The Committee shall establish such procedures as it deems
appropriate for a Participant to designate a beneficiary to whom any amounts
payable in the event of the Participant's death are to be paid.
(e) The Plan shall be governed by and subject to all applicable laws
and to the approvals by any governmental or regulatory agency as may be
required.
SECTION 12. Effective Date and Term of Plan
The Plan shall be effective as December 12, 1996, subject to the consent
or approval of the Company's stockholders. No Stock Option, Stock
Appreciation Right or Restricted Stock award shall be granted pursuant to the
Plan on or after December 11, 2006, but awards granted prior to such tenth
anniversary may extend beyond that date; provided, however, that if the Plan
is not approved by the unanimous consent of all stockholders or by a majority
of the votes cast at a duly held meeting at which a quorum representing a
majority of all outstanding voting stock of the Company is, either in person
or by proxy, present and voting on the Plan, within 12 months after said
date, the Plan and all Grants awarded hereunder shall be null and void and no
additional Grants shall be awarded hereunder.
SECTION 13. Interpretation
A determination of the Committee as to any question which may arise
with respect to the interpretation of the provisions of this Plan or any
Grants awarded thereunder shall be final and conclusive, and nothing in this
Plan, or in any regulation hereunder, shall be deemed to give any
Participant, his legal representatives, assigns or any other person any right
to participate herein except to such extent, if any, as the Committee may
have determined or approved pursuant to this Plan. The Committee may consult
with legal counsel who may be counsel to the Company and shall not incur any
liability for any action taken in good faith in reliance upon the advice of
such counsel.
SECTION 14. Governing Law.
With respect to any Incentive Stock Options granted pursuant to the Plan
and the agreements thereunder, the Plan, such agreements and any Incentive
Stock Options granted pursuant thereto shall be governed by the applicable
Code provisions to the maximum extent possible. Otherwise, the laws of the
Commonwealth of Pennsylvania shall govern the operation of, and the rights of
Participants under, the Plan, the agreements and any Grants awarded
thereunder.
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<PAGE>
SECTION 15. Compliance With Section 16b of the Exchange Act.
Unless an Insider could otherwise transfer shares of Stock issued
hereunder without incurring liability under Section 16b of the Exchange Act,
at least six months must elapse from the date of grant of an Option, Stock
Appreciation Right or Restricted Stock award to the date of disposition of
the Stock issued upon exercise of such Option or Stock Appreciation Right or
grant of such Restricted Stock award.
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<PAGE>
EXHIBIT 10.2
MICRO VISION MEDICAL SYSTEMS, INC.
STOCK OPTION GRANT LETTER
This Stock Option is granted to Douglas Harrington (the "Grantee") on
June 13, 1996 (the "Date of Grant") by Micro Vision Medical Systems, Inc.
(the "Company").
1. Option Grant and Acceptance
(a) The Company hereby grants to the Grantee effective as of the Date
of Grant, the right and option (the "Option") to purchase 10,000 shares of
common stock of the Company (the "Shares"). The Option is not intended to
constitute an "incentive stock option" within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code).
(b) The Grantee shall signify his acceptance of the Option by executing
this Grant Letter.
2. Option Price
The price of each Share covered by the Option shall be $1.00 (the
"Option Price"), which is 100% of the fair market value of a Share on the
Date of Grant.
3. Option Expiration
The Option, to the extent that it has not theretofore been exercised,
shall automatically expire on the earliest to occur of the following events:
(a) seven years from the Date of Grant;
(b) if the Grantee's employment with the Company terminates voluntarily
or involuntarily for any reason other than death or Disability (as defined
below), the Option may thereafter be exercised by the Grantee, to the extent
it was exercisable at the time of such termination, for a period of three
months from the date of such termination of employment or until the
occurrence of the date specified in Section 3(a), whichever period is
shorter; provided, however, that if the Grantee dies within such three-month
period, the unexercised portion of the Option shall thereafter be exercisable
to the extent to which it was exercisable at the time of termination of
employment, for a period of twelve months from the date of such death or
until the occurrence of the date specified in Section 3(a), whichever period
is shorter;
(c) if the Grantee's employment with the Company terminates by reason
of death, the Option may be thereafter exercised, to the extent then
exercisable, by the legal representative of the estate or by the legatee of
the Grantee under the will of the Grantee, for a period of one year from the
date of such death or until the occurrence of the date specified in Section
3(a), whichever period is shorter;
(d) if the Grantee's employment with the Company terminates by reason
of "Disability" (which for purposes of this Agreement shall mean permanent
and total disability within the meaning of Section 22(e)(3) of the Code), the
Option may thereafter be exercised by the Grantee, to the extent it was
exercisable at the time of such termination, for a period of one year from
the date of such termination of employment or until the occurrence of the
date specified in Section 3(a), whichever period is shorter; provided,
however, that if the Grantee dies within such one-year period, any
unexercised portion of
<PAGE>
the Option held by the Grantee shall thereafter be exercisable to the extent
it was exercisable at the time of termination of employment for a period of
twelve months from the date of death or until the occurrence of the date
specified in Section 3(a), whichever period is shorter;
(e) Notwithstanding the foregoing and unless otherwise determined by
the committee of the Board of Directors designated to administer the
Company's stock options and stock option plans (hereinafter the "Committee"),
if Grantee's employment is terminated for Cause, the Option granted hereby
shall terminate as of the date the Grantee ceases to be employed by the
Company, and the Grantee shall automatically forfeit all Shares underlying
any exercised portion of an Option for which the Company has not yet
delivered the share certificates upon refund by the Company of the exercise
price paid by the Grantee for such Shares. For purposes of this Agreement,
"Termination for Cause" shall mean, except to the extent specified otherwise
by the Committee, a finding by the Committee that the Participant has
breached his or her employment or service contract, non-competition or other
obligation with the Company, or has been engaged in disloyalty to the
Company, including, without limitation, fraud, embezzlement, theft,
commission of a felony or proven dishonesty in the course of his or her
employment or service, or has disclosed trade secrets or confidential
information of the Company to persons not entitled to receive such
information.
4. Vesting
(a) Subject to the terms, conditions and limitations expressed herein
and, except as provided below, the Option shall become exercisable in
accordance with the following vesting schedule:
Period Percentage Vested
------ ------------------
On or before March 30, 1997 0%
March 31, 1997 to March 30, 1998 50%
On or after March 31, 1998 100%
(b) The right to purchase Shares under the Option as provided in
Section 4(a) above may be exercised in a cumulative fashion, such that any
right to purchase Shares which becomes exercisable on a given date shall
remain exercisable until the date stated in any applicable provision of
Section 3 (with respect to the expiration of the Option).
5. Time and Method of Exercise
Subject to the terms of Section 4 above, the Option may be exercised at
any time, or from time to time, prior to expiration (as defined in Section 3
above), by written notice to the Stock Option Administrator of the Company.
Such written notice shall be effective upon receipt by the Stock Option
Administrator of the Company and shall be accompanied by:
(a) a check, or the equivalent thereof acceptable to the Company in its
discretion, for the full Option Price of the number of Shares being purchased;
(b) one or more certificates representing a number of Shares which are,
in the aggregate, equal in fair market value to the full Option Price for the
Shares being purchased, such certificates being duly endorsed (or accompanied
by stock powers signed
<PAGE>
in blank) so as to transfer to the Company all right, title and interest in
and to the Shares represented by such certificates;
(c) a combination of the forms of payment specified in Section 5(a) and
5(b) above which, in the aggregate, is equal to the full Option Price of the
number of Shares being purchased; or
(d) where there is a public market for the Shares, by delivering a
properly executed notice of exercise of the Option to the Company and a
broker, with irrevocable instructions to the broker to deliver to the Company
on the settlement date the amount of sale proceeds necessary to pay the
exercise price of the Option.
The fair market value of each share of Company stock delivered by the
Grantee pursuant to Section 5(b) or 5(c) above shall be as determined by the
Committee in good faith based on the best available facts and circumstances
at the time; provided, however, that where there is a public market for the
stock and the stock is registered under the Securities Exchange Act of 1934,
as amended, fair market value shall mean the per share or aggregate value of
the stock as of any given date, determined as follows: (i) if the principal
trading market for the stock is a national securities exchange or the Nasdaq
National Market, the last reported sale price thereof on the relevant date
or, if there were no trades on that date, the latest preceding date upon
which a sale was reported, or (ii) if the stock is not principally traded on
such exchange or market, the mean between the last reported "bid" and "asked"
prices of stock on the relevant date, as reported on Nasdaq or, if not so
reported, as reported by the National Daily Quotation Bureau, Inc. or as
reported in a customary financial reporting service, as applicable and as the
Committee determines.
Payment in the form of unrestricted stock delivered pursuant to
paragraph 5(b) or 5(c) above (including Company stock acquired in connection
with the exercise of an Option), shall be subject to such restrictions as the
Committee deems appropriate, including, but not limited to, the requirement
that the stock has been owned by the Grantee for the requisite period of time
necessary to avoid a charge to the Company's earnings for financial reporting
purposes and adverse accounting consequences to the Company with respect to
the Option.
6. Replacement Option
Upon an exercise of the Option, in whole or in part, at any time, the
Grantee shall be entitled to receive a replacement Option covering such
number of shares of Common Stock, at such exercise price per share and upon
such terms and conditions as the Committee may, in its sole discretion,
establish in any policy or program adopted from time to time by the
Committee. The Committee may, in its sole discretion, amend, modify or
terminate at any time any such policy or program. Unless otherwise provided
by the Committee, if any such policy or program is amended or modified, such
policy or program shall be deemed to become part of this Grant Letter as so
amended or modified without further action by the Company or the Grantee.
The Committee may specify in any such policy or program that the grant of any
such replacement Option may be automatic upon an exercise of the Option
complying with the terms and conditions of the policy or program.
7. Restrictions on Transfer.
(a) The Company shall have the right of first refusal to repurchase any
shares offered for sale by the Grantee, his executor, administrator, or
beneficiaries, which shares were issued to the Grantee pursuant to one or
more Options granted to the Grantee. Such
<PAGE>
offer shall be communicated to the Company by written notice, stipulating the
terms and conditions of such offer therein, forwarded by registered or
certified mail. The Company shall exercise its right to repurchase (or to
designate a third party to repurchase) by giving written notice thereof by
registered or certified mail to the Grantee, his executor, administrator or
beneficiaries no later than 30 days after the date of the receipt of the
offer. Within 30 days after receipt of such notice, the Grantee, his
executor, administrator or beneficiaries shall deliver a certificate or
certificates for the shares being sold, together with appropriate duly signed
stock powers transferring such shares to the Company, and the Company shall
deliver to the Grantee, his executor, administrator or beneficiaries the
Company's check in the amount of the purchase price for the shares being sold.
In the event that such offer shall not be accepted by written notice
forwarded by registered or certified mail no later than 30 days after the
date of the receipt of the offer, the Grantee, his executor, administrator or
beneficiaries may dispose of the shares offered to any person, firm or
corporation, without restriction, except that the subsequent transfer of such
shares shall not be on terms more favorable to the transferee than the terms
upon which the shares were originally offered to the Company. If, within 60
days after the expiration of the 30 day period of any offer made hereunder,
the Grantee, his executor, administrator, or beneficiaries offering to sell
any shares issued hereunder, shall fail to consummate a sale thereof to any
other purchaser, then no sale of such shares may be made thereafter without
again reoffering the same to the Company in accordance with the provisions of
this subparagraph.
(b) The right of first refusal shall terminate when the Company has
consummated a public offering of its common stock pursuant to the Securities
Act of 1933, as amended.
(c) The right of first refusal granted to the Company pursuant to
subparagraph 7(a) above is a separate and independent obligation of the
Grantee and shall survive any termination of employment. Furthermore, such
right shall not be construed as an absolute obligation on the part of the
Company to repurchase any shares tendered.
(d) Each certificate for shares issued by the Company to the Grantee
shall bear an appropriate legend that the transfer of such shares is
restricted by the provisions of this Agreement.
8. Nonassignability of Option Rights
The Option shall not be assigned or transferred by the Grantee except,
in the event of the death of the Grantee, by will or by the laws of descent
and distribution. Upon a transfer by will or by the laws of descent and
distribution, the person to whom the Option is transferred shall have the
right to exercise the Option in accordance with this Grant Letter, subject to
the Company receiving satisfactory proof of his or her right to receive the
Grant under the Grantee's will or under the applicable laws of descent and
distribution. Any attempt to assign, transfer, pledge or dispose of the
Option contrary to the provisions hereof, and the levy of any execution,
attachment or similar process upon the Option, shall be null and void and
without effect. Notwithstanding the foregoing, the Committee may provide, at
or after Grant, that a Grantee may transfer the Option pursuant to a domestic
relations order or to family members or other persons or entities according
to such terms as the Committee may determine.
<PAGE>
9. Adjustments
If any change is made to the common stock (whether by reason of stock
dividend, spin off, recapitalization, stock split, combination or exchange of
shares, merger, reorganization or consolidation in which the Company is the
surviving corporation, reclassification, change in par value, or any other
extraordinary or unusual event affecting the outstanding Company Stock as a
class without the Company's receipt of consideration, or if the value of
outstanding Company Stock is substantially reduced as a result of a spin off
or the Company's payment of an extraordinary dividend or distribution), then
unless such event or change results in the termination of this Option, the
Committee shall preserve the value of the Option by making appropriate
adjustments to the number and class of shares, the Option Price or otherwise,
except that any fractional shares resulting from such adjustments shall be
eliminated by rounding any portion of a share equal to .5 or greater up, and
any portion of a share equal to less than .5 down, in each case to the
nearest whole number.
10. Withholding
The Grantee or other person receiving Shares upon an exercise of the
Option, in whole or in part, shall be subject to any applicable federal
(including FICA), state and local taxes that the Company is required to
withhold with respect to such exercise. The Company shall have the right to
require a Grantee to pay to the Company, or the Company may deduct from other
wages paid by the Company, the amount of any such withholding taxes the
Company is required to withhold with respect to such exercise. If the
Committee so permits by formal vote, at or after Grant but prior to exercise
of the Option, a Grantee may elect to satisfy the Company's income tax
withholding obligation with respect to such exercise by having shares
withheld up to an amount that does not exceed the Grantee's maximum marginal
tax rate for federal (including FICA), state and local tax liabilities. The
Company's obligation to issue or transfer Shares upon exercise of the Option
shall be conditioned upon the Grantee's compliance with the requirements of
this section to the satisfaction of the Committee.
11. Employment by the Company
For purposes of this Agreement, employment by the Company shall mean
employment as an employee or an independent consultant or service as a member
of the Board of Directors or any advisory board, so that for purposes of
exercising this Option, a Grantee shall not be considered to have terminated
employment until the Grantee ceases to be an employee, independent consultant
or member of the Board of Directors or any advisory board, unless the
Committee determines otherwise.
12. No Contract for Employment
(a) Nothing contained in this Grant Letter shall be deemed to require
the Company to continue the Grantee's employment by the Company. Except as
may be provided in a written employment contract executed by a duly
authorized officer of the Company and approved by the board of directors of
the Company, the Grantee shall at all times be an employee-at-will of the
Company and the Company may discharge the Grantee at any time for any reason,
with or without cause, and with or without severance compensation.
(b) From time to time, the Company may distribute employee manuals or
handbooks, and officers or other representatives of the Company may make
written or oral
<PAGE>
statements relating to the Company's policies and procedures. Such manuals,
handbooks and statements are intended only for the general guidance of
employees. No policies, procedures or statements of any nature by or on
behalf of the Company (whether written or oral, and whether or not contained
in any formal employee manual or handbook) shall be construed to modify this
Grant Letter or to create express or implied obligations to the Grantee of
any nature.
13. Administration
All questions of interpretation and application of the Option granted
hereunder shall be determined by the Committee in its discretion, and such
determination shall be final and binding upon all persons. The validity,
construction and effect of this Option shall be determined in accordance with
the laws of the State of Delaware, without giving effect to the principles of
conflicts of law thereof.
14. No Stockholder Rights
Neither the Grantee, nor any person entitled to exercise the Grantee's
rights in the event of the Grantee's death, shall have any of the rights and
privileges of a stockholder with respect to the Shares subject to the Option,
except to the extent that certificates for such Shares shall have been issued
upon the exercise of the Option as provided herein.
15. Cancellation or Amendment
This Option may be canceled or amended by the Committee, in whole or in
part, at any time that the Committee determines, in its sole discretion, that
the cancellation or amendment is necessary or advisable in light of any
change after the Date of Grant in (a) the Code or the regulations issued
thereunder or (b) any federal or state securities law or other law or
regulation, which change by its terms is effective retroactively to a date on
or before the Date of Grant; provided, however, that no such cancellation or
amendment shall, without the Grantee's consent, apply to or affect
installments that matured on or before the date on which the Committee makes
such determination.
16. Notice
Any notice to the Company provided for in this Grant Letter shall be
addressed to it in care of the Stock Option Administrator of the Company, at
10305 102nd Terrace, Sebastian, FL 32958 and any notice to the Grantee shall
be addressed to such Grantee at the current address shown on the payroll of
the Company, or to such other address as the Grantee may designate to the
Company in writing. Any notice provided for hereunder shall be delivered by
hand, sent by telecopy or telex or enclosed in a properly sealed envelope
addressed as stated above, registered and deposited, postage and registry
being prepaid, in a post office or branch post office regularly maintained by
the United States Postal Service.
<PAGE>
17. Grantee's Securities Law Representations
If the Committee shall deem it appropriate by reason of any securities
law, it may require that the Grantee upon exercise in whole or in part of the
Option, represent to the Company and agree in writing that the purchase of
the Shares is for investment only and not with a view to distribution. The
Committee may require that the Share certificates be inscribed with a legend
restricting transfer in accordance with applicable securities law
requirements.
MICRO VISION MEDICAL SYSTEMS, INC.
By: /s/ Kevin O'Boyle
--------------------------------
Accepted By:
/s/ Douglas Harrington
-----------------------------------
Douglas Harrington
<PAGE>
EXHIBIT 10.3
MICRO VISION MEDICAL SYSTEMS, INC.
1996 EQUITY COMPENSATION PLAN
STOCK OPTION GRANT LETTER
Micro Vision Medical Systems, Inc. (the "Company") has adopted the Micro
Vision Medical Systems, Inc. 1996 Equity Compensation Plan (the "Plan").
This Stock Option is granted to Kevin C. O'Boyle (the "Grantee") on January
23, 1997 (the "Date of Grant") in accordance with the terms of the Plan.
Capitalized terms used and not otherwise defined in this Grant Letter are
used herein as defined in the Plan.
1. Option Grant and Acceptance
(a) The Company hereby grants to the Grantee effective as of the Date
of Grant, the right and option (the "Option") to purchase 25,000 shares of
Common Stock (the "Shares"). The Option is intended to constitute an
"incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
(b) The Grantee shall signify his acceptance of the Option by executing
this Grant Letter.
2. Option Price
The price of each Share covered by the Option shall be $3.00 (the
"Option Price"), which is 100% of the fair market value of a Share on the
Date of Grant (as determined in accordance with the terms of the Plan).
3. Option Expiration
The Option, to the extent that it has not theretofore been exercised,
shall automatically expire on the earliest to occur of the following events:
(a) seven years from the Date of Grant;
(b) if the Grantee's employment with the Company terminates voluntarily
or involuntarily for any reason other than death or Disability (as defined in
Section 1 of the Plan), the Option may thereafter be exercised by the
Grantee, to the extent it was exercisable at the time of such termination,
for a period of three months from the date of such termination of employment
or until the occurrence of the date specified in Section 3(a), whichever
period is shorter; provided, however, that if the Grantee dies within such
three-month period, the unexercised portion of the Option shall thereafter be
exercisable to the extent to which it was exercisable at the time of
termination of employment, for a period of twelve months from the date of
such death or until the occurrence of the date specified in Section 3(a),
whichever period is shorter;
(c) if the Grantee's employment with the Company terminates by reason
of death, the Option may be thereafter exercised, to the extent then
exercisable, by the legal representative of the estate or by the legatee of
the Grantee under the will of the Grantee, for a period of one year from the
date of such death or until the occurrence of the date specified in Section
3(a), whichever period is shorter;
(d) if the Grantee's employment with the Company terminates by reason
of "Disability" (as defined in Section 1 of the Plan), the Option may
thereafter be exercised by the Grantee, to the extent it was exercisable at
the time of such termination, for a period of
<PAGE>
one year from the date of such termination of employment or until the
occurrence of the date specified in Section 3(a), whichever period is
shorter; provided, however, that if the Grantee dies within such one-year
period, any unexercised portion of the Option held by the Grantee shall
thereafter be exercisable to the extent it was exercisable at the time of
termination of employment for a period of twelve months from the date of
death or until the occurrence of the date specified in Section 3(a),
whichever period is shorter;
(e) Notwithstanding the foregoing, if Grantee's employment is
terminated for Cause, as defined in Grantee's employment agreement, the
Option granted hereby shall terminate as of the date the Grantee ceases to be
Employed by the Company, and the Grantee shall automatically forfeit all
Shares underlying any exercised portion of an Option for which the Company
has not yet delivered the share certificates upon refund by the Company of
the exercise price paid by the Grantee for such Shares.
4. Vesting
(a) Subject to the terms, conditions and limitations expressed herein
and, except as provided below, the Option shall become exercisable in
accordance with the following vesting schedule:
Period Percentage Vested
On or before January 22, 1998 25%
January 23, 1998 to January 22, 1999 50%
January 23, 1999 to January 22, 2000 75%
On or after January 23, 2000 100%
provided further, that if Grantee is terminated by the Company not for Cause,
50% of the then unvested portion of this Option shall immediately vest.
(b) The right to purchase Shares under the Option as provided in
Section 4(a) above may be exercised in a cumulative fashion, such that any
right to purchase Shares which becomes exercisable on a given date shall
remain exercisable until the date stated in any applicable provision of
Section 3 (with respect to the expiration of the Option).
(c) In the event of a "Change of Control" (as defined below), either
(i) all of the unvested portion of the Option shall vest immediately, or (ii)
if the Committee so determines, the difference between the fair market value
of the shares underlying such unvested portion of the Option and the exercise
price thereof shall be paid to Grantee in cash by the Company.
(d) "Change in Control" is defined to mean the issuance, sale or
transfer (including a transfer as a result of death, disability, operation of
law or otherwise) in a single transaction or group of related transactions to
any entity, person or group (other than Safeguard Scientifics, Inc. and/or
its affiliates) of the beneficial ownership of newly issued, outstanding or
treasury shares of the capital stock of the Company having 50% or more of the
combined voting power of the Company's then outstanding securities entitled
to vote for at least a majority of the authorized number of directors of the
Company, or any merger, consolidation, sale of all or substantially all of
the assets or other comparable transaction as a result of which all or
substantially all of the assets and business of the Company are acquired
directly or indirectly by another entity which prior to the acquisition was
not an affiliate of the Company (as defined in the regulations of the
Securities and Exchange Commission under the Securities Act of 1933). Group
shall have the same
<PAGE>
meaning as in Section 13(d) of the Securities Exchange Act of 1934, and
"affiliate" shall have the same meaning as in Rule 405 of the Securities
Exchange Commission adopted under the Securities Act of 1933.
5. Time and Method of Exercise
Subject to the terms of Section 4 above, the Option may be exercised at
any time, or from time to time, prior to expiration (as defined in Section 3
above), by written notice to the Stock Option Administrator of the Company.
Such written notice shall be effective upon receipt by the Stock Option
Administrator of the Company and shall be accompanied by:
(a) a check, or the equivalent thereof acceptable to the Company in its
discretion, for the full Option Price of the number of Shares being purchased;
(b) one or more certificates representing a number of Shares which are,
in the aggregate, equal in fair market value to the full Option Price for the
Shares being purchased, such certificates being duly endorsed (or accompanied
by stock powers signed in blank) so as to transfer to the Company all right,
title and interest in and to the Shares represented by such certificates;
(c) a combination of the forms of payment specified in Section 5(a) and
5(b) above which, in the aggregate, is equal to the full Option Price of the
number of Shares being purchased; or
(d) where there is a public market for the Shares, by delivering a
properly executed notice of exercise of the Option to the Company and a
broker, with irrevocable instructions to the broker to deliver to the Company
on the settlement date the amount of sale proceeds necessary to pay the
exercise price of the Option.
The fair market value of each Share of Company Stock delivered by the Grantee
pursuant to Section 5(b) or 5(c) above shall be determined in accordance with
the provisions of the Plan.
6. Replacement Option
Upon an exercise of the Option, in whole or in part, at any time, the
Grantee shall be entitled to receive a replacement Option covering such
number of shares of Common Stock, at such exercise price per share and upon
such terms and conditions as the Committee may, in its sole discretion,
establish in any policy or program adopted from time to time by the
Committee. The Committee may, in its sole discretion, amend, modify or
terminate at any time any such policy or program. Unless otherwise provided
by the Committee, if any such policy or program is amended or modified, such
policy or program shall be deemed to become part of this Grant Letter as so
amended or modified without further action by the Company or the Grantee.
The Committee may specify in any such policy or program that the grant of any
such replacement Option may be automatic upon an exercise of the Option
complying with the terms and conditions of the policy or program.
7. Restrictions on Transfer.
(a) The Company shall have the right of first refusal to repurchase any
shares offered for sale by the Grantee, his executor, administrator, or
beneficiaries, which shares were issued to the Grantee pursuant to one or
more Options granted to the Grantee
<PAGE>
under this Plan. Such offer shall be communicated to the Company by written
notice, stipulating the terms and conditions of such offer therein, forwarded
by registered or certified mail. The Company shall exercise its right to
repurchase (or to designate a third party to repurchase) by giving written
notice thereof by registered or certified mail to the Grantee, his executor,
administrator or beneficiaries no later than 30 days after the date of the
receipt of the offer. Within 30 days after receipt of such notice, the
Grantee, his executor, administrator or beneficiaries shall deliver a
certificate or certificates for the shares being sold, together with
appropriate duly signed stock powers transferring such shares to the Company,
and the Company shall deliver to the Grantee, his executor, administrator or
beneficiaries the Company's check in the amount of the purchase price for the
shares being sold.
In the event that such offer shall not be accepted by written
notice forwarded by registered or certified mail no later than 30 days after
the date of the receipt of the offer, the Grantee, his executor,
administrator or beneficiaries may dispose of the shares offered to any
person, firm or corporation, without restriction, except that the subsequent
transfer of such shares shall not be on terms more favorable to the
transferee than the terms upon which the shares were originally offered to
the Company. If, within 60 days after the expiration of the 30 day period of
any offer made hereunder, the Grantee, his executor, administrator, or
beneficiaries offering to sell any shares issued hereunder, shall fail to
consummate a sale thereof to any other purchaser, then no sale of such shares
may be made thereafter without again reoffering the same to the Company in
accordance with the provisions of this subparagraph.
(b) In the event of the Grantee's termination of employment for any
reason, whether voluntary or involuntary, the Company shall have the right to
repurchase all shares issued or to be issued to the Grantee under this Plan
at their then fair market value, as determined in good faith by the
Committee, but not less than Grantee's cost.
The Company's right to repurchase shall be exercisable at any time
within one year after the date of Grantee's termination of employment by the
delivery of written notice by the Company to such effect to the Grantee, his
executor, administrator or beneficiaries. Within 30 days after receipt of
such notice, the Grantee, his executor, administrator or beneficiaries shall
deliver a certificate or certificates for the shares being sold, together
with appropriate duly signed stock powers transferring such shares to the
Company, and the Company shall deliver to the Grantee, his executor,
administrator or beneficiaries the Company's check in the amount of the
purchase price for the shares being sold.
(c) The right of first refusal and buy-back rights shall terminate when
the Company has consummated a public offering of its Common Stock pursuant to
the Securities Act of 1933, as amended.
(d) The right of first refusal and buy-back rights granted to the
Company pursuant to subparagraphs 7(a) and 7(b) above are separate and
independent obligations of the Grantee and shall survive any termination of
employment. Furthermore, such right shall not be construed as an absolute
obligation on the part of the Company to repurchase any shares tendered.
(e) Each certificate for shares issued by the Company to the Grantee
shall bear an appropriate legend that the transfer of such shares is
restricted by the provisions of this Plan.
8. Nonassignability of Option Rights
<PAGE>
The Option shall not be assigned or transferred by the Grantee except,
in the event of the death of the Grantee, by will or by the laws of descent
and distribution. Upon a transfer by will or by the laws of descent and
distribution, the person to whom the Option is transferred shall have the
right to exercise the Option in accordance with the Plan and this Grant
Letter, subject to the Company receiving satisfactory proof of his or her
right to receive the Grant under the Grantee's will or under the applicable
laws of descent and distribution. Any attempt to assign, transfer, pledge or
dispose of the Option contrary to the provisions hereof, and the levy of any
execution, attachment or similar process upon the Option, shall be null and
void and without effect. Notwithstanding the foregoing, the Committee may
provide, at or after Grant, that a Grantee may transfer Nonqualified Stock
Options pursuant to a domestic relations order or to family members or other
persons or entities according to such terms as the Company may determine.
9. Adjustments
If any change is made to the Common Stock (whether by reason of stock
dividend, spin off, recapitalization, stock split, combination or exchange of
shares, merger, reorganization or consolidation in which the Company is the
surviving corporation, reclassification, change in par value, or any other
extraordinary or unusual event affecting the outstanding Company Stock as a
class without the Company's receipt of consideration, or if the value of
outstanding Company Stock is substantially reduced as a result of a spin off
or the Company's payment of an extraordinary dividend or distribution), then
unless such event or change results in the termination of all outstanding
Grants under the Plan, the Committee (as defined in Section 1 of the Plan)
shall preserve the value of the Option by making appropriate adjustments to
the number and class of shares, the Option Price or otherwise, except that
any fractional shares resulting from such adjustments shall be eliminated by
rounding any portion of a share equal to .5 or greater up, and any portion of
a share equal to less than .5 down, in each case to the nearest whole number.
10. Withholding
The Grantee or other person receiving Shares upon an exercise of the
Option, in whole or in part, shall be subject to any applicable federal
(including FICA), state and local taxes that the Company is required to
withhold with respect to such exercise. The Company shall have the right to
require a Grantee to pay to the Company, or the Company may deduct from other
wages paid by the Company, the amount of any such withholding taxes the
Company is required to withhold with respect to such exercise. If the
Committee administering the Plan so permits by formal vote, at or after Grant
but prior to exercise of the Option, a Grantee may elect to satisfy the
Company's income tax withholding obligation with respect to such exercise by
having shares withheld up to an amount that does not exceed the Grantee's
maximum marginal tax rate for federal (including FICA), state and local tax
liabilities. The Company's obligation to issue or transfer Shares upon
exercise of the Option shall be conditioned upon the Grantee's compliance
with the requirements of this section to the satisfaction of the Committee.
11. Notice to Company of Disqualifying Disposition
By accepting an incentive stock option under the Plan, Grantee agrees to
notify the Company in writing immediately after he or she makes a
disqualifying disposition (as described in Sections 421, 422 and 424 of the
Code and regulations thereunder) of any stock acquired pursuant to the
exercise of incentive stock options granted under the Plan. A disqualifying
disposition is generally any disposition occurring within two years of the
date
<PAGE>
the incentive stock option was granted or within one year of the date the
incentive stock option was exercised, whichever period ends later.
12. Employment by the Company
For purposes of this Grant, Employed by the Company shall mean
employment as an employee, so that for purposes of exercising this Option, a
Grantee shall be considered to have terminated employment once the Grantee
ceases to be an employee, unless the Committee determines otherwise.
13. No Contract for Employment
(a) Nothing contained in this Grant Letter shall be deemed to require
the Company to continue the Grantee's employment by the Company. Except as
may be provided in a written employment contract executed by a duly
authorized officer of the Company and approved by the board of directors of
the Company, the Grantee shall at all times be an employee-at-will of the
Company and the Company may discharge the Grantee at any time for any reason,
with or without cause, and with or without severance compensation.
(b) From time to time, the Company may distribute employee manuals or
handbooks, and officers or other representatives of the Company may make
written or oral statements relating to the Company's policies and procedures.
Such manuals, handbooks and statements are intended only for the general
guidance of employees. No policies, procedures or statements of any nature by
or on behalf of the Company (whether written or oral, and whether or not
contained in any formal employee manual or handbook) shall be construed to
modify this Grant Letter or to create express or implied obligations to the
Grantee of any nature.
14. Administration
The Option has been granted pursuant to the terms, conditions and other
provisions of the Plan, as in effect on the Date of Grant, and as the Plan
may be amended from time to time in accordance with Section 9 of the Plan.
All questions of interpretation and application of the Plan and of any grant
under the Plan (including this Grant) shall be determined by the Committee in
its discretion, and such determination shall be final and binding upon all
persons. The validity, construction and effect of this Option shall be
determined in accordance with the laws of the State of Delaware, without
giving effect to the principles of conflicts of law thereof.
15. No Stockholder Rights
Neither the Grantee, nor any person entitled to exercise the Grantee's
rights in the event of the Grantee's death, shall have any of the rights and
privileges of a stockholder with respect to the Shares subject to the Option,
except to the extent that certificates for such Shares shall have been issued
upon the exercise of the Option as provided herein.
16. Cancellation or Amendment
This Option may be canceled or amended by the Committee, in whole or in
part, at any time that the Committee determines, in its sole discretion, that
the cancellation or amendment is necessary or advisable in light of any
change after the Date of Grant in (a) the Code or the regulations issued
thereunder or (b) any federal or state securities law or
<PAGE>
other law or regulation, which change by its terms is effective retroactively
to a date on or before the Date of Grant; provided, however, that no such
cancellation or amendment shall, without the Grantee's consent, apply to or
affect installments that matured on or before the date on which the Committee
makes such determination.
17. Notice
Any notice to the Company provided for in this Grant Letter shall be
addressed to it in care of the Stock Option Administrator of the Company, at
10305 102nd Terrace, Sebastian, FL 32958 and any notice to the Grantee shall
be addressed to such Grantee at the current address shown on the payroll of
the Company, or to such other address as the Grantee may designate to the
Company in writing. Any notice provided for hereunder shall be delivered by
hand, sent by telecopy or telex or enclosed in a properly sealed envelope
addressed as stated above, registered and deposited, postage and registry
being prepaid, in a post office or branch post office regularly maintained by
the United States Postal Service.
18. Grantee's Securities Law Representations
If the Committee shall deem it appropriate by reason of any securities
law, it may require that the Grantee upon exercise in whole or in part of the
Option, represent to the Company and agree in writing that the purchase of
the Shares is for investment only and not with a view to distribution. The
Committee may require that the Share certificates be inscribed with a legend
restricting transfer in accordance with applicable securities law
requirements.
MICRO VISION MEDICAL SYSTEMS, INC.
By: /s/ Douglas Harrington
------------------------------------
Accepted By:
/s/ Kevin C. O'Boyle
----------------------------------------
Kevin C. O'Boyle
<PAGE>
EXHIBIT 10.4
MICRO VISION MEDICAL SYSTEMS, INC.
STOCK OPTION GRANT LETTER
This Stock Option is granted to Michael G. Schneider (the "Grantee") on
June 13, 1996 (the "Date of Grant") by Micro Vision Medical Systems, Inc.
(the "Company").
1. Option Grant and Acceptance
---------------------------
(a) The Company hereby grants to the Grantee effective as of the Date
of Grant, the right and option (the "Option") to purchase 15,000 shares of
common stock of the Company (the "Shares"). The Option is not intended to
constitute an "incentive stock option" within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code).
(b) The Grantee shall signify his acceptance of the Option by executing
this Grant Letter.
2. Option Price
------------
The price of each Share covered by the Option shall be $1.00 (the
"Option Price"), which is 100% of the fair market value of a Share on the
Date of Grant.
3. Option Expiration
-----------------
The Option, to the extent that it has not theretofore been exercised,
shall automatically expire on the earliest to occur of the following events:
(a) seven years from the Date of Grant;
(b) if the Grantee's employment with the Company terminates voluntarily
or involuntarily for any reason other than death or Disability (as defined
below), the Option may thereafter be exercised by the Grantee, to the extent
it was exercisable at the time of such termination, for a period of three
months from the date of such termination of employment or until the
occurrence of the date specified in Section 3(a), whichever period is
shorter; provided, however, that if the Grantee dies within such three-month
period, the unexercised portion of the Option shall thereafter be exercisable
to the extent to which it was exercisable at the time of termination of
employment, for a period of twelve months from the date of such death or
until the occurrence of the date specified in Section 3(a), whichever period
is shorter;
(c) if the Grantee's employment with the Company terminates by reason
of death, the Option may be thereafter exercised, to the extent then
exercisable, by the legal representative of the estate or by the legatee of
the Grantee under the will of the Grantee, for a period of one year from the
date of such death or until the occurrence of the date specified in Section
3(a), whichever period is shorter;
(d) if the Grantee's employment with the Company terminates by reason
of "Disability" (which for purposes of this Agreement shall mean permanent
and total disability within the meaning of Section 22(e)(3) of the Code), the
Option may thereafter be exercised by the Grantee, to the extent it was
exercisable at the time of such termination, for a period of one year from
the date of such termination of employment or until the occurrence of the
date specified in Section 3(a), whichever period is shorter; provided,
however, that if the Grantee dies within such one-year period, any
unexercised portion of
<PAGE>
the Option held by the Grantee shall thereafter be exercisable to the extent
it was exercisable at the time of termination of employment for a period of
twelve months from the date of death or until the occurrence of the date
specified in Section 3(a), whichever period is shorter;
(e) Notwithstanding the foregoing and unless otherwise determined
by the committee of the Board of Directors designated to administer the
Company's stock options and stock option plans (hereinafter the "Committee"),
if Grantee's employment is terminated for Cause, the Option granted hereby
shall terminate as of the date the Grantee ceases to be employed by the
Company, and the Grantee shall automatically forfeit all Shares underlying
any exercised portion of an Option for which the Company has not yet
delivered the share certificates upon refund by the Company of the exercise
price paid by the Grantee for such Shares. For purposes of this Agreement,
"Termination for Cause" shall mean, except to the extent specified otherwise
by the Committee, a finding by the Committee that the Participant has
breached his or her employment or service contract, non-competition or other
obligation with the Company, or has been engaged in disloyalty to the
Company, including, without limitation, fraud, embezzlement, theft,
commission of a felony or proven dishonesty in the course of his or her
employment or service, or has disclosed trade secrets or confidential
information of the Company to persons not entitled to receive such
information.
