<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 27, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
AUTOCYTE, INC.
(Exact name of Registrant as specified in its charter)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 3826 56-1995728
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification Number)
organization)
</TABLE>
------------------------
112 ORANGE DRIVE, ELON COLLEGE, NORTH CAROLINA 27244 (910) 584-0250
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------
JAMES B. POWELL, M.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AUTOCYTE, INC.
112 Orange Drive
Elon College, North Carolina 27244 (910) 584-0250
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
Copies to:
<TABLE>
<S> <C>
WILLIAM T. WHELAN, ESQ. JONATHAN L. KRAVETZ, ESQ.
PALMER & DODGE LLP MINTZ, LEVIN, COHEN, FERRIS,
One Beacon Street GLOVSKY AND POPEO, P.C.
Boston, Massachusetts 02108-3190 One Financial Center
(617) 573-0100 Boston, Massachusetts 02111
(617) 542-6000
</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. [ ]
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, 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,
check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==================================================================================================
Proposed maximum
Amount Proposed maximum aggregate
Title of each class of to be offering price offering Amount of
securities to be registered registered(1) per share(2) price(1)(2) registration fee
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value per
share........................... 3,565,000 $14.00 $49,910,000 $15,125
==================================================================================================
</TABLE>
(1) Includes 465,000 shares which the Underwriters may purchase to cover
over-allotments, if any. See "Underwriting."
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933.
------------------------
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 SECTION 8(A), MAY
DETERMINE.
================================================================================
<PAGE> 2
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.
SUBJECT TO COMPLETION, DATED JUNE 27, 1997
3,100,000 SHARES
[AUTOCYTE LOGO]
COMMON STOCK
The 3,100,000 shares of common stock, par value $0.01 per share (the
"Common Stock"), offered hereby (this "Offering") are being offered by AutoCyte,
Inc. ("AutoCyte" or the "Company"). Prior to this Offering, there has been no
public market for the Common Stock. It is currently estimated that the initial
public offering price will be between $12.00 and $14.00 per share. See
"Underwriting" for the factors to be considered in determining the initial
public offering price.
Application has been made to have the Common Stock approved for quotation
on the Nasdaq National Market under the symbol "ACYT."
FOR A DISCUSSION OF CERTAIN RISKS OF AN INVESTMENT IN THE SHARES OF COMMON
STOCK OFFERED HEREBY, SEE "RISK FACTORS" ON PAGES 7 TO 16.
------------------------
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>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS* COMPANY+
<S> <C> <C> <C>
Per Share................................ $ $ $
Total++.................................. $ $ $
</TABLE>
- ---------------
* The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
+ Before deducting expenses of this Offering payable by the Company estimated to
be $885,000.
++ The Company has granted the Underwriters a 30-day option to purchase up to
465,000 additional shares
of Common Stock on the same terms per share solely to cover over-allotments,
if any. If such option
is exercised in full, the total price to public will be $ , the
total underwriting discounts
and commissions will be $ and the total proceeds to Company will be
$ . See "Underwriting."
------------------------
The Common Stock is being offered by the Underwriters as set forth under
"Underwriting" herein. It is expected that delivery of the Common Stock offered
hereby will be made at the offices of Dillon, Read & Co. Inc., New York, New
York, on or about , 1997, against payment therefor. The Underwriters
include:
DILLON, READ & CO. INC. UBS SECURITIES
The date of this Prospectus is , 1997
<PAGE> 3
[See Description of Gatefold]
AutoCyte(R) and CytoRich(R) are registered trademarks of the Company. All other
trademarks and registered trademarks used in this Prospectus are the property of
their respective owners.
PREP AND SCREEN ARE INVESTIGATIONAL DEVICES AND HAVE NOT BEEN CLEARED OR
APPROVED BY THE FDA FOR COMMERCIAL SALE IN THE UNITED STATES. THE PROCESS OF
OBTAINING FDA CLEARANCE OR APPROVAL MAY BE LENGTHY, AND THERE CAN BE NO
ASSURANCE THAT PREP OR SCREEN WILL BE CLEARED OR APPROVED BY THE FDA.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
OVER-ALLOTMENT, STABILIZATION, SYNDICATE COVERING TRANSACTIONS AND IMPOSITION OF
PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
[Graphics on inside front cover (4 page gatefold) of Prospectus:
Inside Front Cover:
(i) picture of slide prepared by conventional Pap smear process and magnified
view of portion of such slide next to picture of slide prepared by AutoCyte
PREP and magnified view of portion of such slide with the words "Conventional"
and "AutoCyte PREP" superimposed across the applicable picture; presented
underneath the following: "AutoCyte PREP," "Automated Monolayer Sample
Preparation System," "designed to operate both as an independent sample
preparation system and in conjunction with AutoCyte SCREEN as an integrated
diagnostic tool" and
(ii) picture of PREP instrument presented next to the following:
Features Benefits
-------- --------
More complete liquid-based Minimizes lost diagnostic cells and
sample collection results in more representative sample
Discrete staining function Reduces cross-over contamination among
cell samples
Monolayer slide sample Creates more uniform cell sample for
interpretation and diagnosis
Batch processing and unattended Produces 48 slides per hour, enhances
PREP instrument operation laboratory productivity
Multiple testing capability Permits preparation of multiple
slides from a single sample for
additional slide-based testing
Integration with SCREEN Allows computer assisted analysis
Page 2 and 3 of Inside Front Cover Gatefold:
(i) title stating "AutoCyte PREP and SCREEN, The Integrated Cervical Cancer
Screening System" followed by the words
(ii) "Conventional Pap Smear Process" followed by (a) picture of clinician
smearing sample onto a slide, with the caption "Clinician Collects and Smears
Sample, Many diagnostic cells remain on brush, Cell distortion from air drying,
Variability in sample quality"; followed by (b) picture of stained slide, with
the caption "Manual Batch Staining, Inconsistent Staining and cell obscuration,
Lack of additional testing capability"; followed by (c) picture of person
viewing microscope with caption "Cytologist Manually Reviews Slide,
Fatigue-induced errors, Productivity constraints"; followed by (d) picture of
slides on a box with the caption "Slides Manually Archived"; followed by
(iii) the words "AutoCyte Integrated Screening System" followed by (a) picture
of a collection vial with the caption "Clinician Collects Sample/Places Sampling
Device in Vial, Substantially all diagnostic cells retained in vial of
proprietary fluid, virtually eliminates air drying"; followed by (b) picture of
slide prepared by PREP with the caption "PREP Prepares Monolayer Slide, More
uniform cell distribution, Standardized, discrete staining, Additional testing
capability"; followed by (c) picture of person viewing SCREEN monitor preceded
by the words "Manual or SCREEN System Review" and with the caption "SCREEN
Supports Cytologist Review, Proprietary interactive computer and cytologist
interpretation, Designed for improved productivity and more accurate screening";
followed by picture of computers with the caption "Image Electronically Archived
and/or Transmitted, Supplements manual storage, Electronic processing of normal
samples."
Inside Back Cover:
(i) picture of example of image of cells as presented by SCREEN preceded by
the title "AutoCyte SCREEN, Automated Image Analysis System, designed as an
interactive support tool for the cytology professional in the screening of
cervical cells" and
(ii) picture of person viewing SCREEN monitor next to the following:
Features Benefits
-------- --------
Complete Slide Examination on Reduces cytotechnologist screening
a High Throughput Basis time by up to 50%, thereby increasing
productivity
High Resolution Computer Images Enables easier examination of
diagnostic cells
Interactive Computer and Reduces false negative interpretation
Cytotechnologist Interpretation
Open Hardware Platform More flexibility with less
customization
Integration with PREP Allows computer assisted analysis
End of Gatefold Description]
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Financial Statements and Notes thereto appearing elsewhere in
this Prospectus. Except as otherwise noted, all information in this Prospectus
(i) assumes no exercise of the Underwriters' over-allotment option, (ii)
reflects a 1-for-2.033 reverse split of the Common Stock effected on June 27,
1997 and (iii) reflects the conversion of all outstanding shares of Series A
Convertible Preferred Stock (the "Series A Preferred Stock") into an aggregate
of 4,881,935 shares of Common Stock effective upon the closing of this Offering.
See "Description of Capital Stock," "Underwriting" and Notes to Financial
Statements. Where the context permits or requires, references to the Company
also include the cytology and pathology automation business as conducted by the
Company's predecessor, Roche Image Analysis Systems, Inc.
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in such forward-looking statements as a result of certain factors
discussed under "Risk Factors" and elsewhere in this Prospectus.
THE COMPANY
AutoCyte, Inc. ("AutoCyte" or the "Company") develops, manufactures and
markets the only integrated sample preparation and automated image analysis
system to support cytologists in cervical cancer screening. The Company's
integrated system is comprised of the AutoCyte PREP ("PREP") sample preparation
system and the AutoCyte SCREEN ("SCREEN") automated image analysis system. PREP
is a proprietary automated liquid-based sample preparation system that produces
slides with a homogeneous layer, or "monolayer," of cervical cells. The Company
believes PREP improves laboratory productivity and significantly reduces
interpretation errors by producing cell samples that are clearer, more uniform
and easier to interpret than conventional Pap smear samples. PREP is designed to
operate both as an independent sample preparation system and in conjunction with
SCREEN as part of an integrated diagnostic system. SCREEN is an automated image
analysis system which combines proprietary imaging technology and classification
software with off-the-shelf computer hardware to screen slides prepared using
PREP. SCREEN is designed to be an interactive support tool for the cytology
professional in the primary screening of cervical cells. By designing PREP and
SCREEN to function together, AutoCyte has developed a system which the Company
believes will operate with higher throughput and greater diagnostic sensitivity
than the conventional Pap smear test and other automated image analysis systems.
The Company has placed ten PREP systems for cervical cytology applications
in France, Switzerland and Australia which collectively have produced over
100,000 monolayer slides in the past 18 months. The Company has placed SCREEN
systems in clinical laboratories in Australia which have screened over 30,000
PREP slides in the past 18 months. The Company submitted a premarket approval
application ("PMA") for PREP to the United States Food and Drug Administration
(the "FDA") on May 12, 1997. The PREP PMA was accepted for substantive review by
the FDA on June 11, 1997. In notifying the Company that the PREP PMA had been
accepted for such review, the FDA informed the Company that the PMA would not be
submitted to its Medical Devices Advisory Panel for review since information in
the PMA substantially duplicated information previously reviewed by the panel.
The Company has also begun clinical trials for SCREEN and anticipates submitting
a PMA for SCREEN to the FDA by late 1997 or early 1998.
The PREP PMA was supported by the clinical testing of 8,983 patients from
eight clinical trial sites. Combining the data from all eight sites, PREP
demonstrated improvements in specimen adequacy relative to the conventional Pap
smear by reducing slides that were unsatisfactory for interpretation or that
were satisfactory but limited by certain factors by 39% and 44%, respectively.
PREP also demonstrated statistically significant improvements relative to the
conventional Pap smear in (i) screening sensitivity (the detection of disease),
(ii) reducing false negative diagnoses (the failure to detect cancerous or
precancerous cells) and (iii) reducing inconclusive diagnoses (the
classification of otherwise inconclusive cell samples as either normal or
abnormal). In further analysis
3
<PAGE> 6
of the clinical trial data after submission of the PMA to the FDA, the Company
sought to control for cytotechnologist bias by removing from the study all cell
samples from patients having a clinical history of abnormality on a previous Pap
smear slide. An analysis of the remaining cases revealed that PREP demonstrated
(i) improvement in specimen adequacy with a 45% reduction in slides that were
satisfactory but limited by certain factors, (ii) higher screening sensitivity
with a 17% improvement in the detection of disease and (iii) a 46% improvement
in the rate of cytotechnologist false negative diagnoses.
Cervical cancer is the second most common form of cancer among women
throughout the world. The World Health Organization estimates that worldwide
there were approximately 525,000 new cases of cervical cancer and approximately
247,000 deaths attributable to the disease in 1996. The American Cancer Society
estimates that, in the United States, approximately 14,500 new cases will be
diagnosed and 4,800 women will die of cervical cancer in 1997. Because treatment
of cervical cancer at an early stage is very often successful, regular cervical
cancer screening examinations are recommended in the United States and many
foreign countries. The Pap smear test is currently the most widely used
screening test for cervical cancer. It is estimated that clinical laboratories
in the United States perform over 50 million conventional Pap smears annually,
and the Company believes that the annual test volume outside of the United
States is in excess of 50 million tests.
Notwithstanding the success of the conventional Pap smear in reducing
deaths related to cervical cancer, the test has significant limitations which
result in inaccurate test results and inefficiencies in the health care system.
These limitations include inadequacies in sample collection and slide
preparation, as well as slide detection and interpretation errors, all of which
can lead to false negative and false positive diagnoses. In addition, the
conventional Pap smear slide cannot be used for additional diagnostic tests and
impedes laboratory productivity, increasing testing costs for clinical
laboratories and third-party payors. The Company believes that these limitations
contribute to an estimated $11.5 billion in annual costs associated with the
treatment in the United States of early stage cervical cancer that has
progressed undetected. Additional costs are also incurred by third-party payors
due to repeat testing and by clinical laboratories due to litigation associated
with incorrect diagnoses.