4. Vesting
-------
(a) Subject to the terms, conditions and limitations expressed herein
and, except as provided below, the Option shall become exercisable in
accordance with the following vesting schedule:
Period Percentage Vested
------ -----------------
On or before December 31, 1996 0%
On or after January 1, 1997 25%
On or after the consummation of the
initial public offering 75%
On or after the first anniversary of the
consummation of the initial public offering 100%
For purposes of this vesting schedule, the consummation of the public
offering shall mean the date upon which the closing of the initial public
offering with the underwriter(s) occurs.
(b) The right to purchase Shares under the Option as provided in
Section 4(a) above may be exercised in a cumulative fashion, such that any
right to purchase Shares which becomes exercisable on a given date shall
remain exercisable until the date stated in any applicable provision of
Section 3 (with respect to the expiration of the Option).
5. Time and Method of Exercise
---------------------------
Subject to the terms of Section 4 above, the Option may be exercised at
any time, or from time to time, prior to expiration (as defined in Section 3
above), by written notice to the Stock Option Administrator of the Company.
Such written notice shall be effective upon receipt by the Stock Option
Administrator of the Company and shall be accompanied by:
<PAGE>
(a) a check, or the equivalent thereof acceptable to the Company in its
discretion, for the full Option Price of the number of Shares being purchased;
(b) one or more certificates representing a number of Shares which are,
in the aggregate, equal in fair market value to the full Option Price for the
Shares being purchased, such certificates being duly endorsed (or accompanied
by stock powers signed in blank) so as to transfer to the Company all right,
title and interest in and to the Shares represented by such certificates;
(c) a combination of the forms of payment specified in Section 5(a) and
5(b) above which, in the aggregate, is equal to the full Option Price of the
number of Shares being purchased; or
(d) where there is a public market for the Shares, by delivering a
properly executed notice of exercise of the Option to the Company and a
broker, with irrevocable instructions to the broker to deliver to the Company
on the settlement date the amount of sale proceeds necessary to pay the
exercise price of the Option.
The fair market value of each share of Company stock delivered by the
Grantee pursuant to Section 5(b) or 5(c) above shall be as determined by the
Committee in good faith based on the best available facts and circumstances
at the time; provided, however, that where there is a public market for the
stock and the stock is registered under the Securities Exchange Act of 1934,
as amended, fair market value shall mean the per share or aggregate value of
the stock as of any given date, determined as follows: (i) if the principal
trading market for the stock is a national securities exchange or the Nasdaq
National Market, the last reported sale price thereof on the relevant date
or, if there were no trades on that date, the latest preceding date upon
which a sale was reported, or (ii) if the stock is not principally traded on
such exchange or market, the mean between the last reported "bid" and "asked"
prices of stock on the relevant date, as reported on Nasdaq or, if not so
reported, as reported by the National Daily Quotation Bureau, Inc. or as
reported in a customary financial reporting service, as applicable and as the
Committee determines.
Payment in the form of unrestricted stock delivered pursuant to
paragraph 5(b) or 5(c) above (including Company stock acquired in connection
with the exercise of an Option), shall be subject to such restrictions as the
Committee deems appropriate, including, but not limited to, the requirement
that the stock has been owned by the Grantee for the requisite period of time
necessary to avoid a charge to the Company's earnings for financial reporting
purposes and adverse accounting consequences to the Company with respect to
the Option.
6. Replacement Option
------------------
Upon an exercise of the Option, in whole or in part, at any time, the
Grantee shall be entitled to receive a replacement Option covering such
number of shares of Common Stock, at such exercise price per share and upon
such terms and conditions as the Committee may, in its sole discretion,
establish in any policy or program adopted from time to time by the
Committee. The Committee may, in its sole discretion, amend, modify or
terminate at any time any such policy or program. Unless otherwise provided
by the Committee, if any such policy or program is amended or modified, such
policy or program shall be deemed to become part of this Grant Letter as so
amended or modified without further action by the Company or the Grantee.
The Committee may specify in any such policy or program that the grant of any
such replacement Option may be automatic upon an exercise of the Option
complying with the terms and conditions of the policy or program.
<PAGE>
7. Restrictions on Transfer.
------------------------
(a) The Company shall have the right of first refusal to repurchase any
shares offered for sale by the Grantee, his executor, administrator, or
beneficiaries, which shares were issued to the Grantee pursuant to one or
more Options granted to the Grantee. Such offer shall be communicated to the
Company by written notice, stipulating the terms and conditions of such offer
therein, forwarded by registered or certified mail. The Company shall
exercise its right to repurchase (or to designate a third party to
repurchase) by giving written notice thereof by registered or certified mail
to the Grantee, his executor, administrator or beneficiaries no later than 30
days after the date of the receipt of the offer. Within 30 days after
receipt of such notice, the Grantee, his executor, administrator or
beneficiaries shall deliver a certificate or certificates for the shares
being sold, together with appropriate duly signed stock powers transferring
such shares to the Company, and the Company shall deliver to the Grantee, his
executor, administrator or beneficiaries the Company's check in the amount of
the purchase price for the shares being sold.
In the event that such offer shall not be accepted by written
notice forwarded by registered or certified mail no later than 30 days after
the date of the receipt of the offer, the Grantee, his executor,
administrator or beneficiaries may dispose of the shares offered to any
person, firm or corporation, without restriction, except that the subsequent
transfer of such shares shall not be on terms more favorable to the
transferee than the terms upon which the shares were originally offered to
the Company. If, within 60 days after the expiration of the 30 day period of
any offer made hereunder, the Grantee, his executor, administrator, or
beneficiaries offering to sell any shares issued hereunder, shall fail to
consummate a sale thereof to any other purchaser, then no sale of such shares
may be made thereafter without again reoffering the same to the Company in
accordance with the provisions of this subparagraph.
(b) In the event of the Grantee's termination of employment for any
reason, whether voluntary or involuntary, the Company shall have the right to
repurchase all shares issued or to be issued to the Grantee under this
Agreement at their then fair market value, as determined in good faith by the
Committee, but not less than Grantee's cost.
The Company's right to repurchase shall be exercisable at any time
within one year after the date of Grantee's termination of employment by the
delivery of written notice by the Company to such effect to the Grantee, his
executor, administrator or beneficiaries. Within 30 days after receipt of
such notice, the Grantee, his executor, administrator or beneficiaries shall
deliver a certificate or certificates for the shares being sold, together
with appropriate duly signed stock powers transferring such shares to the
Company, and the Company shall deliver to the Grantee, his executor,
administrator or beneficiaries the Company's check in the amount of the
purchase price for the shares being sold.
(c) The right of first refusal and buy-back rights shall terminate when
the Company has consummated a public offering of its common stock pursuant to
the Securities Act of 1933, as amended.
(d) The right of first refusal and buy-back rights granted to the
Company pursuant to subparagraphs 7(a) and 7(b) above are separate and
independent obligations of the Grantee and shall survive any termination of
employment. Furthermore, such rights shall not be construed as an absolute
obligation on the part of the Company to repurchase any shares tendered.
<PAGE>
(e) Each certificate for shares issued by the Company to the Grantee
shall bear an appropriate legend that the transfer of such shares is
restricted by the provisions of this Agreement.
8. Nonassignability of Option Rights
---------------------------------
The Option shall not be assigned or transferred by the Grantee except,
in the event of the death of the Grantee, by will or by the laws of descent
and distribution. Upon a transfer by will or by the laws of descent and
distribution, the person to whom the Option is transferred shall have the
right to exercise the Option in accordance with this Grant Letter, subject to
the Company receiving satisfactory proof of his or her right to receive the
Grant under the Grantee's will or under the applicable laws of descent and
distribution. Any attempt to assign, transfer, pledge or dispose of the
Option contrary to the provisions hereof, and the levy of any execution,
attachment or similar process upon the Option, shall be null and void and
without effect. Notwithstanding the foregoing, the Committee may provide, at
or after Grant, that a Grantee may transfer the Option pursuant to a domestic
relations order or to family members or other persons or entities according
to such terms as the Committee may determine.
9. Adjustments
-----------
If any change is made to the common stock (whether by reason of stock
dividend, spin off, recapitalization, stock split, combination or exchange of
shares, merger, reorganization or consolidation in which the Company is the
surviving corporation, reclassification, change in par value, or any other
extraordinary or unusual event affecting the outstanding Company Stock as a
class without the Company's receipt of consideration, or if the value of
outstanding Company Stock is substantially reduced as a result of a spin off
or the Company's payment of an extraordinary dividend or distribution), then
unless such event or change results in the termination of this Option, the
Committee shall preserve the value of the Option by making appropriate
adjustments to the number and class of shares, the Option Price or otherwise,
except that any fractional shares resulting from such adjustments shall be
eliminated by rounding any portion of a share equal to .5 or greater up, and
any portion of a share equal to less than .5 down, in each case to the
nearest whole number.
10. Withholding
-----------
The Grantee or other person receiving Shares upon an exercise of the
Option, in whole or in part, shall be subject to any applicable federal
(including FICA), state and local taxes that the Company is required to
withhold with respect to such exercise. The Company shall have the right to
require a Grantee to pay to the Company, or the Company may deduct from other
wages paid by the Company, the amount of any such withholding taxes the
Company is required to withhold with respect to such exercise. If the
Committee so permits by formal vote, at or after Grant but prior to exercise
of the Option, a Grantee may elect to satisfy the Company's income tax
withholding obligation with respect to such exercise by having shares
withheld up to an amount that does not exceed the Grantee's maximum marginal
tax rate for federal (including FICA), state and local tax liabilities. The
Company's obligation to issue or transfer Shares upon exercise of the Option
shall be conditioned upon the Grantee's compliance with the requirements of
this section to the satisfaction of the Committee.
11. Employment by the Company
-------------------------
<PAGE>
For purposes of this Agreement, employment by the Company shall mean
employment as an employee, so that for purposes of exercising this Option, a
Grantee shall not be considered to have terminated employment until the
Grantee ceases to be an employee, unless the Committee determines otherwise.
12. No Contract for Employment
--------------------------
(a) Nothing contained in this Grant Letter shall be deemed to require
the Company to continue the Grantee's employment by the Company. Except as
may be provided in a written employment contract executed by a duly
authorized officer of the Company and approved by the board of directors of
the Company, the Grantee shall at all times be an employee-at-will of the
Company and the Company may discharge the Grantee at any time for any reason,
with or without cause, and with or without severance compensation.
(b) From time to time, the Company may distribute employee manuals or
handbooks, and officers or other representatives of the Company may make
written or oral statements relating to the Company's policies and procedures.
Such manuals, handbooks and statements are intended only for the general
guidance of employees. No policies, procedures or statements of any nature by
or on behalf of the Company (whether written or oral, and whether or not
contained in any formal employee manual or handbook) shall be construed to
modify this Grant Letter or to create express or implied obligations to the
Grantee of any nature.
13. Administration
--------------
All questions of interpretation and application of the Option granted
hereunder shall be determined by the Committee in its discretion, and such
determination shall be final and binding upon all persons. The validity,
construction and effect of this Option shall be determined in accordance with
the laws of the State of Delaware, without giving effect to the principles of
conflicts of law thereof.
14. No Stockholder Rights
---------------------
Neither the Grantee, nor any person entitled to exercise the Grantee's
rights in the event of the Grantee's death, shall have any of the rights and
privileges of a stockholder with respect to the Shares subject to the Option,
except to the extent that certificates for such Shares shall have been issued
upon the exercise of the Option as provided herein.
15. Cancellation or Amendment
-------------------------
This Option may be canceled or amended by the Committee, in whole or in
part, at any time that the Committee determines, in its sole discretion, that
the cancellation or amendment is necessary or advisable in light of any
change after the Date of Grant in (a) the Code or the regulations issued
thereunder or (b) any federal or state securities law or other law or
regulation, which change by its terms is effective retroactively to a date on
or before the Date of Grant; provided, however, that no such cancellation or
amendment shall, without the Grantee's consent, apply to or affect
installments that matured on or before the date on which the Committee makes
such determination.
<PAGE>
16. Notice
------
Any notice to the Company provided for in this Grant Letter shall be
addressed to it in care of the Stock Option Administrator of the Company, at
10305 102nd Terrace, Sebastian, FL 32958 and any notice to the Grantee shall
be addressed to such Grantee at the current address shown on the payroll of
the Company, or to such other address as the Grantee may designate to the
Company in writing. Any notice provided for hereunder shall be delivered by
hand, sent by telecopy or telex or enclosed in a properly sealed envelope
addressed as stated above, registered and deposited, postage and registry
being prepaid, in a post office or branch post office regularly maintained by
the United States Postal Service.
17. Grantee's Securities Law Representations
----------------------------------------
If the Committee shall deem it appropriate by reason of any securities
law, it may require that the Grantee upon exercise in whole or in part of the
Option, represent to the Company and agree in writing that the purchase of
the Shares is for investment only and not with a view to distribution. The
Committee may require that the Share certificates be inscribed with a legend
restricting transfer in accordance with applicable securities law
requirements.
MICRO VISION MEDICAL SYSTEMS, INC.
By: /s/ Douglas Harrington
-------------------------------
Accepted By:
/s/ Michael G. Schneider
-----------------------------------
Michael G. Schneider
<PAGE>
EXHIBIT 10.5
MICRO VISION MEDICAL SYSTEMS, INC.
STOCK OPTION GRANT LETTER
This Stock Option is granted to Kenneth S. Garber (the-"Grantee") on
June 13, 1996 (the "Date of Grant") by Micro Vision Medical Systems, Inc.
(the "Company").
1. Option Grant and Acceptance
---------------------------
(a) The Company hereby grants to the Grantee effective as of the Date
of Grant, the right and option (the "Option") to purchase 221,850 shares of
common stock of the Company (the "Shares"). The Option is not intended to
constitute an "incentive stock option" within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code).
(b) The Grantee shall signify his acceptance of the Option by executing
this Grant Letter.
2. Option Price
------------
The price of each Share covered by the Option shall be $1.00 (the
"Option Price"), which is 100% of the fair market value of a Share on the
Date of Grant.
3. Option Expiration
-----------------
The Option, to the extent that it has not theretofore been exercised,
shall automatically expire on the earliest to occur of the following events:
(a) seven years from the Date of Grant;
(b) if the Grantee's employment with the Company terminates voluntarily
or involuntarily for any reason other than death or Disability (as defined
below), the Option may thereafter be exercised by the Grantee, to the extent
it was exercisable at the time of such termination, for a period of three
months from the date of such termination of employment or until the
occurrence of the date specified in Section 3(a), whichever period is
shorter; provided, however, that if the Grantee dies within such three-month
period, the unexercised portion of the Option shall thereafter be exercisable
to the extent to which it was exercisable at the time of termination of
employment, for a period of twelve months from the date of such death or
until the occurrence of the date specified in Section 3(a), whichever period
is shorter;
(c) if the Grantee's employment with the Company terminates by reason
of death, the Option may be thereafter exercised, to the extent then
exercisable, by the legal representative of the estate or by the legatee of
the Grantee under the will of the Grantee, for a period of one year from the
date of such death or until the occurrence of the date specified in Section
3(a), whichever period is shorter;
(d) if the Grantee's employment with the Company terminates by reason
of "Disability" (which for purposes of this Agreement shall mean permanent
and total disability within the meaning of Section 22(e)(3) of the Code), the
Option may thereafter be exercised by the Grantee, to the extent it was
exercisable at the time of such termination, for a period of one year from
the date of such termination of employment or until the occurrence of the
date specified in Section 3(a), whichever period is shorter; provided,
however, that if the Grantee dies within such one-year period, any
unexercised portion of
<PAGE>
the Option held by the Grantee shall thereafter be exercisable to the extent
it was exercisable at the time of termination of employment for a period of
twelve months from the date of death or until the occurrence of the date
specified in Section 3(a), whichever period is shorter;
(e) Notwithstanding the foregoing and unless otherwise determined
by the committee of the Board of Directors designated to administer the
Company's stock options and stock option plans (hereinafter the "Committee"),
if Grantee's employment is terminated for Cause, the Option granted hereby
shall terminate as of the date the Grantee ceases to be employed by the
Company, and the Grantee shall automatically forfeit all Shares underlying
any exercised portion of an Option for which the Company has not yet
delivered the share certificates upon refund by the Company of the exercise
price paid by the Grantee for such Shares. For purposes of this Agreement,
"Termination for Cause" shall have the meaning set forth in Grantee's
employment letter.
4. Vesting
-------
(a) Subject to the terms, conditions and limitations expressed herein
and, except as provided below, the Option shall become exercisable in
accordance with the following vesting schedule:
Period Percentage Vested
------ -----------------
On or before December 30, 1996 0%
December 31, 1996 to December 30, 1997 25%
December 31, 1997 to December 30, 1998 50%
December 31, 1998 to December 30, 1999 75%
On or after December 31, 1999 100%
provided, however, that in the event the Option granted hereby has not
otherwise become fully vested and the Company consummates an initial public
offering of its shares of common stock, 50% of the unvested portion of the
Option shall vest on the closing date of the initial public offering and the
remain unvested portion of the Option shall vest on the first anniversary of
the closing date; and provided further, that if Grantee is terminated by the
Company not for Cause, 50% of the then unvested portion of this Option shall
immediately vest.
(b) The right to purchase Shares under the Option as provided in
Section 4(a) above may be exercised in a cumulative fashion, such that any
right to purchase Shares which becomes exercisable on a given date shall
remain exercisable until the date stated in any applicable provision of
Section 3 (with respect to the expiration of the Option).
(c) In the event of a "Change of Control" (as defined below), either
(i) all of the unvested portion of the Option shall vest immediately, or (ii)
if the Committee so determines, the difference between the fair market value
of the shares underlying such unvested portion of the Option and the exercise
price thereof shall be paid to Grantee in cash by the Company.
(d) "Change in Control" is defined to mean the issuance, sale or
transfer (including a transfer as a result of death, disability, operation of
law or otherwise) in a single transaction or group of related transactions to
any entity, person or group (other than Safeguard Scientifics, Inc. and/or
its affiliates) of the beneficial ownership of newly issued, outstanding or
treasury shares of the capital stock of the Company having 50% or
<PAGE>
more of the combined voting power of the Company's then outstanding
securities entitled to vote for at least a majority of the authorized number
of directors of the Company, or any merger, consolidation, sale of all or
substantially all of the assets or other comparable transaction as a result
of which all or substantially all of the assets and business of the Company
are acquired directly or indirectly by another entity which prior to the
acquisition was not an affiliate of the Company (as defined in the
regulations of the Securities and Exchange Commission under the Securities
Act of 1933). Group shall have the same meaning as in Section 13(d) of the
Securities Exchange Act of 1934, and "affiliate" shall have the same meaning
as in Rule 405 of the Securities Exchange Commission adopted under the
Securities Act of 1933.
5. Time and Method of Exercise
---------------------------
Subject to the terms of Section 4 above, the Option may be exercised at
any time, or from time to time, prior to expiration (as defined in Section 3
above), by written notice to the Stock Option Administrator of the Company.
Such written notice shall be effective upon receipt by the Stock Option
Administrator of the Company and shall be accompanied by:
(a) a check, or the equivalent thereof acceptable to the Company in its
discretion, for the full Option Price of the number of Shares being purchased;
(b) one or more certificates representing a number of Shares which are,
in the aggregate, equal in fair market value to the full Option Price for the
Shares being purchased, such certificates being duly endorsed (or accompanied
by stock powers signed in blank) so as to transfer to the Company all right,
title and interest in and to the Shares represented by such certificates;
(c) a combination of the forms of payment specified in Section 5(a) and
5(b) above which, in the aggregate, is equal to the full Option Price of the
number of Shares being purchased; or
(d) where there is a public market for the Shares, by delivering a
properly executed notice of exercise of the Option to the Company and a
broker, with irrevocable instructions to the broker to deliver to the Company
on the settlement date the amount of sale proceeds necessary to pay the
exercise price of the Option.
The fair market value of each share of Company stock delivered by the
Grantee pursuant to Section 5(b) or 5(c) above shall be as determined by the
Committee in good faith based on the best available facts and circumstances
at the time; provided, however, that where there is a public market for the
stock and the stock is registered under the Securities Exchange Act of 1934,
as amended, fair market value shall mean the per share or aggregate value of
the stock as of any given date, determined as follows: (i) if the principal
trading market for the stock is a national securities exchange or the Nasdaq
National Market, the last reported sale price thereof on the relevant date
or, if there were no trades on that date, the latest preceding date upon
which a sale was reported, or (ii) if the stock is not principally traded on
such exchange or market, the mean between the last reported "bid" and "asked"
prices of stock on the relevant date, as reported on Nasdaq or, if not so
reported, as reported by the National Daily Quotation Bureau, Inc. or as
reported in a customary financial reporting service, as applicable and as the
Committee determines.
Payment in the form of unrestricted stock delivered pursuant to
paragraph 5(b) or 5(c) above (including Company stock acquired in connection
with the exercise of an
<PAGE>
Option), shall be subject to such restrictions as the Committee deems
appropriate, including, but not limited to, the requirement that the stock
has been owned by the Grantee for the requisite period of time necessary to
avoid a charge to the Company's earnings for financial reporting purposes and
adverse accounting consequences to the Company with respect to the Option.
6. Replacement Option
------------------
Upon an exercise of the Option, in whole or in part, at any time, the
Grantee shall be entitled to receive a replacement Option covering such
number of shares of Common Stock, at such exercise price per share and upon
such terms and conditions as the Committee may, in its sole discretion,
establish in any policy or program adopted from time to time by the
Committee. The Committee may, in its sole discretion, amend, modify or
terminate at any time any such policy or program. Unless otherwise provided
by the Committee, if any such policy or program is amended or modified, such
policy or program shall be deemed to become part of this Grant Letter as so
amended or modified without further action by the Company or the Grantee.
The Committee may specify in any such policy or program that the grant of any
such replacement Option may be automatic upon an exercise of the Option
complying with the terms and conditions of the policy or program.
7. Restrictions on Transfer.
-------------------------
(a) The Company shall have the right of first refusal to repurchase any
shares offered for sale by the Grantee, his executor, administrator, or
beneficiaries, which shares were issued to the Grantee pursuant to one or
more Options granted to the Grantee. Such offer shall be communicated to the
Company by written notice, stipulating the terms and conditions of such offer
therein, forwarded by registered or certified mail. The Company shall
exercise its right to repurchase (or to designate a third party to
repurchase) by giving written notice thereof by registered or certified mail
to the Grantee, his executor, administrator or beneficiaries no later than 30
days after the date of the receipt of the offer. Within 30 days after
receipt of such notice, the Grantee, his executor, administrator or
beneficiaries shall deliver a certificate or certificates for the shares
being sold, together with appropriate duly signed stock powers transferring
such shares to the Company, and the Company shall deliver to the Grantee, his
executor, administrator or beneficiaries the Company's check in the amount of
the purchase price for the shares being sold.
In the event that such offer shall not be accepted by written
notice forwarded by registered or certified mail no later than 30 days after
the date of the receipt of the offer, the Grantee, his executor,
administrator or beneficiaries may dispose of the shares offered to any
person, firm or corporation, without restriction, except that the subsequent
transfer of such shares shall not be on terms more favorable to the
transferee than the terms upon which the shares were originally offered to
the Company. If, within 60 days after the expiration of the 30 day period of
any offer made hereunder, the Grantee, his executor, administrator, or
beneficiaries offering to sell any shares issued hereunder, shall fail to
consummate a sale thereof to any other purchaser, then no sale of such shares
may be made thereafter without again reoffering the same to the Company in
accordance with the provisions of this subparagraph.
(b) In the event of the Grantee's termination of employment for any
reason, whether voluntary or involuntary, the Company shall have the right to
repurchase all shares issued or to be issued to the Grantee under this
Agreement at their then fair market value, as determined in good faith by the
Committee, but not less than Grantee's cost.
<PAGE>
The Company's right to repurchase shall be exercisable at any time
within one year after the date of Grantee's termination of employment by the
delivery of written notice by the Company to such effect to the Grantee, his
executor, administrator or beneficiaries. Within 30 days after receipt of
such notice, the Grantee, his executor, administrator or beneficiaries shall
deliver a certificate or certificates for the shares being sold, together
with appropriate duly signed stock powers transferring such shares to the
Company, and the Company shall deliver to the Grantee, his executor,
administrator or beneficiaries the Company's check in the amount of the
purchase price for the shares being sold.
(c) The right of first refusal and buy-back rights shall terminate when
the Company has consummated a public offering of its common stock pursuant to
the Securities Act of 1933, as amended.
(d) The right of first refusal and buy-back rights granted to the
Company pursuant to subparagraphs 7(a) and 7(b) above are separate and
independent obligations of the Grantee and shall survive any termination of
employment. Furthermore, such rights shall not be construed as an absolute
obligation on the part of the Company to repurchase any shares tendered.
(e) Each certificate for shares issued by the Company to the Grantee
shall bear an appropriate legend that the transfer of such shares is
restricted by the provisions of this Agreement.
8. Nonassignability of Option Rights
---------------------------------
The Option shall not be assigned or transferred by the Grantee except,
in the event of the death of the Grantee, by will or by the laws of descent
and distribution. Upon a transfer by will or by the laws of descent and
distribution, the person to whom the Option is transferred shall have the
right to exercise the Option in accordance with this Grant Letter, subject to
the Company receiving satisfactory proof of his or her right to receive the
Grant under the Grantee's will or under the applicable laws of descent and
distribution. Any attempt to assign, transfer, pledge or dispose of the
Option contrary to the provisions hereof, and the levy of any execution,
attachment or similar process upon the Option, shall be null and void and
without effect. Notwithstanding the foregoing, the Committee may provide, at
or after Grant, that a Grantee may transfer the Option pursuant to a domestic
relations order or to family members or other persons or entities according
to such terms as the Committee may determine.
9. Adjustments
-----------
If any change is made to the common stock (whether by reason of stock
dividend, spin off, recapitalization, stock split, combination or exchange of
shares, merger, reorganization or consolidation in which the Company is the
surviving corporation, reclassification, change in par value, or any other
extraordinary or unusual event affecting the outstanding Company Stock as a
class without the Company's receipt of consideration, or if the value of
outstanding Company Stock is substantially reduced as a result of a spin off
or the Company's payment of an extraordinary dividend or distribution), then
unless such event or change results in the termination of this Option, the
Committee shall preserve the value of the Option by making appropriate
adjustments to the number and class of shares, the Option Price or otherwise,
except that any fractional shares resulting from such adjustments shall be
eliminated by rounding any portion of a share equal to .5 or greater up, and
any portion of a share equal to less than .5 down, in each case to the
nearest whole number.
<PAGE>
10. Withholding
-----------
The Grantee or other person receiving Shares upon an exercise of the
Option, in whole or in part, shall be subject to any applicable federal
(including FICA), state and local taxes that the Company is required to
withhold with respect to such exercise. The Company shall have the right to
require a Grantee to pay to the Company, or the Company may deduct from other
wages paid by the Company, the amount of any such withholding taxes the
Company is required to withhold with respect to such exercise. If the
Committee so permits by formal vote, at or after Grant but prior to exercise
of the Option, a Grantee may elect to satisfy the Company's income tax
withholding obligation with respect to such exercise by having shares
withheld up to an amount that does not exceed the Grantee's maximum marginal
tax rate for federal (including FICA), state and local tax liabilities. The
Company's obligation to issue or transfer Shares upon exercise of the Option
shall be conditioned upon the Grantee's compliance with the requirements of
this section to the satisfaction of the Committee.
11. Employment by the Company
-------------------------
For purposes of this Agreement, employment by the Company shall mean
employment as an employee, so that for purposes of exercising this Option, a
Grantee shall not be considered to have terminated employment until the
Grantee ceases to be an employee, unless the Committee determines otherwise.
12. No Contract for Employment
--------------------------
(a) Nothing contained in this Grant Letter shall be deemed to require
the Company to continue the Grantee's employment by the Company. Except as
may be provided in a written employment contract executed by a duly
authorized officer of the Company and approved by the board of directors of
the Company, the Grantee shall at all times be an employee-at-will of the
Company and the Company may discharge the Grantee at any time for any reason,
with or without cause, and with or without severance compensation.
(b) From time to time, the Company may distribute employee manuals or
handbooks, and officers or other representatives of the Company may make
written or oral statements relating to the Company's policies and procedures.
Such manuals, handbooks and statements are intended only for the general
guidance of employees. No policies, procedures or statements of any nature by
or on behalf of the Company (whether written or oral, and whether or not
contained in any formal employee manual or handbook) shall be construed to
modify this Grant Letter or to create express or implied obligations to the
Grantee of any nature.
13. Administration
--------------
All questions of interpretation and application of the Option granted
hereunder shall be determined by the Committee in its discretion, and such
determination shall be final and binding upon all persons. The validity,
construction and effect of this Option shall be determined in accordance with
the laws of the State of Delaware, without giving effect to the principles of
conflicts of law thereof.
14. No Stockholder Rights
---------------------
<PAGE>
Neither the Grantee, nor any person entitled to exercise the Grantee's
rights in the event of the Grantee's death, shall have any of the rights and
privileges of a stockholder with respect to the Shares subject to the Option,
except to the extent that certificates for such Shares shall have been issued
upon the exercise of the Option as provided herein.
15. Cancellation or Amendment
-------------------------
This Option may be canceled or amended by the Committee, in whole or in
part, at any time that the Committee determines, in its sole discretion, that
the cancellation or amendment is necessary or advisable in light of any
change after the Date of Grant in (a) the Code or the regulations issued
thereunder or (b) any federal or state securities law or other law or
regulation, which change by its terms is effective retroactively to a date on
or before the Date of Grant; provided, however, that no such cancellation or
amendment shall, without the Grantee's consent, apply to or affect
installments that matured on or before the date on which the Committee makes
such determination.
16. Notice
------
Any notice to the Company provided for in this Grant Letter shall be
addressed to it in care of the Stock Option Administrator of the Company, at
10305 102nd Terrace, Sebastian, FL 32958 and any notice to the Grantee shall
be addressed to such Grantee at the current address shown on the payroll of
the Company, or to such other address as the Grantee may designate to the
Company in writing. Any notice provided for hereunder shall be delivered by
hand, sent by telecopy or telex or enclosed in a properly sealed envelope
addressed as stated above, registered and deposited, postage and registry
being prepaid, in a post office or branch post office regularly maintained by
the United States Postal Service.
17. Grantee's Securities Law Representations
----------------------------------------
If the Committee shall deem it appropriate by reason of any securities
law, it may require that the Grantee upon exercise in whole or in part of the
Option, represent to the Company and agree in writing that the purchase of
the Shares is for investment only and not with a view to distribution. The
Committee may require that the Share certificates be inscribed with a legend
restricting transfer in accordance with applicable securities law
requirements.
MICRO VISION MEDICAL SYSTEMS, INC.
By: /s/ Douglas Harrington
-------------------------------
Accepted By:
/s/ Kenneth S. Garber
-----------------------------------
Kenneth S. Garber
<PAGE> Exhibit 10.6
As of December 30, 1996
Douglas Harrington, M.D.
906 Camino Ibiza
San Clemento, CA 92672
Dear Doug:
Micro Vision Medical Systems, Inc. is pleased to offer you the position of
Chief Executive Officer, reporting to the Board of Directors and the
Executive Committee of the Board. The term of your employment shall be one
year commencing as of December 30, 1996. After that first year your
employment relationship with the Company shall be "at will", which means that
either party may terminate the relationship at any time, subject to the terms
and provisions of this Agreement.
Your will receive an annual salary of $160,000 paid bi-weekly and subject to
annual review. You will receive an annual bonus of up to 50% of salary based
on milestones to be determined by the Board in good faith and an additional
annual bonus of up to 50% of salary for exceeding the Company's plan for the
year by specified targets.
1. Equity Compensation
The Company will grant you an option under its existing stock option plan to
purchase 580,000 shares at $3 per share exercisable from the date of grant as
to 25% of the shares and at the end of each of the first three years of
employment as to an additional 25% increment. The term of the option will be
10 years. The option will terminate prior to the expiration of its term 30
days after termination of your employment by the Company for cause, 30 days
after termination of your employment by you or the Company other than for
cause and one year after termination of your employment as a result of death
or disability. The option will be an incentive option as to the maximum
number of shares permitted under the Internal Revenue Code.
Upon termination of your employment for any reason, the Company will have the
right to repurchase any shares of stock of the Company issued to you upon
exercise of your option for a purchase price equal to the fair market value
thereof. Such right may be exercised only by delivering a written notice to
you of the Company's election to do so within one year after the termination
of your employment. Such repurchase right shall expire as to any shares which
you have sold or otherwise transferred prior to the exercise of the right
(after first having offered the Company the right of first refusal set forth
below) and shall also expire at such time as the Company completes an initial
public offering of securities registered under the Securities Act of 1933 or
has a class of securities registered under Section 12 of the Securities
Exchange Act of 1934. Such repurchase right shall not apply to any transfer
of shares for no consideration or any transfer (with or without
consideration) to a member of your family or to any trust, partnership,
corporation or other entity in which members of your family have a majority
beneficial interest,
<PAGE>
Douglas Harrington, M.D.
Letter of Employment
Page 2
but in the event of any transfer referred to in this sentence, the transferee
shall assume in writing your obligations under this Agreement with respect to
the shares so transferred.
For purposes of exercising the Company's right to repurchase option shares,
the fair market value of the shares shall be equal to the price that a
willing buyer would pay a willing seller for the shares, neither being under
any compulsion to buy or sell. If the parties are unable to agree as to the fair
market value of the shares within 10 days after the date the Company delivers
the notice of exercise of its right to repurchase the shares, the fair market
value shall be determined by appraisal. If the parties are unable to agree on
an appraiser within said 10 day period, each of them will have the right to
select a single appraiser within 20 days after the Company delivers the
notice of exercise of its repurchase right, and the two appraisers so
selected shall select a third appraiser within 10 days after the selection of
the later of the first two appraisers. The fair market value of the shares
will be the average of the two appraisals closest in amount. All appraisers
so selected shall be qualified by education and experience to make the
appraisal contemplated and shall not have or have had any family, business or
other relationship with either of the parties. The appraisers shall be
directed to complete their appraisal within 15 days after the appointment of
the third appraiser. The fees and expenses of the appraisers shall be shared
equally. The purchase and sale of the shares shall be consummated at the
Company's principal office in Orange County at 10:00 a.m. on the third
business day after the purchase price has been determined.
Prior to any sale of shares issued upon exercise of your stock option, you
will first offer the shares to the Company for repurchase at the price you
propose to offer the shares to others. The Company will have 15 days after
receipt of such offer to purchase the shares on the terms offered.
Thereafter, if the Company does not elect to exercise its right to purchase
the shares, you will have the right to sell the shares to any other person or
entity for six months at a price not less than the price at which the shares
are offered to the Company. Said right of first refusal shall also expire at
such time as the Company has completed an initial public offering of
securities registered under the Securities Act of 1933 or has class of shares
registered under the Securities Exchange Act of 1934.
2. Termination and Severance Arrangements In the Event of Control or Sale of
the Company
In the event you resign as an employee of the Company within the period
commencing three months after, and ending nine months after, a change in
control or sale of the Company, or if you are terminated as an employee at
any time within three months prior to, otherwise in anticipation of, or nine
months after, any such event, you will be entitled to receive continuation of
your salary for the period ending one year from the date of such termination
or until you secure other full time employment, whichever is shorter. In
addition, you will be entitled to receive health insurance for you and your
family for the same period as your salary continues. If these severance
benefits are triggered by your resignation (as opposed to termination of your
employment by the Company or its successor), you must give the Company
written notice of
<PAGE>
Douglas Harrington, M.D.
Letter of Employment
Page 3
your election to do so at least 90 days prior to the date you cease rendering
services in order to receive the benefits.
Upon the occurrence of a change in control or sale of the Company, you also
shall:
1. Participate in any bonus for the year your employment terminates in
an amount equal to the maximum you could have earned had you remained
at the Company for the entire year whether or not performance
criteria are met; and
2. All of your unexercised stock options will either (a) vest
immediately and be available for exercise or (b) in the event
the options cannot vest, the difference between the option exercise
price and the fair market price at the date of notice of termination
will be paid to you in cash by the Company.
"Change in control" is defined to mean the issuance, sale or transfer
(including a transfer as a result of death, disability, operation of law or
otherwise) in a single transaction or group of related transactions to any
entity, person or group (other than Safeguard Scientifics, Inc. and/or its
affiliates) of the beneficial ownership of newly issued, outstanding or
treasury shares of the capital stock of the Company having 50% or more of the
combined voting power of the Company's then outstanding securities entitled
to vote for at least a majority of the authorized number of directors of the
Company. "Sale of the Company" is defined to mean any merger, consolidation,
sale of all or substanially all of the assets or other comparable transaction
as a result of which all or substanially all of the assets and business of
the Company are acquired directly or indirectly by another entity which prior
to the acquisition was not an affiliate of the Company (as defined in the
regulations of the Securities and Exchange Commission under the Securities
Act of 1933). "Group" shall have the same meaning as in Section 13(d) of the
Securities Exchange Act of 1934, and "affiliate" shall have the same meaning
as in Rule 405 of the Securities Exchange Commission adopted under the
Securities Act of 1933.
Notwithstanding the foregoing provisions of this Section 2, if a change in
control or sale of the Company occurs before the Company has completed an
initial public offering of securities registered under the Securities Act of
1933 or has a class of shares registered under the Securities Act of 1934,
then you shall be entitled to receive the compensation provided for above
only if any holder of the Company's Series A Preferred Stock has received
cash or marketable securities as a result of the change of control or sale of
the Company having a fair market value equal to at least $3 per share
(adjusted for stock splits, stock dividends and the like). If any such
preferred shareholder receives any other consideration which, when added to
any cash and marketable securities received by him in the same and/or a
related transaction, has a fair market value equal to at least $3 per share
as aforesaid, then the preferred shareholder will be deemed to receive cash
or marketable securities with respect to such other consideration at such
time as such other consideration is sold or transferred by any such preferred
shareholder for cash or marketable securities or any such preferred
shareholder otherwise receives cash or marketable securities with respect to
such other consideration. If all or any part of the consideration received by
all
<PAGE>
Douglas Harrington, M.D.
Letter of Employment
Page 4
preferred shareholders involves a material contingency (such as post-sale
performance requirements for earnout payments), then for purposes of the
foregoing that consideration will not be deemed received until the
contingency is satisfied.
If the consideration received by all holders of the Series A Preferred Stock
is less than $3 per share determined as provided above, you shall receive,
instead of the compensation provided for above in this Section, the same
compensation as is provided for in Section 4 below for termination without
cause, except as provided in the following paragraph with respect to stock
options. If at the time of termination of your employment it cannot be
determined whether any holder of the Series A Preferred Stock will receive at
least $3 per share in cash or marketable securities as aforesaid, you shall
initially be compensated as provided in Section 4 below, but if any such
preferred shareholder does receive more than such amount of consideration,
the Company shall pay to you such additional amounts to which you are
entitled pursuiant to this Section 2.
In the event of a change of control or sale of the Company and regardless of
the amount and nature of the consideration received by the holders of the
Company's Series A Preferred Stock, all of your unexercised stock options
will either (a) vest immediately and be available for exercise so that you
are able to exercise the options and receive in the change of control or sale
transaction the same per share consideration as the holders of the underlying
common stock or (b) in the event the options cannot vest, the difference
between the option exercise price and the fair market value at the date of
notice of termination will be paid to you in cash by the Company.
In the event of termination of your employment to which this Section 2 and
Section 4 below both apply, this Section 2 shall control. In the event of a
termination to which both this Section 2 and Section 3 both apply, Section 3
shall control.
3. Termination for Cause
If the Company terminates your employment for cause (as defined in
Attachment A), you shall be entitled to your salary to the date of
termination. In addition you shall be entitled to exercise your stock
options to the extent they are then exercisable.
4. Other Termination and Severance Benefits
In the event that during the first year of your employment your employment is
terminated by the Company other than for cause or you resign after the
Company elects a new Chief Executive Officer of the Company, materially
reduces your responsibilities or changes the location of the Company's
principal executive office or the location of your primary office from Orange
County, you will be entitled to receive the greater of (a) the balance of
your salary for the remaining one year period or (b) an amount equal to your
salary for the lesser of 90 days or until you secure other full time
employment. You will also be entitled to receive the full amount of your
bonus (but only if at the end of the then current performance period the
performance criteria for earning
<PAGE>
Douglas Harrington, M.D.
Letter of Employment
Page 5
the bonus have been met). In addition your stock options shall become
exercisable as to 50% of the number of shares subject to the stock options.
In the event you resign as an employee of the Company within the one year
term of this Agreement, your salary shall terminate as of the date of
termination of your employment, you shall not be entitled to any bonus and
your options shall remain exercisable as to the initial 25% of the shares. If
you die or become disabled (as defined in Attachment A) within the first
year, you or your personal representative shall be entitled to salary
continuation after the date of termination and to a pro rata portion of your
bonus (but only if the at the end of the then current performance period the
performance criteria for earning the bonus have been met).
In the event that after the initial one year term of this Agreement, your
employment is terminated by the Company other than for cause, you shall be
entitled to continuation of your salary after the date of termination for a
period of 90 days plus one month for each full year of employment or until
you secure other full time employment, whichever is shorter, you shall be
entitled to receive a prorated portion of your bonus for the year of
termination (but only if at the end of the then current performance period
the performance criteria for earning the bonus have been met), and you shall
be entitled to exercise your option as the the number of shares for which it
is then exercisable. The Company will also continue your health insurance for
you and your family for the period of you salary continuance plus any
additional period as may be required by law.
5. Consulting Arrangement
In the event of termination of your employment by the Company at or after the
end of the first year or by you at any time, the Company has the option to
engage you as a consultant for up to 18 months at a rate equal to your base
salary set forth in this agreement or your then base salary, whichever is
higher. Any such engagement shall be in lieu of any salary continuation for
the period of such engagement. If the Company exercises its option, you will
provide up to 20 hours per month of consultation on such days and at such
times as are mutually agreeable, and you will not compete with the Company
during the term of the engagement as provided below. The Company may only
exercise its option to engage you as a consultant by delivering written
notice of its election to do so and of the term of the consulting arrangement
within 10 days after the termination of your employment. However, if you
notify the Company that you are considering terminating your employment, the
Company will notify you in writing within 10 days thereafter whether it will
exercise its right to engage you as a consultant and the term of the
engagement and the Company will be bound by that decision with respect to any
termination of employment that occurs within three months after the delivery
of the notice by the Company.
During the term of the consulting arrangement, all developments, concepts,
plans or other intellectual property developed by you ("Developments") in the
field of medical imaging and image analysis technology shall belong to the
Company and you shall deliver all written materials embodying such
Developments to the Company. During the term of such consulting agreement,
you shall not, directly or indirectly, engage in any business or provide any
services or assistance (as consultant, employee or otherwise) to any other
person or entity engaged in any
<PAGE>
Douglas Harrington, M.D.
Letter of Employment
Page 6
business which competes with the Company in the field of the development,
sale or marketing of medical imaging and image analysis technology anywhere
in the United States. This restriction shall not apply to the business of
providing imaging and image analysis services by a clinical laboratory or
hospital. In the event a business entity has more than one business, you
shall not be deemed to violate this Section 5 if you engage in business or
provide services or assistance to a division, subsidiary or other operating
unit of that entity which is not engaged in the business of development, sale
or marketing of medical imaging and image analysis technology anywhere in the
United States.
Upon termination of your employment, you may not solicit for employment or
hire Company employees for 18 months after such termination.
6. Miscellaneous Benefits
In accordance with current policy you are eligible to participate in Micro
Vision Medical Systems, Inc., Medical, Dental, Life Insurance Plans 31 days
following your hire date. You will be eligible to participate in Micro
Vision's Matching 401(k) Plan in accordance with its terms. In addition the
Company will provide you with an automobile equivalent to a new Chevrolet
Suburban. You will be granted 3 weeks of vacation per year.
7. Other Permitted Activities
Your employment with the Company shall be a full time engagement. However,
the Company acknowledges its understanding and agreement that you will
continue to serve on several boards of directors of other companies provided
that such companies are not competitive with the Company and that you will
from time to time be involved in various civic and charitable activities.
8. Indemnification
The Company will, to the maximum extent permitted by applicable law,
indemnify you and hold you harmless from all losses, costs, liabilities,
claims and obligations (including reasonable attorneys' fees) incurred by you
by reason of the fact that you are or were a director, officer, employee or
agent of the Company or is or was serving at the request of the Company as a
director, officer, employee or agent of another entity so long as you acted
in good faith. In addition, the Company will pay as incurred all expenses,
including reasonable attorneys' fees and the amounts of court approved
settlements, actually incurred by you in connection with the defense of any
action, suit or proceeding, and in connection with any appeal thereon, which
has been and/or may be brought against you by reason of the fact that you are
or were a director, officer, employee or agent of the Company or were serving
in any such capacity with respect to another entity at the request of the
Company. In the event the foregoing is not enforceable as applied to any
particular circumstances, it shall be enforceable to the maximum extent
permitted by applicable law. The Company represents to you that the
Certificate of Incorporation of the
<PAGE>
Douglas Harrington, M.D.
Letter of Employment
Page 7
Company provides that directors of the Company shall not be liable for
damages for breach of their fiduciary duties as directors to the maximum
extent permitted by applicable law.
9. Arbitration
In the event of any breach or violation by the Company of this agreement, or
any claim or allegation by the Company of a breach of violation of this
agreement by you, either party shall be entitled to require that such dispute
be submitted to arbitration. Such arbitration shall be conducted pursuant to
the rules of the American Arbitration Association, and any award rendered as
a result thereof shall be final and binding upon the parties and may be
enforced in any court having jurisdiction. A party will have the right to
commence any such arbitration by delivering written notice of his or its
election to do so to the other party except that, if the other party has
instituted any legal action claiming any breach or violation of this
agreement, the defendant party may exercise such right only if he or it does
so within 30 days after receipt of notice of the commencement of any such
action. In such event, the matter shall be resolved by arbitration and the
plaintiff shall dismiss the legal action commenced by it without prejudice.
The parties will utilize the following procedure for the selection in any
such arbitration. Upon the commencement of the arbitration the parties shall
seek to agree on the selection of a single arbitrator. If, within 15 days
after delivery of the notice commencing the arbitration, the parties have not
reached agreement for any reason or if either party does not want the matter
to be resolved by a single arbitrator, then within said 15 day period each
party shall choose a single arbitrator from a list of available arbitrators
of the American Arbitration Association and/or the list of retired judges
available for arbitration from the Orange County Superior Court. Within seven
days after selection of the two arbitrators, the two arbitrators so selected
shall select a third arbitrator from either such list. If either party fails
to select an arbitrator within the 15 day time period specified above, said
arbitrator may be appointed by the American Arbitration Association or the
Presiding Judge of the Orange County Superior Court upon the request of the
other party. The parties further agree that such arbitrators shall have the
power to order production of all relevant documents and the taking of
depositions and discovery in any such arbitration proceeding. This agreement
and all matters of law arising in connection with this agreement shall be
governed by the substantive laws of the State of California (without regard
to the choice of law provisions thereof).
10. Attorney Fees
In the event of any arbitration or court action arising out of or relating to
this agreement, the prevailing party shall be entitled to recover his or its
arbitration or court costs and reasonable attorneys' fees, including such
costs and fees incurred in connection with any appeal.
<PAGE>
Douglas Harrington, M.D.
Letter of Employment
Page 8
arising under this agreement can be waived except by a written instrument
signed by the party making the waiver.
Sincerely,
/s/ John Scott
Dr. John Scott
Chairman of the Board
Micro Vision Medical Systems, Inc.
Accepted: /s/ Douglas Harrington Date: 2-06-97
-------------------------- ---------
Douglas Harrington, M.D.
<PAGE>
ATTACHMENT A
"Termination for Cause"
* Conviction of a felony resulting in material harm to the Company or its
reputation or repeated violations of written Company policies communicated
to you prior to such violations provided that the violations involve an act
of self-dealing or dishonesty.
* Dishonesty or willful misconduct which materially harms the Company or its
reputation.
* Shall be done in writing accompanied by a written statement of the
reasons. Prior written warning with reasonable opportunity for corrective
action is required before termination for violation of Company policy as
provided above.
"Termination for Disability"
* Your employment may be terminated should you become disabled, including
disability by reason of any emotional or mental disorders, physical
diseases or injuries, if as a result of such disability you are unable
to work on a full-time basis for a continuous period of six months or
more of any six months in a twelve month period.
* Until such termination your salary and employment benefits shall continue,
and upon such termination any accrued salary and any accrued incentives
(bonuses, commissions, etc.) (including a pro rata portion of the minimum
bonus for the year of disability) as of the date of termination shall be
paid to you and your stock options shall be exercisable for at least 90
days after such termination.
<PAGE>
Exhibit 10.7
February 15, 1996
Mr. Kenneth S. Garber
5512 Weatherby Lane
Plano, Texas 75903
Dear Ken:
XL Vision, Inc., is pleased to offer you the position of Vice President,
Marketing and Sales for MicroVision, reporting to the President of
MicroVision, based in Dallas, TX. Future duties will be of comparable or
higher responsibility and status relative to initial position. As Vice
President of Marketing and Sales your goal will be to position the Company
and drive order input so as to contribute substantially to the successful
public offering of Company within nine (9) to twelve (12) months, and
subsequently drive orders to continue to grow Company value.
Your equity will be as follows: 0.25% of MicroVision stock to be purchased at
$1.00 per share (Company has the option to buy back these shares at fair
market value within one year after the first day of the IPO); and options for
an additional 2% of stock at $1.00 per share. Vesting for the 2% option will
be 25% at the end of each calendar year starting in 1996; however, if an IPO
precedes full vesting, 50% of unvested portion will be vested at IPO and the
balance will be vested one year after IPO.
You will receive a salary of $130,000 paid bi-weekly and subject to annual
review.
You will be paid commissions based on quotes set at total annual MicroVision,
order entry objective. Commissions will be set so that earnings at 100% of
quota equal $75,000 above base salary. There will be no cap on commissions to
incent performance above 100% of objective. Commissions will be paid 50% on
Company acceptance of all MicroVision orders and 50% on Company invoice of
product or delivery of service (to either distributor or end user). Your will
receive a recoverable draw of $6,250 paid monthly. Any under quota
performance reconciled on one year employment anniversary.
XL Vision will pay relocation costs should a move be necessary, as determined
by mutual agreement, which would include costs associated with selling closing
costs, purchase closing costs and all moving, traveling and reasonable
temporary housing costs.
In accordance with current policy you are eligible to participate in XL
Vision, Inc., Medical, Dental, Life Insurance Plans 31 days following your
hire date. Following completion of your first 90 days of employment you will
be eligible to participate in XL Vision's Matching 401k Plan. You will be
granted 3 weeks of vacation per year for your first three years and 4 weeks
per year beginning in the fourth year. Sick leave accrual will be at a rate of
1.077 hours per week for a total of 7 days per year. As a condition of
employment you will be required to take a physical exam and urine drug test
paid for by the Company.
<PAGE>
Termination clauses are enclosed as Attachment A.
We would like for you to assume your new position immediately.
Please indicate your acceptance of employment with XL Vision, Inc., by
signing this letter and returning a copy to the undersigned.
Sincerely,
/s/ James E. Wellman
James E. Wellman
Vice President of Administration
Encl. Attachment A. Definition of Termination Clauses
Accepted: /s/ Kenneth Garber Date: 2/15/96
<PAGE>
ATTACHMENT A
Termination - for cause, other than cause, following a change in control,
upon death, and for disability:
"Termination for Cause"
* Conviction of a felony resulting in material harm to the Company.
* Shall be done in writing accompanied by a written statement of the reasons.
Prior written warning with reasonable opportunity for corrective action is
required before termination for violation of company policy or poor
performance
"Termination for Convenience (i.e., Other than for Cause)"
* Immediate exercisability of all vested stocks and options. Additionally,
immediate vesting and exercisability of 50% of all granted, but not yet
vested options.
* Immediate payment of all performance contingent sums under incentive
(bonuses, commissions, etc.) programs.
* Company may elect to pay 18 months of severance income to be paid to the
employee in return for the employee's agreement to not compete with the
Company during the 18 month period.
"Termination Following a Change in Control" - Golden Parachute
* Immediate vesting and exercisability of all granted stocks and options.
* Immediate payment of all performance contingent sums under incentive
(bonuses, commissions, etc.) programs.
* Continuation of my company paid medical and life insurance for the same
duration as my compensation, or until I join another corporation full-time
(tax grossed up).
"Termination upon Death"
* Any accrued salary and any accrued bonuses and stock options as of the date
of termination shall be paid to the legal representative of my estate.
"Termination for Disability"
* My employment may be terminated should I become disabled, including
disability by reason of any emotional or mental disorders, physical diseases
of injuries, as a result of such disability I am unable to work on a
full-time basis for a continuous period of six months or more or any six
months in a twelve month period.
* Upon such termination, any accrued salary and any accrued incentives
(bonuses, commissions, etc.) and stock options as of the date of termination
shall be paid to me.
<PAGE>
MicroVision Medical Systems, Inc.
10305 102nd Terrace
Sebastian, FL 32938
August 14, 1996
Mr. Kenneth Garber
5512 Weatherby Lane
Plano, TX 75093
Dear Ken:
Following is a clarification on the terms of your equity opportunity in
MicroVision:
Purchase 0.25% of MicroVision @ $1.00/share. This must be executed
immediately (your option) if you choose to acquire this equity.
Additional shares can be acquired @ $1.00/share via a stock option.
The option has a vesting schedule (specified in your offer letter) which
will allow you to increase your ownership over time. When you receive
the stock option document (approximately 2-3 weeks), you will notice
an expiration date which is typically 5-7 years. You will not be required
to exercise any portion of your stock option prior to the IPO or the
expiration date.
I hope this clarification helps. If you have any questions, please give me
call.
Sincerely
/s/ Bill Haskel
Bill Haskel
President and COO
<PAGE>
MICRO
VISION
THE VISION IN MEDICAL IMAGING
November 6, 1996
Mr. Kevin C. O'Boyle
5408 Glenshire Drive
Plano, Texas 75093
Dear Kevin:
MicroVision Medical Systems, Inc., is pleased to offer you the position of
Chief Financial Officer, reporting to Mike Shiff, President.
You will receive a salary of $130,000 paid bi-weekly and subject to annual
review. You will participate in the Executive Bonus Pool.
Your equity will be 55,000 shares at the strike price of $3.00 per share.
Your vesting schedule will be 25% at the date of your employment with
MicroVision Medical Systems, Inc., and 25% at the end of each of the first
three years of employment.
MicroVision Medical Systems, Inc., will pay reasonable relocation costs,
(estimated to be approximately $50,000 prior to gross up) to include costs
associated with moving, traveling and reasonable temporary housing costs.
Payment of these costs will be tax grossed up.
In accordance with current policy you are eligible to participate in
MicroVision Medical Systems, Inc., Medical, Dental and Life Insurance Plans 31
days following your hire date. Following completion of your first 90 days of
employment you will be eligible to participate in the Matching 401(k) Plan.
You will be granted 3 weeks of vacation per year for your first three years,
and 4 weeks per year beginning in the fourth year. Sick leave accrual will
be at the rate of 1.077 hours per week for a total of 7 days per year. As a
condition of employment you will be required to take a physical exam and
urine drug test paid for by the Company.
Termination clauses are enclosed as Attachment A.
We would like for you to assume your new position as soon as possible.
<PAGE>
Please indicate your acceptance of employment with MicroVision Medical
Systems, Inc., by signing this letter and returning a copy to the
undersigned.
Sincerely,
/s/James E. Wellman
- --------------------------------
James E. Wellman
Vice President of Administration
Encl Attachment A. Definition of Termination Clauses
Accepted:/s/ Kevin C. O'Boyle Date: 11-27-96
-------------------------------- -----------
<PAGE>
Attachment A
- ------------
Definitions of Termination For Cause (for cause, other than cause, following a
- ------------------------------------
change in control, upon death, and for disability)
Termination for cause
- ---------------------
Conviction of a felony resulting in material harm to the company.
Shall be done in writing accompanied by a written statement of the
reasons. Prior written warning with reasonable opportunity for corrective
action is required before termination for violation of company policy or poor
performance.
Termination for Convenience
- ---------------------------
Immediate exercisability of all vested stocks and options. Additionally,
immediate vesting and exercisability of 50% of all granted, but not vested
options. Immediate payment of all performance contingent sums under
incentive programs (bonuses, etc.).
Arrangements including provisions for exchanging 12 months of severance income
to be paid to the employee in return for the employee's agreement not to
compete with the Company during this period (See attached reference).
Termination Following a Change in Control
- -----------------------------------------
Immediate vesting and exercisability of all granted stock and options.
Immediate payment of all performance contingent sums under incentive programs
(bonuses, etc.).
Termination Upon Death
- ----------------------
Any accrued salary and any accrued bonuses and stock options as of the date
of termination shall be paid to the legal representative of his estate.
Termination for Disability
- --------------------------
Employment may be terminated should I become disabled, including disability
by reason of any emotional or mental disorder, physical diseases or injuries,
and as result of such disability I am unable to work on a full time basis for
a continuous period of six months or more or any six months in a twelve month
period.
Upon such termination, any accrued salary and any accrued incentives
(bonuses, etc.) and stock options as of the date of termination shall be paid
to me.
<PAGE>
MICRO
VISION
THE VISION IN MEDICAL IMAGING
November 26, 1996
Mr. Kevin C. O'Boyle
5408 Glenshire Drive
Plano, Texas 75093
Dear Kevin:
Please attach this letter as an amendment to your offer letter of November
6, 1996.
In the event of termination for convenience, you will be paid severance until
you find other employment or for a period of 12 months whichever comes first.
Sincerely,
/s/ James E. Wellman
- --------------------
James E. Wellman
Vice President of Administration
<PAGE>
Exhibit 10.9
December 27, 1996
Michael S. Shiff
5500 Weatherby Lane
Plano, TX 75093
Dear Mike:
This letter sets forth the terms of our agreement regarding your
separation, which, upon full execution will constitute a legally binding
separation agreement between you and MicroVision Medical Systems, Inc. (the
"Company"). You and the Company are entering this agreement with knowledge of
the consequences and voluntarily.
In connection with this separation package, you and the Company have
agreed to provide to each other releases with respect to any claims either of
us might have against the other, as set forth in the attached General
Releases.
The terms of your separation are as follows:
1. You have agreed to resign from your employment and office as President
of the Company effective as of December 10, 1996. The Company will pay
you three months' base salary continuation from the resignation date
in exchange for your agreement not to compete with the Company during
that period. The Company will also pay your accrued vacation, and all
unreimbursed expenses through December 10, 1996 in accordance with
normal practice. As you know, this salary continuation is in excess of
the Company's policy. The base salary will be paid at the same time as
regular payroll, and will be subject to all required payroll deductions.
2. We will allow you to keep all draws paid to you against your bonus.
3. Your acceptance of this Agreement will constitue your resignation from
the Board of the Company, effective as of December 10, 1996.
4. You currently own 49,300 shares of Series A Preferred Stock of the
Company. As you know, the Company has the right to repurchase those
shares. The Company has assigned that right to Safeguard Scientifics
(Delaware), Inc. ("Safeguard"). Safeguard has agreed to purchase all
of those shares from you, and you have agreed to sell those shares to
Safeguard, at a purchase price of $4.50 per share, or $221,850 in the
aggregate. You and Safeguard will enter into the stock purchase agreement
attached to this letter agreement.
<PAGE>
5. Under your employment agreement, your were granted options for 443,700
shares of common stock in the Company exercisable at $1.00 per share.
One-half, or 221,850 of the options vest upon termination of your
employment. The Company has agreed to cash out your options, and you
have agreed to surrender your options, at their fair market value. The
Board of Directors has determined that the current fair market value of
the common stock is $3.00 per share. Therefore, the Company will pay you
$2.00 per option, or $443,700 in the aggregate, in exchange for the
cancellation of your options. This payment will be subject to all required
payroll deductions.
6. In addition, the Company will pay to you a lump sum separation payment of
$468,350. This is not the Company's normal separation policy, but is the
result of our mutually negotiated agreement. This payment will be subject
to all required payroll deductions.
7. The Company and you agree that the terms and substance of this agreement
and the accompanying General Releases will be kept confidential by both
parties except that you may advise your family and confidential advisors,
and the Company may advise those people needing to know in implementation
of the above terms. Each party may also disclose the terms of this
agreement if required by law or to enforce this agreement, and the Company
may disclose the terms if required by applicable disclosure requirements
in connection with registering its securities under applicable securities
laws.
8. You must return to the Company all Company property in your possession,
including computer equipment, peripherals and software, and all copies of
Company data and information, whether stored on paper, computer disks,
magnetic tapes, or otherwise. You understand that you are obligated to
maintain the confidentiality of all confidential non-public Company
information which you learned in the course of your employment. The
Company will consider any improper disclosure of Company proprietary
information as a serious breach of your obligations and remedies will be
pursued vigorously, including injunctive relief.
9. Any questions that you may have respecting details or implementation of
the agreement should be directed to John Scott, as Chairman of the Company.
10. Your COBRA notice will be given and benefit conversion privilege will
begin as of December 10, 1996.
11. You agree not to disparage the Company or XL Vision, Inc. or their
respective officers, directors and employees. The Company and XL Vision,
Inc. agree not to disparage you.
12. This letter agreement and the General Releases contain all the terms
relevant to your termination and the benefits of termination and replaces
or supersedes any previous agreements or terms that may have existed with
respect to these subject matters. This agreement can only be amended by a
written amendment executed by both parties.
<PAGE>
13. The payments due under Sections 5 and 6 will be made by wire transfer of
immediately available funds per the instructions in your letter to Mr.
Steve Roard attached hereto.
The attached General Releases provides that your release with respect
to the federal Age Discrimination in Employment Act may be revoked within a
seven day period after it is signed. All payments to you under Sections 5 and
6 of this Agreement will be made one business day after the expiration of
that seven day period, provided that you confirm that you have not revoked
such release. If you revoke that release, the Company may, at its option,
determine (i) to make all payments to you under this Agreement, in which case
all other terms of this Agreement and the General Releases shall be binding
on all parties, or (ii) or to cancel this Agreement and the General Releases
in their entirety.
I convey the very best wishes for your future career efforts. My
signature below is the Company's agreement to the terms above.
Sincerely yours,
MICROVISION MEDICAL SYSTEMS, INC.
By: /s/ John Scott
______________________________
John Scott, Chairman
Agreed as to the separation package
and other terms set forth above:
/s/ Michael S. Shiff
- -----------------------------
Michael S. Shiff
Agreed as to Section 11:
XL VISION, INC.
By: /s/ John Scott
- --------------------------
John Scott, Chairman & CEO
<PAGE>
Exhibit 10.10
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT dated as of June 6, 1996 between
MicroVision Medical Systems, Inc., a Delaware corporation (the "Company"),
and the several purchasers named in the attached Schedule I(a) (individually
an "Investor Purchaser" and collectively the "Investor Purchasers") and the
several purchasers named in the attached Schedule I(b) (individually a
"Management Purchaser" and collectively the "Management Purchasers"). The
Investor Purchasers and the Management Purchasers are sometimes referred to
individually as a "Purchaser" and collectively as the "Purchasers."
WHEREAS, the Company has offered pursuant to a Private Placement
Memorandum dated May 17, 1996 (the "Memorandum"), to issue and sell to the
Purchasers up to an aggregate of 6,388,000 shares (the "Preferred Shares") of
the authorized but unissued Series A Preferred Stock, $.01 par value, of the
Company (the "Series A Preferred Stock") at a purchase price of $1.00 per
Preferred Share, of which up to 4,974,234 shares will be purchased by the
Investor Purchasers, and the balance will be purchased by the Management
Purchasers; and
WHEREAS, the Purchasers, severally, wish to purchase the Preferred Shares
on the terms and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained in this Agreement, the parties agree as follows:
ARTICLE I
THE PREFERRED SHARES
SECTION 1.1 Issuance, Sale and Delivery of the Preferred Shares. The
Company agrees to issue and sell to each Purchaser, and each Purchaser agrees
to purchase from the Company, the number of Preferred Shares set forth
opposite the name of such Purchaser under the heading "Number of Preferred
Shares to be Purchased" on Schedule I, at the aggregate purchase price set
forth opposite the name of such Purchaser under the heading "Aggregate
Purchase Price for Preferred Shares" on Schedule I. The purchase price for
the Shares shall be $1.00 per Preferred Share.
SECTION 1.2 Closing. The closing shall take place at the offices of
Morgan, Lewis & Bockius LLP, 2000 One Logan Square, Philadelphia,
Pennsylvania, 19103, at 10:00 a.m. Philadelphia time, on June 7, 1996, or at
such other location, date and time as may be agreed upon between the
Purchasers and the Company (such closing being called the "Closing" and such
date and time being called the "Closing Date"). At the Closing, the Company
shall issue and
<PAGE>
deliver to each Purchaser a stock certificate or certificates in definitive
form, registered in the name of such Purchaser, representing the Preferred
Shares being purchased by it at the Closing. As payment in full for the
Preferred Shares being purchased by it under this Agreement, and against
delivery of the stock certificate or certificates therefor as aforesaid, on
the Closing Date each Purchaser shall (i) deliver to the Company a certified
or bank check payable to the order of the Company, in the amount set forth
opposite the name of such Investor Purchaser under the heading "Aggregate
Purchase Price for Preferred Shares" on Schedule I, (ii) transfer such sum to
the account of the Company by wire transfer, or (iii) deliver or transfer
such sum to the Company by any combination of such methods of payments. The
Company may, at its option, hold more than one Closing and, in such case,
shall fulfill its Closing obligations at each Closing and amend Schedule I to
add the new Purchasers at each Closing.
SECTION 1.3 Legends.
FOR PENNSYLVANIA SUBSCRIBERS ONLY: IF A PURCHASER IS A RESIDENT OF THE
COMMONWEALTH OF PENNSYLVANIA, HE ACKNOWLEDGES AND AGREES THAT (a) THE
SECURITIES PURCHASED BY SUCH PURCHASER CANNOT BE SOLD FOR A PERIOD OF
TWELVE (12) MONTHS FROM THE DATE OF PURCHASE, EXCEPT AS PERMITTED UNDER
SECTION 204.011 OF THE PENNSYLVANIA SECURITIES REGULATIONS, AND (b)
PURSUANT TO SECTION 207(M) OF THE PENNSYLVANIA SECURITIES ACT, EACH
PENNSYLVANIA RESIDENT WHO ACCEPTS AN OFFER TO PURCHASE SECURITIES
EXEMPTED FROM REGISTRATION UNDER SECTION 203(D) OF THE PENNSYLVANIA
SECURITIES ACT DIRECTLY FROM AN ISSUER OR AN AFFILIATE OF AN ISSUER HAS
THE RIGHT TO WITHDRAW HIS ACCEPTANCE WITHOUT INCURRING ANY LIABILITY TO
THE SELLER, UNDERWRITER, IF ANY, OR ANY OTHER PERSON WITHIN TWO (2)
BUSINESS DAYS FROM THE DATE OF RECEIPT BY THE ISSUER OF HIS WRITTEN
BINDING CONTRACT OF PURCHASE OR, IN THE CASE OF A TRANSACTION IN WHICH
THERE IS NO WRITTEN BINDING CONTRACT OF PURCHASE, WITHIN TWO (2) BUSINESS
DAYS AFTER HE MAKES THE INITIAL PAYMENT FOR THE SECURITIES BEING OFFERED.
TO ACCOMPLISH THE WITHDRAWAL, YOU NEED ONLY SEND A LETTER OR TELEGRAM TO
THE ISSUER (OR THE PLACEMENT AGENT IF ONE IS LISTED ON THE FRONT PAGE OF
THE OFFERING DOCUMENT) INDICATING YOUR INTENTION TO WITHDRAW. SUCH
LETTER OR TELEGRAM SHOULD BE SENT AND POSTMARKED PRIOR TO THE END OF THE
AFOREMENTIONED SECOND BUSINESS DAY. IF YOU ARE SENDING A LETTER, IT IS
PRUDENT TO SEND IT BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ENSURE
THAT IT IS RECEIVED AND ALSO TO EVIDENCE THE TIME WHEN IT WAS MAILED.
SHOULD YOU MAKE THE REQUEST ORALLY, YOU SHOULD
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<PAGE>
ASK FOR WRITTEN CONFIRMATION THAT YOUR REQUEST HAS BEEN RECEIVED.
IF THE PURCHASER IS A RESIDENT OF THE STATE OF TEXAS, SUCH PURCHASER
REPRESENTS THAT HIS OR HER INVESTMENT WILL NOT EXCEED 20% OF HIS OR HER
NET WORTH OR JOINT NET WORTH WITH SPOUSE.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers that, except as
set forth in the Disclosure Schedule attached as Schedule II:
SECTION 2.1 Organization, Qualifications and Corporate Power.
(a) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware and is
or will be duly licensed or qualified to transact business as a foreign
corporation in each jurisdiction in which the nature of the business
transacted by it or the character of the properties owned or leased by it, or
proposed to be owned or leased by it, requires such licensing or
qualification. The Company has the corporate power and authority to carry on
its business as proposed to be conducted, to execute, deliver and perform
this Agreement, the Registration Rights Agreement with the Purchasers in the
form attached as Exhibit A (the "Registration Rights Agreement"), the
Stockholders' Agreements with the Purchasers and the other parties thereto
named in paragraph (h) of Article IV of this Agreement, in the form attached
as Exhibit B (the "Stockholders' Agreements") and to issue, sell and deliver
the Preferred Shares and to issue and deliver the shares of Common Stock,
$.01 par value, of the Company ("Common Stock") issuable upon conversion of
the Preferred Shares (the "Conversion Shares").
SECTION 2.2 Authorization of Agreements, Etc.
(a) The execution and delivery by the Company of this Agreement,
the Registration Rights Agreement and the Stockholders' Agreement, the
performance by the Company of its obligations hereunder and thereunder, the
issuance, sale and delivery of the Preferred Shares and the issuance and
delivery of the Conversion Shares have been duly authorized by all requisite
corporate action and will not violate any provision of law, any order of any
court or other agency of government, the Certificate of Incorporation of the
Company, (the "Charter") or the By-laws of the Company.
(b) The Preferred Shares have been duly authorized and, when issued
in
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<PAGE>
accordance with this Agreement, will be validly issued, fully paid and
nonassessable shares of Series A Preferred Stock with no personal liability
attaching to the ownership thereof and will be free and clear of all liens,
charges, restrictions, claims and encumbrances imposed by or through the
Company except as set forth in the Registration Rights Agreement. The
Conversion Shares have been duly reserved for issuance upon conversion of the
Preferred Shares and, when so issued, will be duly authorized, validly
issued, fully paid and nonassessable shares of Common Stock with no personal
liability attaching to the ownership thereof and will be free and clear of
all liens, charges, restrictions, claims and encumbrances imposed by or
through the Company except as set forth in the Registration Rights Agreement.
Neither the issuance, sale or delivery of the Preferred Shares nor the
issuance or delivery of the Conversion Shares is subject to any preemptive
right of stockholders of the Company or to any right of first refusal or
other right in favor of any person.
SECTION 2.3 Validity. This Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding
obligation of the Company, enforceable in accordance with its terms. The
Registration Rights Agreement, the Contribution Agreement and the
Stockholders' Agreement, when executed and delivered in accordance with this
Agreement, will constitute the legal, valid and binding obligations of the
Company, enforceable in accordance with their respective terms.
SECTION 2.4 Authorized Capital Stock. The authorized capital stock of
the Company consists of (i) 8,000,000 shares of Preferred Stock, $1.00 par
value per share (the "Preferred Stock"), of which 7,246,000 shares have been
designated Series A Preferred Stock, and (ii) 12,000,000 shares of Common
Stock. Immediately prior to the Closing, 1,545,000 shares of Common Stock
will be validly issued and outstanding, fully paid and nonassessable with no
personal liability attaching to the ownership thereof and no shares of
Preferred Stock will have been issued. The Company has committed to issue
857,706 shares of Preferred Stock to Centocor, Inc., which shares may be
issued shortly after Closing. There are no other subscriptions, warrants,
options, convertible securities, or other rights (contingent or other) to
purchase or otherwise acquire equity securities of the Company currently
outstanding although the Company has reserved 1,073,690 shares of Common
Stock and for Preferred Stock for issuance pursuant to incentive compensation
plans. The designations, powers, preferences, rights, qualifications,
limitations and restrictions in respect of the Series A Preferred Stock are
as set forth in the Certificate of Designation attached to the Memorandum as
Exhibit D, and all such designations, powers, preferences, rights,
qualifications, limitations and restrictions are valid, binding and
enforceable and in accordance with all applicable laws. Except as provided
for in the Certificate of Designation, the Company has no obligation
(contingent or other) to purchase, redeem or otherwise acquire any of its
equity securities or any interest therein or to pay any dividend or make any
other distribution in respect thereof. Except for the Stockholders'
Agreement, to the best of the Company's knowledge there are no voting trusts
or agreements, stockholders' agreements, pledge agreements, buy-sell
agreements, rights of first refusal, preemptive rights or proxies relating to
any securities of the Company (whether or not the Company is a party
thereto). All of the outstanding securities of the Company were issued in
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<PAGE>
compliance with all applicable Federal and state securities laws.
SECTION 2.5 Third Party Approvals. No registration or filing with, or
consent or approval of or other action by any third party, is or will be
necessary for the valid execution, delivery and performance by the Company of
this Agreement, the Registration Rights Agreement or the Stockholders'
Agreement, the issuance, sale and delivery of the Preferred Shares or, upon
conversion thereof, the issuance and delivery of the Conversion Shares, will
not require the approval of any third party other than (i) filings pursuant
to state securities laws (all of which filings have been made by the Company,
other than those which are required to be made after the Closing and which
will be duly made on a timely basis) in connection with the sale of the
Preferred Shares and (ii) with respect to the Registration Rights Agreement,
the registration of the shares covered thereby with the Commission and
filings pursuant to state securities laws.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
SECTION 3.1 Investor Purchasers. Each Investor Purchaser severally
represents and warrants to the Company that:
(a) it is an "accredited investor" within the meaning of Rule 501
under the Securities Act and was not organized for the specific purpose of
acquiring the Preferred Shares;
(b) it has sufficient knowledge and experience in investing in
companies similar to the Company in terms of the Company's stage of
development so as to be able to evaluate the risks and merits of its
investment in the Company and it is able financially to bear the risks
thereof;
(c) it has had an opportunity to discuss the Company's proposed
business, management and financial affairs with the Company's management;
(d) the Preferred Shares being purchased by it are being acquired
for its own account for the purpose of investment and not with a view to or
for sale in connection with any distribution thereof;
(e) it understands that (i) the Preferred Shares and the Conversion
Shares have not been registered under the Securities Act by reason of their
issuance in a transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof or Rule 505 or 506
promulgated under the Securities Act, (ii) the Preferred Shares and, upon
conversion thereof, the Conversion Shares must be held indefinitely unless a
subsequent disposition thereof is registered under the Securities Act or is
exempt from such registration, (iii) the Preferred Shares and the Conversion
Shares will bear a legend to such effect and (iv) the Company will
-5-
<PAGE>
make a notation on its transfer books to such effect; and
(f) if it sells any Conversion Shares pursuant to Rule 144A
promulgated under the Securities Act, it will take all necessary steps in
order to perfect the exemption from registration provided thereby, including
(i) obtaining on behalf of the Company information to enable the Company to
establish a reasonable belief that the purchaser is a qualified institutional
buyer and (ii) advising such purchaser that Rule 144A is being relied upon
with respect to such resale.
SECTION 3.2 Management Purchasers. Each Management Purchaser severally
represents and warrants to the Company that:
(a) either (i) it is an "accredited investor" within the meaning of
Rule 501 under the Securities Act and was not organized for the specific
purpose of acquiring the Preferred Shares and it has sufficient knowledge and
experience in investing in companies similar to the Company in terms of the
Company's stage of development so as to be able to evaluate the risks and
merits of its investment in the Company and it is able financially to bear
the risks thereof, or (ii) it has engaged and has been advised by a
professional investment advisor with regard to the purchase of Preferred
Shares;
(b) it has had an opportunity to discuss the Company's proposed
business, management and financial affairs with the Company's management;
(c) the Preferred Shares being purchased by it are being acquired
for its own account for the purpose of investment and not with a view to or
for sale in connection with any distribution thereof;
(d) it understands that (i) the Preferred Shares and the Conversion
Shares have not been registered under the Securities Act by reason of their
issuance in a transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof or Rule 505 or 506
promulgated under the Securities Act, (ii) the Preferred Shares and, upon
conversion thereof, the Conversion Shares must be held indefinitely unless a
subsequent disposition thereof is registered under the Securities Act or is
exempt from such registration, (iii) the Preferred Shares and the Conversion
Shares will bear a legend to such effect and (iv) the Company will make a
notation on its transfer books to such effect; and
(e) if it sells any Conversion Shares pursuant to Rule 144A
promulgated under the Securities Act, it will take all necessary steps in
order to perfect the exemption from registration provided thereby, including
(i) obtaining on behalf of the Company information to enable the Company to
establish a reasonable belief that the purchaser is a qualified institutional
buyer and (ii) advising such purchaser that Rule 144A is being relied upon
with respect to such resale.