PREP has been designed to operate both as an independent sample preparation
system or in conjunction with SCREEN. The Company believes that the PREP system
offers advantages relative to both the conventional Pap smear process and
competing monolayer technologies. The system is designed to provide more
complete sample collection, improved sample quality and enhanced
cytotechnologist productivity. PREP also enables automated and discrete staining
and multiple testing capabilities that are not available with the conventional
Pap smear process. As compared to other monolayer technologies, PREP is more
automated and capable of higher throughput and has been designed to function
with SCREEN as an integrated diagnostic tool. PREP is currently capable of
preparing and discretely staining a total of 48 monolayer slides per hour.
SCREEN has been designed to function as an interactive, primary screening
support tool for the cytotechnologist, and may also serve quality control and
adjunctive testing purposes. SCREEN has the potential to screen an entire PREP
monolayer cell sample on a high throughput basis and to reduce false negative
diagnoses, thereby helping laboratories reduce regulatory compliance costs while
still improving diagnostic accuracy. The Company believes that SCREEN's
proprietary, interactive classification approach, which combines computer
analysis with expert review by the cytotechnologist, enhances decision making
ability and will improve the likelihood of acceptance by laboratory personnel.
SCREEN utilizes off-the-shelf computer hardware, which is expected to result in
a lower cost approach than other screening systems. SCREEN currently has the
capacity to process, in unattended operation, over 160 slides per 24-hour
period.
Autocyte's long-term strategy encompasses an initiative into the broader
pathology automation market. The introduction of SCREEN provides a platform for
additional future applications such as the Pathology Workstation, a flexible
computerized microscope. The Company has developed the Pathology Workstation
with applications such as image management, archiving and telecommunication and
4
<PAGE> 7
the automated relocation of cells previously detected and classified by SCREEN.
Additionally, the Company's research and development programs are focused on (i)
continued enhancement of the PREP instrument, related reagents and disposables
and further automation of the slide preparation and handling process, (ii)
continued development of the next generation SCREEN product and (iii)
development of additional Pathology Workstation applications to address the
needs of the broader pathology market.
AutoCyte was formed in October 1996 and on November 22, 1996 acquired
certain assets and related liabilities, including the PREP and SCREEN system
technologies, from Roche Image Analysis Systems, Inc. ("RIAS"). RIAS, a
wholly-owned subsidiary of Roche Holding Ltd. ("Roche"), acquired the underlying
technology for PREP and SCREEN in 1990 from a previous Roche subsidiary that
extensively supported university-based research in microscopic cell imaging and
cancer evaluation. From 1990 to 1996, Roche invested over $50 million in the
cytology and pathology automation business, including over $30 million since the
beginning of 1994.
The Company's executive offices are located at 112 Orange Drive, Elon
College, North Carolina 27244, and its telephone number is (910) 584-0250.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.................... 3,100,000 shares
Common Stock to be outstanding after this Offering..... 12,261,324 shares(1)
Use of proceeds........................................ To fund sales and marketing
activities, research and development,
capital expenditures, clinical
trials, working capital requirements
and other general corporate purposes
Proposed Nasdaq National Market symbol................. ACYT
</TABLE>
(1) Based on the number of shares outstanding at March 31, 1997. Excludes (i)
715,996 shares of Common Stock issuable upon the exercise of options
outstanding at March 31, 1997 at a weighted average exercise price of
$0.2033 per share, of which options to purchase 48,585 shares of Common
Stock were exercisable, and (ii) 207,292 shares of Common Stock issuable
upon exercise of warrants issued after March 31, 1997 at an exercise price
of $2.033, all of which are currently exercisable. See "Dilution,"
"Capitalization" and "Description of Capital Stock."
5
<PAGE> 8
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR(1) PRO FORMA
---------------------------------- COMBINED
PERIOD FROM AUTOCYTE PREDECESSOR AND THREE MONTHS ENDED
YEARS ENDED JAN. 1, PERIOD FROM AUTOCYTE MARCH 31,
DEC. 31, 1996 THROUGH NOV. 22, YEAR ENDED --------------------------
------------------- NOV. 21, 1996 THROUGH DEC. 31, 1996 1997
1994 1995 1996 DEC. 31, 1996 1996(2) (PREDECESSOR) (AUTOCYTE)
-------- -------- ------------ ------------- --------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales............. $ 3,396 $ 3,396 $ 1,747 $ 129 $ 1,876 $ 603 $ 383
Gross profit
(loss).......... 796 982 (1,050) 17 (1,032) 146 37
Research and
development..... 3,605 5,074 3,908 452 4,359 875 1,176
Selling, general
and
administrative... 8,479 7,895 11,966 494 12,460 612 1,200
Operating loss.... (11,288) (11,987) (16,923) (928) (17,851) (1,341) (2,338)
Net loss.......... $(11,288) $(11,987) $(16,923) $(886) $ (17,809) $(1,341) $ (2,230)
======== ======== ======== ===== ======== ===== ========
Net loss per
share(3)........ $ (1.73) $ (0.22)
======== ========
Shares used in
computing net
loss per
share(3)........ 10,311 10,311
======== ========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------------
ACTUAL AS ADJUSTED(4)
------- ------------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................................................... $ 7,812 $ 44,406
Working capital................................................................. 8,498 45,092
Total assets.................................................................... 11,582 48,176
Redeemable convertible preferred stock.......................................... 9,882 --
Total shareholders' equity...................................................... 75 46,551
</TABLE>
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(1) Reflects the operations of the Company's predecessor, the cytology and
pathology automation business of Roche Image Analysis Systems, Inc.
("RIAS").
(2) Reflects the operations of the cytology and pathology automation business as
conducted by RIAS from January 1, 1996 through November 21, 1996 and the
operations of the Company from November 22, 1996 through December 31, 1996.
z(3) See Note 8 of Notes to the Company's Financial Statements for information
concerning the computation of net loss per share and shares used in
computing net loss per share.
(4) As adjusted to give effect to sale of the 3,100,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $13.00 per
share and the application of the net proceeds therefrom. Also reflects the
automatic conversion of all outstanding shares of Series A Preferred Stock
into shares of Common Stock contemporaneously with the closing of this
Offering. See "Use of Proceeds" and "Capitalization."
6
<PAGE> 9
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following factors should be considered carefully in evaluating an investment in
the Common Stock.
EARLY STAGE OF DEVELOPMENT; LIMITED SALES TO DATE
The Company was formed in October 1996 and on November 22, 1996 acquired
the cytology and pathology automation business as conducted by Roche Image
Analysis Systems, Inc. ("RIAS"), a wholly-owned subsidiary of Roche Holding Ltd.
("Roche"). In connection with the acquisition, the Company formed a new
management team. Neither of the Company's two principal products, PREP or
SCREEN, has received FDA approval for its principal intended use. No significant
revenues have been generated from sales of those products and the Company's
Pathology Workstation has produced only limited revenues. Prior to November
1996, substantially all of the assets and business of the Company were owned by
RIAS, and the business was financed through contributions of capital by Roche
and limited product sales. Since November 1996, the Company has financed its
operations through private sales of equity securities and limited product sales
primarily outside of the United States. To achieve profitable operations, the
Company, alone or with others, must successfully develop, obtain regulatory
approval for, introduce, market and sell products. There can be no assurance
that the required regulatory approvals will be obtained in a timely manner, or
at all, that the Company's product candidates can be manufactured at an
acceptable cost and with acceptable quality, that any approved products can be
successfully marketed or that the Company can establish suitable internal
financial controls and other infrastructure necessary to conduct substantial
commercial operations. The failure to successfully market and sell the Company's
products would have a material adverse effect on the Company's future revenues
and profitability. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business."
UNCERTAINTIES REGARDING FDA APPROVAL
The Company must obtain approval of PMAs by the FDA before the Company's
products may be marketed in the United States for their primary intended use.
None of the Company's principal products has yet received such approval. A
failure or delay in receiving any such approval would have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company submitted a PMA for PREP to the FDA in May 1997 which was accepted
for substantive review by the FDA on June 11, 1997. Although the FDA informed
the Company that the PMA will not be submitted to its Medical Devices Advisory
Panel for review, there can be no assurance that the FDA will not change its
position and require review by the Panel, which could delay FDA review of the
PMA. The Company is currently conducting clinical trials for SCREEN and
anticipates submitting a PMA for SCREEN to the FDA by the end of 1997 or early
1998. There can be no assurance that these clinical trials will be completed or,
if completed, will be successful, or that any PMA for SCREEN will be submitted
to the FDA or, if submitted, will be accepted or approved and, if approved, will
be approved for desirable claims. The Company anticipates that certain Pathology
Workstation may also require FDA approval of PMAs or clearance of 510(k)s. In
addition to obtaining approval of the original or initial PMA, the FDA's
regulations require agency approval of a PMA supplement for certain changes if
they affect the safety and effectiveness of the device, including, but not
limited to: new indications for use; the use of a different facility or
establishment to manufacture, process or package the device; changes in
manufacturing methods or quality control systems; changes in vendors used to
supply components in the Company's products; changes in performance or design
specifications, and certain labeling changes.
The process of obtaining FDA approvals of PMAs for medical devices such as
the Company's products can be time-consuming, expensive and uncertain,
frequently requiring five to seven years or more from the commencement of
clinical trials to the receipt of PMA approval. The Company itself has only
limited experience in submitting or pursuing applications necessary to gain FDA
approval of a PMA. The Company may encounter unanticipated delays or significant
costs in its efforts to secure
7
<PAGE> 10
necessary approvals, and there can be no assurance that FDA approval of any PMA
will ever be obtained for any of the Company's products for any use or that, if
obtained, desirable claims will be allowed. The Company's analysis of data
obtained from preclinical and clinical studies is subject to confirmation and
interpretation by the FDA, which could delay, limit or prevent FDA approval of a
PMA. The studies are also subject to evaluation by the FDA for compliance with
its good clinical practice requirements, the results of which evaluation could
delay, limit, or prevent approval of a PMA. In addition, United States
legislative or administrative actions also could prevent or delay approval of
PMAs for the Company's product candidates. Even if FDA approval of a PMA is
obtained, such approval may include significant limitations on the indicated
uses for which a product may be marketed. A marketed product also is subject to
continual FDA and other regulatory agency review and regulation. Subsequent
discovery of previously unknown problems or failure to comply with the
applicable regulatory requirements can result in, among other things, fines, the
refusal of the FDA to approve PMAs, suspensions or withdrawals of approvals,
product recalls, operating restrictions, including total or partial suspension
of production, distribution, sales and marketing, injunctions, civil penalties,
product seizures and criminal prosecution of the Company, its officers and its
employees. The Company's failure to obtain or maintain FDA regulatory approval
for its products in a timely manner, or at all, would have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Government Regulation."
UNCERTAINTY OF MARKET ACCEPTANCE OF THE COMPANY'S PRINCIPAL PRODUCT CANDIDATES
The Company's success and growth will depend primarily on market acceptance
of PREP and SCREEN for their primary use in cervical cancer screening by
clinical laboratories, third-party payors and health care providers. Market
acceptance will depend on the Company's ability to demonstrate to these parties
that there are limitations in the conventional Pap smear process of sample
collection, slide preparation and screening, and that AutoCyte's products can
substantially overcome these shortcomings. There can be no assurance that the
Company will be able to successfully demonstrate that use of its products is
cost competitive compared to the use of the conventional Pap smear process.
Recently, other companies have introduced systems for screening conventional Pap
smear slides that such companies claim will substantially improve the likelihood
of an accurate diagnosis. The widespread adoption of such systems could impair
the Company's ability to market the Company's products and could have a material
adverse effect on the Company's business, financial condition and results of
operations. There can be no assurance that clinical laboratories, third-party
payors and health care providers will choose to accept the Company's products as
a replacement to conventional Pap smear collection and slide preparation
practices or alternative cervical cancer screening systems. Even if the
Company's products were to gain market acceptance, sales of the Company's
products would depend to a large extent on the availability and level of
reimbursement from third-party payors such as private insurance plans, managed
care organizations and Medicare and Medicaid. See "Business -- Marketing and
Sales," "-- Third-Party Reimbursement" and "-- Competition."
COMPETITION; TECHNOLOGICAL CHANGE
The cervical cancer diagnostic market is comprised of the widely used
conventional Pap smear procedure and alternative technologies, some of which
have already received FDA approval and are, in certain cases, considered
superior to the conventional Pap smear. The Company faces direct competition
from a number of publicly-traded and privately-held companies, including other
manufactures of monolayer slide preparation and automated screen imaging
systems. The Company competes on the basis of a number of factors in areas in
which the Company currently has limited experience, including manufacturing
efficiency, marketing and sales capabilities and customer service and support.
The Company's products could be rendered obsolete or uneconomical by
technological advances of the Company's current or potential competitors, the
introduction and market acceptance of competing products or by other approaches.
Many of the Company's existing and potential competitors have substantially
greater financial, marketing, sales, distribution and technical resources than
the Company, and more experience in research and development, clinical trials,
regulatory matters, customer
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support, manufacturing and marketing. In addition, many of these companies have
received third-party reimbursement for their products. The Company's primary
competitor in monolayer slide preparation is Cytyc Corporation ("Cytyc").