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<PAGE>
ARTICLE IV
CONDITIONS TO THE OBLIGATIONS
OF THE PURCHASERS
The obligation of each Purchaser to purchase and pay for the Preferred
Shares being purchased by it on the Closing Date is, at its option, subject
to the satisfaction, on or before the Closing Date, of the following
conditions:
(a) Representations and Warranties to be True and Correct. The
representations and warranties contained in Article II shall be true,
complete and correct on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of such
date, and the President of the Company shall have certified to such effect to
the Purchasers in writing.
(b) Performance. The Company shall have performed and complied with all
agreements contained herein required to be performed or complied with by it
prior to or at the Closing Date.
(c) Registration Rights Agreement. The Company shall have executed and
delivered the Registration Rights Agreement,
(d) Stockholders' Agreement. The Stockholders' Agreement shall have
been executed and delivered by the Company and each of the Purchasers.
(e) Certificate of Designation. The Certificate of Designation as set
forth in Exhibit D shall have been duly filed with the Secretary of State of
Delaware.
(f) Election of Directors. One designee of Safeguard Scientifics
(Delaware), Inc. and one designee of Technology Leader L.P. and Technology
Leader II L.P. shall have been elected as the Directors and shall each hold
such position as of the Closing Date.
ARTICLE V
COVENANTS OF THE COMPANY
The Company covenants and agrees with each of the Purchasers that:
SECTION 5.1 Financial Statements, Reports, Etc. The Company shall
furnish to each Purchaser who holds at least 200,000 Shares:
(a) within ninety (90) days after the end of each fiscal year of the
Company a
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<PAGE>
consolidated balance sheet of the Company and its subsidiaries as of the end
of such fiscal year and the related consolidated statements of income,
stockholders' equity and cash flows for the fiscal year then ended, prepared
in accordance with generally accepted accounting principles and certified by
a firm of independent public accountants of recognized national standing
selected by the Board of Directors of the Company;
(b) within thirty (30) days after the end of each month in each fiscal
year (other than the last month in each fiscal year) a consolidated balance
sheet of the Company and its subsidiaries and the related consolidated
statements of income, stockholders' equity and cash flows, unaudited but
prepared in accordance with generally accepted accounting principles and
certified by the Chief Financial Officer of the Company, such consolidated
balance sheet to be as of the end of such month and such consolidated
statements of income, stockholders' equity and cash flows to be for such
month and for the period from the beginning of the fiscal year to the end of
such month, in each case with comparative statements for the prior fiscal
year, provided that the Company's obligations under this Section 5.1(b) shall
terminate upon the completion of a firm commitment underwritten public
offering of the Company's securities;
(c) at the time of delivery of each annual financial statement pursuant
to Section 5.1(a), a certificate executed by the Chief Financial Officer of
the Company stating that such officer has caused this Agreement and the
Series A Preferred Stock to be reviewed and has no knowledge of any default
by the Company in the performance or observance of any of the provisions of
this Agreement or the Series A Preferred Stock or, if such officer has such
knowledge, specifying such default and the nature thereof;
(d) at the time of delivery of each monthly statement pursuant to
Section 5.1(b), a management narrative report explaining all significant
variances from forecasts and all significant current developments in
staffing, marketing, sales and operations;
(e) no later than sixty (60) days prior to the start of each fiscal
year, consolidated capital and operating expense budgets, cash flow
projections and income and loss projections for the Company and its
subsidiaries in respect of such fiscal year, all itemized in reasonable
detail and prepared on a monthly basis, and, promptly after preparation, any
revisions to any of the foregoing;
(f) promptly following receipt by the Company, each audit response
letter, accountant's management letter and other written report submitted to
the Company by its independent public accountants in connection with an
annual or interim audit of the books of the Company or any of its
subsidiaries;
(g) promptly after the commencement thereof, notice of all actions,
suits, claims, proceedings, investigations and inquiries of the type
described in Section 2.7 that could materially adversely affect the Company
or any of its subsidiaries;
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(h) promptly upon sending, making available or filing the same, all
press releases, reports and financial statements that the Company sends or
makes available to its stockholders or directors or files with the
Commission; and
(i) promptly, from time to time, such other information regarding the
business, prospects, financial condition, operations, property or affairs of
the Company and its subsidiaries as such Purchaser reasonably may request.
SECTION 5.2 Reserve for Conversion Shares. The Company shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, for the purpose of effecting the conversion of the Preferred
Shares and otherwise complying with the terms of this Agreement, such number
of its duly authorized shares of Common Stock as shall be sufficient to
effect the conversion of the Preferred Shares from time to time outstanding
or otherwise to comply with the terms of this Agreement. If at any time the
number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of the Preferred Shares or otherwise to
comply with the terms of this Agreement, the Company will forthwith take such
corporate action as may be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for
such purposes. The Company will obtain any authorization, consent, approval
or other action by or make any filing with any court or administrative body
that may be required under applicable state securities laws in connection
with the issuance of shares of Common Stock upon conversion of the Preferred
Shares.
SECTION 5.3 Corporate Existence. The Company shall maintain corporate
existence, rights and franchises in full force and effect.
SECTION 5.4 Properties, Business, Insurance. The Company shall maintain
its properties and business, with financially sound and reputable insurers,
insurance against such casualties and contingencies and of such types and in
such amounts as is customary for companies similarly situated, which
insurance shall be deemed by the Company to be sufficient. The Company shall
not cause or permit any assignment or change in beneficiary and shall not
borrow against any such policy.
SECTION 5.5 Inspection, Consultation and Advice. The Company shall
permit each Purchaser holding in excess of 10% of the Series A Preferred
Stock and such persons as it may designate, at such Purchaser's expense, to
visit and inspect any of the properties of the Company and its subsidiaries,
examine their books and take copies and extracts therefrom, discuss the
affairs, finances and accounts of the Company and its subsidiaries with their
officers, employees and public accountants (and the Company hereby authorizes
said accountants to discuss with such Purchaser and such designees such
affairs, finances and accounts), and consult with and advise the management
of the Company and its subsidiaries as to their affairs, finances and
accounts, all at reasonable times and upon reasonable notice.
SECTION 5.6 Restrictive Agreements Prohibited. The Company shall not
become a
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party to any agreement which by its terms restricts the Company's performance
of this Agreement, the Registration Rights Agreement, the Stockholders'
Agreement, the Contribution Agreement or the Charter.
SECTION 5.7 Transactions with Affiliates. Except for transactions
contemplated by this Agreement or as otherwise approved by the Board of
Directors, the Company shall not enter into any material transaction with any
director, officer, employee or holder of more than 5% of the outstanding
capital stock of any class or series of capital stock of the Company or any
of its subsidiaries, member of the family of any such person, or any
corporation, partnership, trust or other entity in which any such person, or
member of the family of any such person, is a director, officer, trustee,
partner or holder of more than 5% of the outstanding capital stock thereof,
except for transactions on customary terms related to such person's
employment.
SECTION 5.8 Use of Proceeds. The Company shall use the proceeds from
the sale of the Preferred Shares solely for working capital and to satisfy
its obligations to XL Vision, Inc. under the Contribution Agreement with XL
Vision, Inc.
SECTION 5.9 Compliance with Laws. The Company shall comply with all
applicable laws, rules, regulations and orders, noncompliance with which
could materially adversely affect its business or condition, financial or
otherwise.
SECTION 5.10 Keeping of Records and Books of Account. The Company shall
keep, and cause each subsidiary to keep, adequate records and books of
account, in which complete entries will be made in accordance with generally
accepted accounting principles consistently applied, reflecting all financial
transactions of the Company and such subsidiary, and in which, for each
fiscal year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other purposes in connection with its
business shall be made.
SECTION 5.11 Change in Nature of Business. The Company shall not make
any material change in the nature of its business without the approval of at
least two-thirds of its Board of Directors.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1 Expenses. Each party hereto will pay its own expenses in
connection with the transactions contemplated hereby, whether or not such
transactions shall be consummated.
SECTION 6.2 Survival of Agreements. All covenants, agreements,
representations and warranties made herein or in the Registration Rights
Agreement, the Stockholders' Agreement, or any certificate or instrument
delivered to the Purchasers pursuant to or in connection with this
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Agreement, the Registration Rights Agreement or the Stockholders' Agreement,
shall survive the execution and delivery of this Agreement, the Registration
Rights Agreement and the Stockholders' Agreement, the issuance, sale and
delivery of the Preferred Shares, and the issuance and delivery of the
Conversion Shares, and all statements contained in any certificate or other
instrument delivered by the Company hereunder or thereunder or in connection
herewith or therewith shall be deemed to constitute representations and
warranties made by the Company; provided that all such representations and
warranties shall terminate two years from the date they are made.
SECTION 6.3 Brokerage. Each party hereto will indemnify and hold
harmless the others against and in respect of any claim for brokerage or
other commissions relative to this Agreement or to the transactions
contemplated hereby, based in any way on agreements, arrangements or
understandings made or claimed to have been made by such party with any third
party.
SECTION 6.4 Parties in Interest. All representations, covenants and
agreements contained in this Agreement by or on behalf of any of the parties
hereto shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto whether so expressed or not. Without limiting
the generality of the foregoing, all representations, covenants and
agreements benefiting the Purchasers shall inure to the benefit of any and
all subsequent holders from time to time of Preferred Shares or Conversion
Shares.
SECTION 6.5 Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be delivered in
person, mailed by certified or registered mail, return receipt requested, or
sent by telecopier or telex, addressed as follows:
(a) if to the Company, to
President
MicroVision Medical Systems, Inc.
17304 Preston Road, Suite 800
Dallas, TX 75252
fax: 214-733-6533
; and
(b) if to any Purchaser, at the address of such Purchaser set forth in
such Purchaser's
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Counterpart Signature Page;
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
SECTION 6.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
SECTION 6.7 Entire Agreement. This Agreement, including the Schedules
and Exhibits hereto, constitutes the sole and entire agreement of the parties
with respect to the subject matter hereof. All Schedules and Exhibits hereto
are hereby incorporated herein by reference.
SECTION 6.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 6.9 Amendments. This Agreement may not be amended or modified,
and no provisions hereof may be waived, without the written consent of the
Company and the holders of at least two-thirds of the outstanding Preferred
Shares.
SECTION 6.10 Severability. If any provision of this Agreement shall be
declared void or unenforceable by any judicial or administrative authority,
the validity of any other provision and of the entire Agreement shall not be
affected thereby.
SECTION 6.11 Titles and Subtitles. The titles and subtitles used in
this Agreement are for convenience only and are not to be considered in
construing or interpreting any term or provision of this Agreement.
SECTION 6.12 Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be
equally applicable to both the singular and plural forms of the terms
defined):
(a) "person" shall mean an individual, corporation, trust, partnership,
joint venture, unincorporated organization, government agency or any agency
or political subdivision thereof, or other entity.
(b) "subsidiary" shall mean, as to the Company, any corporation of which
more than 50% of the outstanding stock having ordinary voting power to elect
sixty percent (60%) of the Board of Directors of such corporation
(irrespective of whether or not at the time stock of any other class or
classes of such corporation shall have or might have voting power by reason
of the happening of any contingency) is at the time directly or indirectly
owned by the Company, or by one or more of its subsidiaries, or by the
Company and one or more of its subsidiaries.
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IN WITNESS WHEREOF, the parties hereto have caused this Stock Purchase
Agreement to be executed as of the date first above written.
MICROVISION MEDICAL SYSTEMS, INC.
By: /s/ John Scott
-----------------------------------
John Scott
[Purchasers have executed Counterpart Signature Pages to this Agreement.]
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EXHIBIT 10.11
REGISTRATION RIGHTS AGREEMENT
THIS AGREEMENT is made as of the 6 day of June 1996 by and among
MicroVision Medical Systems, Inc., a Delaware corporation (the "Company"), and
the stockholders of the Company listed on Schedule I hereto (collectively, the
"Stockholders").
BACKGROUND
The Stockholders are acquiring contemporaneously with the execution of this
Agreement newly issued shares of the Company's Series A Preferred Stock, which
are convertible into shares of the Company's Common Stock. The Company has
agreed to provide the registration rights provided for in this Agreement as an
inducement for the Stockholders to purchase the Series A Preferred Stock.
WITNESSETH:
The parties hereto, each intending to be legally bound and in exchange for
the mutual covenants herein, agree as follows:
1. DEMAND REGISTRATIONS.
(a) REQUESTS FOR REGISTRATION. At any time after the date hereof,
Stockholders holding and/or having the right to acquire at least 1,200,000
Registrable Securities subject to adjustment for stock splits, stock dividends,
stock combinations and transactions with similar effect, may demand registration
(a "Demand Registration") under the Securities Act of 1933, as amended (the
"1933 Act"), of all or any portion of the Registrable Securities (defined below)
owned by such Stockholders. In order to accomplish such demand, a Stockholder
shall send written notice of the demand to the Company, and such notice shall
specify the number of Registrable Securities sought to be registered. The
Company shall only be required to effect two Demand Registrations, and shall
only be required to proceed with a Demand Registration requested by a
Stockholder if the number of Registrable Securities that the Stockholder(s)
shall have elected to include in such Demand Registration pursuant to this
Section 1 has an aggregate fair market value, in the opinion of an investment
banker acceptable to the Stockholder(s) requesting the Demand Registration and
to the Company, in excess of $3 million.
(b) PROCEDURE. Within 10 days after receipt of such a demand, the Company
will give written notice of such requested registration to all other holders of
Registrable Securities and will include in such registration, subject to the
allocation provisions below, all other Registrable Securities with respect to
which the Company has received written requests for inclusion within 15 days
after the Company's mailing of such notice, plus any securities of the Company
that the Company chooses to include on its own behalf.
<PAGE>
(c) EXPENSES. In a Demand Registration, the Company will pay the
Registration Expenses (defined below), but the Underwriting Commissions (defined
below) will be shared by the Company and those holders of Registrable Securities
whose Registrable Securities are included in the Demand Registration in
proportion to any securities included on their behalf.
(d) PRIORITY ON DEMAND REGISTRATIONS. If a Demand Registration is
underwritten and the managing underwriters advise the Company in writing that in
their opinion the number of Registrable Securities requested to be included
exceeds the number that can be sold in such offering, at a price reasonably
related to fair value, the Company will include in such Demand Registration (i)
first, the Registrable Securities requested to be included in such Demand
Registration by the Stockholders, pro rata on the basis of the number of
Registrable Securities owned; (ii) second, any securities that the Company
desires to include on its own behalf; and (iii) third, any shares of Common
Stock held by any other stockholder of the Company to whom registration is
offered; provided, however, that if a Demand Registration would cause an Initial
Public Offering, the Company would be entitled to include for registration on
its own behalf securities representing up to 30% of the Fully-Diluted Common
Stock as of immediately prior to the Initial Public Offering. A registration
shall not be considered to be a Demand Registration under Section 1(a), and the
Company shall pay the Registration Expenses of such registration, if (i) as a
result of the foregoing allocation, the Stockholders are not able to register
and sell in the Demand Registration at least 75% of the Registrable Securities
sought to be included in the Demand Registration by the Stockholders; (ii) the
gross proceeds of the securities included in the registration on behalf of the
Company constitute at least 20% of the total gross proceeds of the Demand
Registration; or (iii) the registration statement requested by a Stockholder
does not become effective for any reason.
(e) SELECTION OF UNDERWRITERS. If any Demand Registration is
underwritten, the selection of investment banker(s) and manager(s) and the other
decisions regarding the underwriting arrangements for the offering will be made
by the Company and a Stockholder.
(f) RESTRICTIONS ON DEMAND REGISTRATIONS. The Company will not be
obligated to effect any Demand Registration within six months after the
effective date of a previous registration of securities of the Company in an
underwritten offering.
(g) CONTEMPORANEOUS DEMAND. If any holder of the Company's securities
that is not a holder of Registrable Securities under this Agreement exercises
demand registration rights to have the Company register its securities under the
1933 Act (a "Non-Stockholder Registration") within a period of 30 days before or
after the time a Stockholder shall have requested a Demand Registration, then
the Stockholder's Demand Registration shall have priority over the
Non-Stockholder Registration. Any request by Safeguard Scientifics, Inc. to the
Company to effect a Rights Offering (defined below), made within 30 days before
or after a Stockholder shall have requested a Demand Registration, shall have
priority over the Demand Registration during the Rights Exclusivity Period
(defined below).
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2. PIGGYBACK REGISTRATIONS.
(a) RIGHT TO PIGGYBACK. Whenever the Company proposes to register any of
its securities under the 1933 Act (other than a Demand Registration or a
registration with respect to a Rights Offering (defined below)), and the
registration form to be used may be used for the registration of Registrable
Securities (a "Piggyback Registration"), the Company will give prompt written
notice to all holders of Registrable Securities and will include in such
Piggyback Registration, subject to the allocation provisions below, all
Registrable Securities with respect to which the Company has received written
requests for inclusion within 15 days after the Company's mailing of such
notice. The Company shall not select a form of registration statement which
imposes, for its use, limitations on the maximum value or number of securities
to be registered if these limitations would preclude registration of the
Registrable Securities that the Company has been requested to include in such
registration.
(b) PIGGYBACK EXPENSES. In all Piggyback Registrations, the Company will
pay the Registration Expenses related to the Registrable Securities of the
Selling Stockholders, but the Selling Stockholders will pay the Underwriting
Commissions related to their Registrable Securities.
(c) PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback Registration is an
underwritten primary registration on behalf of the Company, and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number that
can be sold in such offering, at a price reasonably related to fair value, the
Company will allocate the securities to be included as follows: first, the
securities the Company proposes to sell on its own behalf; and second,
Registrable Securities requested to be included in such registration by the
Selling Stockholders, pro rata on the basis of the respective Registrable
Securities requested for sale by them, and third, securities registered to be
included in such registration by other stockholders of the Company.
(d) PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback Registration is
initiated as an underwritten secondary registration on behalf of holders of the
Company's securities (other than a Demand Registration pursuant to Section 1),
and the managing underwriters advise the Company in writing that in their
opinion the number of securities requested to be included in such registration
exceeds the number that can be sold in such offering, at a price reasonably
related to fair value, the Company will allocate the securities to be included
as follows: first, the securities requested to be included by the holders
initiating such registration; and second, Registrable Securities requested to be
included in such registration, pro rata on the basis of the number of
Registrable Securities owned among the Selling Stockholders.
(e) SELECTION OF UNDERWRITERS. If any Piggyback Registration is
underwritten, the selection of investment banker(s) and manager(s) and the other
decisions regarding the underwriting arrangements for the offering will be made
by the Company, if the registration is
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under Section 2(c), or by the holders initiating such registration, if the
registration is under Section 2(d).
3. REGISTRATION ON FORM S-3.
The Company shall use its best efforts to qualify for registration on
Form S-3 or any comparable or successor form or forms; and to that end, the
Company shall register (whether or not required by law to do so) its Common
Stock under the Securities Exchange Act of 1934, as amended, in accordance with
the provisions of that Act as soon as possible following the effective date of
the first registration of any of the Company's securities under the 1933 Act.
After the Company has so qualified, in addition to the rights contained in the
foregoing provisions of this Registration Rights Agreement, each holder of
Registrable Securities shall have the right to require registration of its
Registrable Securities on Form S-3 at the Company's expense, provided that (a)
the Registrable Securities to be registered shall have a market value of at
least $1 million and (b) the Company shall not be obligated to effect more than
one such registration during any 12-month period. When the Company receives
notice of any holder's request for a registration on Form S-3, it shall send
notice of such proposed registration to all other holders of Registrable
Securities.
4. RIGHTS OFFERINGS.
(a) RIGHTS. The Company shall, upon receipt of a written request from
Safeguard Scientifics, Inc., a Pennsylvania corporation ("Safeguard"), grant to
the holders of the common stock of Safeguard rights (the "Rights") to purchase
from the Company such number of shares of Common Stock as determined by
Safeguard up to a maximum of one-third of the sum of (i) all issued and
outstanding shares of Common Stock, (ii) all shares of Common Stock issuable
upon conversion of all outstanding shares of Preferred Stock, and (iii) all
shares of Common Stock issuable upon the exercise of all outstanding options,
warrants or other rights to purchase Common Stock, all as of the effective date
of the registration statement. The Rights shall be issued in an offering (the
"Rights Offering") pursuant to a registration statement, shall be exercisable
for a period of no greater then 45 days after the commencement of the Right
Offering and shall be transferable by the holder thereof during that period.
The Company shall not be obligated to effect a Rights Offering unless the total
market value of the Company is at least $30 million as determined in good faith
by the Board of Directors of the Company with the advice of such expert as the
Board may choose, if any.
(b) EXPENSES. In a Rights Offering, the Company shall bear all reasonable
costs and expenses of the Rights Offering, including the Company's printing,
legal and accounting fees and expenses, filing fees of the Securities and
Exchange Commission and the National Association of Securities Dealers, Inc.,
and "Blue Sky" fees and expenses; provided, however, that the Company shall have
no obligation to pay or otherwise bear any portion of (i) the underwriters'
commissions or discounts attributable to the Rights Shares being offered and
sold by any selling holders of Rights Shares in connection with the registration
of the Rights Shares or (ii) the fees and expenses
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of counsel of such selling holders, if different than counsel to the Company.
The Company shall reimburse Safeguard for its internal expenses incurred
under this Section 4(b) by payment of $50,000 on a nonaccountable basis, such
payment to be made on the earlier of the closing of the Rights Offering or 90
days after the Registration Statement is filed.
(c) SELECTION OF UNDERWRITERS AND COUNSEL. The selection of investment
banker(s) and manager(s) for the Rights Offering shall be made by Safeguard,
subject to the reasonable approval of a majority of the Board of Directors of
the Company, which investment banker(s) shall underwrite, on a standby, firm
commitment basis, any portion of the offered Common Stock not purchased through
the exercise of Rights. The Company shall also engage legal counsel selected by
Safeguard, subject to the reasonable approval of a majority of the Board of
Directors of the Company, which counsel shall represent the Company in
connection with the conduct of the Rights Offering.
(d) EXERCISE PRICE. The exercise price of the Rights shall be determined
by negotiation among the Company, the underwriters and the selling stockholders,
if any. Prior to the commencement of the Rights Offering, the Company shall use
its best efforts to cause any holder of more than 2% of its Common Stock (or
rights to acquire more than 2% of its Common Stock) to execute and deliver to
the managing underwriters of the Rights Offering an agreement to withhold such
shares from the market for such period, not exceeding 180 days following the
closing of the Rights Offering, as such underwriters shall request.
(e) EXCLUSIVITY PERIOD. The obligations of the Company pursuant to this
Section 4 shall expire on the eighth anniversary of this Agreement (such period,
the "Rights Exclusivity Period") unless a registration statement relating to the
Rights Offering has been filed with the Securities and Exchange Commission by
such date, in which case the Rights shall not expire until 150 days after the
date such filing was made.
(f) STOCK SPLIT. After Safeguard has notified the Company of its
intention to commence the Rights Offering, the Company shall, prior to the
filing of such registration statement as provided hereinafter (or at such
earlier date as agreed to by the Company and Safeguard), take all such actions
as shall be necessary to cause a split of its authorized Common Stock in such
ratio as Safeguard may reasonably request. All reference to share amounts in
this Agreement other than as specifically noted shall be deemed to refer to
share amounts prior to such split.
(g) REGISTRATION SERVICES. Safeguard shall diligently and in a timely
fashion assist the Company in structuring the Rights Offering, in preparing the
necessary registration statement and related disclosure documentation, in
clearing the Rights Offering with the Commission and applicable state securities
commissions and shall provide such other services and assistance in connection
with the Rights Offering as the Company shall reasonably request; provided that
nothing contained herein shall require Safeguard to provide to the Company any
services or assistance which, if rendered by Safeguard, would require Safeguard
to register as a broker-dealer
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under Section 15 of the Exchange Act or as an investment Adviser under the
Investment Advisor Act of 1940, as amended.
(h) WORKING GROUP. The Company shall cause its counsel and auditors and
the Company's employees to render such assistance in consummating the Rights
Offering, at the Company's expense, as is customary in the consummation by a
company of its initial public offering. In addition, in rendering services
under this Section 4, Safeguard may engage special legal counsel, one or more
rights, registrar and transfer agents, and such other consultants as Safeguard
may deem necessary or desirable in connection with the Rights Offering, the
expenses of which shall be paid by the Company and which are not included in the
reimbursement described in Section 4(b) above. In addition, Safeguard may
require the Company to engage a registered broker-dealer of Safeguard's
designation, subject to the reasonable approval of the Company, to provide such
services in connection with the Rights Offering as Safeguard may deem reasonably
necessary or desirable, including without limitation, to effect or underwrite
the offering of the Rights or the Rights Shares in states in which applicable
state laws require that a registered broker-dealer effect such offering.
5. HOLDBACK AGREEMENTS.
Neither the Company nor any Stockholder shall effect any public sale or
distribution of equity securities of the Company or any securities convertible
into or exchangeable or exercisable for such securities during the seven days
prior to and the 90 days after any underwritten Demand Registration,
underwritten Piggyback Registration or underwritten Rights Offering has become
effective (except as part of such underwritten registration).
6. REGISTRATION PROCEDURES.
Whenever the holders of Registrable Securities have requested that any
Registrable Securities be registered pursuant to Section 1 or 2 of this
Agreement, or Safeguard has requested the Company to commence a Rights Offering
pursuant to Section 4 of this Agreement, the Company will, as expeditiously as
possible:
(a) prepare and file with the Securities and Exchange Commission
a registration statement with respect to such Registrable Securities
or Rights and Common Stock underlying such Rights and use its best
efforts to cause such registration statement to become effective
(provided that before filing a registration statement or prospectus or
any amendments or supplements or term sheet thereto, the Company will
furnish each Selling Stockholder or Safeguard, as applicable, with
copies of all such documents proposed to be filed) as promptly as
practical;
(b) prepare and file with the Securities and Exchange Commission
such amendments and supplements to such registration statement and the
prospectus
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used in connection therewith as may be necessary to keep such registration
statement effective for a period of not less than 120 days;
(c) furnish to each Selling Stockholder and/or Safeguard such
number of copies of such registration statement, each amendment and
supplement thereto and the prospectus included in such registration
statement (including each preliminary prospectus and any term sheet
associated therewith), and such other documents as such Selling
Stockholder and/or Safeguard may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such
seller or the sale of the of the Rights in the Rights Offering;
(d) use its best efforts to register or qualify such Registrable
Securities or Rights and shares of Common Stock underlying such Rights
under such other securities or blue sky laws of such jurisdictions as
the managing underwriter(s) may reasonably request;
(e) notify each Selling Stockholder or Safeguard at any time
when a prospectus relating thereto is required to be delivered under
the 1933 Act within the period that the Company is required to keep
the registration statement effective of the happening of any event as
a result of which the prospectus included in such registration
statement, together with any associated term sheet, contains an untrue
statement of a material fact or omits any fact necessary to make the
statement therein not misleading, and, at the request of any such
seller or Safeguard, the Company will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the
purchasers of such Registrable Securities or Rights and shares of
Common Stock underlying such Rights, such prospectus will not contain
an untrue statement of a material fact or omit to state any fact
necessary to make the statement therein not misleading;
(f) cause all such Registrable Securities or Rights and shares
of Common Stock underlying such Rights to be listed or included on
securities exchanges on which similar securities issued by the Company
are then listed or included;
(g) provide a transfer agent and registrar for all such
Registrable Securities or Rights and shares of Common Stock underlying
such Rights not later than the effective date of such registration
statement;
(h) enter into such customary agreements (including an
underwriting agreement in customary form) and take such other
customary actions as may be reasonably necessary to expedite or
facilitate the disposition of such Registrable Securities or the
consummation of the Rights Offering;
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(i) obtain a "comfort" letter addressed to the Company from its
independent public accountants in customary form and covering such
matters of the type customarily covered by "comfort" letters;
(j) make available for inspection by any Selling Stockholder or
Safeguard, any underwriter participating in any disposition or the
Rights Offering pursuant to such registration statement, and any
attorney, accountant or other agent retained by any such seller,
Safeguard or any underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all
information reasonably requested by any such seller or Safeguard or
any such underwriter, attorney, accountant or agent in connection with
such registration statement;
(k) with respect to a Rights Offering, the Company shall prepare
and file with the Commission, promptly upon Safeguard's request, any
amendments or supplements to the registration statement or prospectus
that, in Safeguard's opinion, may be necessary or advisable in
connection with the Rights Offering, subject to the reasonable
approval of counsel for the Company and the Company shall not file any
amendment or supplement to the registration statement or prospectus
unless (i) it has furnished Safeguard with a copy of such amendment or
supplement a reasonable time prior to filing and (ii) Safeguard has
not reasonably objected to such amendment or supplement by notice to
the Company;
(l) with respect to a Rights Offering, the Company shall not
issue any advertisement, press release, mailing or other solicitation
material of which Safeguard reasonably disapproves by prompt written
notice to the Company after receiving reasonable notice thereof. At
the time of mailing the prospectus relating to the Rights Offering and
at the time of the closing of the Rights Offering, Safeguard shall be
entitled to receive (A) from the Company such certificates and
documents evidencing compliance with such representations and
warranties of the Company as Safeguard shall reasonably request, and
(B) from the Company's counsel and independent accountants such
opinions and documents as Safeguard may reasonably request thereof as
if it were applicable to the Rights Offering; and
(m) at the time of mailing the prospectus relating to the Rights
Offering and at the time of the closing of the Rights Offering,
Safeguard shall be entitled to receive (i) from the Company such
certificates and documents evidencing compliance with such
representations and warranties of the Company as Safeguard shall
reasonably request, and (ii) from the Company's counsel and
independent accountants such opinions and documents as Safeguard may
reasonably request thereof as if it were applicable to the Rights
Offering.
7. INDEMNIFICATION.
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(a) The Company hereby indemnifies, to the extent permitted by law, each
Stockholder, Safeguard, their respective officers and directors, if any, and
each person who controls any of them within the meaning of the 1933 Act (each,
an "Indemnified Party") against all losses, claims, damages, liabilities and
expenses arising out of or resulting from any untrue or alleged untrue statement
of material fact contained in any registration statement, prospectus or
preliminary prospectus or associated term sheet or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading except insofar as the
same are caused by or contained in any information furnished in writing to the
Company by such Indemnified Party expressly for use therein or by any
Indemnified Party's failure to deliver a copy of the registration statement or
prospectus or any amendments or supplements thereto after the Company has
furnished such Indemnified Party with a sufficient number of copies of the
same. In connection with an underwritten offering, the Company will indemnify
the underwriters, their officers and directors, and each person who controls
such underwriters (within the meaning of the 1933 Act) to the same extent as
provided above with respect to the indemnification of any Indemnified Party.
(b) In connection with any registration statement in which a Selling
Stockholder is participating, each such holder will furnish to the Company in
writing such information as is reasonably requested by the Company for use in
any such registration statement or prospectus and will indemnify, to the extent
permitted by law, the Company, its directors and officers and each person who
controls the Company (within the meaning of the 1933 Act) against any losses,
claims, damages, liabilities and expenses resulting from any untrue or alleged
untrue statement of material fact or any omission or alleged omission of a
material fact required to be stated in the registration statement or prospectus
or any amendment thereof or supplement thereto or necessary to make the
statements therein not misleading, but only to the extent that such untrue
statement or omission is contained in information so furnished in writing by
such holder specifically for use in preparing the registration statement.
Notwithstanding the foregoing, the liability of a Selling Stockholder under this
Section 7(b) shall be limited to an amount equal to the net proceeds actually
received by the Selling Stockholder from the sale of Registrable Securities
covered by the registration statement.
(c) Any person entitled to indemnification hereunder will (i) give prompt
notice to the indemnifying party of any claim with respect to which it seeks
indemnification and (ii) unless in such indemnified party's reasonable judgment
a conflict of interest between such indemnified and indemnifying parties may
exist with respect to such claim, permit such indemnifying party to assume the
defense of such claim with counsel reasonably satisfactory to the indemnified
party. Any failure to give prompt notice shall deprive a party of its right to
indemnification hereunder only to the extent that such failure shall have
adversely affected the indemnifying party. If the defense of any claim is
assumed, the indemnifying party will not be subject to any liability for any
settlement made without its consent (but such consent will not be unreasonably
withheld). An indemnifying party who is not entitled, or elects not, to assume
the defense of a claim will not be obligated to pay the fees and expenses of
more than one counsel for all parties indemnified by such indemnifying party
with respect to such claim, unless in the reasonable judgment of any
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indemnified party a conflict of interest may exist between such indemnified
party and any other of such indemnified parties with respect to such claim.
8. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS.
No Selling Stockholder may participate in any underwritten registration
hereunder unless such holder (a) agrees to sell such holder's securities on the
basis provided in any underwriting arrangements approved by the persons entitled
hereunder to approve such arrangements under Sections 1(e) or 2(e), and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
9. DEFINITIONS.
(a) The term "Fully-Diluted Common Stock" means, as of a certain date,
shares of the Common Stock that are issued and outstanding plus any additional
shares of Common Stock that may be issuable upon the conversion, exercise or
exchange of any rights that may be issued and outstanding.
(b) The term "Initial Public Offering" means the first public offering
under the 1933 Act of any of the Company's equity securities.
(c) The term "Registrable Securities" means (i) the Common Stock of the
Company registered in the names of the Stockholders from time to time, (ii) the
Common Stock issuable upon the conversion of the Series A Preferred Stock, and
(iii) any securities issued or to be issued with respect to the securities
referred to above by way of a stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization. As to any particular Registrable Securities, such securities
will cease to be Registrable Securities when they have been (A) effectively
registered under the 1933 Act and disposed of in accordance with the
registration statement covering them, or (B) transferred pursuant to Rule 144
(or any similar provision then in force).
(d) The term "Registration Expenses" means all expenses incident to the
Company's performance of or compliance with this Agreement, including without
limitation all registration and filing fees, fees and expenses of compliance
with securities or blue sky laws, printing expenses, messenger and delivery
expenses, expenses and fees for listing the securities to be registered on
exchanges or electronic quotation systems on which similar securities issued by
the Company are then listed, and fees and disbursements of counsel for the
Company and of all independent certified public accountants, underwriters (other
than Underwriting Commissions) and other persons retained by the Company.
(e) The term "Selling Stockholders" means registered holders of
Registrable Securities who request inclusion of all or a portion of their shares
of Registrable Securities in a Demand
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Registration pursuant to Section 1(b) or a Piggyback Registration pursuant to
Section 2(a). Such term also includes those Stockholders who demand a Demand
Registration for the purposes of Sections 5, 6, and 7 and those Stockholders
who are permitted by the Company to register Registrable Securities in a
Rights Offering.
(f) The term "Underwriting Commissions" means all underwriting discounts
or commissions relating to the sale of securities of the Company, but excludes
any expenses reimbursed to underwriters.
10. LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS.
From and after the date of this Agreement, the Company may enter into an
agreement with any holder or prospective holder of any securities of the Company
that would allow such holder or prospective holder to include such securities in
any registration filed under Sections 1 or 2 hereof or that would add any such
holder or prospective holder as a party to this Agreement. However, the Company
shall not enter into any such agreement without the prior written consent of the
beneficial holders of a majority of the outstanding Registrable Securities
unless under the terms of such agreement, such holder or prospective holder may
include such securities in any such registration only to the extent that the
inclusion of its securities would not reduce the amount of the Registrable
Securities that the Stockholders would be entitled to include in such
registration.
11. MISCELLANEOUS.
(a) TERMINATION OF OTHER AGREEMENTS. This Agreement sets forth the entire
understanding of the parties hereto with respect to rights to the registration
of capital stock of the Company and supersedes all prior agreements or
understandings among the parties regarding such matters.
(b) NOTICES. Any notices required hereunder shall be deemed to be given
upon the earlier of the date when received at, or (i) the third business day
after the date when sent by certified or registered mail, (ii) the next business
day after the date sent by guaranteed overnight courier, or (iii) the date sent
by telecopier or delivered by hand, in each case, to the address of the
Company's corporate headquarters in the case of any notice to the Company, and
until changed by notice to the Company, the respective addresses of the
Stockholders on file with the Company in the case of any notice to the
Stockholders.
(c) AMENDMENTS AND WAIVERS. The provisions of this Agreement may be
amended or terminated and the Company may take any action herein prohibited, or
omit to perform any act herein required to be performed by it, if approved in
writing by the Stockholders that own beneficially a majority of the Registrable
Securities and or by any agreement permitted by Section 9.
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<PAGE>
(d) BINDING EFFECT. This Agreement will bind and inure to the benefit of
the respective successors (including any successor resulting from a merger or
similar reorganization), assigns, heirs, and personal representatives of the
parties hereto. Without limiting the generality of the foregoing, in addition,
if a Stockholder liquidates or reorganizes such that its assets are transferred
to its own stockholders or partners or to another entity, such stockholders,
partners or entity shall succeed to all of the rights of the Stockholder
hereunder.
(e) GOVERNING LAW. All questions concerning the construction, validity
and interpretation of this Agreement will be governed by the internal law, not
the law of conflicts, of Delaware.
(f) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be considered to be an original instrument and
to be effective as of the date first written above. Each such copy shall be
deemed an original, and it shall not be necessary in making proof of this
Agreement to produce or account for more than one such counterpart.
(g) INTERPRETATION. Unless the context of this Agreement clearly requires
otherwise, (a) references to the plural include the singular, the singular the
plural, the part the whole, (b) references to one gender include all genders,
(c) "or" has the inclusive meaning frequently identified with the phrase
"and/or" and (d) "including" has the inclusive meaning frequently identified
with the phrase "but not limited to." The section and other headings contained
in this Agreement are for reference purposes only and shall not control or
affect the construction of this Agreement or the interpretation thereof in any
respect.
IN WITNESS WHEREOF, the Company has executed and delivered this Agreement
as of the date first written above.
MICROVISION MEDICAL SYSTEMS, INC.
By: /s/ John Scott
______________________________
John Scott
[Stockholders have executed Counterpart Signature Pages to this Agreement.]
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JOINDER TO REGISTRATION RIGHTS AGREEMENT
THIS AGREEMENT is made as of the 6 day of June 1996 by and among
MicroVision Medical Systems, Inc., a Delaware corporation (the "Company"), and
Safeguard Scientifics (Delaware), Inc. ("Safeguard").
BACKGROUND
In connection with the purchase of newly issued shares of the Company's
Series A Preferred Stock, which are convertible into shares of the Company's
Common Stock, the stockholders (the "Existing Stockholders") of the Company
listed on Schedule I to the Registration Rights Agreement executed in connection
with the issuance of the Company's Series A Preferred Stock (the "Registration
Rights Agreement") entered into the Registration Rights Agreement with the
Company whereby the Company agreed to provide certain registration rights to the
Existing Stockholders. Contemporaneously with the execution of this Agreement,
Safeguard is purchasing 221,850 shares of Series B Preferred Stock, par value
$.01 per share (the "Shares"). As permitted by Section 10 of the Registration
Rights Agreement, the Company is joining Safeguard to the Registration Rights
Agreement with respect to the Shares and the Common Stock issuable upon the
conversion of the Shares to the Registration Rights Agreement.
WITNESSETH:
The parties hereto, each intending to be legally bound and in exchange for
the mutual covenants herein, agree as follows:
1. The parties hereto agree that Safeguard is hereby joined as a party to
the Registration Rights Agreement with regard to the Shares and the Common Stock
issuable upon the conversion of the Shares (the "Conversion Shares"), and that
the Shares and the Conversion Shares shall for all purposes under the
Registration Rights Agreement be included in the definition of "Registrable
Securities."
2. The Company and Safeguard hereby agree to be bound by the terms and
conditions set forth in the Registration Rights Agreement with regard to the
Shares and the Conversion Shares.
3. Notwithstanding anything herein to the contrary, the inclusion of the
Shares or the Conversion Shares in any registration shall not result in the
reduction of the amount of Registrable Securities (other than the Shares or the
Conversion Shares) that the Existing Stockholders would be entitled to include
in such registration pursuant to the Registration Rights Agreement.
<PAGE>
4. This Joinder may be executed in multiple counterparts each of which
shall constitute an original and all of which shall constitute one and the same
document.
IN WITNESS WHEREOF, the Company and Safeguard have executed and delivered
this Agreement as of the date first written above.
MICROVISION MEDICAL SYSTEMS, INC.
By: /s/ John S. Scott
______________________________
John S. Scott
SAFEGUARD SCIENTIFICS (DELAWARE), INC.
By: /s/ Michael Miles
______________________________
Michael Miles
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Exhibit 10.12
STOCKHOLDERS' AGREEMENT
THIS STOCKHOLDERS' AGREEMENT, is made as of June 6, 1996 (the
"Effective Date") by and among MicroVision Medical Systems, Inc., a Delaware
corporation (the "Company"), XL Vision, Inc., a Delaware corporation ("XL"),
each of the stockholders of the Company listed on Schedule I(a) (the
"Investor Stockholders") and each of the stockholders of the Company listed
on Schedule I(b) (the "Management Stockholders"). The Investor Stockholders
and the Management Stockholders are sometimes referred to herein collectively
as the "Preferred Stockholders." XL and the Preferred Stockholders are
sometimes referred to herein collectively as the "Stockholders."
Background
The Preferred Stockholders are acquiring on the Effective Date shares of
Series A Preferred Stock, par value $.01 per share, of the Company
("Preferred Stock"), in accordance with a Stock Purchase Agreement, dated
July 6, 1996. The Preferred Stock is convertible into shares of common
stock, par value $.01 per share, of the Company ("Common Stock"). XL
currently owns all of the outstanding shares of Common Stock of the Company.
It is a condition to the obligations of the parties to consummate the
transactions set forth in the Stock Purchase Agreement that the parties
hereto enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and intending to be legally bound hereby, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
For convenience, certain terms used in several parts of this Agreement
are listed in alphabetical order and defined or referred to below (such terms
as well as other terms that are defined elsewhere in this Agreement shall be
equally applicable to both singular and plural forms of the terms defined).
"Affiliate" means, with respect to a particular party, any Person
controlling, controlled by or under common control with that party, as well
as any officer, director, partner and majority-owned entity of that party or
of its other Affiliates, and in the case of a natural Person, any member of
such Person's immediate family.
"Agreement" means this Agreement.
"Board of Directors" means the Board of Directors of the Company.
<PAGE>
"Common Stock" is defined above in the Background section.
"Company" is defined above in the preamble.
"Effective Date" is defined above in the preamble.
"Fully-Diluted Common Stock" means shares of the Common Stock now or
hereafter issued and outstanding plus any additional shares of Common Stock
that may be issuable upon the conversion, exercise or exchange of any rights
that may be issued and outstanding, including with respect to any Preferred
Stock. As to any Stockholder, such term means the shares of Common Stock
owned by such Stockholder plus the shares of Common Stock issuable to such
Stockholder pursuant to any such rights.
"Management Stockholder" is defined above in the preamble.
"Non-Selling Stockholder" is defined in Section 3.2(a).
"Offer" is defined in Section 3.2(a).
"Offer Notice" is defined in Section 3.2(a).
"Permitted Transfer" means, with respect to a particular Stockholder, any
Transfer to (i) any Affiliate of such a Stockholder, (ii) any Person holding
an equity interest in such a Stockholder, (iii) any investment fund in which
such Stockholder or an Affiliate thereof has an economic interest, (iv) the
spouse or children of such a Stockholder, (v) a trust or fiduciary that acts
for the benefit of any such spouse or children, (vi) the Company, or (vii)
any other Stockholder, and any Transfer that is part of a Public Offering.
"Permitted Transferee" means a Transferee in a Permitted Transfer, other
than the Company.
"Person" means any natural person, corporation, partnership,
proprietorship, association, trust or other legal entity.
"Preferred Stock" is defined above in the Background section.
"Public Offering" means a sale of any Common Stock pursuant to a
registration statement under the Securities Act of 1933, as amended, that
results in the Company receiving net proceeds of at least $10 million and a
minimum $30 million pre-offering valuation of the Company or a rights
offering of the Company's securities to the shareholders of Safeguard
Scientifics, Inc.
"Safeguard" means Safeguard Scientifics (Delaware), Inc.
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"Safeguard Director" is defined in Section 2.1(a).
"Securities Act" means the Securities Act of 1933, as amended.
"Selling Stockholder" is defined in Section 3.2(a).
"Stockholders" is defined above in the preamble.
"Stock" means (i) the Common Stock now or hereafter issued and
outstanding, (ii) the Preferred Stock, (iii) any additional shares of
capital stock of the Company hereafter issued and outstanding, and (iv) any
securities convertible into or exercisable or exchangeable for any of the
foregoing.
"Stock Purchase Agreement" is defined above in the Background section.
"Technology Leaders" means Technology Leaders L.P. and Technology Leaders
II L.P.
"Technology Leaders Directors" is defined in Section 2.1(a).
"Transfer" means any actual or proposed disposition of all or a portion
of an interest (legal or equitable) by any means, direct or indirect,
absolute or conditional, voluntary or involuntary, including by sale,
assignment, transfer, pledge, hypothecation, mortgage or other encumbrance,
court order, operation of law, distribution, settlement, exchange, waiver,
abandonment, gift, alienation, bequest or disposal; and the correlative terms
"Transferred," "Transferring," "Transferor" and "Transferee" have
corresponding definitions.
"XL Stockholder" is defined above in the preamble.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1. Election of Directors.
(a) For so long as Safeguard and Technology Leaders are Preferred
Stockholders, the Preferred Stockholders shall vote all shares of Preferred
Stock, and otherwise use commercially reasonable efforts as stockholders of
the Company, to cause and maintain from time to time the election to the
Board of Directors the following:
(i) one representative designated by Safeguard, which
representative shall initially be _____________________ (the
"Safeguard Director"), and
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(ii) one representative designated by Technology Leaders which
representative shall initially be Christopher Moller (the "Technology
Leaders Director").
(b) Each of the Directors designated in Section 1.1 shall be elected at
any annual or special meeting of the Company's stockholders (or by written
consent in lieu of a meeting of stockholders) and shall serve until his
successor is elected and qualified or until his earlier resignation or
removal. The Company shall cause from time to time the nomination for
election to the Board of Directors of the representatives set forth above.
(c) Safeguard and Technology Leaders shall each have the right to remove
its respective representative for the Board of Directors. In the case of any
such removal, each Stockholder shall vote to remove a Safeguard Director or
Technology Leaders Director as designated by Safeguard or Technology Leaders,
respectively.
(d) In the event of any vacancy on the Board of Directors, each
Stockholder shall vote to fill such vacancy in such manner as to maintain a
Safeguard Director and Technology Leaders Director on the Board of Directors
as described above.
ARTICLE III
TRANSFERS OF SECURITIES
Section 3.1. Transfer Restrictions.
(a) None of the Management Stockholders shall Transfer all or any part
of the Stock owned by such Stockholder except in compliance with the terms of
this Agreement, and any purported Transfer in violation thereof shall be null
and void.
(b) A Management Stockholder shall be able to Transfer its Stock only by
(i) offering to Transfer all, but not less than all, of its Stock under
Section 3.2 below or (ii) a Permitted Transfer under paragraph (c) of this
Section 3.1.
(c) Notwithstanding the other restrictions herein, a Management
Stockholder shall be entitled to Transfer all or any part of the Stock owned
by such Stockholder by means of a Permitted Transfer so long as the proposed
Transferee becomes a party hereto in accordance with Section 3.3.
Section 3.2. Right of First Refusal on Dispositions. If at any time
any Management Stockholder desires to Transfer all, but not less than all, of
the Stock owned by such Stockholder (a "Selling Stockholder") to a third
party (other than by a Permitted Transfer), the following provisions shall
apply:
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(a) The Selling Stockholder shall give written notice (the
"Offer Notice") of the proposed transaction to the Company,
identifying the proposed Transferee and setting forth the terms of the
proposed transaction, which shall be limited to transactions involving
cash against delivery of the Stock. The giving by a Selling
Stockholder of an Offer Notice shall be deemed to be an offer to the
Company Stockholders to Transfer Stock on the same terms and
conditions and at the same price at which the Selling Stockholder is
proposing to Transfer such Stock to such third party (the "Offer").
(b) If the Company desires to purchase any or all of the Stock
offered for sale, it must accept the Offer within 20 days of receipt
of such Offer Notice by giving notice of the acceptance to the Selling
Stockholder. The Company may assign its right to purchase any or all
of the offered Stock to any other person or persons in the Company's
sole discretion.
(c) Settlement for any Stock purchased by the Company shall be
within 30 days of the date of its acceptance of the Offer.
(d) If after compliance with the foregoing provisions, the
Company does not purchase all of the Stock covered by an Offer Notice,
the Selling Stockholder may, within 30 days from the date of the
expiration of the 20-day acceptance period specified in Section
3.2(b), Transfer all, but not less than all, of the remaining Stock to
such third party at the price and on the terms set forth in its Offer
Notice, subject to Section 3.3. If such Stock is not so sold within
such 30-day period, the Selling Stockholder shall not Transfer such
Stock without again giving an Offer Notice under this Section 3.2.
Section 3.3. Joinder to Agreement. Any Transfer that is otherwise
permissible under or in accordance with Section 3.1 or Section 3.2, and any
Transfer by an Investor Stockholder, shall not be effective unless and until
the Transferee executes and delivers to the Company such documentation as the
Company may request to require the Transferee to become a party to this
Agreement. Upon any such Transfer, the Transferee will have a proportionate
share of the rights of his, her or its Transferor as a Stockholder hereunder
and will be bound by the obligations of such Transferor hereunder. The
Company shall not recognize or record in the stock records of the Company any
purported action that violates the restrictions hereof.
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Section 3.4. Buy-back of Management Shares. Upon termination of
employment with the Company or XL for any reason, with regard to employed
Management Stockholders, or termination of association with the Company or XL
for any reason, with regard to Management Stockholders who are directors or
advisory board members (each a "Terminated Management Stockholder"), the
Company shall have the right for a period of 90 days after termination to
purchase all of the Management Shares owned by such Terminated Management
Stockholder at the fair value of such Shares. The fair value shall be
determined in good faith by the Board of Directors.
ARTICLE IV
MISCELLANEOUS
Section 4.1. Duration of Agreement. The rights and obligations of the
Company and each Stockholder under this Agreement shall terminate immediately
prior to the earliest to occur of the following: (a) the consummation of the
first Public Offering, (b) the consummation of the sale of all, or
substantially all, of the Company's assets or capital stock either through a
direct sale, merger, reorganization, consolidation or other form of business
combination in which control of the Company is being transferred or (c) the
written consent to such termination by Investor Stockholders holding
two-thirds of the shares of capital stock held by all Investor Stockholders.
Section 4.2. Legend. Each certificate representing a share of capital
stock beneficially owned by the Stockholders shall bear a legend in
substantially the following form, until such time as the shares of capital
stock, represented thereby are no longer subject to the provisions hereof:
"The sale, transfer or assignment of the securities represented
by this certificate are subject to the terms and conditions of a
certain Stockholders' Agreement dated June __, 1996, as amended
from time to time, among the Company and certain holders of its
outstanding capital stock. Copies of such Agreement may be
obtained at no cost by written request made by the holder of
record of this certificate to the Secretary of the Company."
Section 4.3. Further Actions. Each party hereto shall vote all of the
shares of Stock owned or otherwise held by him or it, or take all actions by
written consent in lieu of a meeting, and execute such documents and take all
such other actions within his or its power that may be necessary in order to
carry out the provisions hereof and the actions contemplated hereby,
including taking actions as Stockholders to cause to comply with the
obligations imposed on the Company hereunder and causing any of such party's
representatives or the Board of Directors to take certain actions.
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Section 4.4. Contents of Agreement. This Agreement sets forth the
entire understanding of the parties hereto with respect to the Transactions
and supersedes all prior agreements or understandings among the parties
regarding those matters.
Section 4.5. Amendment, Parties in Interest, Etc. This Agreement may
be amended, modified or supplemented only by a written instrument duly
executed by the Company, XL, Management Stockholders holding at least
two-thirds of the shares of capital stock held by all Management
Stockholders, and Investor Stockholders holding at least two-thirds of the
shares of capital stock held by all Investor Stockholders. If any provision
of this Agreement shall for any reason be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision hereof, and this
Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein. This Agreement shall be binding
upon and inure to the benefit of and be enforceable by the respective heirs,
legal representatives, successors and permitted assigns of the parties
hereto. Any term or provision of this Agreement may be waived at any time by
the party entitled to the benefit thereof by a written instrument duly
executed by such party.
Section 4.6. Interpretation. Unless the context of this Agreement
clearly requires otherwise, (a) references to the plural include the
singular, the singular the plural, the part the whole, (b) references to one
gender include all genders, (c) "or" has the inclusive meaning frequently
identified with the phrase "and/or," (d) "including" has the inclusive
meaning frequently identified with the phrase "but not limited to," and (e)
references to "hereunder" or "herein" relate to this Agreement. The section
and other headings contained in this Agreement are for reference purposes
only and shall not control or affect the construction of this Agreement or
the interpretation thereof in any respect. Section, subsection, schedule and
exhibit references are to this Agreement unless otherwise specified.
Section 4.7. Notices. All notices that are required or permitted
hereunder shall be in writing and shall be sufficient if personally delivered
or sent by mail, facsimile message or Federal Express or other delivery
service. Any notices shall be deemed given upon the earlier of the date when
received at, or the third day after the date when sent by registered or
certified mail or the day after the date when sent by Federal Express to, the
address or fax number set forth below, unless such address or fax number is
changed by notice to the other party hereto:
If to the Stockholders, to each Stockholder at the address set forth in
the Company's records.
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If to XL:
Chief Operating Officer
XL Vision, Inc.
10305 102nd Terrace
Sebastian, FL 32952
If to the Company:
President
MicroVision Medical Systems, Inc.
17304 Preston Road, Suite 800
Dallas, TX 75252
Fax: 214-733-6533
Section 4.8. Severability; Governing Law. If any provisions of this
Agreement shall be determined to be illegal or unenforceable by any court of
law, the remaining provisions shall be severable and enforceable to the
maximum extent possible in accordance with their terms. This Agreement shall
be construed and interpreted in accordance with the laws of the State of
Delaware, without regard to its provisions concerning conflict of laws.
Section 4.9. Injunctive Relief. It is acknowledged that it will be
impossible to measure the damages that would be suffered by a party if
another party fails to comply with the provisions of this Agreement and that
in the event of any such failure, each non-breaching party will not have an
adequate remedy at law. Therefore, any party shall be entitled to obtain
specific performance of another party's obligations hereunder and to obtain
injunctive relief. No party shall argue, as a defense to any proceeding for
such specific performance or injunctive relief, that another party has an
adequate remedy at law.
Section 4.10. Counterparts. This Agreement may be executed in one or
more counterparts each of which shall be deemed to be an original, but all of
which taken together shall constitute one and the same instrument. Each such
copy shall be deemed an original, and it shall not be necessary in making
proof of this Agreement to produce or account for more than one such
counterpart.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Stockholders'
Agreement to be executed as of the date first above written.
MICROVISION, INC.
By: /s/ Michael Shiff
-----------------------------------------
Title: President
XL VISION, INC.
By: /s/ John Scott
-----------------------------------------
Title: Chief Executive Officer
[Preferred Stockholders have executed Counterpart Signature Pages to
this Agreement.]
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<PAGE>
Exhibit 10.13
LOAN AGREEMENT
Borrower: MICROVISION MEDICAL SYSTEMS, INC., a
Delaware corporation
10305 102nd Terrace
Sebastian, FL 32958-7823
Lender: BARNETT BANK, N.A.
707 Mendham Boulevard, Suite 123
Orlando, Florida 32825
THIS LOAN AGREEMENT ("Agreement") between MICROVISION MEDICAL SYSTEMS,
INC., a Delaware corporation ("Borrower"), and BARNETT BANK, N.A. ("Lender")
is made and executed on the following terms and conditions. Borrower has
received prior commercial loans from Lender or has applied to Lender for a
commercial loan or loans or other financial accommodations, including those
which may be described on any exhibit or schedule attached to this Agreement.
All such loans and financial accommodations, together with all future loans
and financial accommodations from Lender to Borrower, are referred to in this
Agreement individually as the "Loan" and collectively as the "Loans."
Borrower understands and agrees that: (a) in granting, renewing or extending
any Loan, Lender is relying upon Borrower's representations, warranties and
agreements, as set forth in this Agreement; (b) the granting, renewing or
extending of any Loan by Lender at all times shall be subject to Lender's
sole judgment and discretion; and (c) all such Loans shall be and shall
remain subject to the following terms and conditions of this Agreement.
1. TERM. This Agreement shall be effective as of December 24, 1996, and
shall continue thereafter until all indebtedness of Borrower to Lender has
been performed in full and the parties terminate this Agreement in writing.
2. DEFINITIONS. The following words shall have the following meanings
when used in this Agreement. Terms not otherwise defined in this Agreement
shall have the meanings attributed to such terms in the Uniform Commercial
Code. All references to dollar amounts shall mean amounts in lawful money of
the United States of America.
A. Agreement. The word "Agreement" means this Loan Agreement, as
this Agreement may be amended or modified from time to time, together
with all exhibits and schedules attached to this Agreement from time to
time.
B. Account. The word "Account" means a trade account, account
receivable, or other right to payment for goods sole or services
rendered owing to Borrower (or to a third party
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grantor acceptable to Lender).
C. Account Debtor. The words "Account Debtor" mean the person or entity
obligated upon an account.
D. Adjusted Net Income. The words "Adjusted Net Income" mean net income
after taxes plus depreciation, amortization, lease expense and interest
expense.
E. Advance. The word "Advance" means a disbursement of loan funds under
this Agreement.
F. Borrower: The word "Borrower" means MICROVISION MEDICAL SYSTEMS, INC.,
a Delaware corporation doing business as and authorized to do business in the
State of Florida.
G. Business Day. The words "Business Day" mean a day on which commercial
banks are open for business in the State of Florida.
H. CERCLA. The word "CERCLA" means the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended.
I. ERISA. The word "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended from time to time, and the regulations and published
interpretations thereof.
J. Event of Default. The words "Event of Default" mean and include
without limitation any of the Events of Default set forth below in the
section titled "EVENTS OF DEFAULT."
K. Expiration Date. The words "Expiration Date" mean January 31, 1998, or
if earlier, the date of termination of Lender's commitment to lend under this
Agreement.
L. GAAP. The word "GAAP" means generally accepted accounting principles
consistently applied.
M. Indebtedness. The word "indebtedness" means an includes without
limitation all Loans, together with other obligations, debts and liabilities
of Borrower to Lender, or any one or more of them, as well as all claims by
Lender against Borrower, or any one or more of them; whether now existing,
contemporaneously with or hereafter incurred or created and any renewals,
modifications, extensions, substitutions or consolidations thereof, voluntary
or involuntary incurred, secured or unsecured, absolute or contingent,
liquidated or unliquidated; determined or
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undetermined; whether Borrower may be liable individually or jointly with
others, or primarily or secondarily, or as guarantor, surety, or otherwise;
whether recovery upon the indebtedness may be or hereafter may become barred
by any statute of limitations; and whether such indebtedness may be or
hereafter may become otherwise unenforceable.
N. Lender. The word "Lender" means BARNETT BANK, N.A., its successors
and/or assigns.
O. Line of Credit. The words "Line of Credit" mean the credit facility
described in the Section titled "LINE OF CREDIT" below.
P. Loan. The word "Loan" or "Loans" means and includes any and all loans,
advances , interest, costs, fees, documentary stamp tax and/or intangible
taxes, debts, overdraft indebtedness, leases, drafts, letters of credit,
credit cards, and business services from Lender to Borrower, whether now
existing, contemporaneously with, or hereafter incurred or created and any
renewals, modification, extensions, substitutions or consolidations thereof,
and however evidenced, including without limitation those loans and financial
accommodations described herein or described on any exhibit or schedule
attached to this Agreement from time to time.
Q. Note. The word "Note" means Borrower's promissory note or notes, if
any, evidencing Borrower's Loan obligations in favor of Lender, as well as
any renewal, extension, modification, consolidation, substitute, replacement
or refinancing note or notes therefor.
R. Permitted Liens. The words "Permitted Liens" mean: (a) liens and
security interested securing indebtedness owed by Borrower to Lender; (b)
liens for taxes, assessments, or similar charges either not yet due or being
contested in good faith; (c) liens of materialmen, mechanics, warehousemen,
or carriers, or other like liens arising in the ordinary course of business
and securing obligations which are not yet delinquent; (d) purchase money
liens or purchase money security interests upon or in any property acquired
or held by Borrower in the ordinary course of business to secure indebtedness
outstanding on the date of this Agreement or permitted to be incurred under
the paragraphs of this Agreement titled "Indebtedness and Liens"; (e) liens
and security interests which, as of the date of this Agreement, have been
disclosed to and approved by the Lender in writing; (f) those liens and
security interests in which the aggregate constitute an immaterial and
insignificant monetary amount
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with respect to the net value of Borrower's assets; and (g) Such other
liens and security interests as Borrower may request Lender in writing to
approve and which Lender in its sole and absolute discretion shall give
Borrower written approval on.
S. Related Documents. The words "Related Documents" mean and
include without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, and all other
instruments, agreements and documents, whether now or hereafter existing,
executed in connection with the Indebtedness.
T. Security Interest. The words "Security Interest" mean and
include without limitation any type of collateral security, whether in
the form of a lien, charge, mortgage, deed of trust, assignment, pledge,
chattel mortgage, chattel trust, factor's lien, equipment trust,
conditional sale, trust receipt, lien or title retention contract, lease
or consignment intended as a security device, or any other security or
lien interest whatsoever, whether created by law, contract or otherwise.
U. SARA. The word "SARA" means the Superfund Amendments and
Reauthorization Act of 1985 as now or hereafter amended.
3. LINE OF CREDIT. Lender agrees to make Advances to the Borrower from
time to time from the date of this Agreement to the Expiration Date, provided
the aggregate amount of such Advances outstanding at any time does not exceed
$3,000,000.00. Within the foregoing limits, Borrower may borrow, partially or
wholly prepay, and reborrow under this Agreement as follows:
A. Conditions Precedent to Each Advance. Lender's obligation to
make any Advance to or for the account of Borrower under this Agreement
is subject to the following conditions precedent, with all documents,
instruments, opinions, reports, and other items required under this
Agreement to be in form and substance satisfactory to Lender.
(1) Lender shall have received evidence that this Agreement and
all Related Documents have been duly authorized, executed and
delivered by Borrower to Lender.
(2) Lender shall have received such opinions of counsel,
supplemental opinions, and documents as Lender may requested.
(3) all guaranties required by Lender for the Line
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of Credit shall have been executed by each Guarantor, delivered to
Lender, and be in full force and effect.
(4) Lender, at its option and for its sole benefit, shall have
conducted an audit of Borrower's Accounts, inventory, books,
records, and operations, and Lender shall be satisfied as to their
condition.
(5) There shall not exist at the time of any Advance a condition
which would constitute an Event of Default under this Agreement, and
Borrower shall have delivered to Lender the compliance certificate
called for in the paragraph below titled "Compliance Certificate."
B. Making Loan Advances. Advances under the Lien of Credit may be
required only in writing subject to the limitations set forth below.
Each Advance shall be conclusively deemed to have been made at the
request of and for the benefit of Borrower. (a) when credited to any
deposit account of Borrower maintained with Lender; or (b) when advanced
in accordance with the instructions of an authorized person. Lender, at
its option, may set a cutoff time, after which all requests for Advances
will be treated as having been requested on the next succeeding Business
Day.
C. Mandatory Loan Repayments. If at any time the aggregate principal
amount of the outstanding Advances shall exceed $3,000,000.00, Borrower,
immediately upon written or oral notice from Lender, shall pay to Lender
an amount equal to the difference between the outstanding principal
balance of the Advances and $3,000,000.00. On the Expiration Date,
Borrower shall pay to Lender in full the aggregate unpaid principal
amount of all Advances then outstanding and all accrued unpaid interest,
together with all other applicable fees, costs and charges, if any, not
yet paid.
It is contemplated that Borrower will pay interest monthly on all
outstanding loan balances. Principal payments may be made by Borrower at
any time.
D. Loan Account. Lender shall maintain on its books a record of
account in which Lender shall make entries for each Advance and such
other debits and credits as shall be appropriate in connection with the
credit facility. Lender shall provide Borrower with periodic statements
of Borrower's account, which statements shall be considered to be correct
and conclusively binding on Borrower unless Borrower notifies Lender to
the contrary within thirty (30) days after Borrower's receipt of any such
statement which Borrower deems to be incorrect.
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<PAGE>
4. REPRESENTATION AND WARRANTIES. Borrower represents and warrants to
Lender, as of the date of this Agreement, as of the date of each disbursement
of Loan proceeds, as of the date of any renewal, extension or modification of
any loan, and at all times any indebtedness exists:
A. Organization. Borrower is a corporation which is duly organized,
validly existing, and in good standing under the laws of the state of
Borrower's incorporation and is validly existing and in good standing in
all states in which Borrower is doing business. Borrower has the full
power and authority to own its properties and to transact the business in
which it is presently engaged or presently proposes to engage. Borrower
also is duly qualified as a foreign corporation and is in good standing
in all states in which the failure to so qualify would have a material
adverse effect on its businesses or financial condition.
B. Authorization. The execution, delivery, and performance of this
Agreement and all Related Documents by Borrower, to the extent to be
executed, delivered or performed by Borrower, have been duly authorized
by all necessary action by Borrower; do not require the consent or
approval of any other person, regulatory authority or governmental body;
and do not conflict with, result in a violation of, or constitute a
default under (a) any provision of its articles of incorporation or
organization, or bylaws, or any agreement or other instrument binding
upon Borrower or (b) any law, governmental regulation, court decree, or
order applicable to Borrower.
C. Financial Information. Each financial statement of Borrower and
each information, exhibit, or report supplied to Lender by Borrower, its
agents or accountants truly and completely disclosed Borrower's financial
condition as of the date of the statement in accordance with GAAP, and
there has been no material adverse change in Borrower's financial or
business condition or operations subsequent to the date of the most
recent financial statements supplied to Lender non are imminent or
threatened. Borrower has no material contingent obligations except as
disclosed in such financial statements. Borrower acknowledges and agrees
that Lender is relying on all such financial information in entering
into, continuing, renewing or extending any Loan.
D. Legal Effect. This Agreement constitutes, and any instrument or
agreement required hereunder to be given by Borrower when delivered will
constitute, legal, valid and binding obligations of Borrower enforceable
against Borrower in accordance with their respective terms.
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<PAGE>
E. Properties. Except for Permitted Liens, Borrower owns and has good
title to all of Borrower's properties free and clear of all Security
interests and has not executed any security documents or financing statements
relating to such properties. All of Borrower's properties are listed in
Borrower's legal name, and Borrower has not used, or filed a financing
statement under, any other name since March 31, 1996. Additionally, Borrower
and Borrower's real and personal properties comply fully with all laws,
ordinances, statutes, codes and requirements of the Americans with
Disabilities Act of 1990.
F. Hazardous Substances. The terms "hazardous waste," "hazardous
substance," "disposal," "release," and "threatened release," as used in this
Agreement, shall have the same meanings as set forth in the "CERCLA," "SARA,"
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.,
the Resource Conservation and Recovery Act, 49 U.S.C. Section 6901, et seq.,
or other applicable state or Federal laws, rules or regulations adopted
pursuant to any of the foregoing. Except as disclosed to and acknowledged by
Lender in writing, Borrower represents and warrants that: (a) During the
period of Borrower's ownership, lease or use of any real or personal
properties, there has been no use, generation, manufacture, storage,
treatment, disposal, release or threatened release of any hazardous waste or
substance by any person on, under, or about any of the properties. (b)
Borrower has no knowledge of or reason to believe that there has been (i) any
use, generation, manufacture, storage, treatment, disposal, release, or
threatened release of any hazardous waste or substance by any prior owners or
occupants of any of the properties; or (ii) any actual or threatened
litigation or claims of any kind by any person relating to such matters. (c)
Neither Borrower nor any tenant, contractor, agent, or other authorized user
of any of the properties shall use, generate, manufacture, store, treat,
dispose of, or release any hazardous waste or substance on, under, or about
any of the properties; and any such activity shall be conducted in compliance
with all applicable federal, state, and local laws, regulations, and
ordinances, including without limitation those laws, regulations and
ordinances described above. Borrower authorizes Lender and its agents to
enter upon the properties to make such inspections and tests as Lender may
deem appropriate to determine compliance of the properties with this section
of the Agreement. Any inspections or tests made by Lender shall be at
Borrower's expense and for Lender's purposes only and shall not be construed
to create any responsibility or liability on the part of Lender to Borrower
or to any other person. Borrower hereby (a) releases and waives any future
claims against Lender for indemnity or
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contribution in the event Borrower becomes liable for cleanup or other costs
under any such laws, and (b) agrees to fully and promptly pay, perform,
discharge, and defend, indemnify and hold harmless Lender against any and
all claims, orders, demands, causes of action, proceedings, judgments,
losses, liabilities, damages, penalties, and expenses which Lender may
directly or indirectly sustain or suffer resulting from a breach of this
section of the Agreement or as a consequence of any use, generation,
manufacture, storage, disposal, release or threatened release occurring
prior to Borrower's ownership or interest in the properties, whether or not
the same was or should have been known to Borrower. The provisions of this
section of the Agreement, including the obligation to indemnify, shall
survive the payment of the Indebtedness and the termination or expiration of
this Agreement and shall not be affected by Lender's acquisition of any
interest in any of the properties, whether by foreclosure or otherwise.
G. Litigation and Claims. No litigation, claims, investigation,
administrative proceeding or similar action (including those for unpaid
taxes) against Borrower is pending or threatened, and no other event has
occurred which may materially adversely affect Borrower's financial condition
or properties, other than litigation, claims, or other events, if any, that
have been disclosed to and acknowledged by Lender in writing.
H. Taxes. To the best of Borrower's knowledge, all tax returns and
reports of Borrower that are or were required to be filed, have been filed,
and all taxes, assessments, and other governmental charges have been paid in
full, except those presently being or to be contested by Borrower in good
faith in the ordinary course of business and for which adequate reserves have
been provided.
I. Binding Effect. This Agreement, the Note and all Security Agreements
directly or indirectly securing repayment of Borrower's Loan and Note are
binding upon Borrower as well as upon Borrower's successors, representatives,
and assigns, and are legally enforceable in accordance with their respective
terms.
J. Permits. Borrower possess and will continue to possess all permits,
licenses, copyrights, trademarks, trade names, patents and rights thereto to
conduct its business and its business does not conflict or violate any valid
rights of others with respect to the foregoing.
K. Commercial Purposes. Borrower intends to use the Loan proceeds solely
for business or commercial related
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<PAGE>
purposes and will not purchase or carry margin stock (within the meaning of
Regulations G, T and U of the Board of Governors of the Federal Reserve
System).
L. Employee Benefit Plans. Each employee benefit plan as to which
Borrower may have any liability complies in all material aspects with all
applicable requirements of law and regulations, and (i) no Reportable Event
nor Prohibited Transaction (as defined in ERISA) has occurred with respect to
any such plan, (ii) Borrower has not withdrawn from any such plan or
indicated steps to do so, and (iii) no steps have been taken to terminate any
such plan.
M. Location of Borrower's Offices and Records. The chief place of
business of Borrower and the office of offices where Borrower keeps its
records is located at 10305 102nd Terrace, Sebastian, FL 32958, or such other
location and to which Borrower gives Lender thirty days written notice of.
N. Information. All information heretofore or contemporaneously
herewith furnished by Borrower to Lender for the purposes of or in connection
with this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower or Lender will
be, true and accurate in every material respect on the date of which such
information is dated or certified; an none of such information is or will be
incomplete by omitting to state any material fact necessary to make such
information not misleading.
O. Survival of Representatives and Warranties. Borrower understands and
agrees that Lender, without independent investigation, is relying upon the
above representations and warranties in extending Loan Advances to Borrower.
Borrower further agrees that the foregoing representations and warranties
shall be continuing in nature and shall remain in full force and effect until
such time as Borrower's indebtedness shall be paid in full, or until this
Agreement shall be terminated in the manner provided above, whichever is the
last to occur.
5. AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that,
while this Agreement is in effect, Borrower shall:
A. Deposit Accounts. Maintain its primary banking accounts with Lender.
B. Litigation. Promptly inform Lender in writing of (a) all material
adverse changes in Borrower's financial
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condition, and (b) all litigation and claims and all threatened litigation
and claims affecting Borrower or any Guarantor which could materially
affect the financial condition of Borrower or the financial condition of
any Guarantor.
C. Updates. Promptly inform Lender in writing of details of all
litigation, legal or administrative proceedings, investigation or other
action of similar nature, pending or threatened against Borrower, at any
time during the term of this Agreement, which in part or in whole may or
will render any of the above representations and warranties no longer
true, accurate and correct in each and every respect. Borrower will bring
such details to Lender's attention, in writing, within thirty (30) days
from the date Borrower acquires knowledge of same.
D. Financial Records. Maintain its books and records in accordance
with GAAP and permit Lender to examine and audit Borrower's books and
records at all reasonable times.
E. Financial Statements. Furnish Lender with, as soon as available,
but in no event later than one hundred twenty (120) days after the end of
each fiscal year, Borrower's balance sheet and income statement,
statement of cash flow and notes to statements for the year ended,
reviewed by a certified public accountant satisfactory to Lender, and, as
soon as available, but in no event later than forty-five (45) days after
the end of each month, Borrower's balance sheet and profit and loss
statement for the period ended, prepared and certified as correct to the
best knowledge and belief by Borrower's chief financial officer or other
officer or person acceptable to the Lender. All financial records
required to be provided under this Agreement shall be prepared in
accordance with GAAP and certified by Borrower as being true and correct.
Provide to Lender annually for each individual Borrower and Guarantor, if
any, signed and dated personal financial statements on Lender's forms
and, immediately after filing, the person income tax return filed for the
past calendar year. Simultaneously with the financial information
required herein of Borrower, the same information of all corporate or
partnership guarantors, if any, prepared in accordance with GAAP.
Promptly, after the furnishing thereof, provide Lender with copies
of any statement or report furnished to any other party pursuant to the
terms of any indenture, loan, credit or similar agreement and not
otherwise required to be furnished to Lender pursuant to any other
section of this Agreement.
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Promptly after the sending or filing thereof, provide Lender with copies
of all proxy statements, financial statements and reports which Borrower sends
to its stockholders, copies of all regular periodic, special reports, and all
registration statements which Borrower files with the Securities and Exchange
Commission or any governmental authority which may be substituted therefor,
or with any national securities exchange.
F. Additional Information. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables, inventory schedules, budgets, forecasts, tax returns, and other
reports with respect to Borrower's financial condition and business
operations as Lender may request from time to time.
G. Insurance. Maintain fire and other risk insurance, business
interruption, theft, public liability insurance, and such other insurance in
such amounts and covering such risks as are usually covered by businesses
engaged in the same or a similar business and similarly situated with respect
to Borrower's properties and operations in form, coverage and with insurance
companies reasonably acceptable to Lender. Borrower, upon request of Lender,
will deliver to Lender from time to time the policies or certificates of
insurance in form satisfactory to Lender, including stipulations that
coverages will not be canceled or diminished without at least thirty (30)
days prior written notice to Lender.
H. Insurance Reports. Furnish to Lender, upon request of Lender, reports
on each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the name
of the insurer; (b) the risks insured; (c) the amount of the policy; (d) the
properties insured; (e) the then current property values on the basis of
which insurance has been obtained, and the manner of determining those
values; and (f) the expiration date of the policy. In addition, upon request
of Lender (however not more often than annually), Borrower will have an
independent appraiser satisfactory to Lender determine, as applicable, the
actual cash value or replacement cost of any Collateral. The cost of such
appraisal shall be paid by Borrower.
I. Other Agreements. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any other
party and notify Lender immediately in writing of any default in connection
with any other such agreements.
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J. Loan Proceeds. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
K. Taxes, Charges and Liens. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all assessments,
taxes, governmental charges, levies and liens, of every kind and nature,
imposed upon Borrower or its properties, income, or profits, prior to the
date on which penalties would attach, and all lawful claims that, if unpaid,
might become a lien or charge upon any of Borrower's properties, income, or
profits. Provided however, Borrower will not be required to pay and discharge
any such assessment, tax, charge, levy, lien or claim so long as (a) the
legality of the same shall be contested in good faith by appropriate
proceedings, and (b) Borrower shall have established on its books adequate
reserves with respect to such contested assessment, tax, charge, levy, lien,
or claim in accordance with generally accepted accounting practices.
Borrower, upon demand of Lender, will furnish to Lender evidence of payment
of the assessments, taxes, charges, levies, liens and claims and will
authorize the appropriate governmental official to deliver to Lender at any
time a written statement of any assessments, taxes, charges, levies, liens
and claims against Borrower's properties, income, or profits.