Cytyc's ThinPrep(R) 2000 is currently the only liquid based monolayer sample
preparation system approved by the FDA for cervical cytology applications. In
automated screening for cervical cancer, the Company faces direct competition
from a number of companies including NeoPath, Inc. ("NeoPath") and Neuromedical
Systems, Inc., both of which currently market imaging systems to reexamine or
rescreen conventional Pap smears previously diagnosed as negative. There can be
no assurance that the Company will be able to compete successfully against these
current or future competitors or that competition, including the development and
commercialization of new products and technologies, will not have a material
adverse effect on the Company's business, financial condition and results of
operations. In November 1996, Cytyc and NeoPath announced the completion of a
joint study of the feasibility of screening cervical specimens using Cytyc's
ThinPrep 2000 in conjunction with NeoPath's AutoPap(R) QC. The development and
commercialization of such a combined product could have a material adverse
affect on the Company's business, financial condition and results of operations.
See "Business -- Competition."
The medical device industry is characterized by rapid product development
and technological advances. The Company competes on the basis of a number of
factors in areas in which the Company currently has limited experience,
including manufacturing efficiency, marketing and sales capabilities and
customer service and support. In order to compete effectively, the Company will
need to continually and rapidly improve its products to compete with the
improvements made by its competitors.
HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE
PROFITABILITY
The Company and its predecessor have incurred substantial losses and, as of
March 31, 1997, had a combined pro forma accumulated deficit of approximately
$52 million. The Company's accumulated deficit since inception of approximately
$3.1 million has resulted primarily from expenses associated with research and
development activities, coordination of clinical trials, preparation and
submission of the PMA for PREP and general and administrative expenses. The
Company anticipates that its research and development and sales and marketing
expenses will increase significantly in the future and it expects to incur
substantial losses over the next several years. There can be no assurance that
the Company will ever be able to generate significant revenues from the sale of
products. Moreover, even if the Company generates significant product revenues,
there can be no assurance that the Company will be able to achieve or sustain
profitability. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
DEPENDENCE ON A LIMITED NUMBER OF PRODUCTS
The Company anticipates that sales and rentals of PREP and SCREEN for
cervical cancer screening will account for the substantial majority of the
Company's revenues if and when FDA approvals are obtained. The Company's
long-term success will depend, in significant part, on its ability to achieve
regulatory approval and market acceptance of PREP and SCREEN for such
applications. There can be no assurance that the Company will achieve such
regulatory approval and market acceptance for PREP and SCREEN, and the failure
to do so would have a material adverse effect on the Company's business,
financial condition and results of operations.
FUTURE CAPITAL NEEDS AND UNCERTAINTY OF AVAILABILITY OF ADDITIONAL FINANCING
Prior to being able to sustain its operations from the sale of its
products, the Company believes that it may require additional funds, through
lease arrangements, debt or equity financings, strategic alliances or otherwise,
to manufacture a sufficient inventory of PREP and SCREEN, finance the placement
of PREP and SCREEN instruments on customer sites, build the sales and marketing
force necessary for market penetration of PREP and SCREEN and other expenses.
The Company's future liquidity and capital requirements will depend upon
numerous factors, including: the progress and scope of clinical trials; the
timing and costs of filing future regulatory submissions; the timing and costs
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required to receive both United States and foreign governmental approvals; the
cost of filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights; the extent to which the Company's products gain
market acceptance; the timing and costs of product introductions; the extent of
the Company's ongoing research and development programs; the costs of training
laboratory personnel to become proficient with the use of the Company's
products; and, if necessary, once regulatory approvals are received, the costs
of developing marketing and distribution capabilities and manufacturing
sufficient inventories of PREP. There can be no assurance that additional
financing will be available on terms acceptable to the Company, or at all. The
Company's inability to fund its capital requirements would have a material
adverse effect on the Company's business, financial condition and results of
operations. To the extent that additional capital is raised through the sale of
equity or securities convertible into equity, the issuance of such securities
could result in dilution to the Company's existing stockholders. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON PATENTS, COPYRIGHTS, LICENSES AND PROPRIETARY RIGHTS; RISK OF
THIRD-PARTY CLAIMS OF INFRINGEMENT
The Company relies on a combination of patents, trade secrets, copyrights
and confidentiality agreements to protect its proprietary technology, rights and
know-how. The Company holds four issued United States patents and corresponding
foreign patent applications and has one United States patent application
pending, relating to various aspects of the Company's products. There can be no
assurance, however, that pending patent applications will ultimately issue as
patents or that the claims allowed in any of the Company's existing or future
patents will provide competitive advantages for the Company's products or will
not be successfully challenged or circumvented by competitors. Under current
law, patent applications in the United States are maintained in secrecy until
patents are issued and patent applications in foreign countries are maintained
in secrecy for a period after filing. The right to a patent in the United States
is attributable to the first to invent, not the first to file a patent
application. The Company cannot be sure that its products or technologies do not
infringe patents that may be granted in the future pursuant to pending patent
applications or that its products do not infringe any patents or proprietary
rights of third parties. The Company is aware that several of its competitors
hold several patents relating to automated screening. Based on the advice of
counsel, the Company believes that PREP and SCREEN do not infringe these
third-party patents and that certain of these third-party patents may be
invalid. However, there can be no assurance that a court would rule that the
Company's products do not infringe such third-party patents or would invalidate
such third-party patents. The Company may incur substantial legal fees in
defending against a patent infringement claim or in asserting claims of
invalidity against such third-party. In the event that any relevant claims of
third-party patents are upheld as valid and enforceable, the Company could be
prevented from selling its products or could be required to obtain licenses from
the owners of such patents or be required to redesign its products to avoid
infringement. There can be no assurance that such licenses would be available
or, if available, would be on terms acceptable to the Company or that the
Company would be successful in any attempt to redesign its products or processes
to avoid infringement. The Company's failure to obtain these licenses or to
redesign its products would have a material adverse effect on the Company's
business, financial condition and results of operations.
There can be no assurance that the obligations of employees of the Company
and third parties with whom the Company has entered into confidentiality
agreements to maintain the confidentiality of trade secrets and proprietary
information will effectively prevent disclosure of the Company's confidential
information or provide meaningful protection for the Company's confidential
information if there is unauthorized use or disclosure, or that the Company's
trade secrets or proprietary information will not be independently developed by
the Company's competitors. The Company also holds unregistered copyrights on
documentation and operating software developed by it for its products. There can
be no assurance that any copyrights owned by the Company will provide
competitive advantages for the Company's products or will not be challenged or
circumvented by its competitors. Litigation may be necessary to defend against
claims of infringement, to enforce patents and copyrights of the Company,
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or to protect trade secrets and could result in substantial cost to, and
diversion of efforts by, the Company. There can be no assurance that the Company
would prevail in any such litigation. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights to the same extent as
do the laws of the United States. See "Business -- Patents, Copyrights, Licenses
and Proprietary Rights."
EXTENSIVE GOVERNMENT REGULATION
The Company's medical device products and manufacturing facilities are
subject to stringent regulation by the FDA and by comparable authorities in
other countries. Pursuant to the Federal Food, Drug, and Cosmetic Act (the "FDC
Act") and the regulations promulgated thereunder, the FDA regulates the
preclinical and clinical testing, manufacture, labeling, distribution, sale,
marketing, advertising and promotion of medical devices. There can be no
assurance that the Company will be able to obtain necessary regulatory approvals
or comply with regulatory requirements applicable to the Company's products in
the United States or internationally on a timely basis, or at all.
The FDC Act strictly prohibits the promotion by a company and any of its
distributors of approved medical devices for unapproved uses. Manufacturers of
medical devices are subject to strict federal regulations regarding validation
and the quality of manufacturing, including compliance with Quality Standards
("QS", formerly current good manufacturing practice or "GMP") regulations
relating to design, testing, control and documentation, among other things. The
Company's existing and future manufacturing facilities and manufacturing
processes for the Company's products for cervical cancer screening or other
applications will be required to comply with these and all other applicable FDA
regulations, and with regulations imposed by other governments. Ongoing
compliance with QS and other applicable regulatory requirements is monitored
through periodic inspections by state and federal agencies, including the FDA,
and by comparable agencies in other countries. Failure to comply with applicable
United States and international regulatory requirements can result in the
refusal of the relevant government agency to grant premarket approval for
devices, suspension or withdrawal of approval, total or partial suspension of
production, fines, injunctions, civil penalties, recall or seizure of products,
and criminal prosecution of a company and of its officers and employees.
Furthermore, changes in existing regulations or adoption of new regulations or
policies could prevent the Company from obtaining, or affect the cost and timing
of, future regulatory approvals or clearances.
The Company has only limited experience in complying with regulations
governing its products and manufacturing facilities. Monitoring and maintaining
compliance with government regulations will require substantial resources of the
Company and may, at times, divert the attention of employees of the Company from
other functions of the Company's operations. Even a temporary suspension of
production imposed by regulatory authorities could have a material adverse
effect on the Company as a result of the loss of business during the period of
such suspension and potential damage to the Company's reputation with its direct
customers, third-party payors, the medical community at large and regulatory
authorities. The withdrawal of regulatory approval to market any of the
Company's products would have a material adverse effect on the Company's
business, financial condition and results of operations.
The laboratories that would purchase the Company's products are subject to
extensive regulation under the Clinical Laboratory Improvement Amendments of
1988 ("CLIA"), which requires laboratories to meet specified standards in the
areas of personnel qualifications, administration, participation in proficiency
testing, patient test management, quality control, quality assurance and
inspections. The Company believes that its products operate in a manner that
will allow laboratories purchasing the Company's products to comply with CLIA
requirements. However, there can be no assurance that interpretations of current
CLIA regulations or future changes in CLIA regulations would not make compliance
by the laboratory difficult or impossible and therefore have an adverse effect
on sales of the Company's products. See "Business -- Government Regulation."
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DEPENDENCE ON THIRD-PARTY REIMBURSEMENT.
Sales of the Company's products for cervical cancer screening in the United
States and other countries will depend on the availability of adequate
reimbursement from third-party payors such as private insurance plans, managed
care organizations, and Medicare and Medicaid. There is significant uncertainty
concerning third-party reimbursement for the use of any medical device
incorporating new technology. There can be no assurance that third-party payors
will provide such coverage, that reimbursement levels will be adequate, or that
health care providers or clinical laboratories will use the Company's products
for cervical cancer screening in lieu of the conventional Pap smear.
Reimbursement by a third-party payor depends on a number of factors, including
the level of demand by physicians and the payor's determination that use of the
Company's products represent clinical advances compared to current technology,
are safe and effective, medically necessary, appropriate for specific patient
populations and cost-effective. Because the up-front, direct costs of using the
Company's products will initially be greater than the cost of the conventional
Pap smear, the Company will need to convince third-party payors that the overall
cost savings resulting from earlier detection of cervical cancer and reduction
of unnecessary biopsies and colposcopies through improved specimen adequacy and
otherwise, will more than offset the cost of the Company's products. Since
reimbursement approval is required from each payor individually, seeking such
approvals is a time-consuming and costly process which requires the Company to
provide scientific and clinical data to support the use of the Company's
products to each payor separately. There can be no assurance that third-party
reimbursement will be available for PREP or SCREEN or any other products that
may be developed by the Company, or that such third-party reimbursement, if
obtained, will be adequate.
A critical component in the reimbursement decision by most private
insurers, state Medicaid agencies, and the United States Health Care Financing
Administration, which administers Medicare, is the assignment of a Current
Procedural Terminology ("CPT") code which is used in the submission of claims to
insurers for reimbursement for medical services. CPT codes are assigned,
maintained and revised by the CPT Editorial Board administered by the American
Medical Association. The Company is aware that certain clinical laboratories
using other gynecological monolayer systems have received reimbursement from
certain third-party payors using existing CPT codes. The Company believes that
the CPT Editorial Board is considering modifying an existing CPT code or
establishing a separate CPT code which will be broad enough to include the PREP
system. There can be no assurance, however, that the CPT Editorial Board will
modify or establish such a CPT code on a timely basis, if at all. Failure to
secure a modification to an existing code or secure the establishment of a
separate code from the CPT Editorial Board could have a material adverse effect
on the Company's business, financial condition and results of operations.
The Company has very limited experience in obtaining reimbursement for its
products in the United States or other countries. In addition, third-party
payors are routinely limiting reimbursement and coverage for medical devices and
in many instances are exerting significant pressure on medical suppliers to
lower their prices. Lack of or inadequate reimbursement by government and other
third-party payors for the Company's products would have a material adverse
effect on the Company's business, financial condition and results of operations.
Furthermore, health care reimbursement systems vary from country to country, and
there can be no assurance that third-party reimbursement will be made available
at an adequate level, if at all for the Company's products under any other
reimbursement system. See "Business -- Third-Party Reimbursement."
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on the principal members of its management
and technical staff, the loss of whose services might impede achievement of the
Company's strategic objectives. The Company's success will depend on its ability
to retain key employees and to attract additional qualified employees. In
addition, the Company intends to hire a significant number of additional sales
and marketing and other personnel in late 1997 and thereafter. Competition for
such personnel is intense, and there can be no assurance that the Company will
be able to retain existing personnel or to attract,
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assimilate or retain additional highly qualified employees in the future. An
inability to hire and retain qualified personnel in key positions would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Employees" and "Management -- Executive
Officers and Directors."