L. Performance. Perform and comply with all terms, conditions, and
provisions set forth in this Agreement and in the Related Documents in a
timely manner, and promptly notify Lender if Borrower learns of the
occurrence of any event which constitutes an Event of Default under this
Agreement or under any of the Related Documents.
M. Operations. Substantially maintain its present executive and
management personnel, conduct its business affairs in a reasonable and
prudent manner and in compliance with all applicable federal, state and
municipal laws, ordinances, rules and regulations respecting its properties,
charters, businesses and operations, including without limitation compliance
with the Americans With Disabilities Act and with all minimum funding
standards and other requirements of ERISA and other laws applicable to
Borrower's employee benefit plans, and continue to engage in an efficient and
economical manner in a business of the same general type as now conducted by
it, provided, however, that nothing contained in this Agreement shall prevent
Borrower from discontinuing any part of Borrower's business, if in Borrower's
opinion, this discontinuance is in the best interests of Borrower and not
disadvantageous to Lender.
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N. Maintenance. Maintain, keep and preserve Borrower's buildings and
properties and every part thereof in good repair, working order, and
condition and from time to time make all needful and proper repairs,
renewals, replacements, additions, betterments and improvements thereto,
so that at all times the efficiency thereof shall be fully preserved and
maintained, ordinary wear and tear expected.
O. Inspection. Permit employees or agents of Lender at any reasonable
time to examine or audit Borrower's books, accounts and records to make
copies and memoranda of Borrower's books, accounts and records. If Borrower
now or at any time hereafter maintains any records (including without
limitation computer generated records and computer software programs for
the generation of such records) in the possession of a third party,
Borrower, upon request of Lender, shall notify such party to permit
Lender free access to such records at all reasonable times and to provide
Lender with copies of any records it may request, all at Borrower's expense
and discuss the affairs, finances and accounts of Borrower with Lender.
P. Compliance Certificate. Unless waived in writing by Lender, provide
Lender quarterly a compliance certificate executed by Borrower's chief
financial officer, or other officer or person acceptable to Lender,
certifying that the representation and warranties set forth in this
Agreement are true and correct as of the date of the certificate and
further certifying that, as of the date of the certificate, no default or
Event of Default has occurred, or has occurred and is continuing under
this Agreement.
Q. Environmental Compliance and Reports. Borrower shall comply in all
respects with all environmental protection federal, state and local laws,
statutes, regulations and ordinances; not cause or permit to exist, as a
result of an intentional or unintentional action or omission on its part
or on the part of any third party, on property owned and/or occupied by
Borrower, any environmental activity where damage may result to the
environment, unless such environmental activity is pursuant to and in
compliance with the conditions of a permit issued by the appropriate
federal, state or local governmental authorities; shall furnish to Lender
promptly and in any event within thirty (30) days after receipt thereof a
copy of any notice, summons, lien, citation, directive, letter or other
communication from any governmental agency or instrumentality concerning
any intentional or unintentional action or omission on Borrower's part in
connection with any environmental activity whether or not there is damage
to the environment and/or other natural resources.
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R. Additional Assurances. Make, execute and deliver to Lender such
promissory notes, mortgages, deeds of trust, security agreements,
financing statements, instruments, documents and other agreements as
Lender or its attorneys may reasonably request to evidence and secure
the Loans and to perfect all Security Interests.
6. NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that
while this Agreement is in effect, Borrower shall not, without the prior
written consent of Lender:
A. Indebtedness and Liens. (a) Except for trade debt incurred in
the normal course of business, purchase money security interests (for
which the maximum aggregate amount which may be incurred annually is
$250,000.00); operating leases (for which the maximum aggregate amount
which may be paid annually is $250,000.00), and indebtedness to Lender
contemplated by this Agreement, create, incur or assume additional
indebtedness for borrowed money, including capital leases, in excess of
U.S. $250,000.00, (b) except as allowed as a Permitted Lien, sell,
transfer, mortgage, assign, pledge, lease, grant a security interest in
or encumber any of Borrower's assets, or (c) sell with recourse any of
Borrower's accounts, except to Lender and except for Borrower's accounts
as allowed as a permitted lien.
B. Continuity of Operations. (a) Engage in any business activities
substantially different than those in which Borrower is presently
engaged, (b) cease operations, wind up, liquidate, merge, reorganize,
transfer, acquire or consolidate with any other entity, change
ownership, dissolve, transfer or sell or acquire Collateral or assets
out of the ordinary course of business, or (c) pay, declare, set aside,
or allocate any dividends in cash or other property, on Borrower's stock
(however, if Borrower is a Subchapter S corporation, Borrower may make
distributions to each shareholder which is necessary to pay for any
personal income tax liability incurred by that shareholder as a direct
result of profits generated by the Subchapter S corporation) or purchase
or retire any of Borrower's outstanding shares or alter or amend
Borrower's capital structure, except for the right to acquire shares
from former employees.
C. Loans, Acquisitions and Guaranties. (a) Loan, invest in or
advance money or assets (except to shareholders or officers of Borrower
and in which the aggregate amount outstanding at any time may not exceed
$250,000.00), (b) purchase, create or acquire any interest in any other
enterprise or entity, or (c) assume, endorse, be liable for or incur any
agreement or obligation as surety or guarantor.
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<PAGE>
7. CESSATION OF ADVANCES. If Lender has made any commitment to make
any Loan to Borrower whether under this Agreement or under any other
agreement, Lender shall have no obligation to make Loan Advances or to
disburse Loan proceeds if (a) Borrower or any Guarantor is in default under
the terms of this Agreement or any of the Related Documents or any other
agreement that Borrower or any Guarantor has with Lender: (b) Borrower or
any Guarantor becomes insolvent, files a petition in bankruptcy or similar
proceedings, or is adjudged a bankrupt; (c) there occurs a material adverse
change in Borrower's financial condition. In the financial condition of any
Guarantor, or in the value of any Collateral securing any Loan; (d) any
Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such
Guarantor's guaranty of the Loan or any other Loan with Lender.
8. ADVANCE INSTRUCTIONS. One banking day before Borrower desires to
obtain an advance, Borrower shall give Lender notice of the amount it intends
to borrow and instructions on the method of Lender's disbursing the proceeds
of the advance. All advances shall bear interest initially at the rate in
effect on the date on which each advance is made.
9. AGING OF ACCOUNTS PAYABLE. Unless otherwise waived or modified in
writing by Lender, Borrower shall from time to time hereafter but not less
often than quarterly execute and deliver to Lender no later than the 15th day
of the end of each quarter during the term of this Agreement a detailed aging
of accounts payable by total, a summary of accounts by account creditor, and
a reconciliation statement.
10. RIGHT OF SETOFF. Borrower authorizes Lender, to the extent
permitted by applicable law, to charge, withdraw or setoff all sums owing on
this Agreement against any and all the accounts set forth below in the
Accounts section without prior demand or notice to Borrower.
11. ACCOUNTS. Borrower grants to Lender a contractual possessory
security interest in, and hereby assigns, conveys, delivers, pledges, and
transfers to Lender all of Borrower's right, title and interest in and to,
Borrower's deposits, accounts (whether checking, savings, or some other
account), or securities now or hereafter in the possession of or any deposit
with Lender or with any Barnett Banks, Inc. affiliate or subsidiary
including without limitation all accounts held jointly with someone else and
all accounts Borrower may open in the future, excluding however all IRA,
Keogh, and trust accounts.
12. EVENTS OF DEFAULT. If any of the following events shall occur each
shall constitute an Event of Default under this Agreement:
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A. Default on Indebtedness. An event of default as defined in any
Loan or Note or demand for full payment of any Loan or Note.
B. Other Defaults. Failure of Borrower or any Grantor to comply with
or to perform within thirty (30) days after notice by Lender of any
other term, obligation, covenant or condition contained in this Agreement
or in any of the Related Documents, or failure of Borrower to comply with
or to perform any other term, obligation, covenant or condition contained
in any other agreement between Lender and Borrower.
C. Default in Favor of Third Parties. Should Borrower or any Grantor
default under any loan, extension of credit, security agreement, purchase
or sales agreement or any other agreement, in favor of any other creditor
or person that may materially affect any of Borrower's property or
Borrower's or any Grantor's ability to repay the Loans or perform their
respective obligations under this Agreement or any of the Related
Documents.
D. False Statements. Any warranty, representation, or statement made
or furnished to Lender by or on behalf of Borrower or any Grantor under
this Agreement or the Related Documents is false or misleading in any
material respect, either now or at the time made or furnished.
E. Defective Collateralization. This Agreement or any of the Related
Documents ceases to be in full force and effect at any time and for any
reason.
F. Insolvency. The dissolution or termination of Borrower's existence
as a going business, insolvency, appointment of a receiver for any part
of Borrower's property, any assignment for the benefit of creditors, any
type of creditor workout, or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against Borrower.
G. Credit Proceedings. Commencement of foreclosure proceedings,
whether by judicial proceeding, self-help, repossession or any other
method, by any creditor of Borrower, any creditor of any grantor of
collateral of Borrower, any creditor of any grantor of collateral for the
Loan. This includes a garnishment, attachment, or levy on or of any of
Borrower's deposit accounts with Lender.
H. Forfeiture. The filing of formal charges under any federal or state
law against Borrower which forfeiture is the penalty. However, this Event
of Default shall not apply if there is a good faith dispute by Borrower
as to the validity or reasonableness of the claim which is the basis of
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<PAGE>
the proceeding, and if Borrower gives Lender written notice of the
proceeding and furnishes reserves or a surety bond for the proceeding
satisfactory to Lender.
I. Events Affecting Guarantor. Any of the preceding events occurs with
respect to any Guarantor of any of the indebtedness or such Guarantor
dies or becomes incompetent.
J. Insecurity. Lender, in good faith, deems itself insecure.
13. EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur,
except where otherwise provided in this Agreement or the Related Documents,
all commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate (including any
obligation to make Loan Advances or disbursements), and, at Lender's option,
all indebtedness immediately will become due and payable, all without notice
of any kind to Borrower, except that in the case of an Event of Default of
the type described in the "Insolvency" subsection above, such acceleration
shall be automatic and not optional. In addition, Lender shall have all the
rights and remedies provided in the Related Documents or available at law, in
equity, or otherwise. Except as may be prohibited by applicable law, all of
Lender's rights and remedies shall be cumulative and may be exercised
singularly or concurrently. Election by Lender to pursue any remedy shall not
exclude pursuit of any other remedy, and an election to make expenditures or
to take action to perform an obligation of Borrower or of any Grantor shall
not affect Lender's right to declare a default and to exercise its rights and
remedies.
14. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are
a part of this Agreement:
A. Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Agreement and supersedes all prior
understandings and correspondence, oral or written, with respect to the
subject matter hereof. No alternation of or amendment to this Agreement
shall be effective unless given in writing and signed by the party or
parties sought to be charged or bound by the alteration or amendment.
B. Applicable Law. This Agreement shall be governed buy and construed
in accordance with the laws of the State of Florida.
C. Caption Headings. Caption headings in this Agreement are for
convenience purposes only and are not be
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used to interpret or define the provisions of this Agreement.
D. Continuing Agreement. This Agreement is a continuing agreement
and shall continue in effect notwithstanding that from time to time, no
indebtedness may exist.
E. Consent to Loan Participation. Borrower agrees and consents to
Lender's sale or transfer, whether now or later, of one or more
participation interests in the Loans to one or more purchasers, whether
related or unrelated to Lender. Lender may provide, without any
limitation whatsoever, to any one or more purchasers, or potential
purchasers, any information or knowledge Lender may have about Borrower
or about any other matter relating to the Loan, and Borrower hereby
waives any rights to privacy it may have with respect to such matters.
Borrower additionally waives any and all notices of sale of participation
interest, as well as all notices of any repurchase of such participation
interests. Borrower also agrees that the purchasers of any such
participation interests will be considered as the absolute owners of such
interests in the Loans and will have all the rights granted under the
participation agreement or agreements governing the sale of such
participation interests. Borrower further waives all rights of offset or
counterclaim that it may have now or later against Lender or against any
purchaser of such a participation interest and unconditionally agrees
that either Lender or such purchaser may enforce Borrower's obligation
under the Loans irrespective of the failure or insolvency of any holder
of any interest in the Loans. Borrower further agrees that the purchaser
of any such participation interest may enforce its interests irrespective
of any personal claims or defenses that Borrower may have against Lender.
F. Costs and Expenses. Borrower agrees to pay upon demand all of
Lender's out-of-pocket expenses, including reasonable attorney's fees,
incurred in connection with the preparation, execution, enforcement and
collection of this Agreement, or in connection with the Loans made
pursuant to this Agreement. Lender may pay someone else to help collect
the Loans and to enforce this Agreement, and Borrower will pay that
amount. This includes, subject to any limits under applicable law,
Lender's reasonable attorney's fees and Lender's legal expenses, whether
or not there is a lawsuit, including reasonable attorney's fees for
bankruptcy proceedings (including efforts to modify or vacate any
automatic stay or injunction), appeals, and any anticipated post-judgment
collection services. Borrower also will pay any court costs, in addition
to all other sums provided by law.
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G. Notices. All notices required to be given under this Agreement
shall be given in writing and shall be effective when actually delivered
or when deposited with a nationally recognized overnight courier or
deposited in the United States registered or certified mail, first class,
postage prepaid, return receipt requested, addressed to the party to whom
the notice is to be given at the address shown above. Any party may
change its address for notices under this Agreement by giving formal
written notice to the other parties, specifying that the purpose of the
notice is to change the party's address. To the extent permitted by
applicable law, if there is more than one Borrower, notice to any
Borrower will constitute notice to all Borrowers. For notice purposes,
Borrower agrees to keep Lender informed at all times of Borrower's
current address(es).
H. Severability. If a court of competent jurisdiction finds any
provision of this Agreement to be invalid or unenforceable as to any
person or circumstance, such finding shall not render that provision
invalid or unenforceable as to any other person or circumstances. If
feasible, any such offending provision shall be deemed to be modified to
be within the limits of enforceability of validity; however, if the
offending provision cannot be so modified, it shall be stricken and all
other provisions of this Agreement in all other respects shall remain
valid and enforceable.
I. Successors and Assigns. All covenants and agreements contained
by or on behalf of Borrower shall bind its successors and assigns and
shall inure to the benefit of Lender, its successors and assigns,
Borrower shall not, however, have the right to assign its rights under
this Agreement or any interest therein, without the prior written consent
of the Lender.
J. Survival. All warranties, representations, and covenants made by
Borrower in this Agreement or in any certificate or other instrument
delivered by Borrower to Lender under this Agreement shall be considered
to have been relied upon by Lender and will survive the making of the
Loan and delivery to Lender of the Related Documents, regardless of any
investigation made by Lender or on Lender's behalf.
K. Time. Time is of the essence in the performance of this
Agreement.
L. Waiver. Lender shall not be deemed to have waived any rights
under this Agreement unless such waiver is given in writing and signed by
Lender. No delay or omission on the part of Lender in exercising any
right shall operate as a
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waiver of such right or any other right. A waiver by Lender of a
provision of this Agreement shall not prejudice or constitute a waiver
of Lender's right otherwise to demand strict compliance with that
provision or any other provision of this Agreement. No prior waiver by
Lender, nor any course of dealing between Lender and Borrower, or
between Lender and any Guarantor, shall constitute a waiver of any of
Lender's rights or of any obligation of Borrower or of any Guarantor as
to any future transactions. Whenever the consent of Lender is required
under this Agreement, the granting of such consent by Lender in any
instance shall not constitute continuing consent in subsequent instances
where such consent is required, and in all cases such consent may be
granted or withheld in the sole discretion of Lender.
M. SAFEGUARD SCIENTIFICS, INC. shall unconditionally and
unqualifiedly guarantee full payment and performance of all indebtedness
of the Borrower to Barnett, and execute a Guaranty Agreement acceptable
to Barnett. Notwithstanding anything contained herein to the contrary, a
default by SAFEGUARD SCIENTIFIECS, INC. in their existing
$100,000,000.00 line of credit with PNC shall constitute a default under
this Loan Agreement.
N. Borrower and Guarantor shall provide to Lender annual audited
financial statements of Borrower and Guarantor within 120 days of fiscal
year end.
O. Borrower and Guarantor shall provide to Lender quarterly
company-prepared financial statements of Borrower and Guarantor within
45 days of quarter end.
P. A default by Safeguard Scientifics, Inc. on their existing
$100,000,000.00 line of credit with PNC shall constitute a default under
this Loan Agreement.
Q. Primary Banking Relationship. The Borrower will maintain its
primary depository relationship with the Lender unless and until the
Note in the sum of $3,000,000.00 between the parties of even date
herewith is assigned to a third party not affiliated with Barnett Banks,
Inc. Upon written request of the Lender, the Lender shall have the right
to debit the Borrower's deposit account with the Lender for the monthly
and other payments to be made to the Lender under the Note. If the funds
in the Borrower's deposit account are insufficient to satisfy any
payments on the required payment dates, the Borrower shall immediately
remit to the Lender the amount of such deficiency.
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THE FOLLOWING SHALL CONSTITUTE AN EVENT OF DEFAULT:
R. Borrower's or any guarantor's assignment for the benefit of its
creditors, admissions in writing of its inability to pay its debts as
they become due, the filing of a petition of bankruptcy or being
adjudicated as bankrupt or insolvent, or filing of a petition seeking any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution, receivership or similar relief under any present or future
statute, law or regulations. The foregoing shall also apply to any
general partner of Borrower or of any guarantor.
S. Any change of the financial condition of Borrower or any
Guarantor, subsequent to the above date of this commitment which is, in
the sole discretion of Barnett, material and adverse.
T. If any statement or representation made by Borrower in the Loan
Agreement or in support of the Loan shall prove to be materially untrue.
U. Default by Borrower in the performance of any other covenant,
condition or agreement set forth in this Agreement.
V. Default by Borrower or any guarantor under any other Loan or
extension of credit by Barnett to Borrower or any Guarantor.
WAIVER OF TRIAL BY JURY. THE BORROWER HEREBY, AND THE LENDER, BY
ACCEPTANCE OF THIS LOAN AGREEMENT, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS LOAN AGREEMENT
AND ALL LOAN DOCUMENTS AND OTHER AGREEMENTS EXECUTED OR CONTEMPLATED TO BE
EXECUTED IN CONNECTION HEREWITH, OR ARISING OUT OF, UNDER, OR IN CONNECTION
WITH ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR
WRITTEN) OR ACTION OF EITHER PARTY, WHETHER IN CONNECTION WITH THE MAKING OF
THE LOAN, COLLECTION OF THE LOAN, OR OTHERWISE. THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE LENDER MAKING THE LOAN EVIDENCE BY THIS LOAN AGREEMENT.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF
12/24, 1996.
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BORROWER:
MICROVISION MEDICAL SYSTEMS,
INC., a Delaware corporation
/s/ Mary J. Miller By: /s/ Douglas S. Harrington
- ---------------------------------- -------------------------------
Witness Signature President
/s/ Mary J. Miller Address: 10305 102nd Terrace
- ---------------------------------- Sebastian, FL 32958
Print Witness Name
/s/ M.W. Shiek
- ----------------------------------
Witness Signature
/s/ Michael W. Shiek
- ----------------------------------
Print Witness Name
LENDER:
BARNETT BANK, N.A.
/s/ Illegible By: /s/ Illegible
- ---------------------------------- -------------------------------
Witness Signature
/s/ Illegible
- ---------------------------------- Address: 707 Mendham Boulevard
Print Witness Name Suite 123
/s/ Illegible Orlando, FL 32825
- ----------------------------------
Witness Signature
/s/ Illegible
- ----------------------------------
Print Witness Name
GUARANTOR:
/s/ Steven Rosard
- ---------------------------------- SAFEGUARD SCIENTIFICS, INC.
Witness Signature
Steven Rosard By: /s/ Michael Miles
- ---------------------------------- ----------------------------------
Print Witness Name Michael Miles, VP and CFO
/s/ James A. Ainsunk
- ----------------------------------
Witness Signature
James A. Ainsunk
- ----------------------------------
Print Witness Name
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<PAGE>
Exhibit 10.14
UNCONDITIONAL AND UNLIMITED GUARANTY AGREEMENT
THIS UNCONDITIONAL AND UNLIMITED GUARANTY AGREEMENT, made and entered into
on December 24, 1996 (the "Guaranty"), is executed by SAFEGUARD SCIENTIFICS,
INC., a Delaware corporation (the "Guarantor"), and extended to a national
banking association, BARNETT BANK, N.A. ("Bank") for the benefit of MICROVISION
MEDICAL SYSTEMS, INC., a Delaware corporation (the "Borrower").
RECITALS:
1. Bank has agreed to make a loan (the "Loan") to Borrower pursuant to
the terms and conditions of, among other documents, a Promissory Note of even
date executed and delivered by Borrower in favor of Bank in the original
principal amount of Three Million & NO/100 ($3,000,000.00) (the "Note") and a
Credit Agreement dated December 24, 1996, by and between Borrower and Bank (the
"Agreement") for the purpose of funding working capital to Borrower. The Note
and Credit Agreement are hereinafter referred to collectively for convenience as
the "Loan Documents".
2. Without this Guaranty, Bank would be unwilling to make the Loan to
Borrower.
3. Because of the direct benefit to Guarantor from the Loan to Borrower,
and as an inducement to Bank to make the Loan to Borrower, Guarantor agrees to
guarantee to Bank the obligations of Borrower as set forth herein.
NOW, THEREFORE, in consideration of Bank entering into the Credit Agreement
and making the Loan to Borrower, and for other good and valuable consideration
by Borrower to Guarantor, the receipt and sufficiency of which is hereby
acknowledged by Guarantor, Guarantor hereby covenants and agrees as follows:
1. Guaranty of Payment; Survival. Guarantor hereby unconditionally
guarantees to Bank the payment, when due, by acceleration or otherwise, of the
Indebtedness. For the purposes hereof, the term "Indebtedness" shall include
any and all indebtedness and obligations of Borrower to Bank, including without
limitation, all principal, interest, fees and expenses, including attorneys'
fees, evidenced by the Note, the Credit Agreement, or otherwise, or arising in
connection with the Loan, whether existing now or arising hereafter, as such
Indebtedness may be modified, increased, extended or renewed from time to time.
The guaranty of Guarantor as set forth in this section is a guaranty of payment
and not of collection.
<PAGE>
2. Subordination.
2.1 All rights and claims of Guarantor now or hereafter existing
(collectively the "Guarantor Claims") against Borrower or any of Borrower's
property which Borrower now owns or shall acquire in the future or hereafter
existing shall be subordinate and subject in right of payment to the prior
payment if full of the Indebtedness to Bank.
2.2 Until the Indebtedness has been paid in full and Guarantor shall
have performed or satisfied all of its obligations hereunder, Guarantor shall
not receive or collect, directly or indirectly, from Borrower or any other party
any payment upon Guarantor Claims, nor seek to realize upon any collateral
securing such Guarantor Claims nor claim any offset or other reduction of
Guarantor's obligations hereunder because of any Guarantor Claims.
Notwithstanding the foregoing, if Guarantor should receive any such payment,
Guarantor agrees to hold same in trust for Bank and agrees that Guarantor shall
have absolutely no rights in or to or dominion over, such payments except to pay
them promptly to Bank without demand by Bank. Notwithstanding the above,
Borrower shall have the right to repay Guarantor monies owed to it for so long a
period of time as there is not an Event of Default by Borrower shall not be a
defense to Bank's right to obtain payment from Guarantor hereunder.
2.3 The undersigned Guarantor further hereby specifically covenants
not to assert any Guarantor claim or remedy which such Guaranty may now have or
hereafter acquire against Borrower that arises hereunder and/or from the
performance by Guarantor hereunder, including, without limitation, any claim,
remedy or right of subrogation, reimbursement, exoneration, indemnification, or
participation in any claim, right, or remedy of Lender against the Borrower or
any security which Lender now has or hereafter acquires, whether or not such
claim, right, or remedy arises in equity, under contract, by statute, under
common law or otherwise, until any preference period which could be asserted
under section 547(b) of the Bankruptcy Code has expired.
3. Guarantor Waivers. Guarantor hereby waives and agrees not to assert
or take advantage of (a) any right or claim of right to cause a marshalling of
any of Borrower's assets or the assets of any other party now; or hereafter held
as security for the Indebtedness; (b) the defense of the statute of limitations
in any action hereunder or for the payment of the indebtedness and performance
of any obligation hereby guaranteed; (c) any defense that may arise by reason of
the incapacity, lack of authority, death or disability of Guarantor, any other
guarantor of the Loan, or Borrower or any other person or entity, or the
voluntary or involuntary dissolution of Borrower or Guarantor, or the failure of
Bank to file or enforce a claim against the estate (either in
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<PAGE>
administration, bankruptcy or any other proceeding) of Borrower or any other
person or entity; (d) any defense based on the failure of Bank to give notice
of the existence, creation, or incurring of any new or additional indebtedness
or obligation, or of any action or nonaction on the part of any other person
whomsoever, or any modification of the terms of the Loan Documents, or the
Indebtedness, in connection with any obligation hereby guaranteed; (e) any
defense based upon an election of remedies by Bank which destroys or otherwise
impair any subrogation rights of Guarantor or any other guarantor of the Loan
or the right of Guarantor to proceed against Borrower or any other guarantor
for reimbursement, or both; (f) any defense based upon failure of Bank to
commence an action against Borrower; (g) any defense based upon acceptance of
this Guaranty by Bank; (h) any defense based upon the invalidity or
unenforceability of any of the Loan Documents; (i) any defense based upon any
limitation of liability contained in any of the Loan Documents; (j) any
defense based upon any transfer by Borrower of all or any part of the
Collateral; (k) any defense based upon the failure of Bank to perfect any
security or to extend or renew the perfection of any security; and (l) any
other legal or equitable defenses whatsoever to which Guarantor might
otherwise be entitled.
4. Consent to Bank's Actions or Inactions. Guarantor consents that Bank
may, at any time and from time to time, before or after any Default by
Borrower, without affecting the liability of Guarantor hereunder and with or
without further notice to or assent from Guarantor;
4.1 Either with or without consideration to Borrower or payment of
any portion of the Indebtedness, or any pledgor or grantor of any collateral,
exchange, release or surrender (in whole or in part), or fail to protect or to
preserve the value of any collateral now or hereafter held as security for the
Loan, or waive, release or subordinate any line or security interest (in whole
or in part) in or on any such collateral;
4.2 Waive or delay the exercise of any of its rights or remedies
against Borrower or any other person or entity, including without limitation,
any guarantor guaranteeing the completion of the Project or payment of any
portion of the Indebtedness; notwithstanding any waiver or delay, Bank shall
not be precluded from further exercise of any of its rights, powers or
privileges expressly provided for herein or otherwise available, it being
understood that all such rights and remedies are cumulative;
4.3 Waive or extend the time of Borrower's or any other guarantor's
performance of any and all terms, provisions and conditions set forth in the
Loan Documents;
4.4 Release Borrower or any other person or entity, including without
limitation any other guarantor guaranteeing the
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<PAGE>
payment of any portion of the Indebtedness, from their obligation to repay all
or any portion of the Indebtedness;
4.5 Proceed against Guarantor without first proceeding against or
joining Borrower or any other guarantor or any property securing the payment of
the indebtedness;
4.6 Renew, extend or modify the terms of the Loan or any instrument
or agreement evidencing, securing, or relating to the Loan;
4.7 Generally deal with Borrower or other person or party or any
Collateral as Bank may see fit; and
Guarantor shall remain bound under this Guaranty notwithstanding any such
exchange, release, surrender, subordination, waiver (whether or not such waiver
is oral or written), delay, proceeding, renewal, extension, modification, act or
failure to act or other dealings described in Subsections 4.1 through 4.7 above,
inclusive, including without limitation, any change in the Plans and/or the
Improvements even though done without notice to or consent from Guarantor.
5. Waiver of Notice. Guarantor waives all notices whatsoever with
respect to the Loan Documents, including without limitation, this Guaranty, and
with respect to the Loan, including, but not limited to, notice of:
5.1 Bank's acceptance of this Guaranty or its intention to act, or
its action, in reliance hereon;
5.2 The making of the Loan by Bank to Borrower;
5.3 Presentment and demand for payment of the Loan or any portion
thereof;
5.4 Protest and notice of dishonor or non-payment with respect to the
Loan or any portion thereof;
5.5 Any Default by Borrower or any Pledgor, grantor of security, or
any other guarantor guaranteeing the completion of the Project and/or payment
of any portion of the Indebtedness;
5.6 Any other notices to which Guarantor may otherwise by entitled;
and
5.7 Any demand for payment under this Guaranty.
6. Primary Liability of Guarantor. Guarantor agrees that this Guaranty
may be enforced by Bank without the necessity at any time of resorting to or
exhausting any other security or collateral and without the necessity at any
time of having resorted to
4
<PAGE>
recourse to the Note or the Collateral through foreclosure proceedings under
the Security Documents or otherwise and Guarantor hereby waives any rights to
require Bank to proceed against Borrower or any other guarantor or to require
Bank to pursue any other remedy or enforce any other right. Guarantor further
agrees that Guarantor shall have no right of subrogation, reimbursement or
indemnity whatsoever, nor any right of recourse to security for the
Indebtedness of Borrower to Bank as long as there is any outstanding
indebtedness to Bank, or the expiration of any bankruptcy preference period,
whichever occurs last. Guarantor further agrees that nothing contained herein
shall prevent Bank from suing on the Note or foreclosing the Security
Agreement or from exercising any other rights available to it under any other
Loan Document, or any other instrument of security if neither Borrower nor
Guarantor timely performs the obligations of Borrower thereunder, and the
exercise of any of the aforesaid rights and the completion of any foreclosure
proceedings shall not constitute a discharge of any of Guarantor's
obligations hereunder; it being the purpose and intent of Guarantor that
Guarantor's obligations hereunder shall be absolute, independent and
unconditional under any and all circumstances. Neither Guarantor's
obligations under this Guaranty nor any remedy for the enforcement thereof
shall be impaired, modified, changed or released in any manner whatsoever by
an impairment, modification, change, release or limitation of the liability of
Borrower or any other guarantor or by reason of Borrower's or any other
guarantor's bankruptcy, insolvency, death, or dissolution. At any time Bank
is entitled to exercise its remedies hereunder, it may in its discretion elect
to demand payment or performance. In the event Bank elects to demand
performance, it shall at all times thereafter have the right to demand payment
until all of the Indebtedness has been paid in full. In the event Bank elects
to demand payment, it shall at all times thereafter have the right to demand
performance until all of the Indebtedness has been paid in full.
7. Subrogation Rights. Guarantor will not assert any right to which it
may be or may become entitled, whether by subrogation, contribution or
otherwise, against Borrower or any other guarantor or against any of their
respective properties, by reason of the performance by Guarantor of its
obligations under this Guaranty, and payment in full of the Indebtedness in
accordance with the Credit Agreement, as long as there is any outstanding
indebtedness to Bank, or the expiration of any bankruptcy preference period,
whichever occurs last.
8. Cost of Enforcement. In the event that the Note or this Guaranty
are not paid when due on any stated or accelerated maturity date, or should it
be necessary for Bank to enforce any other of its rights under the Loan
Documents, Guarantor will pay to Bank, in addition to principal, interest and
other charges due hereunder or under the other Loan Documents, all costs of
collection or enforcement, including reasonable attorneys' fees,
5
<PAGE>
paralegals' fees, legal assistants' fees, costs and expenses, whether incurred
with respect to collection, litigation, bankruptcy proceedings,
interpretation, disputes, negotiation, trial, appeal, defense of actions
instituted by a third party against Bank arising out of or related to the
Loan, enforcement of any judgment based on this Guaranty, or otherwise,
whether or not a suit to collect such amounts or to enforce such rights is
brought or, if brought, is prosecuted to judgment.
9. Grant. To secure the performance of this Guaranty, Guarantor grants
to Bank a security interest in all property of Guarantor to the extent such
property is delivered concurrently herewith or is now, or at any time hereafter
is in the possession of Bank, and all proceeds, replacements, or substitutions
of all such property. Guarantor agrees that Bank shall have the rights and
remedies of a secured party under the Uniform Commercial Code as adopted by the
State of Florida with respect to all of the aforesaid property, including,
without limitation, the right to sell or otherwise dispose of any or all such
property. Any notification of intended disposition of any property required by
law shall be deemed reasonably and properly given if given at least five (5)
calendar days before such disposition. Notwithstanding the foregoing, Bank may,
without further notice to anyone, apply or set off any balances, credits,
deposits, accounts, monies or other indebtedness at any time created by or due
from Bank to Guarantor against the amounts due hereunder.
10. Term of Guaranty; Warranties. This Guaranty shall continue in full
force and effect until the Indebtedness is fully paid, and all obligations of
Borrower and Guarantor are performed and discharged. This Guaranty covers the
Indebtedness whether presently outstanding or arising subsequent to the date
hereof including all amounts advanced by Bank in stages or installments.
Guarantor warrants and represents to bank, (i) that this Guaranty is binding
upon and enforceable against Guarantor, its heirs, personal representatives,
executors, successors, and assigns in accordance with its terms, (ii) that the
execution and delivery of this Guaranty do not violate any applicable laws or
constitute a breach of any agreement to which Guarantor is a party, (iii) that
there is no litigation, claim, action or proceeding pending, or, to the best
knowledge of Guarantor, threatened against Guarantor which would adversely
affect the financial condition of Guarantor or its ability to fulfill its
obligations hereunder. Guarantor agrees to promptly inform Bank of the adverse
determination of any litigation, claim, action or proceeding or the
institution of any litigation, claim, action or proceeding against Guarantor
which does or could adversely affect the financial condition of Guarantor or
its ability to fulfill its obligations hereunder.
11. Further Representations and Warranties. Guarantor further represents
to Bank that Guarantor has knowledge of Borrower's financial condition and
affairs and represents and agrees that it
6
<PAGE>
will keep so informed while this Guaranty is in force. Guarantor agrees that
Bank has no present or future obligation to investigate the financial
condition or affairs of Borrower for the benefit of Guarantor nor to advise
guarantor of any fact respecting, or any change in, the financial condition or
affairs of Borrower or any other guarantor of the Loan which might come to the
knowledge of Bank at any time, whether or not Bank knows or believes or has
reason to know or believe that any such fact or change is unknown to Guarantor
or might (or does) increase the risk of Guarantor as guarantor or might (or
would) affect the willingness of Guarantor as guarantor or might (or would)
affect the willingness of Guarantor to continue as a guarantor with respect
the Indebtedness.
12. Guarantor agrees that a default by Guarantor on its existing
$100,000,000.00 Line of Credit with PNC shall constitute a default by Borrower
under its Note and Loan Agreement of even date herewith.
13. Financial Statements.
(a) Guarantor will, within one hundred twenty (120) days after the
end of each year, deliver or cause to be delivered to Lender its annual audited
financial statement as of the last day of such calendar year, in reasonable
detail and satisfactory in scope to Lender;
(b) Guarantor will, within forty five (45) days after the end of each
quarter, deliver or cause to be delivered to Lender its company-prepared
financial statement as of the last day of such quarter, in reasonable detail and
satisfactory in scope to Lender;
(c) with reasonable promptness, Guarantor will deliver such
additional financial or other data as Lender may from time to time reasonably
request; and
(d) Lender is hereby authorized to deliver a copy of Guarantor's
financial statements or any other information relating to the financial
condition or guarantor which may be furnished to it or come to its attention
pursuant to the Loan Documents or otherwise, to any regulatory body or agency
having jurisdiction over Lender to any Person which shall have the right or
obligation to, succeed to all or any part of Lender's interest in Loan
Documents.
14. Additional Liability of Guarantor. If Guarantor is or becomes liable
for any indebtedness owing by Borrower to Bank by endorsement or otherwise than
under this Guaranty, such liability shall not be in any manner impaired or
reduced hereby but shall have all the same force and effect it would have had if
this Guaranty had not existed and Guarantor's liability hereunder shall be in
any manner impaired or reduced thereby.
7
<PAGE>
15. Cumulative Rights. All rights of Bank hereunder or otherwise arising
under any documents executed in connection with or as security for the
Indebtedness are separate and cumulative and may be pursued separately,
successively or concurrently, or not pursued without affecting, reducing or
limiting any other right of Bank and without affecting, reducing, or impairing
the liability of Guarantor.
16. Multiple Counterparts; Pronouns; Captions; Severability. This
Guaranty may be executed in multiple counterparts, each of which shall be deemed
an original but all of which shall constitute but one and the same document.
The pronouns used in this instrument shall be construed as masculine, feminine
or neuter as the occasion may require. Use of the singular includes the plural,
and vice versa. Captions are for reference only and in no way limit the terms
of this Guaranty. Invalidation of any one or more of the provisions of this
Guaranty shall in no way affect any of the other provisions hereof, which shall
remain in full force and effect. Use of the term "include" or "including" is
always without limitation. "Person" or "party" means any natural person or
artificial entity having legal capacity.
17. Bank Assigns. This Guaranty is intended for and shall inure to the
benefit of Bank and each and every person who shall from time to time be or
become the owner or holder of any document evidencing or securing the
Indebtedness, and each and every reference herein to Bank shall include and
refer to each and every successor or assignee of Bank at any time holding or
owning any part of or interest in any part of the Indebtedness. This Guaranty
shall be transferable and negotiable with the same force and effect, and to the
same extent, that any document evidencing or securing all or any portion of the
Indebtedness is transferable and negotiable, it being understood and stipulated
that upon assignment or transfer by Bank of any of the Indebtedness, the legal
holder or owner of said Indebtedness (or a part thereof or interest therein thus
transferred or assigned by Bank) shall (except as otherwise stipulated by Bank
in its assignment) have and may exercise all of the rights granted to Bank under
this Guaranty to the extent of that part of or interest in the indebtedness thus
assigned or transferred to said person. Guarantor expressly waives notice of
transfer or assignment of the Indebtedness, or any part thereof, or of the
rights of Bank hereunder. Failure to give notice will not affect the
liabilities of Guarantor hereunder.
18. Application of Payments. Bank may apply any payments received by it
from any source against that portion of the indebtedness (principal, interest,
court costs, attorneys' fees or other) in such priority and fashion as it may
deem appropriate.
19. Notices. Unless otherwise provided, all notices required to be given
hereunder shall be in writing and shall be deemed served on the earlier of (i)
receipt or (ii) seventy-two
8
<PAGE>
(72) hours after deposit in registered, certified or first-class United States
mail, postage prepaid, and addressed to the parties at the following
addresses, or such other addresses as may from time to time be designated by
written notice given as herein required:
to Guarantor: Safeguard Scientifics, Inc.