INTERNATIONAL SALES AND OPERATIONS RISKS
The Company is currently selling its products to customers in France,
Switzerland and Australia and intends to substantially expand its international
sales in the future. While the Company is evaluating marketing and sales
channels abroad, including contract sales organizations, distributors and
marketing partners, the Company has very limited foreign sales channels in
place. There can be no assurance that the Company will successfully develop
significant international sales capabilities or that, if the Company establishes
such capabilities, the Company will be successful in obtaining reimbursement or
any regulatory approvals required in foreign countries. International sales and
operations may be limited or disrupted by the imposition of government controls,
export license requirements, political instability, trade restrictions, changes
in tariffs, difficulties in staffing and managing international operations,
changes in applicable laws, less favorable intellectual property laws,
difficulties in staffing and managing foreign operations, longer payment cycles,
difficulties in collecting accounts receivable, fluctuations in currency
exchange rates and potential adverse tax consequences. Foreign regulatory
agencies often establish product standards different from those in the United
States and any inability to obtain foreign regulatory approvals on a timely
basis, if at all, could have a material adverse effect on the Company's
international business operations. Additionally, if significant international
sales occur, the Company's business, financial condition and results of
operations could be adversely affected by fluctuations in currency exchange
rates as well as increases in duty rates. There can be no assurance that the
Company will be able to successfully commercialize its products or any future
products in any foreign market. See "Business -- Marketing and Sales,"
"-- Third-Party Reimbursement" and "-- Government Regulation."
LIMITED MARKETING AND SALES EXPERIENCE
The Company currently has a limited marketing and sales force. In order to
effectively market the Company's products, the Company will need to
substantially increase its direct sales force. No assurance can be given that
the Company's direct sales force will succeed in promoting the Company's
products to clinical laboratories, health care providers or third-party payors,
or that additional marketing and sales channels will be successfully
established. In addition, due to limited market awareness of the Company's
products, the Company will be required to educate health care providers and
third-party payors regarding the clinical benefits and cost-effectiveness of the
Company's products. There can be no assurance that the Company will be able to
recruit and retain skilled marketing, sales, service or support personnel or
foreign distributors, or that the Company's marketing and sales efforts will be
successful. Failure to successfully expand its marketing and sales capabilities
in the United States and establish its marketing and sales organization
internationally would have a material adverse effect on the Company's business,
financial condition and results of operations. The Company's marketing success
in the United States and abroad will depend on whether it can obtain required
regulatory approvals, successfully demonstrate the cost-effectiveness of the
Company's products, further develop its direct sales capabilities and establish
arrangements with contract sales organizations, distributors and marketing
partners. Failure by the Company to successfully market its products would have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Marketing and Sales."
RISK ASSOCIATED WITH PRODUCT LIABILITY CLAIMS
The use of the Company's products in clinical trials and the commercial use
of any Company products that receive regulatory approval may expose the Company
to product liability claims. The Company currently has limited product liability
insurance. The medical device industry has experienced
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increasing difficulty in obtaining and maintaining reasonable product liability
coverage, and substantial increases in insurance premium costs in many cases
have rendered coverage economically impractical. There can be no assurance that
adequate product liability coverage will be available to the Company when needed
at a reasonable costs or that any product liability claim would not have a
material adverse effect on the Company.
LIMITED NUMBER OF CUSTOMERS
Due in part to a recent trend toward consolidation of clinical
laboratories, the Company expects that the number of potential domestic
customers for its products will decrease and, therefore, it is likely that a
significant portion of the Company's product sales will be concentrated among a
small number of large clinical laboratories. The Company will need to foster an
awareness of and acceptance by these potential customers of the Company's
products and the benefits of those products over the conventional and other
alternative methods of sample collection, slide preparation and cervical cancer
screening. Furthermore, in order to generate demand for the Company's products
among clinical laboratories, the Company will be required to educate physicians
and health care providers regarding the clinical benefits and cost-effectiveness
of the Company's products as well as to demonstrate to such parties that
adequate levels of reimbursement will be available for the Company's products.
The Company's dependence on sales to large laboratories may strengthen the
purchasing leverage of these potential customers. There can be no assurance that
the Company will be successful in selling its products to these large
laboratories or that any such sales will result in sufficient revenue to allow
the Company to become profitable. See "Business -- Marketing and Sales."
LIMITED MANUFACTURING EXPERIENCE
The Company intends to manufacture its CytoRich line of reagents and
stains, PREP, SCREEN and Pathology Workstation products. The Company has limited
commercial scale manufacturing experience and capabilities and the Company
anticipates it will be required to substantially scale up its manufacturing
capabilities. There can be no assurance that the Company will be able to recruit
and retain skilled manufacturing personnel to establish sufficient manufacturing
capability and capacity or manufacture the Company's products in a timely
manner, at a cost or in quantities necessary to make them commercially viable,
in conformance with QS requirements, or in a manner which otherwise ensures
product quality. See "Business -- Manufacturing."
DEPENDENCE ON SINGLE OR LIMITED SOURCE SUPPLIERS
Certain instrumentation for PREP and SCREEN is currently provided to the
Company on a single source basis from certain suppliers. In the event that the
Company is unable to obtain sufficient quantities of such components on
commercially reasonable terms, or in a timely manner, the Company would not be
able to manufacture its products on a timely and cost-competitive basis which
would have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, if any of the components of
PREP and SCREEN are no longer available in the marketplace, the Company may be
forced to further develop its technology to incorporate alternate components.
The incorporation of new components, or replacement components from an
alternative supplier, into the Company's products may require the Company to
submit PMA supplements to and obtain further regulatory approvals before
marketing the products with the new or replacement components. There can be no
assurance that such development to incorporate alternative components would be
successful or that, if developed by the Company or licensed from third parties,
such alternative components would receive FDA approval of PMA supplements on a
timely basis, or at all. See "Business -- Government Regulation."
CONTROL BY DIRECTORS AND OFFICERS AND SIGNIFICANT SHAREHOLDERS
Upon completion of this Offering, the present directors, executive officers
and principal stockholders of the Company and their affiliates will beneficially
own 75.0% of the outstanding Common Stock of the Company. As a result, these
stockholders will be able to control actions requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. Such
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concentration of ownership may have the effect of delaying or preventing a
change in control of the Company. See "Principal Stockholders."
ENVIRONMENTAL REGULATION
The Company is subject to a variety of local, state and federal government
regulations relating to the storage, discharge, handling, emission, generation,
manufacture and disposal of toxic, infectious or other hazardous substances used
to manufacture the Company's products. The failure to comply with current or
future regulations could result in the imposition of substantial fines against
the Company, suspension of production, alteration of its manufacturing processes
or cessation of operations. There can be no assurance that the Company will not
be required to incur significant costs to comply with any such laws and
regulations in the future, or that such laws or regulations will not have a
material adverse effect on the Company's business, financial condition and
results of operations. Any failure by the Company to control the use, disposal,
removal or storage of, or to adequately restrict the discharge of, or assist in
the cleanup of, hazardous chemicals or hazardous, infectious or toxic substances
could subject the Company to significant liabilities, including joint and
several liability under certain statutes. The imposition of such liabilities
would have a material adverse effect on the Company's business, financial
condition and results of operations.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Future sales of Common Stock in the public market following this Offering
could adversely affect the market price of the Common Stock. Upon completion of
this Offering, the Company will have 12,261,324 shares of Common Stock
outstanding, assuming no exercise of currently outstanding options and warrants.
Of these shares, the 3,100,000 shares sold in this Offering (plus any additional
shares sold upon exercise of the Underwriters' over-allotment option) will be
freely tradable, without restriction under the Securities Act of 1933, as
amended (the "Securities Act"), except for shares purchased by "affiliates" of
the Company as that term is defined in Rule 144 under the Securities Act. The
remaining 9,161,324 outstanding shares of Common Stock owned by existing
shareholders, together with 991,848 shares and 207,292 shares of Common Stock
issuable upon the exercise of outstanding options and warrants, respectively are
deemed "Restricted Shares" under Rule 144. Of these shares, approximately 48,862
shares of Common Stock will be eligible for sale under Rules 144 and 701 under
the Securities Act on the ninety-first day after the effectiveness of this
Offering. Stockholders of the Company, holding in the aggregate 9,161,324 shares
of Common Stock, warrants to purchase 207,292 shares of Common Stock and options
to purchase 774,712 shares of Common Stock have agreed, subject to certain
limited exceptions, not to sell or otherwise dispose of any of the shares held
by them as of the date of this Prospectus for a period of 180 days after the
date of this Prospectus (the "lock-up period") without the prior written consent
of the representatives of the Underwriters of this Offering. However, the
representatives of the Underwriters may in their sole discretion and at any time
without notice, release all or any portion of the securities subject to lock-up
agreements. At the end of the aforementioned lock-up period, an additional
9,589,288 shares of Common Stock (including 427,964 shares of Common Stock
issuable upon exercise of vested options and outstanding warrants) will be
eligible for immediate resale, subject to compliance with Rules 144 and Rule 701
under the Securities Act. Approximately 9,161,324 shares of Common Stock held by
existing stockholders will become eligible for sale at various times over a
period of less than one year and could be sold earlier if the holders exercise
any available registration rights. The holders of 9,161,324 shares of Common
Stock have the right in certain circumstances to require the Company to register
their shares under the Securities Act for resale to the public beginning at the
end of the lock-up period. If such holders, by exercising their demand
registration rights, cause a large number of shares to be registered and sold in
the public market, such sales could have an adverse effect on the market price
for the Company's Common Stock. If the Company were required to include in a
Company-initiated registration shares held by such holders pursuant to the
exercise of their piggyback registration rights, such sales may have an adverse
effect on the Company's ability to raise needed capital. In addition,
approximately 90 days after the date of this Prospectus, the Company expects to
file a registration statement on Form S-8 registering a total of approximately
2,186,325 shares of Common
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Stock subject to outstanding stock options or reserved for issuance under the
Company's Amended and Restated 1996 Equity Incentive Plan and 1997 Director
Stock Option Plan. See "Management -- Director Compensation," "-- Stock Plans,"
"Shares Eligible for Future Sale" and "Underwriting."
NO PRIOR PUBLIC MARKET FOR THE COMPANY'S COMMON STOCK; POSSIBLE VOLATILITY OF
SHARE PRICE
Prior to this Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or be sustained after this Offering. The initial public offering price will be
determined through negotiations among the Company and the representatives of the
Underwriters based on several factors and may not be indicative of the market
price of the Common Stock after this Offering. The market prices of the capital
stock of medical technology companies have historically been very volatile, and
the market price of the shares of Common Stock may be highly volatile. The
market price of the shares of the Common Stock may be significantly affected by
factors such as the results of clinical trials by the Company or its
competitors, concerns as to the safety or efficacy of products of the Company or
its competitors, actual or anticipated fluctuations in the Company's operating
results, announcements of technological innovations, new products or new
contracts by the Company or its competitors, developments with respect to
patents or proprietary rights, conditions and trends in the medical device and
other technology industries, adoption of new accounting standards affecting such
industries, changes in financial estimates by securities analysts, general
market conditions and other factors. In addition, the stock market has from time
to time experienced significant price and volume fluctuations that have
particularly affected the market prices for the common stock of development
stage companies. These broad market fluctuations may adversely affect the market
price of the Common Stock. In the past, following periods of volatility in the
market price of a particular company's securities, class action securities
litigation has often been brought against such company. Such litigation, if
brought against the Company, could result in substantial costs and a diversion
of management's attention and resources and could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Underwriting."
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BY-LAW PROVISIONS AND DELAWARE LAW
The Company's Restated Certificate of Incorporation as it is proposed to be
amended and restated concurrently with the closing of this Offering (the
"Restated Certificate"), authorizes the Board of Directors to issue, without
stockholder approval, up to 1,000,000 shares of preferred stock ("Preferred
Stock") with voting, conversion and other rights and preferences that could
adversely affect the voting power or other rights of the holders of Common
Stock. The issuance of Preferred Stock or of rights to purchase Preferred Stock
could be used to discourage an unsolicited acquisition proposal. In addition,
the possible issuance of Preferred Stock could discourage a proxy contest, make
more difficult the acquisition of a substantial block of the Company's Common
Stock or limit the price that investors might be willing to pay for shares of
the Company's Common Stock. The Restated Certificate provides for staggered
terms for the members of the Board of Directors. A staggered Board of Directors
and certain provisions of the Company's By-laws (the "By-laws") and of Delaware
law applicable to the Company could delay or make more difficult a merger,
tender offer or proxy contest involving the Company. The Company, for example,
will be subject to Section 203 of the General Corporate Law of Delaware which,
subject to certain exceptions, restricts certain transactions and business
combinations between a corporation and a stockholder owning 15% or more of the
corporation's outstanding voting stock (an "interested stockholder") for a
period of three years from the date the stockholder becomes an interested
stockholder. These provisions may have the effect of delaying or preventing a
change of control of the Company without action by the stockholders and,
therefore, could adversely affect the price of the Company's Stock. See
"Management," "Description of Capital Stock -- Preferred Stock" and
"-- Anti-Takeover Measures."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution in the net tangible book value of their
investment from the initial public offering
16
<PAGE> 19
price. Additional dilution will occur upon exercise of outstanding options and
warrants. See "Dilution," "Description of Capital Stock -- Stock Purchase
Warrants" and "Shares Eligible for Future Sale."
ABSENCE OF DIVIDENDS
To date, the Company has neither declared nor paid any cash dividends on
shares of its Common Stock and does not anticipate paying any cash dividends in
the foreseeable future. See "Dividend Policy."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,100,000 shares of
Common Stock offered hereby are estimated to be $36,594,000 ($42,215,850 if the
Underwriters' over-allotment option is exercised in full), assuming an initial
public offering price of $13.00 per share, and after deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by the Company. The Company currently intends to use the net proceeds for sales
and marketing activities, research and development, capital expenditures for
materials and equipment components of PREP, funding of clinical trials in
support of regulatory and reimbursement approvals and for working capital and
general corporate purposes. The Company is not yet able to estimate precisely
the allocation of the proceeds among such uses, and the timing and amount of
expenditures will vary depending upon numerous factors. The Company's Board of
Directors and management retain complete discretion with respect to the
allocation of such proceeds and the timing of expenditures. Although the Company
may use a portion of the net proceeds for possible licensing or acquisition of
products and technologies that are complementary to those of the Company, or
acquisitions of businesses that are complementary to those of the Company, there
are no current plans or commitments in this regard. Pending such uses, the
Company plans to invest the net proceeds in investment grade, interest-bearing
securities. The Company intends to invest and use the proceeds so as not to be
considered an "investment company" under the Investment Company Act of 1940, as
amended.
In the next several years, the Company will require additional funds to
support its operating requirements or for other purposes and may seek to raise
such additional funds through equipment lease or debt financing, public or
private equity financing or from other sources. There can be no assurance that
additional financing will be available at all or that, if available, such
financing would be obtainable on terms favorable to the Company and would not be
dilutive. See "Risk Factors -- Future Capital Needs; Uncertainty of Additional
Funding" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain earnings for use in its business
and therefore does not anticipate paying cash dividends in the foreseeable
future. Payment of future dividends, if any, will be at the discretion of the
Company's Board of Directors after taking into account various factors,
including the Company's financial condition, operating results, current and
anticipated cash needs and plans for expansion.
17
<PAGE> 20
CAPITALIZATION
The following table sets forth, as of March 31, 1997, (i) the actual
capitalization of the Company and (ii) the capitalization of the Company on an
as adjusted basis to give effect to the issuance and sale by the Company of
3,100,000 shares of Common Stock (at an assumed initial public offering price of
$13.00 per share and after deducting underwriting discounts and commissions and
estimated offering expenses) and the conversion of all issued and outstanding
shares of Series A Preferred Stock into 4,833,119 shares of Common Stock. This
table should be read in conjunction with the Financial Statements of the Company
and the Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt(1).................................................. $ -- $ --
------- -------
Redeemable convertible preferred stock.............................. 9,882 --
Shareholders' equity:
Common Stock, $0.01 par value; 20,500,000 shares authorized;
4,279,389 shares issued and outstanding at December 31, 1996
and March 31, 1997 and 9,112,507 shares issued and outstanding
pro forma(2)................................................... 43 122
Additional paid-in capital........................................ 3,879 50,276
Deferred compensation............................................. (731) (731)
Accumulated deficit............................................... (3,116) (3,116)
------- -------
Total shareholders' equity..................................... 75 46,551
------- -------
Total capitalization...................................... $ 9,957 $46,551
======= =======
</TABLE>
- ---------------
(1) The Company established on June 27, 1997 a credit agreement of up to
$8,000,000 with certain existing stockholders. The credit agreement will
terminate upon the closing of this Offering. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Certain
Transactions."
(2) Excludes (i) 715,996 shares of Common Stock issuable upon exercise of
options outstanding at March 31, 1997 at a weighted average exercise price
of $0.2033 per share, of which options to purchase 48,585 shares of Common
Stock were exercisable, and (ii) 207,292 shares of Common Stock issuable
upon exercise of warrants issued after March 31, 1997 at an exercise price
of $2.033 per share, all of which are currently exercisable. See
"Management -- Stock Plans" and "Description of Capital Stock" and Note 7
of Notes to the Company's Financial Statements.
18
<PAGE> 21
DILUTION
The Company's net tangible book value as of March 31, 1997 was $9,957,171,
or $1.09 per share of Common Stock. Net tangible book value per share represents
the amount of total tangible assets, less total liabilities, divided by the
number of shares of Common Stock then outstanding after giving effect to the
conversion of all outstanding shares of Preferred Stock into shares of Common
Stock upon the completion of this Offering. After giving effect to the sale of
3,100,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $13.00 per share and after deduction of underwriting discounts
and commissions and estimated offering expenses payable by the Company, the
adjusted net tangible book value of the Company as of March 31, 1997 would have
been $46,551,171, or $3.81 per share of Common Stock. This represents an
immediate increase in net tangible book value of $2.72 per share to existing
investors and an immediate dilution of $9.19 per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............................. $13.00
Net tangible book value per share before this Offering.................. $1.09
Increase per share attributable to new investors........................ 2.72
-----
Adjusted net tangible book value per share after this Offering............... 3.81
------
Dilution per share to new investors.......................................... $ 9.19
======
</TABLE>
The following table summarizes as of March 31, 1997 the number of shares of
Common Stock purchased from the Company, the total consideration paid to the
Company and the average price paid per share by the existing stockholders and by
investors purchasing shares of Common Stock in this Offering (at the assumed
initial public offering price of $13.00 per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders....... 9,112,508 75% $13,020,000 24% $ 1.43
New investors............... 3,100,000 25 40,300,000 76 13.00
---------- ------- ----------- -------
Total.................. 12,212,508 100% $53,320,000 100%
========== ====== =========== ======
</TABLE>
The foregoing computations assume no exercise of (i) stock options
outstanding at March 31, 1997, at which date there were 715,996 shares of Common
Stock issuable upon exercise of outstanding options at a weighted average
exercise price of $0.2033 per share, of which options to purchase 48,585 shares
of Common Stock were exercisable, and (ii) warrants issued after March 31, 1997
to purchase 207,292 shares of Common Stock at an exercise price of $2.033 per
share, all of which are currently exercisable. See "Management -- Stock Plans"
and "Description of Capital Stock." To the extent such options and warrants are
exercised, there will be further dilution to new investors.
19
<PAGE> 22
SELECTED FINANCIAL DATA
The selected financial data presented below as of December 31, 1994 and
1995 and for the years ended December 31, 1994 and 1995 and for the period from
January 1, 1996 to November 21, 1996 are derived from Financial Statements of
the Company's predecessor entity, included elsewhere in this Prospectus, which
have been audited by Ernst & Young LLP, independent auditors. The selected
financial data presented below as of December 31, 1996 and for the period from
November 22, 1996 to December 31, 1996 are derived from Financial Statements of
the Company, included elsewhere in this Prospectus, which have been audited by
Ernst & Young LLP, independent auditors. The selected financial data as of March
31, 1997 and for each of the three month periods ended March 31, 1996 and 1997
have been derived from the Company's (or its predecessor entity's) unaudited
Financial Statements. In the opinion of management, the unaudited financial
statements include all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of the financial position and the results of
operations for these periods. Operating results for the three months ended March
31, 1997 are not necessarily indicative of the results that may be expected for
the entire year ending December 31, 1997. The data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Financial Statements, related Notes and other financial
information included herein.
<TABLE>
<CAPTION>
PREDECESSOR(1) AUTOCYTE PRO FORMA
---------------------------------- PERIOD FROM COMBINED
PERIOD FROM NOVEMBER 21, PREDECESSOR AND THREE MONTHS
YEARS ENDED JANUARY 1, 1996 AUTOCYTE ENDED MARCH 31,
DECEMBER 31, 1996 THROUGH THROUGH YEAR ENDED -------------------------
------------------- NOVEMBER 21, DECEMBER 31, DECEMBER 31, 1996 1997
1994 1995 1996 1996 1996(2) (PREDECESSOR) (AUTOCYTE)
-------- -------- ------------ ------------ ---------------- ------------ ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Sales............... $ 3,396 $ 3,396 $ 1,747 $ 129 $ 1,876 $ 603 $ 383
Gross profit
(loss)............ 796 982 (1,050) 17 (1,032) 146 37
Research and
development....... 3,605 5,074 3,908 452 4,359 875 1,176
Selling, general and
administrative.... 8,479 7,895 11,966 494 12,460 612 1,200
Operating loss...... (11,288) (11,987) (16,923) (928) (17,851) (1,341) (2,338)
Net loss............ $(11,288) $(11,987) $(16,923) $ (886) $(17,809) $ (1,341) $ (2,230)
======== ======== ======== ===== ======== ===== ========
Net loss per
share............. $ (1.73) $ (0.22)
======== ========
Shares used in per
share
calculations...... 10,311 10,311
======== ========
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR(1)
------------------------------
AUTOCYTE
DECEMBER 31, ------------------------------
------------------------------ DECEMBER 31, MARCH 31,
1994 1995 1996 1997
------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 8 $ 10 $ 9,517 $ 7,812
Working capital.................................. 1,600 3,585 10,673 8,498
Total assets..................................... 10,544 10,714 13,699 11,582
Redeemable convertible preferred stock........... -- -- 9,882 9,882
Total equity..................................... 8,966 10,002 2,250 75
</TABLE>
- ---------------
(1) Reflects the operations of the Company's predecessor, the cytology and
pathology automation screening business of RIAS.
(2) Reflects the operations of the cytology and pathology automation business as
conducted by RIAS from January 1, 1996 through November 21, 1996 and the
operations of the Company from November 22, 1996 through December 31, 1996.
20
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Financial
Statements and Notes thereto included elsewhere in this Prospectus. The
financial results for the years ended December 31, 1994 and 1995 and for the
period from January 1, 1996 through November 21, 1996 are for the business of
the Company as conducted by the Company's predecessor, the cytology and
pathology automation business of Roche Image Analysis Systems, Inc. ("RIAS").
For purposes of this discussion, information for the year ended December 31,
1996 combines financial results of the Company's predecessor and AutoCyte. The
following discussion contains forward-looking statements that involve risk and
uncertainties. The Company's actual results could differ materially from those
anticipated in such forward-looking statements as a result of certain factors
discussed under "Risk Factors" and elsewhere in this Prospectus.
Background
The Company was formed in October 1996 to acquire the cytology and
pathology automation business then owned by RIAS, a wholly-owned subsidiary of
Roche Holding Ltd. ("Roche"). Roche had previously operated such business as
part of Roche Biomedical Reference Laboratories, Inc., ("RBL"), a predecessor
company to Laboratory Corporation of America, Inc. ("LabCorp"), the largest
clinical laboratory chain in the United States and formerly a wholly-owned
subsidiary of Roche. The business was acquired from RIAS in November 1996 in
exchange for 3.7 million shares of the Company's Common Stock. Contemporaneously
with this acquisition, Ampersand Ventures and the Sprout Group, together with
certain members of the Company's management and other investors, purchased $9.8
million of redeemable convertible preferred stock of the Company. Included in
the management group making an equity investment in the Company was Dr. James B.
Powell, the Company's Chief Executive Officer and a former President and Chief
Executive Officer of LabCorp and RBL.
The PREP, SCREEN and Pathology Workstation technologies had been under
development by RIAS or other Roche affiliates for several years prior to the
acquisition. From 1990 to 1996, Roche invested more than $50 million in the
cytology and pathology automation business, including over $30 million since the
beginning of 1994.
The Company submitted a PMA for PREP to the FDA on May 12, 1997. The PREP
PMA was accepted for substantive review by the FDA by letter dated June 11,
1997. In this letter, the FDA informed the Company that the PMA would not be
submitted to its Medical Devices Advisory Panel for review since information in
the PMA substantially duplicated information previously reviewed by the panel.
The Company has begun clinical trials for SCREEN and anticipates submitting a
PMA for SCREEN to the FDA by late 1997 or early 1998.
RIAS began commercial sales of the Pathology Workstation and PREP in 1993
for non-cervical cytology applications and currently has an installed base of 35
PREP instruments for such applications. The Company has placed 10 PREP systems
for cervical cytology applications in France, Switzerland and Australia which
collectively have produced over 100,000 monolayer slides in the past 18 months.
The Company has placed SCREEN systems in clinical laboratories in Australia
which have screened over 30,000 PREP slides in the past 18 months. To date, the
substantial majority of the Company's revenues have been generated by Pathology
Workstation products. The Company cannot market the PREP or SCREEN system in the
United States for use in preparing and screening monolayer slides for cervical
cancer until PMA approvals are received from the FDA. The Company expects to
generate a substantial majority of its future revenues from the PREP and SCREEN
systems. The Company's long-term revenues and future success are substantially
dependent upon its ability to obtain regulatory approval for and market and
commercialize the PREP and SCREEN systems for cervical cancer screening in the
United States and abroad.