435 Devon Park Drive
Wayne, PA 19807
Attn: Chief Financial Officer
and
to Bank: Barnett Bank, N.A.
707 Mendham Blvd., Suite 123
Attn: Closing Department Manager
Orlando, FL 32825
Personal delivery to a party or to any officer, partner, agent or employee of
such party, or if a proper person, to a member of his family, at its address
herein shall constitute receipt. Rejection or other refusal to accept or
inability to deliver because of changed address of which no notice has been
received shall also constitute receipt. Notwithstanding the foregoing, no
notice of change of address shall be effective until the date of receipt
thereof. This section shall not be construed in any way to affect or impair any
waiver of notice or demand herein provided or to require giving of notice or
demand to or upon Guarantor in any situation or for any reason.
20. Conflict of Law. This Guaranty shall be construed, interpreted,
enforced and governed by and in accordance with the laws of the State of
Florida.
21. Submission to Jurisdiction. Guarantor irrevocably and
unconditionally (a) agrees that any suit, action or other legal proceeding
arising out of or relating to this Guaranty may be brought, at the option of
Bank, in a court of competent jurisdiction of the state of Florida or any United
States District Court; (b) consents to the jurisdiction of each such court in
any such suit, action or proceeding; (c) waives any and all personal rights
under the laws of any state to object to the laying of venue of any such suit,
action or proceeding in the State of Florida; and (d) agrees that service of any
court paper may be effected on Guarantor by mail, addressed and mailed as
provided in Section 19 hereof or in such other manner as may be provided under
applicable laws or court rules in the State of Florida. Nothing contained
herein, however, shall prevent Bank from bringing an action or exercising any
rights against any security or against Guarantor
9
<PAGE>
personally, and against any property of Guarantor, within any other state.
Initiating such proceeding or taking such action in any other state shall in
no event constitute a waiver of the agreement contained herein that the law of
the state of Florida shall govern the rights and obligations of Guarantor and
Bank hereunder or of the submission herein made by Guarantor to personal
jurisdiction within the State of Florida. The aforesaid means of obtaining
personal jurisdiction and perfecting service of process are not intended to be
exclusive but are cumulative and in addition to all other means of obtaining
personal jurisdiction and perfecting service of process now or hereafter
provided by the law of the State of Florida.
22. Oral Modification Ineffective. This Guaranty may not be changed
orally, and no obligation of Guarantor can be released or waived by Bank or
any officer or agent of Bank, except by a writing signed by a duly authorized
officer of Bank. This Guaranty shall be irrevocable by Guarantor until the
Indebtedness has been completely repaid and all obligations and undertakings
of Borrower under, by reason of, or pursuant to the Loan Documents have been
completely performed, at which time Bank will terminate this Guaranty. This
Guaranty shall continue in full force and effect unless and until discharged
or released by Bank pursuant to a written instrument properly executed by an
appropriate officer of Bank. This Guaranty shall continue in full force and
effect unless and until discharged or released by Bank pursuant to a written
instrument properly executed by an appropriate officer of Bank.
23. Reference to other Loan Documents. All of the terms, definitions,
conditions and covenants of the Credit Agreement, the Note, the Mortgage, and
the Assignment are expressly made a part of this Guaranty by reference in the
same manner and with the same effect as if set forth herein at length and shall
have the meaning set forth in the Credit Agreement unless otherwise defined
herein.
24. Waiver of Trial by Jury. BY EXECUTION HEREOF, GUARANTOR AGREES THAT
NEITHER GUARANTOR, NOR ANY ASSIGNEE, SUCCESSOR, HEIR, OR LEGAL REPRESENTATIVE OF
GUARANTOR (ALL OF WHOM ARE HEREINAFTER REFERRED TO AS THE "PARTIES") SHALL SEEK
A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM, OR ANY OTHER LITIGATION
PROCEDURE BASED UPON OR ARISING OUT OF THIS GUARANTY, OR THE LOAN DOCUMENTS, OR
ANY INSTRUMENT EVIDENCING, SECURING, OR RELATING TO THE INDEBTEDNESS AND OTHER
OBLIGATIONS EVIDENCED HEREBY, ANY RELATED AGREEMENT OR INSTRUMENT, ANY OTHER
COLLATERAL FOR THE INDEBTEDNESS EVIDENCED HEREBY OR THE DEALINGS OR THE
RELATIONSHIP BETWEEN OR AMONG THE PARTIES, OR ANY OF THEM. NONE OF THE PARTIES
WILL SEEK TO CONSOLIDATE ANY SUCH ACTION, IN WHICH A JURY TRIAL HAS BEEN WAIVED,
WITH ANY OTHER ACTION IN WHICH A JURY TRIAL HAS NOT BEEN WAIVED. THE PROVISIONS
OF THIS PARAGRAPH HAVE BEEN FULLY NEGOTIATED BY THE PARTIES WITH BANK HERETO,
AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. BANK HAS IN NO WAY
AGREED WITH
10
<PAGE>
OR REPRESENTED TO GUARANTOR OR ANY OTHER PARTY THAT THE PROVISIONS OF THIS
PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.
IN WITNESS WHEREOF, Guarantor has executed this Guaranty under seal as of
the day and year first above written.
Signed, sealed and delivered
in the presence of: "GUARANTOR"
SAFEGUARD SCIENTIFICS, INC.,
a Delaware corporation
/s/ Illegible By: /s/ Michael Miles
- ---------------------------- -----------------------------
Printed name: Illegible Its Vice President
/s/ Illegible
- ----------------------------
Printed name: Illegible
(as to Guarantor)
Commonwealth of PA
- ----------------------------
County of Chester
- ----------------------------
BEFORE ME, the undersigned authority, personally appeared Michael Miles as
Vice President of SAFEGUARD SCIENTIFICS, INC., a Pennsylvania corporation, on
behalf of said corporation, who is personally known to me or provided
___________________ as identification and who did/did not take an oath, this
28th day of December, 1996.
/s/ Illegible
-------------------------------------
Notary Public
My Commission expires: Printed Name:
-----------------------
Commission No.
----------------------
11
<PAGE>
Exhibit 10.16
TAX INDEMNITY AGREEMENT
This Agreement is made the 24th day of December, 1996 by and between
MICROVISION MEDICAL SYSTEMS, INC., a Delaware corporation ("Borrower", jointly
and severally if more than one) and Barnett Bank, N.A. ("Bank").
WHEREAS Bank is making, renewing, substituting, consolidating or modifying
a $3,000,000.00 loan dated December 24, 1996 ("Loan"), executed by Borrower,
upon which State of Florida documentary stamp tax and/or non-recurring
intangible taxes (jointly and severally, the "Taxes") may or may not be due,
same dependant upon the structure of the loan, and
WHEREAS, Borrower is of the opinion that the Loan may not be subject to the
Taxes and has requested that Bank not collect, withhold nor pay the Taxes, and
WHEREAS, Borrower has been informed by Bank that non-payment of the Taxes
may create a potential liability to Bank in the event that nay claims are
brought against Bank by reason of non-payment of the Taxes;
THEREFORE, Bank has requested, and Borrower has agreed to give, this
Agreement with the Borrower indemnifying the Bank as follows:
1. Borrower assumes the risk of all damage, loss, cost and expense,
(including interest and penalties, if any), and agrees to indemnify and hold
harmless Bank, its directors, officers, agents and employees from and against
any and all liability, damage, loss, cost, expense or reasonable attorney fees
which may accrue to or be sustained by Bank, its directors, officers, agents or
employees on account of or arising from any claim of action raised by, filed or
brought by or in the name of any State of Florida Governmental or Administrative
Department with respect to non-payment of the Taxes against Bank, its directors,
officers, agents or employees in connection with the Loan.
2. Borrower agrees to pay Bank against any claim brought or action filed
against Bank with respect to the subject of this indemnity contained herein,
whether such claim or action is rightfully or wrongfully brought or filed.
3. Bank shall use its best efforts to give written notice to Borrower of
any claim or action which Bank is to indemnified against herein in a timely
manner after written notice of such claim or action is received by Bank, by
sending notification via certified or registered mail, postage prepaid, return
receipt requested or overnight courier to Borrower at its billing address shown
on Bank's billing system, Bank shall also request from entity seeking said
demand or inquiry that the demand or inquiry be in writing and sent to Bank, but
is not responsible for non-compliance with its request. Additionally, Borrower
shall give
<PAGE>
immediate notice to Bank if Borrower receives any notice of any possible or
actual claim or action.
4. In case a claim should be brought or action filed with respect to the
subject of indemnity herein, Borrower agrees that Bank may employ attorneys of
its own selection to appear and defend the claim or action on behalf of Bank, at
the expense of Borrower, Bank at its option shall have authority for the
direction of the defense, and shall be the judge of the acceptability of any
compromise or settlement or any claims or actions against Bank, however,
Borrower has right to be advised of any compromises or settlements and upon
request to the Bank, to be joined in the lawsuit as a party defendant, therefore
allowing the Borrower to assert its own defenses.
5. Indemnities and obligations provided for herein shall continue in full
force and effect notwithstanding the expiration or termination of the Loan for
any reason whatsoever. Nothing in this Agreement or otherwise shall authorize
any of the parties hereto or any other person or entity to act so as to incur or
impose any liability or obligation for or on behalf of the others.
6. It is further understood and agreed by the parties hereto that if any
of the provisions hereof shall contravene, or be invalid under the laws of the
State of Florida or any county or jurisdiction where used, such contravention or
invalidity shall not invalidate this agreement but shall be construed as if not
containing the particular provision or provisions held to be invalid, and the
rights of the obligations of the parties hereto shall be construed and enforced
accordingly.
7. Each party agrees to execute and deliver or cause to be executed and
delivered, all such instruments, certificates and documents, and to take all
such other actions, as the other party to this Agreement may reasonably request
from time to time to effectuate the purpose and intent of this Agreement.
8. The failure of the Bank to insist in any one or more instances upon
performance of any of the provisions of this Agreement or to take advantage of
any of its rights hereunder shall not be construed as a waiver of any such
provisions or the relinquishment of nay such rights, and the same shall continue
and remain in full force and effect. No single or partial exercise by Bank of
any right or remedy shall preclude other or further exercise hereof or the
exercise of any other right or remedy, Waiver by Bank of any breach of any
provision of this Agreement shall not constitute or be construed as a continuing
waiver or as a waiver of any other breach of any other provision of this
Agreement.
2
<PAGE>
9. This Agreement contains the entire agreement between the parties with
respect to the matters contemplated herein and supersedes and cancels all prior
agreements between them whether oral, written or implied. No modifications,
amendments or waivers of this Agreement, or any of its provisions shall be
binding on any party unless evidenced by a written instrument duly executed by
the parties.
The undersigned have executed this Indemnity Agreement on the day and year
first appearing.
BARNETT BANK, N.A. BORROWERS:
By: Illegible MICROVISION MEDICAL
-------------------------- SYSTEMS, INC.
By: /s/ Douglas S. Harrington
---------------------------------
President
---------------------------------
(Title)
3
<PAGE>
STATE OF California
COUNTY OF Orange
The foregoing was acknowledged before me this 24th day of December, 1996 by
Douglas S. Harrington as President of MICROVISION MEDICAL SYSTEMS, INC., a
Delaware corporation, on behalf of said corporation, who is personally known to
me or who provided valid Cal. Driver's license as identification and who did
take an oath.
My Commission expires: 11/19/96 /s/ Mary J. Miller
-----------------------------------
Notary Public
MARY J. MILLER
Commission # 1077821
Notary Public - California
Orange County
My Comm. Expires Nov. 19, 1999
<PAGE>
Exhibit 10.17
ADMINISTRATIVE SERVICES AGREEMENT
---------------------------------
THIS AGREEMENT, dated as of this 31st day of March, 1997 by
and between SAFEGUARD SCIENTIFICS, INC., a Pennsylvania
corporation ("Safeguard") and XL VISION, INC., a Delaware
corporation, ("XL Vision") and MICROVISION MEDICAL SYSTEMS, INC.,
a Delaware corporation, ("MicroVision").
WITNESSETH:
-----------
WHEREAS, Safeguard and XL Vision are providing MicroVision
with certain administrative support services; and
WHEREAS, Safeguard, XL Vision and MicroVision have agreed to
enter into an Administrative Services Agreement to reflect the
parties' respective rights and obligations.
NOW, therefore, the parties hereto, in consideration of
their mutual covenants and intending to be legally bound, hereby
agree as follows:
1. Safeguard and XL Vision agrees to provide (either
directly or indirectly through its subsidiaries) to MicroVision
for the term specified herein administrative support services and
access to the broad management experience of the corporate
management staff of Safeguard and XL vision. Such services shall
be substantially those heretofore provided by Safeguard and XL
Vision to MicroVision, including without limitation, consultation
in regard to general management, investor relations, financial
management, human resources management, legal services, insurance
programs administration, audit administration, tax research and
planning, and preparation of federal and sate income tax returns.
Nothing herein shall be construed to require Safeguard or XL
Vision to provide any services under this Agreement which cannot
reasonably be provided by Safeguard and XL Vision's management
and corporate staff.
2. In consideration of the services to be rendered by
Safeguard and XL Vision under this Agreement, MicroVision shall
pay an annual fee ("Services Fee") of 1.5% of MicroVision's gross
revenues each year, with such Services Fee not to exceed $300,000
in any given year. This Services Fee is to be divided as
follows: Safeguard shall receive an annual fee ("Services Fee")
equal to .75 % of MicroVision's gross revenues each year, and XL
Vision shall receive an annual fee equal to .75 % of
MicroVision's gross revenues each year. The Services Fee shall be
payable in quarterly installments within 30 days of the
commencement of each quarter based on revenues from the preceding
quarter and shall be subject to adjustment on the basis of the
fiscal year audited financial statements of MicroVision;
provided, however, that the Service Fee will accrue until the
Company's cash flow is positive and payments
<PAGE>
of the fee will then
be made as provided in this paragraph for such periods during
which the cash flow remains positive.
3. MicroVision recognizes that Safeguard and XL Vision
have heretofore provided, or have made arrangements for, certain
other services and benefits for MicroVision and have incurred
guarantees of certain obligations of MicroVision and that
Safeguard and XLVision may continue to provide, or make
arrangements for, certain of such services and benefits and may
incur guarantees of obligations of MicroVision. The foregoing
may involve, among other things, various types of insurance
programs; various legal, accounting and other matters requiring
outside professional services or in-house services by Safeguard
and XL Vision personnel (including but not limited to legal and
accounting services) which are not in the ordinary course; and
guarantees of obligations. To the extent Safeguard and XL Vision
continue to incur obligations for MicroVision at MicroVision's
request in connection with such services and benefits,
MicroVision shall pay to Safeguard, XL Vision or to the provider
of such services, in addition to the fee provided in Paragraph 2
of the Agreement, the actual and identifiable costs of such
services and benefits, or in those cases where actual costs
cannot be identified, MicroVision's proportionate share of such
benefits and services, and the sums necessary to discharge, repay
or to otherwise compensate Safeguard and XL Vision for any
obligations incurred by Safeguard or XL Vision in connection
therewith. Safeguard and XL Vision shall submit to MicroVision a
monthly statement of all such sums due in accordance with the
provisions of this Paragraph and each such statement shall be
paid by MicroVision within 30 days after the delivery of such
statement to MicroVision.
4. This Agreement shall be effective retroactive to
January 1, 1997 and shall extend through and include January 31,
2002 and shall automatically continue to be effective thereafter
on an annual basis, subject to termination on the final day of
any succeeding calendar year by delivery of written notice by
either party to the other party no less than 90 days prior to the
termination date.
5. Nothing herein shall be construed to relieve the
directors or officers of MicroVision from the performance of
their respective duties or limit the exercise of their powers in
accordance with the Certificate of Incorporation or By-Laws of
MicroVision, any applicable provisions of the Corporation Law of
the State of Delaware, or otherwise. The activities of
MicroVision shall at all times be subject to the control and
direction of its Board of Directors and Officers.
6. This Agreement constitutes the entire agreement between
the parties hereto with respect to the subject matter hereof and
may not be amended or modified except by the written agreement of
the parties hereto.
7. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors.
Nothing in this Agreement, expressed or implied, is intended to
confer on any other person other than the parties hereto, or
their respective
<PAGE>
successors, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
8. This Agreement and any rights or obligations pursuant
hereto shall not be assignable by either party without prior
written consent of the other party.
9. Nothing in this Agreement shall be deemed to constitute
the parties hereto joint venturers, partners or participants in
an unincorporated business or other separate entity.
IN WITNESS WHEREOF, Safeguard Scientifics Inc., XL Vision,
Inc. and MicroVision Medical Systems, Inc. have caused this
Agreement to be executed in their respective corporate names by
an officer thereunto duly authorized, all as of the date first
above written.
ATTEST: SAFEGUARD SCIENTIFICS, INC.
By: /s/ Michael Miles
- ---------------------- ---------------------------------
Title: Title:
ATTEST: XL VISION, INC.
/s/ Kathleen Lees By:/s/ Gregory W. Haskell
- ---------------------- ---------------------------------
Kathleen Lees Gregory W. Haskell
Asst. Secretary President and Chief Operating Officer
ATTEST: MICROVISION MEDICAL SYSTEMS, INC.
/s/ Kevin O'Boyle By:/s/ Douglas S. Harrington
- ---------------------- ---------------------------------
Douglas S. Harrington
Chief Executive Officer
<PAGE>
Exhibit 10.18
DIRECT CHARGE ADMINISTRATIVE SERVICES AGREEMENT
------------------------------------------------
THIS AGREEMENT, dated as of this 31 day of March, 1997, by and between
XL VISION, INC., a Delaware corporation, ("XL Vision") and MICROVISION
MEDICAL SYSTEMS, INC., a Delaware corporation, ("MicroVision").
WITNESSETH:
-----------
WHEREAS, XL Vision is providing MicroVision with
certain administrative support services; and
WHEREAS, XL Vision and MicroVision have agreed to enter
into an Administrative Services Agreement to reflect the
parties' respective rights and obligations.
NOW, therefore, the parties hereto, in consideration of
their mutual covenants and intending to be legally bound,
hereby agree as follows:
1. XL Vision agrees to provide (either directly or
indirectly through its subsidiaries) to MicroVision for
the term specified herein, administrative support
services and access to the broad management experience
of the corporate management staff of XL vision. Such
services shall be substantially those heretofore
provided by XL Vision to MicroVision, including without
limitation, consultation in regard to general
management, investor relations, financial management,
human resources management, legal services, insurance
programs administration, audit administration, tax
research and planning, and preparation of federal and
state income tax returns. Nothing herein shall be
construed to require XL Vision to provide any services
under this Agreement which cannot reasonably be
provided by XL Vision's management and corporate staff.
2. In consideration of the services to be rendered by XL
Vision under this Agreement, MicroVision shall pay to
XL Vision costs which shall be based on the individual
personal rates and which such hours shall be billed at
the end of each month.
3. MicroVision recognizes that XL Vision has heretofore
provided, or has made arrangements for, certain other
services and benefits for MicroVision and has incurred
certain obligations of MicroVision and that XLVision
may continue to provide, or make arrangements for,
certain of such services and benefits and may incur
guarantees of obligations of MicroVision. The
foregoing may involve, among other things, various
types of insurance programs; various legal, accounting
and other
<PAGE>
matters requiring outside professional
services or in-house services by XL Vision personnel
(including but not limited to legal and accounting
services) which are not in the ordinary course; and
guarantees of obligations. To the extent XL Vision
continues to incur obligations for MicroVision at
MicroVision's request in connection with such services
and benefits, MicroVision shall pay to XL Vision or to
the provider of such services, in addition to the fees
provided in Paragraph 2 of the Agreement, the actual
and identifiable costs of such services and benefits,
or in those cases where actual costs cannot be
identified, MicroVision's proportionate share of such
benefits and services, and the sums necessary to
discharge, repay or to otherwise compensate XL Vision
for any obligations incurred by XL Vision in connection
therewith. XL Vision shall submit to MicroVision a
monthly statement of all such sums due in accordance
with the provisions of this Paragraph and each such
statement shall be paid by MicroVision within 30 days
after the delivery of such statement to MicroVision.
4. This Agreement shall be effective retroactive to
January 1, 1997 and shall extend on a month to month
basis. Termination of this agreement can be made by
either party to the other party with no less than 30
days prior written notice.
5. Nothing herein shall be construed to relieve the
directors or officers of MicroVision from the
performance of their respective duties or limit the
exercise of their powers in accordance with the
Certificate of Incorporation or By-Laws of XL Vision,
any applicable provisions of the Corporation Law of the
State of Delaware, or otherwise. The activities of
MicroVision shall at all times be subject to the
control and direction of its Board of Directors and
Officers.
6. This Agreement constitutes the entire agreement between
the parties hereto with respect to the subject matter
hereof and may not be amended or modified except by the
written agreement of the parties hereto.
7. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective
successors. Nothing in this Agreement, expressed or
implied, is intended to confer on any other person
other than the parties hereto, or their respective
successors, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
8. This Agreement and any rights or obligations pursuant
hereto shall not be assignable by either party without
prior written consent of the other party.
9. Nothing in this Agreement shall be deemed to constitute
the parties hereto joint venturers, partners or
participants in an unincorporated business or other
separate entity.
<PAGE>
IN WITNESS WHEREOF, XL Vision, Inc. and MicroVision
Medical Systems, Inc. have caused this Agreement to be
executed in their respective corporate names by an officer
thereunto duly authorized, all as of the date first above
written.
ATTEST: XL VISION, INC.
/s/ James B. Willmann By: /s/ Gregory W. Haskell
- ---------------------- -----------------------------
James B. Willmann Gregory W. Haskell
Secretary President and COO
ATTEST: MICROVISION MEDICAL SYSTEMS, INC.
/s/ Kevin O'Boyle By: /s/ Douglas S. Harrington
- ------------------------- -------------------------------
Douglas S. Harrington
Chief Executive Officer
<PAGE>
Exhibit 10.19
RENTAL AGREEMENT
THIS RENTAL AGREEMENT (herein called the "Agreement") entered into this 7th
of March 1996 by and between CEO/Executive Suites, Inc., a Texas corporation,
(herein called the "Lessor") and XL VISION, INC. (herein called the
"Lessee").
WITNESSETH
WHEREAS, Lessor operates a suite of executive offices (hereinafter called the
"Executive Suite") located at 17304 N. Preston Road Suite 800 Dallas, Texas
75252 (herein called the "Building"); and
WHEREAS, Lessee desires to lease space in the Executive Suite upon the terms
hereinafter set forth;
NOW THEREFORE, in consideration of the mutual promises herein set forth, the
parties agree as follows:
1. TERM Lessor hereby leases and lets to Lessee Office No. 21.22 within the
Executive Suite, as depicted to the floor plan attached hereto as Exhibit
"A" (hereinafter called the "Premises") for a term of 12 months beginning
APRIL 1, 1996 (the "Initial Term"). If Lessor wishes to cancel prior to
the termination of the Initial Term, Lessor shall give Lessee thirty (30)
days written notice and as penalty shall forgive Lessee's Rent
(hereinafter defined in paragraph 2) for said thirty (30) days.
This does not apply to month to month agreement.
2. RENT Lessee agrees to pay as rent (herein called "Rent") for the
Premises, the sum of $1300.00 per month for the first term of this
Agreement. Monthly Rent is payable in advance on the first day of
each month.
3. SERVICES The monthly Rent shall include, in addition to the office space,
the following services: use of common reception area; receptionist eight
(8) hours per day; telephone answering eight (8) hours per day with call
screening (for the first line - each additional line $65.00/month);
intercom; use of a conference room, subject to the availability and prior
use by other tenants; incoming mail handling; and coffee. The following
services are available at extra charge at the rate set by Lessor from time
to time: typing and other secretarial services, computerized word
processing and data processing, use of facsimile machine, use of copy
machine, after hours HVAC, additional telephone lines at $N/A per line,
bookkeeping, postage meter and mailing services.
4. PAYMENT Upon execution of his Agreement, Lessee agrees to pay the first
month's Rent and a deposit of $1300.00 in advance. If this Agreement
should commence on a date other than the first day of the month, the
pro rated payment for the partial month shall also be payable upon
execution hereof. Prior to the end of the Agreement, Lessee agrees to
give at least thirty (30) days written notice on or before the first
day of the month to Lessor of Lessee's intention to renew this Agreement
or vacate the Premises. If the Premises are to be vacated at the end of
this Agreement, the deposit shall be returned to Lessee upon written
notice to Lessor, such deposit shall not be applied to Rent unless Lessee
receives consent from Lessor in writing. Lessor will deduct $110.00 from
Lessees deposit for re-painting office and cleaning carpets. Amounts paid
as advance Rent pursuant to this paragraph shall become the absolute
property of Lessor. If Lessee should abandon the Premises prior to the end
of the Agreement, or should fail to give the required notice of intention
to vacate at the end of the Agreement, then the sum equal to the deposit
may be retained by Lessor as liquidated damages for Lessee's failure to
give such required notice (without prejudice to any remedy of Lessor for
any other breach or default of Lessee) and shall not be applied to
Lessee's obligation for Rent.
5. TENANT-AT-WILL If Lessee shall hold over after the Initial Term (without
renewing this Agreement as provided herein), this Agreement shall be
deemed to continue on a month-to-month basis, in accordance with all
of the provisions of this Agreement applicable to a month-to-month
tenancy, but the monthly Rent payable hereunder shall be a sum equal to
125% (the "Multiplier Factor") of the monthly Rent payable during the
last month of the stated term of this Agreement and adjusted every
thirty (30) days by the Multiplier Factor and subject to further
increase at any time by Lessor upon thirty (30) days written notice.
6. LATE CHARGES If any monthly payment of Rent is not paid on or prior to the
third (3rd) day of the month in which due, there shall be added to the
amount due a service charge of ten percent (10%) of the amount due. If a
check tendered by Lessee is returned by Lessee's financial institution for
any reason (i.e., stop payment, insufficient funds, uncollected funds,
etc.), there shall be added a twenty-five dollars ($25.00) service charge.
If charges for services defined in paragraph (3) are not paid on or prior
to the third (3rd) day of each month, they too are subject to a ten percent
(10%) service charge.
7. RESTRICTIONS Lessee will not bring a copy machine, facsimile machine or
similar equipment into the Executive Suite without the prior written
consent of Lessor which shall be delivered at the sole discretion of
Lessor. In the event Lessor approves such equipment (herein called
the "Permitted Equipment") for Lessee's use, such approval will be solely
for Lessee's exclusive use at an additional charge to be determined soley
by Lessor, and Lessee agrees not to allow other tenants of the Executive
Suite to use any of the Permitted Equipment or provide services to any
other tenant of the Executive Suite free or for a fee. Lessee will not
hire any secretary and/or typist to work in the Executive Suite at any
time whether full or part-time during regular business hours or after
hours. Lessee shall provide chair mats for all chairs mounted on rollers
or casters or pay an additional monthly fee of $15.00.
8. MASTER LEASE Lessee acknowledges that Lessor holds the Executive Suite
under lease from the Building owner (herein called the "Building Owner")
and agrees to be bound by the lease (herein called the "Master Lease")
and by the rules and regulations of the Building Owner from time to time
in effect. Such rules and regulations shall be made available by Lessor
upon request. Lessee's name may be placed on a directory maintained by
the Building Owner in the lobby. If the Building Owner charges for such
listing, Lessor may pass on that charge to Lessee. Lessee shall use no
other signs or advertisements in or about the Building, without prior
approval of Lessor.
9. UTILITIES The Rent paid hereunder shall include all utilities, including
electricity and water. Heating and air conditioning shall be available at
temperatures and at times provided by the Building Owner. Lessor shall
provide all cleaning, repairs and maintenance for the Executive Suite
except that Lessee shall be responsible for a reasonable charge for
damage caused by Lessee or Lessee's employees or invitees. Lessee shall
not install or use any machinery or equipment which will result in
additional utility charges to Lessor under the terms of the Master
Lease. If Lessee does in any way cause the use of utilities for which
any additional charge is made, Lessee will pay the amount of any such
additional charge to Lessor upon demand.
10. TELEPHONE EQUIPMENT RENTAL Lessee agrees to pay Lessor for telephone
equipment installed in Lessee's office, as follows: a one-time
installation charge will be billed on Lessee's first month's
statement. In addition, Lessee shall pay a monthly charge for telephone
rental for telephone equipment of $N/A per month, per telephone unit.
11. FURNITURE RENTAL Lessee agrees to pay Lessor as rental for the office
furniture to be placed in the Premises the sum of $N/A per month on the
first (1st) day of each month, with payments to be made concurrently with
the schedule set forth in paragraph 4, including its provision for partial
months.
12. PERMITTED EQUIPMENT: Lessee agrees to pay Lessor for Permitted Equipment
placed in the Premises the sum of 50.00 per month on the first day of
each month, with payments to be made concurrently with the schedule set
forth in paragraph 4, including its provision for partial months.
13. PARKING Parking is available in the Building lot (herein called the
"Parking Area") for a charge of $0 per month. A deposit of $50.00 is
required for a security access card to enter the Parking Area for the
Building. If Lessee desires one or more reserved spaces, Lessee shall
make separate arrangements with Lessor and shall pay Lessor a monthly
parking charge of $0 for each reserved space with, and in addition to,
each monthly Rent payment.
14. USE Lessee agrees to use the Premises exclusively for office space. Lessee
will not store or use in the Premises or the Building any machinery,
chemicals or other matter that will increase the fire hazard, cause any
noise, create any smell or use abnormally large amounts of electricity.
Lessee shall never occupy or permit occupancy of the Premises by any
person as living quarters on either a temporary or a permanent basis.
Lessee will not act in a manner deemed unreasonable to Lessor including
specifically, harassing or otherwise abusing any employee or agents of
Lessor other tenants of Lessor or other tenants of Building Owner.
15. DAMAGE Lessor shall not be responsible for any damage to Lessee or
Lessee's employees, invitees or property arising from fire, theft,
acts of other tenants, water or weather, or any condition of or in
the Premises or the Executive Suite or this Agreement or by the actions
of Lessor's employees or agents. Each party shall be responsible for
carrying such insurance as each party deems advisable to protect such
party's own interest.
16. FIRE OR OTHER CASUALTY In the event the Premises or the Building should
be totally destroyed by fire, tornado or other casualty or be so damaged
that rebuilding or repairs cannot be completed within (60) days after date
of such damage, or in the event the Master Lease is terminated by reason
of such destruction or damage, then Lessor, at its sole option, may
terminate Lessee's Agreement. In the event the Premises or the Building
should be so damaged, but only to such extent that the rebuilding or
repairs can be completed within sixty (60) days after the date of such
damage, Lessor may, at its sole option, elect either to terminate Lessee's
Agreement or to notify Lessee of Lessor's intent to repair the Premises,
in which latter event the Rent shall be abated for the period of time
during which such Premises are not available for occupancy by Lessee. If
Lessor elects to repair, Lessor's obligation to repair shall be limited
to those elements of the Premises which the Building Owner is not obligated
to repair under the terms of the Master Lease. During such time as use of
the Premises is prevented or impaired by activities of the Building Owner,
any abatement of Rent shall not exceed the Lessee's pro rata part
(determined in accordance with Paragraph 20) of any abatement allowed to
Lessor by the Building Owner.
<PAGE>
17. SUBLEASE Lessee shall not, without prior written consent from Lessor,
which shall be declined at the sole discretion of Lessor, sublease or
assign Lessee's Agreement as to all or any part of the Premises, nor grant
any license or permit to any third party to use or occupy the Premises or
any part thereof. If the Premises shall ever be sublet (or Lessee's
Agreement assigned) and the consideration paid therefor by the assignee or
sublessee shall exceed the Rent herein provided, such additional
consideration shall be paid to Lessor as additional Rent hereunder.
18. NUISANCE Lessee shall control Lessee's conduct and that of Lessee's
employees and invitees in such a manner as to not create a nuisance nor
interfere with or disturb Lessor or the other tenants of Lessor or of the
Building. Lessee shall not conduct any illegal or immoral activity on or
from the Premises. Lessee will not act in a manner deemed unreasonable to
Lessor including specifically, harassing or otherwise abusing any
employee or agents of Lessor or other tenants of Lessor.
19. PROPERTY ON PREMISES All property left in the Executive Suite by Lessee
upon termination of this Agreement shall be deemed abandoned to Lessor.
Lessor shall have, in addition to the statutory landlord's lien, a
contractual lien upon all property brought onto the Premises to secure
amounts due hereunder, which lien shall be governed by the Uniform
Commercial Code of Texas. The parties agree that ten (10) days written
notice mailed to Lessee at its last known address shall constitute
reasonable notice of any intended sale or other disposition pursuant to
the Uniform Commercial Code of any property subject to such security
interest.
20. COLLECTION In the event that Lessor shall hire an attorney to collect
any amounts due hereunder or to enforce any other rights or remedies of
Lessor by reason of any default of Lessee hereunder, or if Lessee or
anyone claiming under Lessee shall bring any lawsuit against Lessor on
any claim alleged to arise out of this Agreement or Lessee's occupancy of
the Premises and Lessor shall prevail in such suit, Lessee shall pay all
attorney's fees incurred by Lessor, in addition to any other amounts due
Lessor hereunder or as damages.
21. RENT INCREASES In the event that the Rent payable to Lessor to the
Building Owner is increased by an escalator clause for increased taxes,
insurance, maintenance or other reason, then Lessor may increase Lessee's
Rent by Lessee's pro rata share of such increase. In addition, should
Lessor be required to pay any amount to the Building Owner as a
retroactive increase in or for correction of estimates of taxes,
insurance, maintenance or other charges passed through to Lessor under
the terms of the Master Lease, Lessee shall pay to Lessor Lessee's pro
rata share of such retroactive or corrective charges. Lessee's liability
for such retroactive or correction charges shall be limited to two (2)
years prior to date of written notice from Building Owner to Lessor.
Lessee's pro rata share shall be obtained by dividing the number of
square feet rented by Lessee in the Premises by the total amount of
square feet available for sublease in the Executive Suite (excluding
Joint Areas, hereinafter defined in paragraph 28) and multiplying the
resulting fraction by Lessor's share of such increase or assessment.
22. ENTIRE AGREEMENT This Agreement shall supercede all prior negotiations,
Agreements or representations and may only be modified in writing signed
by the party to be bound.
23. LOCATION This Agreement is executed and performable in Dallas, Dallas
County, Texas.
24. DEFAULT In the event the Lessee shall default in the prompt payment of
Rent when same is due or violate or omit to perform any of the provisions
of this Agreement as and when required, Lessor may send written notice of
such default to Lessee by mail, facsimile, or otherwise to the demised
Premises, and unless Lessee shall completely cure said default within
three (3) days after such notice is sent by Lessor, Lessor may re-enter
the Premises by summary proceedings, or by force, without being liable
for prosecution therefor, take possession of said Premises, and remove
all persons or property therefrom, and may elect to either cancel this
Agreement, or relet the Premises for the account of Lessee and receive
the Rent therefor, which Rent shall be applied first to the expenses
incurred by Lessor in reletting, and then to the payment of the Rent due
and payable under this Agreement. Notwithstanding the foregoing, Lessee
will remain liable for any deficiency which may result. No reentry by
Lessor during existence of a default shall be deemed an election by
Lessor to terminate this Agreement unless Lessor expressly so notifies
Lessee in writing. Lessor shall specifically have the right to institute
and maintain the Statutory Suit of Forcible Entry and Detainer in the
proper court, and obtain a writ for possession thereby. Lessor shall have
the right to change locks at any time while a default has occurred and is
continuing without any written notice, in addition to all other remedies
hereunder.
25. EMPLOYEE REPLACEMENT COSTS Lessee acknowledges that Lessor expends
substantial amounts of money to acquire and maintain employees for the
services provided to Lessee, including but not limited to employment
agency fees and training costs. Lessee agrees that during the term of
this Agreement and for a period of one year thereafter, Lessee will not
hire or attempt to hire, on behalf of Lessee or any person or
organization by whom they are employed, any employee of Lessor. Because
of the difficulty of ascertaining damages for breach of this covenant,
Lessee agrees that upon any breach hereof Lessee will pay as liquidated
damages a sum equal to three (3) months pay for the hired employee at the
rate paid for the last full month of employment with Lessor.
26. GUARANTOR The undersigned guarantor, if any, hereby expressly guarantees
the full performance of Lessee in the payment of any and all sums due
Lessor by reason of the terms hereof and agrees that all obligations of
Lessee shall be the joint and several obligations of Lessee and the
guarantor, and Lessor shall not be required to first proceed against
Lessee before proceeding against the guarantor, nor shall any such
guarantor be released from the guaranty for any reason whatsoever,
including, without limitation, any amendments hereof or extensions of
time for payment or performance.
27. ACCEPTANCE OF THE PREMISES By taking possession of the Premises, Lessee
shall be conclusively deemed to have accepted the Premises, the condition
thereof, and all furniture, fixtures and equipment installed therein.
28. JOINT AREAS The portion of the Executive Suite designated as reception
rooms, conference rooms and hallways shall constitute the Joint Areas
(herein called the "Joint Areas"). Lessee shall have non-exclusive right
and access to the Joint Areas, in common with Lessor and other tenants of
the Executive Suite for the purpose of ingress and egress to the Premises
and the right to use the same for the purposes for which they are
provided. Lessee's right to use of the conference rooms shall be subject
to prior reservation. In its use of the Joint Areas, Lessee shall observe
all Rules and Regulations which may, from time to time, be promulgated by
Lessor. Such Rules and Regulations, and amendments thereto which Lessor
may from time to time promulgate, shall be delivered to Lessee in writing
or posted in the Executive Suite. Lessor shall maintain the Joint Areas;
however, Lessee shall be responsible for keeping the portions of the
Joint Areas used by Lessee free and clear of Lessee's belongings, trash
and clutter. Lessee shall reimburse Lessor promptly on demand for all
costs of maintenance of the Joint Areas or increases therein caused by
intentional misuse or negligence of Lessee or Lessee's employees, agents
or invitees.
29. ACCESS TO PREMISES Lessor shall have access to the Premises at any
reasonable time or times, and in case of emergency at any time, for
purposes of inspection and maintenance, and for purpose of showing the
same to prospective assignees, subleases or mortgages of the Executive
Suite or to prospective lessee of the Premises, or of other offices
within the Executive Suite. Lessee's possession of the Premises is
further subject to the rights of the Building Owner retained in the
Master Lease.