21
<PAGE> 24
The Company generates PREP revenue from both sales and system rentals. On
sales, customers purchase the instrument and make separate purchases of related
reagents and other disposables. On system rentals, the Company places the PREP
instrument on site without charge and customers are required to purchase a
minimum monthly quantity of reagents and other disposables. For SCREEN, the
Company intends to place instruments without charge at customer locations and to
charge customers on a per test, or Fee-Per-Use ("FPU"), basis. As an important
element of its business strategy, the Company intends to seek third-party
financing to support rentals of PREP and placements of SCREEN. There can be no
assurance that the Company will be able to obtain such financing or, if so, on
favorable terms. Failure to obtain such financing could have a material adverse
effect on the Company's business, financial condition and results of operations.
Since April 1, 1997 the Company has granted options under the 1996 Equity
Incentive Plan to acquire 274,469 shares of Common Stock at an exercise price of
$0.2033 per share. The Company also issued to certain members of management
99,250 shares of Series A Preferred Stock at a price of $1.00756 per share. The
Company recorded $1,416,400 of deferred compensation expense and $397,000 of
compensation expense with respect to these transactions. See Note 12 of Notes to
the Company's Financial Statements.
On June 27, 1997 the Company issued warrants to acquire 207,292 shares of
Common Stock at an exercise price of $2.033 per share as a commitment fee for a
credit agreement among the Company and certain of its principal stockholders.
The Company will record $1,475,000 of commitment fee expense with respect to
this transaction, all of which will be expensed in June 1997. See " -- Liquidity
and Capital Resources," "Certain Transactions" and Note 12 of Notes to the
Company's Financial Statements.
Future revenues and results of operations may fluctuate significantly from
quarter to quarter and will depend upon, among other factors, the timing and
outcome of the PREP PMA submission, the extent to which the Company's products
gain market acceptance, the timing and volume of sales and rental orders,
regulatory and reimbursement matters, progress of SCREEN clinical trials,
introduction of alternative technologies by competitors, pricing of competitive
products, the cost and effect of promotional discounts and marketing programs
adopted by the Company.
RESULTS OF OPERATIONS
Three months ended March 31, 1997 and March 31, 1996
Net sales. Net sales decreased by 36% from $603,000 for the three months
ended March 31, 1996 to $383,000 in the same period of 1997. This decrease in
net sales was primarily due to lower sales of Pathology Workstation-related
products. Gross profit decreased by 74% from $146,000 for the three months ended
March 31, 1996 to $37,000 in the same period of 1997, and gross margin decreased
from 24% for the three months ended March 31, 1996 to 10% in the same period of
1997. The decrease in gross margin was attributable to the effect of lower
manufacturing volumes on the absorption of fixed costs.
Total operating expenses. Total operating expenses increased by 60% from
$1.5 million for the three months ended March 31, 1996 to $2.4 million in the
same period of 1997. Research and development costs increased by 34% from
$875,000 for the three months ended March 31, 1996 to $1.2 million in the same
period of 1997, as a result of costs associated with the PREP clinical trials.
Selling, general and administrative ("SG&A") costs increased by 96% from
$612,000 for the three months ended March 31, 1996 to $1.2 million in the same
period of 1997.
Years Ended December 31, 1996 (Pro Forma Combined) and December 31, 1995
Net sales. Net sales decreased by 45% from $3.4 million in 1995 to $1.9
million in 1996. This decrease was primarily due to lower sales of Pathology
Workstation related products, including a decrease in such sales to LabCorp from
$598,000 in 1995 to $299,000 in 1996. Gross profit decreased by 205% from
$982,000 in 1995 to a loss of $1.0 million in 1996, and gross margin decreased
from 29%
22
<PAGE> 25
in 1995 to (55)% in 1996. The decrease in gross margin was attributable to the
effect of lower manufacturing volumes on absorption of fixed costs and the
write-off of obsolete inventory of $1.3 million.
Total operating expenses. Total operating expenses increased by 30% from
$13.0 million in 1995 to $16.8 million in 1996. Research and development costs
decreased by 14% from $5.1 million in 1995 to $4.4 million in 1996, as a result
of the purchase of certain product rights which were expensed as research and
development costs in 1995. SG&A costs increased by 58% from $7.9 million in 1995
to $12.5 million in 1996, as a result of the write-down of impaired assets.
Years Ended December 31, 1995 and December 31, 1994
Net sales. Net sales were unchanged from 1994 to 1995 at $3.4 million.
Sales to LabCorp decreased by 29% from $845,000 (including $621,000 of PREP and
SCREEN systems) in 1994 to $598,000 in 1995. The decrease in sales to LabCorp
was offset by an increase in sales of Pathology Workstation products to other
customers. Gross profit increased by 23% from $796,000 in 1994 to $982,000 in
1995, and gross margin increased from 23% in 1994 to 29% in 1995. The increase
in gross margin for 1995 relative to 1994 was primarily attributable to the
change in sales mix from lower margin general purpose image analysis instruments
sold through distributors to higher margin Pathology Workstation products sold
to end-users.
Total operating expenses. Total operating expenses increased by 7% from
$12.1 million in 1994 to $13.0 million in 1995. Research and development costs
increased by 41% from $3.6 million in 1994 to $5.1 million in 1995, as a result
of the aforementioned purchase of product rights charged to research and
development in 1995. SG&A costs decreased by 7% from $8.5 million in 1994 to
$7.9 million in 1995, as a result of the write-down of impaired assets.
INCOME TAXES
The Company has not generated any taxable income to date and, therefore,
has not paid any federal income taxes since its inception. Realization of
deferred tax assets is dependent on future earnings, if any, the timing and
amount of which are uncertain. Accordingly, valuation allowances, in amounts
equal to the net deferred tax assets as of March 31, 1997 and December 31, 1996,
have been established in each period to reflect these uncertainties.
At December 31, 1996, the Company had net operating losses, for tax
purposes, of approximately $1.0 million that may be carried forward to offset
future taxable income. This amount expires in 2011. Utilization of net operating
losses and any tax credit carryforwards are subject to complex treatment under
the Internal Revenue Code of 1986, as amended (the "Code"). Pursuant to Section
382 of the Code, the change in ownership resulting from this Offering and any
other future sale of stock may limit utilization of future losses in any one
year. The Company believes that the sale of Common Stock in this Offering will
not create any immediate limitations on the Company's utilization of net
operating losses.
LIQUIDITY AND CAPITAL RESOURCES
Since formation on October 24, 1996, the Company's expenses have
significantly exceeded its revenues, resulting in an accumulated deficit of $3.1
million as of March 31, 1997. The Company has funded its operations primarily
through the private placement of equity securities, resulting in net proceeds of
$9.9 million, and limited product sales. As of March 31, 1997, the Company had
cash and cash equivalents of $7.8 million. On June 27, 1997, the Company entered
into a credit agreement with Ampersand, Sprout and Dr. James B. Powell, the
Company's Chief Executive Officer, providing the Company with a credit agreement
for up to $8.0 million at an interest rate of prime plus 1%. As an up-front
commitment fee for this credit agreement, the Company issued to the lenders
warrants to purchase 207,292 shares of Common Stock at an exercise price of
$2.033 per share. The Company has agreed to issue to the lenders warrants for
661,576 additional shares of Common Stock at an exercise price of $2.033 per
share, issuable on a pro-rata basis as funds are drawn against the credit line.
23
<PAGE> 26
Assuming the closing of this Offering, the Company does not anticipate making
any borrowings under the agreement. The credit agreement will terminate upon the
closing of this Offering.
Cash used in the Company's operations was $1.6 million for the quarter
ended March 31, 1997, $447,000 from November 22 (inception) through December 31,
1996, and $10.0 million on a pro forma combined basis for 1996. The Company's
capital expenditures for the quarter ended March 31, 1997 and from inception
through December 31, 1996 were $99,000 and $48,000, respectively.
The Company believes that the anticipated net proceeds from this Offering
together with interest thereon, the Company's existing capital resources, and
anticipated additional debt and lease financing will be sufficient to enable the
Company to meet its future cash obligations through the next several years.
However, the Company's future liquidity and capital requirements will depend
upon numerous factors, including the timing of the Company's receipt of FDA
approval of its PMA for PREP, the availability of financing for the Company's
anticipated equipment lease and rental programs, the level of placements of
rental PREP systems and FPU SCREEN systems, the resources required to further
develop its marketing and sales capabilities domestically and internationally,
the resources required to expand manufacturing capacity, and the extent to which
the Company's products generate market acceptance and demand. In particular, if
the FDA approves the PREP PMA, the Company anticipates that marketing and sales
expenditures for the PREP market launch for gynecological monolayer uses in the
United States, capital expenditures associated with placements of PREP rental
units, and expenditures related to manufacturing and other administrative costs
will increase significantly. There can be no assurance that the Company will not
require additional financing or will not in the future seek to raise additional
funds through bank facilities, debt or equity offerings or other sources of
capital. Additional funding may not be available when needed or on terms
acceptable to the Company, which would have a material adverse effect on the
Company's business, financial condition and results of operations.
24
<PAGE> 27
BUSINESS
OVERVIEW
AutoCyte, Inc. ("AutoCyte" or the "Company") develops, manufactures and
markets the only integrated sample preparation and automated image analysis
system to support cytologists in cervical cancer screening. The Company's
integrated system is comprised of the AutoCyte PREP ("PREP") sample preparation
system and the AutoCyte SCREEN ("SCREEN") automated image analysis system. PREP
is a proprietary automated liquid-based sample preparation system that produces
slides with a homogeneous layer, or "monolayer," of cervical cells. The Company
believes PREP improves laboratory productivity and significantly reduces
interpretation errors by producing cell samples that are clearer, more uniform
and easier to interpret than conventional Pap smear samples. PREP is designed to
operate both as an independent sample preparation system and in conjunction with
SCREEN as part of an integrated diagnostic system. SCREEN is an automated image
analysis system which combines proprietary imaging technology and classification
software with off-the-shelf computer hardware to screen slides prepared using
PREP. SCREEN is designed to be an interactive support tool for the cytology
professional in the primary screening of cervical cells. By designing PREP and
SCREEN to function together, AutoCyte has developed a system which the Company
believes will operate with higher throughput and greater diagnostic sensitivity
than the conventional Pap smear test and other automated image analysis systems.
CERVICAL CANCER SCREENING MARKET
Cervical cancer is the second most common form of cancer among women
throughout the world. The World Health Organization estimates that worldwide
there were approximately 525,000 new cases of cervical cancer and approximately
247,000 deaths attributable to the disease in 1996. The American Cancer Society
estimates that, in the United States alone, approximately 14,500 new cases of
cervical cancer will be diagnosed and 4,800 women will die of cervical cancer in
1997. The factors associated with the development of cervical cancer are
believed to include sexual activity at an early age, multiple sexual partners, a
history of sexually transmitted disease and cigarette smoking. Recent studies
have also indicated that cervical cancer is linked to the presence of certain
strains of Human Papillomavirus ("HPV").
Cervical cancer is preceded by curable precancerous lesions that progress
without symptoms over a period of years until they become invasive, penetrating
the cervical epithelium (cellular covering) and entering the bloodstream or
lymph system. Treatment of early-stage noninvasive cervical cancer may be
accomplished through various low-risk and low-cost procedures designed to remove
the abnormal cells. Once the cancer reaches the invasive stage, however, the
patient's chances for recovery are diminished and more radical treatment, such
as a hysterectomy and chemotherapy or radiation therapy, is typically required.
These procedures are costly and may expose the patient to substantial physical
morbidity and psychological stress.
Because treatment of cervical cancer at an early stage is almost always
successful, early detection is critical to medical management of the disease.
Thus, regular cervical screening examinations are recommended in the United
States and many foreign countries. The conventional Pap smear is currently the
most widely used screening test for cervical cancer. This test was developed in
1943 by Dr. George Papanicolaou and has remained virtually unchanged for the
past 50 years. It is estimated that clinical laboratories in the United States
perform over 50 million conventional Pap smears annually. The Company believes
that annual test volume outside of the United States is in excess of 50 million
tests.
In the United States, although widespread and regular use of the
conventional Pap smear has contributed to a greater than 70% decrease in
mortality, the mortality rate from the disease has remained fairly constant
since 1970. The Company believes there are practical limitations to the
conventional Pap smear test. The Company also believes that these limitations
contribute to an
25
<PAGE> 28
estimated $11.5 billion of annual costs associated with the treatment of early
stage cervical cancer that has progressed undetected.
THE CONVENTIONAL PAP SMEAR PROCESS
Sample Collection and Slide Preparation
The conventional Pap smear process involves the science of cytology, which
includes the microscopic interpretation of precancerous, malignant and
morphological changes in cells. The conventional Pap smear process begins with
the collection of cervical cells during a gynecological examination. To obtain a
cervical cell sample, a sampling device is used by a clinician to scrape cells
from the surface of the cervix. The sample is then manually smeared onto a clean
microscope slide by the clinician, and the sampling device is discarded. The
clinician must then spray the slide within a few seconds with a fixative agent
to prevent damage to the cell specimen from air drying. The slide is then
submitted to a clinical laboratory. At the laboratory, the slides are manually
or mechanically stained in a batch process typically using common reservoirs of
staining reagents to enhance the visibility and morphologic presentation of the
cells.
Determination of Slide Sample Adequacy
Following staining of the slide sample, a cytotechnologist, a medical
professional with special training in the examination and interpretation of
human cells, conducts a microscopic review of a prepared slide to determine the
adequacy of the sample and the presence of abnormal cells. In determining slide
adequacy, cytotechnologists classify each slide into one of three categories:
(i) satisfactory for evaluation, (ii) satisfactory but limited by certain
characteristics ("SBLB"), or (iii) unsatisfactory for evaluation. The percentage
of unsatisfactory and SBLB slides varies widely among laboratories. In the
United States, approximately 1% to 2% of all conventional Pap smear slides are
classified as unsatisfactory and as many as 20% to 30% are classified as SBLB.
Frequent reasons for unsatisfactory or SBLB classifications include excess blood
or mucus or the presence of inflammatory cells which obscure the diagnostic
cells of interest, a lack of diagnostic cells and too few cells per slide.
Manual Slide Interpretation
After determining the adequacy of the slide, the cytotechnologist manually
screens each usable slide with a microscope to differentiate diseased or
abnormal cells from normal cells based on size, shape and structural details of
the cells and their nuclei. Typically, each conventional Pap smear slide is then
classified in accordance with the Bethesda System for Reporting Cervical/Vaginal
Cytological Diagnoses (the "Bethesda System"). The following table summarizes
the Bethesda System classification and other characteristics of all conventional
Pap smear slides prepared annually in the United States:
<TABLE>
<CAPTION>
BETHESDA
SYSTEM APPROXIMATE PRECANCEROUS/ CLINICAL
CLASSIFICATION INCIDENCE INTERPRETATION CANCEROUS ACTION
- ----------------------- ----------- --------------- -------------- -----------------------
<S> <C> <C> <C> <C>
Negative 90% Normal Not Cancerous Continued Regular
Testing
Atypical Squamous
Cells of Undetermined
Significance/Atypical
Glandular Cells of
Undetermined
Significance
("ASCUS/AGUS") 6% Equivocal Undetermined Repeat Testing/
Colposcopy/Biopsy
Low-grade Squamous
Intraepithelial
Lesion ("LSIL") 3% Abnormal Precancerous Colposcopy/Biopsy
High-grade Squamous
Intraepithelial
Lesion ("HSIL") 1% Abnormal Precancerous Colposcopy/Biopsy
Carcinoma < 1% Abnormal Cancerous Colposcopy/Biopsy
</TABLE>
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<PAGE> 29
ASCUS/AGUS slides contain abnormal cells that cannot be fully explained on
the basis of inflammatory or reactive processes, yet lack certain criteria for a
specific abnormal diagnosis. ASCUS/AGUS slides are generally not considered
precancerous. LSIL slides represent the lowest-grade precancerous state, with
cells characterized as exhibiting mild to moderate dysplasia or evidencing signs
of HPV. Dysplasia is a condition characterized by abnormally differentiated
cells that could either progress to a precancerous state or regress to a normal
state. HSIL slides contain precancerous cells characterized as exhibiting more
serious dysplasia or signs of HPV. All ASCUS/AGUS and abnormal slides are
referred to a pathologist for further review and final diagnosis. Women with
abnormal Pap smears may have to return to their physician's office for a repeat
Pap smear or to undergo costly colposcopy and biopsy procedures. A colposcopy
involves the use of a low magnification device by a physician to visually
examine the surface of the cervix. Based on the colposcopy results, a biopsy may
then be performed for a more definitive diagnosis.
LIMITATIONS OF THE CONVENTIONAL PAP SMEAR PROCESS
In spite of the success of the conventional Pap smear in reducing deaths
due to cervical cancer, the test has several limitations, including inadequacies
in sample collection and slide preparation, detection and interpretation errors,
inability to use the patient sample for additional diagnostic tests, and
productivity constraints on laboratories caused by regulatory compliance.
Inadequacies in the sample collection and slide preparation process cause many
inaccurate test results, including false negative and false positive diagnoses.
A false negative diagnosis, the failure to detect cancerous or precancerous
cells, may result in the progression of cervical cancer to a later stage of
development before being detected. As a result, more expensive and invasive
courses of therapy are required, and the likelihood of patient survival is
ultimately diminished. False negative rates of the conventional Pap smear vary
widely among laboratories, ranging from 5% to 55%, depending on such factors as
the skill and experience of the practitioner who collects the sample and
prepares the slide and the level of training of the cytotechnologist who reviews
the slide.
Studies suggest that approximately 60% of all false negative diagnoses are
attributable to inadequacies in sample collection and slide preparation;
approximately 40% are attributable to slide detection and interpretation errors.
False negative diagnoses have given rise to increasing levels of litigation in
recent years, resulting in significant litigation costs to clinical
laboratories. False positive diagnoses, the mistaken classification of normal
cells as precancerous, can result in unnecessary retesting, biopsies or other
procedures which are costly, invasive and often painful and stressful for
patients.
Inadequacies in Sample Collection and Slide Preparation
There are a variety of difficulties with the conventional Pap smear methods
of cell collection, cell transfer and slide preparation. A recent study
published in the American Journal of Clinical Pathology reported that, with a
conventional Pap smear, as much as 80% of the sample taken from a patient is not
transferred to the slide and remains on the discarded collection device. Because
the sample cells are not randomized across the collection device, the discarded
portion of the sample may contain abnormal cells necessary for an accurate
diagnosis.
In addition to the problem of cell transfer, the conventional Pap smear
slide preparation process produces inconsistent and non-uniform slides with
extreme variability in quality, often making examination difficult. The poor
quality of slides is often a result of the presence of blood, mucus,
inflammatory cells or other obscuring debris, cell clumping and air-drying of
the cell sample before it is suitably preserved or fixed. Air drying can cause
an artificial distortion in cell size and shape, which is a critical indicator
in determining whether abnormalities exist. The conventional Pap smear process
also includes batch staining which may result in cross-contamination among slide
samples.
The Company believes that these sample collection and slide preparation
limitations are responsible for a large percentage of slides being classified as
unsatisfactory and SBLB. Consequently, patients
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<PAGE> 30
are often subjected to the inconvenience of return office visits for repeat
testing and to the anxiety resulting from the cost and inconclusive nature of
the initial test. The Company estimates that annual costs to the U.S. health
care system of repeat testing due to unsatisfactory and SBLB slides are $50
million and $750 million, respectively.
Detection and Interpretation Errors
The process of manually screening and interpreting a conventional Pap smear
is complex and tedious, which can lead to detection and interpretation errors.
Cytotechnologists typically review between 50 and 100 slides per day. The review
process requires intense visual examination through a microscope of the slide
sample, each of which typically contains 50,000 to 300,000 cervical cells. This
review process is prone to error because of the complexity of properly
evaluating and categorizing subtle changes in the size and/or shape of cells and
their nucleii. The diagnostic cells can often be obscured by clumping and the
presence of debris, which increase the possibility that some percentage of
cells, including abnormal cells, will be missed.
Because almost 90% of all Pap smears in the United States are diagnosed as
negative, the process of identifying the abnormal samples requires constant
vigilance. Despite the diligence of cytotechnologists, the intense level of
concentration on such a high volume of cells over long periods of time results
in some risk of fatigue. This can contribute to the incidence of false negative
and false positive diagnoses.
Lack of Additional Testing Capability
The conventional Pap smear process does not permit additional or adjunctive
testing from the original patient sample. The ability to produce multiple slides
from a single sample could be used by clinical laboratories for follow-up
testing, quality control or proficiency testing. Recent studies have shown that
HPV DNA is present in most cases of HSIL lesions and in more than 90% of cases
of cervical cancer. These studies may suggest HPV testing is a less expensive
and less invasive follow-up procedure for women with a conventional Pap smear
classification of ASCUS/AGUS or LSIL, since 30% to 75% of these patients will
not have lesions that progress to high grade lesions or cancer.
Under the conventional Pap smear process, because the residual cell sample
is not saved, the patient must return to the physician's office to provide a
second sample if additional testing, such as HPV testing, is indicated. The
Company believes that the ability to access residual cellular material from the
original patient sample would allow more cost effective patient management for
inconclusive Pap smear tests.
Limitations on Clinical Laboratory Productivity
In 1988, to address, in part, accuracy and quality control concerns
associated with conventional Pap smears, Congress adopted the Clinical
Laboratory Improvement Amendments of 1988 ("CLIA"). CLIA regulations require
laboratories to rescreen 10% of the slides that are initially classified as
negative. In addition, CLIA regulations currently limit the number of slides
that may be screened per day by a cytotechnologist to 100. As a further quality
control measure, CLIA requires cytology laboratories to perform proficiency
testing and quality control by testing cytotechnologists in order to assure a
minimum level of competence and expertise. Certain states have also adopted
regulations further limiting the number of slides that may be manually examined
per day by a cytotechnologist. Compliance with the quality control provisions of
CLIA has resulted in substantial additional costs to clinical laboratories that
perform conventional Pap smear screening.
EMERGING CERVICAL CANCER SCREENING TECHNOLOGIES
In response to the limitations of the conventional Pap smear process, a
number of products have been developed to improve Pap smear screening and to
provide alternative approaches for cervical
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<PAGE> 31
cancer screening. In general, these products are focused on making the sample
collection process more efficient, improving slide specimen quality and
increasing the accuracy of screening diagnoses.
Automated Monolayer Slide Preparation
Monolayer slides minimize sample collection and slide interpretation
errors. In a monolayer slide preparation, the clinician takes a cell sample from
the cervix in a similar manner to the conventional Pap smear. Instead of
smearing the sample on a slide, the collection device is placed or stirred into
a liquid vial of preservative solution. This captures nearly all of the cells
from the collection device and preserves them, eliminating any obscuration from
air drying. The cervical cells are then separated from the preservative fluid
and deposited in a single, homogeneous layer on the slide. Monolayer slides have
less mucus and other debris that might make the slide difficult to review.
Currently, there is one monolayer preparation system that has been approved by
the FDA.
Automated Slide Screening
Computer imaging technologies are being developed for the primary screening
and quality control rescreening of Pap smears on a high throughput basis. These
computer process technologies typically involve the use of software algorithms
to analyze various characteristics of cell images that have been digitally
captured from a microscope slide. At least two such products have received FDA
approval for quality control rescreening and adjunctive testing of conventional
Pap smear slides.
HPV Testing
DNA testing systems have been developed to detect the presence of certain
strains of HPV. DNA HPV testing systems are designed to operate both
independently and as an adjunct to other cervical cancer screening systems.
Studies have shown a strong causal relationship between the presence of HPV and
cervical cancers and its precursors. Testing for HPV can thus be used as a
triage technique to follow up on inconclusive conventional Pap smear tests.
There is one HPV test that has been approved by the FDA.
THE AUTOCYTE SOLUTION
AutoCyte is the first company to develop an integrated sample preparation
and screening system for cervical cancer intended to address the limitations
inherent in the conventional Pap smear process. PREP is a proprietary,
automated, liquid-based sample preparation system which places a thin and
uniform layer of cells on a slide. PREP is designed to operate both as an
independent sample preparation system and in conjunction with SCREEN. SCREEN is
an automated image analysis system which combines proprietary microscopic image
analysis technology and classification software with off-the-shelf computer
hardware to screen slides prepared using the PREP system. SCREEN is designed to
be an interactive support tool for the cytology professional in the primary
screening of cervical cells, but will also support quality control and
adjunctive testing applications.
The AutoCyte PREP System
The Company's PREP system consists of a proprietary preservative fluid and
reagents, plastic disposables, and automated equipment for preparing a monolayer
of cervical cells on the microscope slide. The PREP slide process begins with
the clinician taking a patient's cervical sample using a conventional collection
device. The clinician then immediately places the collection device in a vial
containing the Company's proprietary CytoRich preservative fluid, thereby
retaining virtually all of the cells from the collection device. After receiving
the vial from the clinician, the laboratory thoroughly mixes the sample,
generating a randomized cell suspension, which is then removed from the vial
using the Company's patented syringe device and layered onto a proprietary
liquid density reagent in a plastic centrifuge tube. Batch centrifugation is
then conducted on the cell suspension to remove excess blood, inflammatory cells
and other debris from the sample.
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<PAGE> 32
Once centrifugation is completed, the lab technician places the tube
containing the separated diagnostic cells onto the automated PREP pipetting
station. PREP then distributes the cells in a thin monolayer on the microscope
slide and discretely stains the slide for subsequent analysis. A PREP slide
typically contains approximately 45,000 cells which are distributed uniformly
over a 13 mm diameter circle. PREP is currently capable of preparing and
discretely staining a total of 48 monolayer slides per hour.
The illustration below depicts the monolayer sample preparation procedure
using the PREP system.
[See Appendix]
PREP Advantages vs. the Conventional Pap Smear Process
The Company believes that PREP offers the following advantages over the
conventional Pap smear process:
- More Complete Sample Collection. Because the clinician places the
collection device directly into the PREP vial, the entire patient sample
is contained in the Company's proprietary preservative fluid. As a
result, the subsample on the monolayer preparation is more representative
of the entire patient specimen. As much as 80% of the cervical sample can
be inadvertently discarded after smearing the conventional Pap smear
sample onto the slide.
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<PAGE> 33
- Automated and Discrete Staining Function. PREP includes a discrete, or
individual, slide staining function performed by a computer-controlled
robotic pipetting station. Unlike conventional Pap smear slides that are
often manually stained in a batch process using common reservoirs of
staining reagents, PREP staining reagents are directly applied to
individual slides. As a result, staining reagents are not shared among
slides, which the Company believes should reduce the risk of cross-over
contamination among cell samples which can lead to inaccurate diagnoses.