30. LESSOR NOT RESPONSIBLE FOR BUILDING SERVICES Lessor assumes no
responsibility for the Building services to be furnished by the Building
Owner, including but not limited to janitorial service, elevator service
and security, nor for furnishing utilities. Lessor shall never be liable
to Lessee for any interruption of such services, nor shall any such
interruption be deemed an actual or constructive eviction of Lessee, or
entitle Lessee to any abatement of Rent. Nor will Lessor be responsible
for lost, stolen personal property, money or jewelry from the Premises,
the Parking Area or public area (including without limitation, common
areas, service area, and garage areas, regardless of whether such loss
occurs when such area is locked against entry or not).
31. SEVERABILITY If any clause or provision hereof is invalid or
unenforceable for any reason, such clause shall be deemed stricken from
this instrument, or limited in its operation to those circumstances, if
any, in which such provision would be valid and enforceable, and such
invalidity or unenforceability shall not affect any other provision
hereof.
AGREED to as of the date first above written.
BY: /s/ Melissa Cox
--------------------------
Agent for CEO/Executive Suites, Inc.
LESSOR: CEO/Executive Suites, Inc., a Texas Corporation
BY: /s/ James E. Wellman 3/26/96
-----------------------------
LESSEE James E. Wellman
VP of Administration
BY:
--------------------------
GUARANTOR
<PAGE>
Exhibit 10.20
SUBSCRIPTION AGREEMENT
THIS AGREEMENT is made as of the 31st day of December, 1996,
by and between MICROVISION MEDICAL SYSTEMS, INC., a corporation
incorporated under the laws of the State of Delaware (the
"Company"), and SAFEGUARD SCIENTIFICS (DELAWARE), INC. (the
"Subscriber"), with reference to the following Recitals:
WHEREAS, the Subscriber desires to purchase, and the Company
desires to sell to the Subscriber, 221,850 shares (the "Preferred
Shares") of Series B Preferred Stock, par value $.01 per share
("Series B Preferred Stock"), of the Company on the terms
hereinafter set forth.
NOW, THEREFORE, the parties hereto, intending to be legally
bound hereby, agree as follows:
1. The Company will authorize and issue to the Subscriber,
and the Subscriber will purchase from the Company at the price of
$4.50 per share, 221,850 shares of Series B Preferred Stock of
the Company, which shares shall be convertible into shares of the
Company's Common Stock (the "Conversion Shares") pursuant to the
terms of the Certificate of Designation of Series B Preferred
Stock.
2. The Subscriber hereby agrees that certificates
representing shares of Series B Preferred Stock issued to it
pursuant hereto may bear the following legends:
THE SHARES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. SUCH SHARES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE SOLD,
TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR SUCH SHARES UNDER THE SECURITIES ACT OF
1933, UNLESS, IN THE OPINION (WHICH SHALL BE
IN FORM AND SUBSTANCE SATISFACTORY TO THE
CORPORATION) OF COUNSEL SATISFACTORY TO THE
CORPORATION, SUCH REGISTRATION IS NOT
REQUIRED.
3. The Subscriber hereby represents and warrants to the
Company that:
(A) it is an "accredited investor" within the meaning of
Rule 501 under the Securities Act of 1933, as amended (the
"Securities Act") and was not organized for the specific purpose
of acquiring the Preferred Shares;
(B) it has sufficient knowledge and experience in investing
in companies
1
<PAGE>
similar to the Company in terms of the Company's
stage of development so as to be able to evaluate the risks and
merits of its investment in the Company and it is able
financially to bear the risks thereof;
(C) it has had an opportunity to discuss the Company's
proposed business, management and financial affairs with the
Company's management;
(D) the Preferred Shares being purchased by it are being
acquired for its own account for the purpose of investment and
not with a view to or for sale in connection with any
distribution thereof;
(E) it understands that (i) the Preferred Shares and the
Conversion Shares have not been registered under the Securities
Act by reason of their issuance in a transaction exempt from the
registration requirements of the Securities Act pursuant to
Section 4(2) thereof or Rule 505 or 506 promulgated under the
Securities Act, (ii) the Preferred Shares and, upon conversion
thereof, the Conversion Shares must be held indefinitely unless a
subsequent disposition thereof is registered under the Securities
Act or is exempt from such registration, (iii) the Preferred
Shares and the Conversion Shares will bear a legend to such
effect and (iv) the Company will make a notation on its transfer
books to such effect; and
(F) if it sells any Conversion Shares pursuant to Rule 144A
promulgated under the Securities Act, it will take all necessary
steps in order to perfect the exemption from registration
provided thereby, including (i) obtaining on behalf of the
Company information to enable the Company to establish a
reasonable belief that the purchaser is a qualified institutional
buyer and (ii) advising such purchaser that Rule 144A is being
relied upon with respect to such resale.
4. This agreement shall be governed by the laws of the
State of Delaware.
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this agreement
as of the date first above written.
MICROVISION MEDICAL SYSTEMS, INC.
By: /s/ John Scott
------------------------------
Name:
Title: Chairman
SAFEGUARD SCIENTIFICS (DELAWARE), INC.
By: /s/ Michael Miles
------------------------------
Name:
Title: Vice President
Attest:
/s/ Kathleen Lees
- -----------------
Secretary
3
<PAGE>
EXHIBIT 10.21
CONTRIBUTION AGREEMENT
CONTRIBUTION AGREEMENT dated as of May 13, 1996 between XL Vision, Inc.,
a Delaware corporation ("XL"), and MicroVision, Inc., a Delaware corporation
("MV").
WHEREAS, XL wishes to reorganize certain of its businesses; and
WHEREAS, as part of that reorganization, XL wishes to contribute
certain assets and technology to MV in consideration for common stock, par
value $.01 per share ("Common Stock"), of MV and the assumption by MV of
certain liabilities and obligations of XL;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, and agreements herein contained and intending to be legally
bound hereby, the parties hereto hereby agree as follows:
1. Contribution of Assets. XL hereby transfers and assigns to MV, and
MV accepts, all of XL's right, title and interest in and to all XL's assets,
properties, and rights, tangible and intangible, wherever situated,
specifically related to XL's MicroVision business (the "Business"), including
without limitation:
(i) those assets and properties listed on Schedule A attached hereto
or reflected on the balance sheet attached hereto (the "Balance Sheet"), with
only such changes therein as shall have occurred in the regular and ordinary
course of the Business since the date of the balance sheet,
(ii) all rights of XL under all agreements, contracts, arrangements,
commitments, leases, patents, copyrights, trademarks, trade names,
applications for patents, copyrights, trademarks or trade names, proposals,
licenses, permits, authorizations, instruments and other documents related to
the Business,
(iii) all intellectual property rights, technical information and
know-how, and all documentation therfor, related to the Business, and
(iv) the business, operations and goodwill of the Business as a going
concern (collectively referred to as the "Assigned Assets").
XL will, from time to time, at the reasonable request of MV and without
any further consideration, execute and deliver, or cause to be executed and
delivered, such additional instruments, notices, releases, certificates,
powers of attorney, assurances, assignments, bills of sale, and other
documents and do all such further acts as MV may reasonably require in order
to effectively transfer the Assigned Assets.
<PAGE>
2. Assumption of Liabilities. MV hereby assumes and agrees to pay,
perform and discharge when due, and become directly and solely responsible
for, all of the liabilities and obligations of XL related specifically to
the Business as set forth below (the "Assumed Liabilities");
(i) all liabilities listed on a schedule A or disclosed on the
Balance Sheet which have not been paid or discharged prior to the date hereof;
(ii) all liabilities of the Business arising in the ordinary course
of business between March 31, 1996 and the date hereof, to the extent that
the same have not been paid or discharged prior to the date hereof; and
(iii) all liabilities and obligations of XL in respect of the
agreements, contracts, licenses, arrangements, commitments, leases,
proposals, licenses, permits, authorizations, instruments, and other
documents specifically related to the Business, including without limitation
those agreements, contracts, etc. listed on Schedule A.
MV will, from time to time, at the reasonable request of XL and without
any further consideration, execute and deliver, or cause to be executed
and delivered, such additional instruments, notices, releases, certificates,
powers of attorney, assurances and other documents and do all such further
acts as XL may reasonably require in order for MV to effectively assume the
Assumed Liabilities.
3. Stock Issuance. In consideration of the transfer of the Assigned
Assets, MV hereby issues and sells to XL 1,545,000 shares of its Common Stock,
par value $.01 per share, and its delivering to XL a certificate for such
shares, which shall be free and clear of all liens and encumbrances, fully
paid and nonassessable.
4. Entire Agreement. This Agreement and the Schedule A hereto and the
Balance Sheet contain the entire agreement of the parties with respect to the
subject matter hereof and there are no agreements, understandings,
representations or warranties between the parties other than those set forth
or referred to herein. This Agreement is not intended to confer upon any
person not a party hereto (and their successors and assigns permitted herein)
any rights or remedies hereunder.
5. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors
and assigns.
6. Amendments and Waivers. This Agreement may not be modified or
amended except by an instrument or instruments in writing signed by the party
against whom enforcement of any such modification or amendment is sought.
7. Governing Law. This Agreement shall be governed by and constructed
in accordance with the laws of the State of Delaware without reference to the
choice of law principles thereof.
<PAGE>
8. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
shall be considered one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been signed by or on behalf of
each of the parties as of the date first above written.
XL VISION, INC.
By: /s/ John Scott
-------------------------------------
Name: John Scott
-----------------------------------
MICROVISION MEDICAL SYSTEM, INC.
By: /s/ Michael Shiff
-------------------------------------
Name: Michael Shiff
-----------------------------------
<PAGE>
MicroVision Medical Systems, Inc.
Balance Sheet
(estimated)
<TABLE>
<CAPTION>
30-Apr-96
- -----------------------------------------------------------------------
<S> <C>
Assets:
Inventories
Stock Status Inventory $ 90,000
Project Capitalization 140,000
Property & Equipment 160,000
License Fees 100,000
Intangable Assets - Capitalized costs 280,000
-------
Total Assets 770,000
-------
-------
Liabilities:
Accounts Payable 100,000
Accrued Payroll & Benefits
Accrued Payroll 25,000
Accrued Vacation 32,000
Accrued FICA 4,400
Due To XL Vision 5,008,600
---------
Total Liabilities 5,170,000
Accumulated Retained Deficit (4,400,000)
Total Liabilities and Equity $ 770,000
-------
-------
</TABLE>
<PAGE>
EXHIBIT 10.22
AGREEMENT
THIS AGREEMENT is made this 12th day of July, 1996, by and among
CENTOCOR, INC., a Pennsylvania corporation ("Centocor"), XL VISION, INC., a
Delaware corporation ("XL"), and MICROVISION MEDICAL SYSTEMS, INC., a
Delaware corporation ("MV").
Background
XL and Centocor have collaborated on the development of a system for the
rapid detection, identification, and characterization of rare cellular events
in biological tissue specimens using Centocor proprietary reagents to stain
the specimens (the "Collaboration" and the "Clinical System"). XL and its
employees have principally developed an automated intelligent microscope,
including hardware and software, and the method for using it to detect,
identify, and characterize pre-selected targets in biological specimens (the
"MicroVision System"). Centocor and its employees have principally developed
proprietary reagent kits and components and the method and protocol for using
them to mark pre-selected targets in biological specimens and to prepare
slides containing such specimens in order for such specimens to be scanned
and analyzed (the "Biological Preparation System"). XL has assigned to MV all
of its rights in the MicroVision System.
Agreement
The parties hereby agree as follows, intending to be legally bound:
1. Definitions.
As used herein, the term "Confidential Information" means data,
analyses, hypotheses, compilations, studies, medical and technical know-how
and information, designs, plans, specifications, processes, procedures,
protocols, formulae, methods, algorithms, all to the extent that such
information is confidential and proprietary in nature.
As used herein, the term "Patent Application" means the U.S. Patent
Application Serial Number OR/565006 entitled "Method and Apparatus for
Automated Image Analysis of Biological Specimens" filed in connection with
the Clinical System and continuations, continuations-in-part, and divisionals
and foreign equivalents thereof.
As used herein, the term "Intellectual Property Rights" means all and
any rights, powers, privileges, and immunities (including without limitation
under patent, copyright, and trade secret law) anywhere in the world with
respect to any "Intellectual Property."
<PAGE>
As used herein, the term "Intellectual Property" means all proprietary
inventions, technology, devices, apparatus, materials, designs, plans,
specifications, processes, protocols, formulae, methods, algorithms, software
programs, and technical information, which are described in the Patent
Application, or which were developed, conceived of, invented, or reduced to
practice as a result of the Collaboration.
2. Intellectual Property Assignments.
2.1 All intellectual property rights which XL or MV had before the
commencement of the Collaboration shall continue to be owned by MV.
2.2 All intellectual property rights which Centocor had before the
commencement of the Collaboration shall continue to be owned by Centocor.
2.3 Centocor hereby assigns to MV, and its successors and assigns,
any and all Intellectual Property Rights now owned or claimed by Centocor
which relate to the MicroVision System, and the Patent Application.
2.4 XL and MV hereby assign to Centocor, and its successors and
assigns, any and all Intellectual Property Rights now owned or claimed by XL
and/or MV which relate to the Biological Preparation System.
2.5 MV hereby grants to Centocor, its successors and assigns, a
perpetual, transferable, non-exclusive, fully-paid-up license to use the
Biological Preparation System as described in the Patent Application.
2.6 Upon the request of and at the expense of either of MV of
Centocor, or their successors or assigns, each party shall do such other acts
and shall execute, acknowledge, and deliver to the requesting entity all
further documents, instruments, assignments and assurances necessary or
proper (i) to further ensure the valid assignment to the requesting party of
the Intellectual Property Rights assigned to such party by this Agreement,
including assignments of patents and/or patent applications in form suitable
for filing with the U.S. or any foreign patent office; and (ii) to procure
for the requesting party U.S. and/or foreign patents for the Intellectual
Property Rights assigned to such party by this Agreement. Promptly upon
execution of this Agreement, Centocor shall deliver or cause to be delivered
to MV all files related to the Patent Application, and MV shall reimburse
Centocor for 50% of out of pocket patent expenses incurred by Centocor
associated with the Patent Application.
2.7 Each party represents and warrants to each other party that
each of its employees and consultants who have
2
<PAGE>
participated in the development, invention, conception, or reduction to
practice of any Intellectual Property related to the MicroVision System or
the Biological Preparation System have entered into valid assignment of
invention agreements with such party.
2.8 The Parties agree that they will cooperate in good faith to
promptly determine which individuals should be named as inventors for each
claim in the Patent Application.
2.9 Each party represents and warrants to each other that such
party has not sold, assigned, licensed, or otherwise transferred any
Intellectual Property Rights to any other entity or person who is not a party.
3. Centocor Release. Except as provided for in Section 2 hereof,
Centocor, on behalf of itself and its successors and assigns, hereby forever
releases and discharges XL, MV, and their officers, directors, shareholders,
employees, agents, affiliates, attorneys, predecessors, successors, heirs,
personal representatives, and assigns, and all persons acting by, through,
under or in concert with any of them from any and all claims, actions, causes
of actions, suits, judgments, debts, obligations, liabilities, charges,
complaints, promises, agreements, controversies, damages, demands and
expenses (including attorneys' fees and costs) of any kind whatsoever, at law
or in equity, matured or unmatured, known or unknown, suspected or
unsuspected, existing at any time to the date of this release which relate to
the Collaboration including but not limited to, any and all claims, rights,
and interests in or to the MicroVision System or related intellectual
property, including without limitation licenses, ownership rights, royalty
rights, marketing and distribution rights, manufacturing rights, revenue
sharing rights, and exclusivity rights. The foregoing release is absolute and
irrevocable, and Centocor agrees on behalf of itself and the other releasors
not to bring any suit or action against XL, MV, or any of their successors or
assigns, to attempt to enforce any such released claim, right, or interest,
or to attempt to revoke or void the foregoing release. Centocor represents
and warrants to XL and MV that it has not sold, assigned or transferred any
of such released claims, rights or interests.
4. XL and MV Release. Except as provided for in Section 2 hereof, each
of XL and MV, on behalf of itself and its successors and assigns, hereby
forever releases and discharges Centocor and its officers, directors,
shareholders, employees, agents, affiliates, attorneys, predecessors,
successors, heirs, personal representatives, and assigns, and all persons
acting by, through, under or in concert with any of them from any and all
claims, actions, causes of actions, suits, judgments, debts, obligations,
liabilities, charges, complaints, promises, agreements, controversies,
damages, demands and expenses (including attorneys' fees and costs) of any
kind whatsoever, at law or in
3
<PAGE>
equity, matured or unmatured, known or unknown, suspected or unsuspected,
existing at any time to the date of this release which relate to the
Collaboration including but not limited to, any and all claims, rights, and
interests in or to the Biological Preparation System or related intellectual
property, including without limitation licenses, ownership rights, royalty
rights, marketing and distribution rights, manufacturing rights, revenue
sharing rights, and exclusivity rights. The foregoing release is absolute and
irrevocable, and each of XL and MV agree on behalf of themselves and the
other releasors not to bring any suit or action against Centocor or any of
its successors or assigns, to attempt to enforce any such released claim,
right, or interest, or to attempt to revoke or void the foregoing release. XL
and MV represent and warrant to Centocor that they have not sold, assigned,
or transferred any of such released claims, rights or interests.
5. Stock Subscription. In consideration for prior research and
development, Centocor and MV shall execute the Stock Subscription Agreement
attached hereto which provides for the issuance of non-voting convertible
preferred stock of MV to Centocor representing a 10% ownership interest in MV
following the transaction involving the issuance of common stock to XL for
the MicroVision System technology and the sale and issuance of non-voting
convertible preferred stock of MV to XL stockholders at $1.00 per share.
6. Instrument Repurchase. Centocor has previously purchased from XL
MicroVision Systems at an aggregate purchase price of $800,000 as components
to be designed into Centocor assay systems. MV agrees to buy all of such
MicroVision Systems from Centocor, and Centocor agrees to sell all such
MicroVision Systems to MV, at a price of $133,333.33 per microscope, on the
following terms:
6.1 Centocor hereby sells, and MV hereby buys two of such
MicroVision Systems, serial numbers 10006 (which is currently in MV's
possession) and 01 (which is currently located at Centocor's principal place
of business in Malvern, PA. Centocor shall deliver such MicroVision Systems
to MV at 10305 102nd Terrace, Sebastian, FL, within 10 days after delivery of
such direction.
6.2 MV shall pay to Centocor the purchase price of $266,667 for the
two MicroVision Systems described in Section 6.1, without interest, on the
earlier of (i) five business days after the closing of MV's initial public
offering of its common stock or (ii) March 31, 1997.
6.3 Centocor shall sell, and MV shall buy, three additional
MicroVision Systems on the later of (i) January 10, 1997 or (ii) five
business days after the closing of MV's initial public offering, but not
later than March 31, 1997 (the "Second Sale Date"). Centocor shall deliver
such MicroVision Systems on
4
<PAGE>
the Second Sale Date to such location within the continental U.S. as MV shall
direct against payment by certified check or wire transfer of an aggregate
purchase price of $400,000.
6.4 Centocor shall sell, and MV shall buy, the last microscope on
June 30, 1997. Centocor shall deliver such microscope on June 30, 1997 to
such location within the continental U.S. as MV shall direct against payment
by certified check or wire transfer of the purchase price of $133,333.
6.5 Centocor shall deliver the MicroVision Systems at its own
expense, except that MicroVision personnel shall pack the MicroVision Systems
and prepare them for shipping, and Centocor shall insure them while in
transit at its own expense. The MicroVision Systems shall be delivered in
good working condition and repair, ordinary wear excepted.
6.6 Time is of the essence with respect to the dates set forth in
this Section 6.
6.7 Centocor and MV will be free to, but shall not be obligated to,
negotiate mutually acceptable commercial lease terms or purchase price
discounts if the parties desire Centocor to retain possession of any of the
MicroVision Systems beyond the dates set forth in this Section 6.
7. Maintenance and Support. From the date of this Agreement until the
Second Sale Date, MV shall provide to Centocor, at no cost to Centocor, the
following maintenance and support services for the four MicroVision Systems
retained by Centocor during that period:
7.1 MV will fix errors in the operation of the software controlling
the MicroVision Systems in accordance with MV's standard operating policies
and procedures which shall be established in MV's reasonable discretion, and
which will include, among other things, response times for different
priorities of bugs. If Centocor wants an error fixed in a manner or on a
schedule different from MV's standard operating policies and procedures, it
may request such service under the Support Rights specified in Section 7.2.
Any initial claim by Centocor of an error in the software shall first be
reviewed and verified by a MV technical support person before being submitted
to MV as an error under this Section 7.1. The time spent by the MV technical
support person to review and verify the claimed error will be charged against
the Support Rights if MV determines that the claimed error is not an error in
the software.
7.2 MV will provide Centocor with up to a total of 80 man-hours
(including travel time) of technical support per month (pro-rated for partial
months) ("Support Rights"). This support will cover up to three MicroVision
Systems while used for joint clinical trials in the continental U.S. and up
to one microscope while used by Centocor in the continental U.S. for in-house
5
<PAGE>
research and development of Biological Preparation Systems. The support may
include software, or hardware modifications, hardware maintenance and repair,
operation of the microscope, consulting, training, and verification of
claimed software errors and hardware malfunctions. Centocor shall pay for
all necessary parts for hardware repair and maintenance. Centocor shall
give MV reasonable advance notice of any support requests requiring air
travel or significant time commitments by MV personnel. MV shall retain sole
ownership of all rights in any hardware and software modifications.
7.3 Centocor and MV will be free to, but shall not be obligated
to, negotiate mutually acceptable commercial terms for the provision of
maintenance and/or support beyond the levels specified above or beyond the
Second Sale Date.
8. Confidential Information. It is agreed and acknowledged that no
Confidential Information has been disclosed by Centocor to MV or XL or by XL
or MV to Centocor prior to the date of this Agreement.
9. No Obligations. The parties acknowledge that they are not
obligated to enter into any joint marketing, distribution, or regulatory
approval arrangement for the MicroVision System and/or Centocor's Biological
Preparation Systems. MV shall be solely responsible for obtaining regulatory
approvals on its MicroVision System, and shall be the holder of all
regulatory licenses it obtains. Centocor shall be solely responsible for
obtaining regulatory approvals on its Biological Preparation Systems, and
shall be the holder of all regulatory licenses it obtains. The parties may
bundle their products or enter into other joint marketing arrangements in the
future, but they shall have no obligation to do so. In the absence of such
an agreement, MV retains the right to market and develop the MicroVision
System in combination with reagents of third parties and Centocor retains the
right to market and develop its Biological Preparation Systems in combination
with other automated microscope systems subject to Section 11.
10. Trademarks, etc. Neither party shall use the trademarks, trade
names or service marks of the other party without the prior written approval
of the other party in each instance.
11. Existing Clinical Trials. Centocor will promptly provide to MV
on a confidential basis copies of all agreements (including without
limitation clinical protocols) relating to the four (4) clinical trials/beta
testing currently being performed with the MicroVision Systems (the "Existing
Clinical Trials"). Centocor and MV will meet at least monthly to review the
status of each Existing Clinical Trial. Centocor will provide MV with the
opportunity to have input regarding the management and direction of such
trials and tests, which Centocor will consider in good faith and implement if
appropriate in Centocor's
6
<PAGE>
judgment. Centocor shall manage the Existing Clinical Trials in order to
provide MV with current, detailed feedback as to the operation of the
MicroVision System and the opportunity to promptly and effectively resolve
any problems regarding the System, and to promote the clinical and beta sites
to become reference sites for and purchasers of the MicroVision Systems.
Neither MV nor XL shall contact any clinical or beta site directly without
Centocor's prior consent, which shall not be unreasonably withheld or
delayed. Centocor shall make available to MV on a regular basis all
information from Existing Clinical Trials relating to the MicroVision
System without delay, provided that Centocor may redact from such information
any Centocor proprietary Confidential Information. Centocor shall also make
available to MV promptly upon request all such information which relates to
obtaining regulatory clearances for the MicroVision System which includes
Centocor Confidential Information, subject to the following confidentiality
obligations. MV shall keep all Centocor Confidential Information in
confidence and shall not, without Centocor's prior written consent, disclose
or use such Information except MV shall be permitted to use such Information
solely for the purpose of obtaining regulatory clearances for the MicroVision
System. However, once Centocor publishes, presents or otherwise places any
Confidential Information in the public domain, MV may use such information
without restriction. Centocor shall keep all MV Confidential Information
which is disclosed to Centocor in the conduct of the Existing Clinical Trials
in confidence and shall not, without MV's prior written consent, disclose or
use such Information except solely for the purpose of conducting the Existing
Clinical Trials with the MicroVision Systems and using the MicroVision
Systems for internal development purposes. Once MV publishes, presents or
otherwise places any of its Confidential Information in the public domain,
Centocor may use such information without restriction. The confidentiality
obligations of the parties in this paragraph shall expire March 10, 2002.
12. Framework for Future Applications. The parties agree to follow
the following framework for proposing new applications for joint development
and/or marketing.
12.1 Either party may nominate a concept for a new application
of the MicroVision System with a Biological Preparation System to be jointly
pursued by Centocor and MV. It is agreed that the nomination and
presentation of a concept will not create any obligation of confidentiality
regarding any information disclosed unless the receiving party agrees in
advance to treat specific information as Confidential Information.
12.2 Based on a nomination, the parties may agree to enter into
an interim exploration of the nominated application for the purpose of
determining the technical feasibility of the concept, undertaking clinical
testing of the application, and negotiating a business arrangement to jointly
commercialize the
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<PAGE>
application. The parties will negotiate a written agreement which shall
include the scope and time period of the exploration phase, an agreement to
work exclusively with each other during the exploration period on the
development of a particular Biological Preparation System or MicroVision
System, contemplated for use in a particular application, the method of
sharing and protecting confidential information which is developed or
disclosed in the process, and such other terms and conditions as the parties
may agree upon. The parties will not be obligated to enter into any joint
business arrangement beyond the exploration phase.
12.3 If the parties do not enter into an agreement for the joint
commercialization of the application by the end of the exploration phase,
then each party will be free to enter into business arrangements with other
persons, who may be competitors of the other party, to develop a similar
application relating to the Biological Preparation System or MicroVision
System which was the subject of the exploration, provided that the parties
will continue to be bound by their respective confidentiality obligations with
respect to the Confidential Information of the other party.
13. No Hire Agreement. Each party agrees not to solicit any employee
or consultant of the other party or of any such affiliate to leave the employ
of the other party or any such affiliate; in either case directly or
indirectly, at any time while the parties and/or their affiliates are engaged
in any relationship and for a period of 18 months after the termination of
all such business relationships, unless mutually agreed upon.
14. No Waiver. It is understood and agreed that no failure or delay
by either party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any right,
power or privilege.
15. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the internal laws of the Commonwealth of Pennsylvania.
The parties each hereby irrevocably submit to the exclusive jurisdiction of
any court of the Commonwealth of Pennsylvania or any federal court sitting in
the Commonwealth of Pennsylvania for the purpose of any suit, action or other
proceeding arising out of this Agreement.
16. Binding Effect and Assignment. This Agreement shall be binding
upon and inure to the benefit of and be enforceable by each of the parties
and their respective successors and assigns. This Agreement may not be
assigned by either party without the prior written consent of the other party,
provided that the other party shall not unreasonably delay or withhold such
consent in the event of an assignment in connection with a sale of the
requesting party's business.
8
<PAGE>
17. Dispute Resolution. If any dispute arises under this Agreement
(other than a claimed breach of the confidentiality obligations) that is not
settled promptly in the ordinary course of business, the parties shall seek
to resolve any such dispute between them, first, by face to face negotiations
between a senior management representative of each party with authority to
settle the disputed matter on behalf of such party. If the parties are unable
to resolve the dispute between them within ten business days (or such period
as the parties shall otherwise agree) through these face to face
negotiations, then any such dispute shall be submitted to non-binding
mediation with a professional mediator under the commercial mediation rules
of the American Arbitration Association.
18. Notices. All notices, requests, demands, waivers, consents,
approvals, or other communications which are required or permitted hereunder
shall be in writing and shall be deemed given if delivered personally, sent
by reputable overnight courier service (such as Federal Express), sent by
telecopier, or sent by registered or certified mail, return receipt
requested, postage prepaid, to the address set forth below:
If to Centocor,
200 Great Valley Parkway
Malvern, PA 19355
Attn:
Phone: 610-651-6000
Fax: 610-651-6100
If to MV or XL:
c/o MicroVision Medical Systems, Inc.
17304 North Preston Road, Suite 800
Dallas, TX 75252
Attn: Michael Shiff
Phone: 214-733-6520
Fax: 214-733-6533
With a copy to:
Safeguard Scientifics, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19007
Attn: General Counsel
Phone: 610-293-0600
Fax: 610-293-0601
9
<PAGE>
and
XL Vision, Inc.
10305 102nd Terrace
Sebastian, FL 32958
Attn: Bill Haskell, COO
Fax: 407-589-2049
or to such other address or telecopier number as the party entitled to
receive such notice may, from time to time, specify in writing to the other
party.
19. Severability. Any provision of this Agreement which is invalid or
unenforceable shall be ineffective to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable the
remaining provisions.
20. Contents of Agreement. This Agreement and the stock subscription
agreement entered into herewith set forth the entire understanding of the
parties hereto with respect to the transaction contemplated hereby and shall
not be amended or terminated except by a written instrument duly executed by
each of the parties hereto. Any and all prior or contemporaneous agreements
or understandings between the parties regarding the subject matter hereof are
superseded in their entirety by this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
CENTOCOR, INC. XL VISION, INC.
By: /s/ Warren Bogard By: /s/ John Scott
Warren C. Bogard, Jr., Ph.D.
Senior Vice President & General Manager
Diagnostics Division MICROVISION MEDICAL SYSTEMS, INC.
By: /s/ Douglas Harrington
10
<PAGE>
AMENDMENT AND SUPPLEMENT TO AGREEMENT
This Amendment and Supplement to Agreement ("this Amendment") is made this
25th day of February, 1997 by and among CENTOCOR, INC., a Pennsylvania
corporation ("Centocor"). XL Vision, Inc. a Delaware corporation ("XL"), and
MicroVision Medical Systems, Inc., a Delaware corporation ("MV").
Background
The parties to this Amendment are parties to an Agreement dated July 12,
1996 relating to their collaboration on the development of a system for the
rapid detection, identification and characterization of rare cellular events
in biological tissue specimens (the "Agreement"). The parties now desire to
amend and supplement the Agreement on the terms set forth in this Amendment.
Amendment
The parties hereto hereby agree to amend and supplement the Agreement as
follows, intending to be legally bound:
1. Definitions. All capitalized terms used in this Amendment and not
otherwise defined herein shall have the meaning set forth in the Agreement.
2. Maintenance and Support. The parties acknowledge and agree that MV
has performed all of its obligations under Sections 7.1 and 7.2 of the Agreement
and that the amount payable by Centocor for technical support services
rendered for the year 1996 in excess of the 80 man-hours per month referred
to in Section 7.2 shall be $43,500. Said amount is being paid by Centocor to
MV by delivery of a check concurrently with the execution and delivery of
this Amendment.
3. Additional Technical Support. MV will provide to Centocor additional
support services of the kind referred to in Sections 7.1 and 7.2 of the
Agreement, including reasonable traveling expenses, through September 30,
1997 at no charge. MV shall have no obligation to render any such services after
September 30, 1997 unless the parties otherwise agree in writing as to the
nature, extent and timing of the services and the amount to be paid therefor.
4. Software Development Services. MV will provide to Centocor up to 80
man-hours per month of software development services relating to the
MicroVision System, through December 31, 1997 at no charge. Such services
shall be rendered upon reasonable request by Centocor and at such times and
places as the parties may mutually agree. MV will also provide to Centocor
software development services in addition to said 80 man-hours per month at a
cost of $75.00 per hour plus reasonable and documented travel expenses
provided that the extent of such additional services requested is reasonable.
MV will bill Centocor for such additional services every three months, and the
amount payable for the services shall be due within thirty (30) days after
the receipt of such bill by Centocor.
<PAGE>
5. Credit for MicroVision Systems. Centocor will expressly recognize MV as
the owner of the technology incorporated into the MicroVision System in any
published paper, press release, brochure, other marketing materials, FDA or
other regulatory application or filing, or any slide or other presentation
relating to any Centocor procedure or product used with the MicroVision
System. Centocor owns all right, title and interest (including Intellectual
Property Rights) to the data and results of any clinical trial ("Clinical
Results") which is funded in whole or in part by Centocor and in which the
MicroVision Systems are utilized except that, if Centocor fails to file an
application for FDA approval for commercial distribution of at least one
Centocor reagent kit for use with the MicroVision System by December 31,
1997, MV will have the right to use the Clinical Results, that have been
generated up to that time and thereafter only as a result of the continuation
of clinical trials which are on going at that time, such use to be limited to
obtaining MV's own regulatory approvals for its products and services. In
addition, whether or not such an application is filed by December 31, 1997:
(a) In connection with MV's promotional and marketing activities and
materials, MV will have the right to identify the clinical trial sites
being utilized, describe the nature and results of the clinical trial
being undertaken, and the use of any abstract, publication, or any
other material arising from these clinical trails that becomes public
information provided that Centocor approves any such promotional and
marketing materials, such approval not to be unreasonably withheld and to
be deemed given if not denied in writing within fifteen (15) days after
Centocor receipt of written request therefor,
(b) if MV funds all or any part of any clinical trial in cash, MV will
have the unlimited right to use the Clinical Results from those trials
and
In the event that MV desires to use any Clinical Results for purposes other
than as permitted above, the terms under which those Clinical Results will be
used, shall be discussed and agreed upon by the parties hereto as needed.
Credit for Centocor Biological Preparation System. MV will expressly
recognize Centocor as the owner of the technology incorporated into the
Centocor Biological Preparation System in any published paper, press release,
brochure, other marketing materials. FDA or other regulatory application or
filing, or any slide or other presentation relating to any MV procedure or
product used with the Centocor Biological Preparation System.
6. Technical Specification. Centocor will provide to MV a technical
specification for proposed use of the MicroVision System by Centocor, which
MV will review. If and when MV accepts in writing such technical
specification, it shall become the specification for the MicroVision System
for all applications involving then existing reagent kits and components
proprietary to Centocor. Any further specifications for use of the
MicroVision Systems by Centocor shall be discussed and agreed upon by the
parties hereto as needed.
Except as otherwise provided in the Agreement and or the Amendment, if
sufficient mutual interest develops, MV and Centocor may enter into a
separate agreement which would set forth the terms of any further commercial
relationship.
<PAGE>
7. Instrument Repurchase. The Agreement is hereby amended to delete
therefrom all of Section 6 (including Sections 6.1 through 6.7), except
insofar as the terms defined therein are used elsewhere in the Agreement. MV
shall have no obligation to repurchase any of the XL MicroVision System
referred to therein.
8. Continued Effect of Agreement. Except as amended and supplemented by
this Amendment, the Agreement shall remain in full force and effect.
9. Entire Agreement. This Amendment, Agreement and the stock subscription
agreement entered into concurrently with the Agreement set forth the entire
understanding of the parties hereto with respect to the subject matter
thereof and such documents shall not be amended or terminated except by a
subsequent written instrument duly executed by each of the parties hereto.
Any and all agreements or understandings prior to or contemporaneous with
this Amendment between the parties regarding the subject matter hereof are
suspended in their entirety by this Amendment except that this Amendment
shall supersede the Agreement only to the extent set forth herein.
IN WITNESS WHEREOF, the parties have executed this Amendment on the date
first written above.
<TABLE>
<CAPTION>
CENTOCOR, INC. XL VISION, INC.
<S> <C> <C> <C>
By: /s/ David P. Holveck Date: 2-27-97 By: /s/ John Scott Date: 2-27-97
----------------------- ---------- --------------------------- --------
David P. Holveck John Scott
CEO CEO and Chairman
Centocor, Inc. XL Vision, Inc.
MICROVISION MEDICAL SYSTEMS, INC.
By: /s/ Douglas P. Harrington Date: 2-27-97
--------------------------- --------
Douglas S. Harrington, M.D.
CEO
MicroVision Medical Systems, Inc.
</TABLE>
<PAGE>
EXHIBIT 11.1
CHROMAVISION MEDICAL SYSTEMS, INC.
(Formerly MicroVision Medical Systems, Inc.)
(A Development Stage Enterprise)
Statement Re: Computation of Earnings Per Share
For the year ended December 31, 1996 and for
the three months ended March 31, 1997
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ ------------
<S> <C> <C>
Primary:
Net income (loss) applicable to common stock................... $(4,407,820) $(1,406,698)
------------ ------------
------------ ------------
Weighted average shares outstanding for primary:
Weighted average shares outstanding (1)........................ 10,850,080 11,127,393
Shares upon assumed exercise of stock options and
warrants issued within one year if initial public
offering (2)................................................ 1,261,500 1,152,938
------------ ------------
Weighted average shares........................................ 12,111,580 12,280,331
------------ ------------
------------ ------------
Primary net income (loss) per share.............................. $ (0.36) $ (.011)
------------ ------------
------------ ------------
</TABLE>
- ------------------------
(1) Conversion of outstanding Series A and B preferred shares at $1.25 common
shares for every preferred share is assumed.
(2) Options issued within one year of the initial filing of the accompanying
registration statement are assumed to be outstanding for all periods
using the modified treasury stock method at the assumed initial public
offering price, regardless of whether they are anti-dilutive.
<PAGE>
EXHIBIT 21.1
Subsidiaries
None.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" and "Selected Financial Data" in the
Prospectus.
KPMG Peat Marwick LLP
Orlando, Florida
April 30, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
ChromaVision Medical Systems, Inc. financial statements and is qualified
by reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 MAR-31-1997
<CASH> 124,092 65,100
<SECURITIES> 0 0
<RECEIVABLES> 550 550
<ALLOWANCES> 0 0
<INVENTORY> 502,511 468,411
<CURRENT-ASSETS> 799,590 921,243
<PP&E> 197,155 356,338
<DEPRECIATION> 116,315 125,920
<TOTAL-ASSETS> 880,430 1,187,343
<CURRENT-LIABILITIES> 1,729,928 3,251,223
<BONDS> 0 0
0 0
71,351 73,570
<COMMON> 19,313 19,313
<OTHER-SE> (1,746,171) (2,156,763)
<TOTAL-LIABILITY-AND-EQUITY> 880,430 1,187,343
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 4,407,420 1,384,420
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 22,278
<INCOME-PRETAX> (4,407,420) (1,406,698)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (4,407,420) (1,406,698)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,407,420) (1,406,698)
<EPS-PRIMARY> (0.36) (0.11)
<EPS-DILUTED> (0.36) (0.11)
</TABLE>