- Improved Sample Quality. By eliminating variations in preparation
techniques and the fixative spraying step from the sample collection
process, PREP virtually eliminates air-drying, generates a more complete
fixation and provides a more standardized preparation process in a
controlled, laboratory environment. The more uniform cell sample
distribution also reduces cell clumping and obscuring by debris. The
Company believes that PREP's monolayer slides provide cytotechnologists
with samples that are clearer and easier to diagnose than conventional
Pap smear slides.
- Improved Cytotechnologist Productivity. In the Company's clinical
studies, laboratories using PREP have experienced a greater than 50%
increase in cytotechnologist screening productivity. The impact on
cytotechnologist efficiency is important to clinical laboratories because
of the growing shortage of qualified cytotechnologists in recent years
and the need to create and maintain a desirable working environment for
cytology professionals.
- Multiple Testing Capability. Because the Company's proprietary CytoRich
preservative system enables the patient sample to be preserved for
several months, it permits, if necessary, preparation of several slides
from a single sample. The Company believes that the ability to perform
additional slide-based tests using a single sample, together with the
improved quality of the slide itself, will reduce retesting expenses
typically associated with inconclusive Pap smear tests. The residual
patient sample can also be used for other diagnostic protocols such as
HPV testing.
PREP Advantages vs. Other Automated Sample Preparation Processes
The Company believes that PREP offers the following advantages over other
automated slide preparation processes:
- Familiarity with Sample Preparation Approach. The PREP centrifugation
and robotic liquid handling techniques are similar to procedures already
in use in clinical laboratories.
- Automated and Discrete Staining Function. Unlike other automated sample
preparation systems that rely on batch staining using common reservoirs
of staining reagents, PREP staining reagents are directly applied to
individual slides. As mentioned above, discrete staining offers several
benefits, including a reduced risk of cross-over contamination among cell
samples, less degradation of the staining solution, and less staining
time and lower costs.
- Improved Sample Quality. The PREP sample is processed through a series
of proprietary liquid-based reagents and centrifuge separation techniques
designed to isolate a high concentration of diagnostic cells. The only
currently FDA approved monolayer slide preparation system relies on
membrane filtration. The Company believes that its cell isolation process
more effectively controls the incidence of infectious agents,
inflammatory cells and other debris that may reduce the performance of
membrane filtration systems. The Company believes that, in populations in
which rates of gynecological infection are high, PREP's separation and
isolation process will result in a more representative slide sample which
should ultimately lead to a reduction in uncertain or incorrect
diagnoses.
- Higher Throughput. PREP has the capacity to produce 48 monolayer slide
preparations per hour, which represents higher throughput than other
available automated slide preparation systems. In addition to this
increased throughput, the PREP processing unit requires less oversight
than other automated systems.
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<PAGE> 34
- Integration with SCREEN. The Company has specifically designed PREP to
function with SCREEN, creating an integrated diagnostic tool which the
Company believes will operate with higher throughput and greater
diagnostic sensitivity than other systems which do not integrate the
slide preparation and screening functions.
The AutoCyte SCREEN System
SCREEN is an automated image analysis system which combines proprietary
imaging technology and classification software with off-the-shelf computer
hardware to screen slides prepared using the PREP system. SCREEN is designed to
function as an interactive, primary screening support tool for the
cytotechnologist, but may also serve quality control and adjunctive testing
purposes. SCREEN uses a series of proprietary algorithms to independently
classify cells and present the cytotechnologist with 120 images of the most
suspicious cells on the sample slide. SCREEN currently has the capacity to
process, in unattended operation, over 160 slides per 24-hour period.
SCREEN evaluates all areas of the PREP monolayer and presents
high-resolution, color images of suspicious cells in the sample. The
cytotechnologist is then able to undertake an independent analysis of these
selected cells to interpret each slide. Once the cytotechnologist inputs the
image assessment into the computer, SCREEN displays its interpretation for
comparison. Unless SCREEN and the cytotechnologist agree that the slide is
normal, the slide is referred to a senior cytotechnologist or pathologist for
reevaluation. Combining expert human review with unbiased computer
interpretation is a fundamental component of the Company's patented SCREEN
process.
The illustration below depicts the interaction between the cytotechnologist
and SCREEN in the SCREEN system's dual slide classification process.
[See Appendix]
SCREEN Advantages vs. the Conventional Pap Smear Process
The Company believes that its diagnostic system combining PREP and SCREEN
offers the following advantages over the conventional Pap smear process:
- More Complete Slide Examination on a High Throughput Basis. SCREEN is
designed to allow the cytotechnologist to review the monoloyer slide in
less than half the time now required for manual screenings of
conventional Pap smear slides.
- Presentation of High Resolution Computer Images. Using the SCREEN
system, cytotechnologists can control and display high resolution cell
images. SCREEN is designed to enable images of cells and abnormalities to
be enlarged and enhanced for easier examination. The system is designed
to identify and select for presentation only those cells that are most
pertinent to the diagnostic process. This process enables
cytotechnologists to concentrate on the most significant cells and
clusters, thereby reducing the complexity and tedious nature of manual
review. The Company believes that SCREEN will enable cytotechnologists to
reach cell classification decisions more quickly and efficiently.
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- Reduced Compliance Costs to Clinical Laboratories. CLIA allows monolayer
slides which result in cell dispersion on one-half or less of the total
available slide area to be screened at levels higher than the current 100
slide per day limit.
SCREEN Advantages vs. Other Automated Screening Processes
The Company believes that a diagnostic system combining PREP and SCREEN
offers several advantages over other screening systems designed to enhance or
replace conventional Pap smear testing.
- Integrated Approach. AutoCyte provides the only automated, integrated
cervical cancer screening system available today. By designing PREP and
SCREEN to work together, the Company has created a system which it
believes will operate with higher throughput and with greater diagnostic
sensitivity than other available systems or combinations of approaches.
- Interactive Approach. AutoCyte's proprietary approach to cervical cancer
screening combines review of high resolution cell images by a
cytotechnologist with SCREEN's independent computer classification of
each sample, resulting in what the Company believes is a more sensitive
detection of sample abnormalities. The integrated PREP and SCREEN system
is a diagnostic support tool designed to interact with cytotechnologists,
not replace them. By offering a system which supports the cytology
professional, AutoCyte believes its system will more readily receive
positive acceptance by laboratories compared to systems which replace or
create additional tasks for the cytotechnologist.
- Cost-Effective Approach. SCREEN uses off-the-shelf computer hardware
platform which is more flexible and requires less customization than
other automated screening devices. The Company believes that SCREEN's
open hardware configuration, combined with the utilization of PREP's
monolayer slides, will result in lower cost-per-test than other automated
screening processes.
AUTOCYTE PRODUCT SYSTEMS
PREP System
The PREP system consists of a proprietary CytoRich line of preservatives
and reagents, a variety of proprietary plastic consumable components, and the
customized PREP instrument. The CytoRich reagents include the preservative
fluid, density reagent and multiple stains. The plastic consumables include the
preservative vial, a patented disaggregating syringe, the slide settling column,
and pipette tip. The PREP instrument is a proprietary, computer-controlled
robotic pipetting station that has been specifically engineered for preparing
and discretely staining PREP slides. The instrument can be programmed to apply a
variety of different stains. A centrifuge can be provided by the Company as part
of the system. The PREP system can prepare up to 48 monolayer slide preparations
per hour. The resulting slides have a 13 mm diameter circle of cells in a
discretely stained monolayer containing an average of 45,000 cells per slide.
The Company holds a number of patents covering certain components of the PREP
system and the PREP slide preparation process. The Company has placed ten PREP
systems for cervical cytology applications in France, Switzerland and Australia
which collectively have produced over 100,000 monolayer slides in the past 18
months.
SCREEN System
The SCREEN system currently consists of a fully automated microscope, a
high capacity slide handler, an ultra high resolution digital color camera, a
high performance UNIX-based multi-processor and a high resolution monitor. The
SCREEN system uses proprietary cell population histogram analysis software. A
mechanical counter built into the SCREEN system allows the Company to monitor
the number of slides screened. The SCREEN system has been specifically designed
to process monolayer slides that have been prepared by the PREP system. The
SCREEN system can process slides and render slide classifications on a
continuous basis and is usually operated overnight. Up to 400
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PREP slides may be placed onto the fully automated SCREEN instrument for
unattended slide handling, identification and screening. The Company has placed
SCREEN systems in clinical laboratories in Australia which have screened over
30,000 PREP slides in the past 18 months.
AutoCyte Pathology Workstation
AutoCyte's long-term product strategy encompasses an initiative into the
broader pathology market. The acceptance of SCREEN lays the foundation for
additional future product lines such as the Pathology Workstation. The Pathology
Workstation is a flexible computerized microscope which supports a set of
PC-based applications, such as image telecommunications, archiving, image and
patient data management, automated relocating of cells and other supplemental
testing designed to complement and support the SCREEN system.
- Medical Information and Image Management. The AutoCyte Image Management
System ("AIMS") is an intelligent user interface which organizes images
and data using electronic folders. Diagnostic quality images can be
acquired and stored with patient information. Folders containing both
images and text can be incorporated into reports, or transmitted to a
specialist at a remote site during a telepathology consultation. This
folder concept combined with sophisticated search functionality provides
a powerful tool for managing medical images.
- Telepathology. AutoCyte LINK provides the ability to interactively
capture and transfer diagnostic quality images during an online
telepathology consultation. The system supports remote-consultation,
continuing education and access to opinions from experts in pathology
subspecialties.
- Image Titer. AutoCyte Image Titer enables the quantitative assessment of
anti-nuclear antibodies in a patient's blood specimen. This measurement
is essential in the evaluation of diseases such as lupus, rheumatoid
arthritis and other autoimmune disorders. The patented titration
emulation process is applicable to a wide range of fluorescence-based
serum antibody measurements.
The Company's strategy includes the development of additional applications
or modules to run on the proprietary Pathology Workstation platform which
support and integrate a systematic approach to diagnostic cytology and
pathology. These modules include quantitative DNA analysis, quantitative
immunocytochemistry, computer assisted tumor grading, fluorescence measurements,
slide mapping and computer supported manual cytology screenings.
NON-GYNECOLOGICAL PRODUCT APPLICATIONS
The Company began limited sales of PREP for non-gynecological cytology
applications in 1993. There are more than 35 PREP systems installed in clinical
laboratories and hospitals worldwide that are being used for non-gynecological
applications. These applications relate to cytology preparation from a wide
variety of specimen types, including urine, sputum, plural fluid, spinal fluid,
peritonial fluid and other body cavity fluids. Cell preparations from bronchial,
gastrointestinal and endometrial brushings and washings as well as fine needle
aspiration of specific organs are also addressed among these applications. The
Company has developed proprietary preservatives that are optimized for these
specific non-gynecological cytology preparations.
CLINICAL TRIALS AND REGULATORY STATUS
PREP System
Following completion of clinical trials for gynecological applications, the
Company submitted a PMA for PREP to the FDA on May 12, 1997, which was accepted
for substantive review by the FDA on June 11, 1997. Upon accepting the PREP PMA
for substantive review, the FDA informed the Company that the PMA would not be
submitted to its Medical Devices Advisory Panel for review since information in
the PMA substantially duplicated information previously reviewed by the panel.
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The clinical trial design followed draft guidelines which had been prepared
by the FDA and the protocol was reviewed by the FDA. The clinical trial was a
double-blinded, matched-pair study in which a conventional Pap smear and a PREP
monolayer slide derived from the same patient sample were reviewed and compared
by different cytotechnologists without knowledge of the other's interpretation.
In the clinical trial, the sample collected from the cervix was first smeared on
a slide to create a conventional Pap smear. The collection device with residual
sample material was then placed in the proprietary CytoRich preservative fluid
for later processing of a PREP slide. The two slides, prepared from the same
sample, were then used to compare PREP to the conventional Pap smear.
A total of 8,983 patients from eight clinical trial sites were included in
the primary data analysis of the clinical trial. Combining the data from all
eight sites, PREP demonstrated improvements in specimen adequacy relative to the
conventional Pap smear by reducing unsatisfactory and SBLB slides by 39% and
44%, respectively. The Company believes that PREP would have further reduced
unsatisfactory and SBLB slides if the sampling device had been immersed in the
CytoRich reagent directly, rather than after the preparation of a conventional
Pap smear slide, as was required by the clinical trial protocol.
PREP also demonstrated statistically significant improvements relative to
the conventional Pap smear in (i) screening sensitivity (the detection of
disease classified in the Bethesda System as LSIL or higher), (ii) reducing
false negative diagnoses (the failure to detect cancerous or precancerous cells)
and (iii) reducing inconclusive diagnoses (the classification of otherwise
inconclusive cell samples as either normal or abnormal).
In further analysis of the clinical trial data after submission of the PMA
to the FDA, the Company removed from the study all cell samples from patients
having a clinical history of abnormality on a previous Pap smear slide. The
Company's approach sought to eliminate any potential bias that might have
occurred as a result of the reviewing cytotechnologists exercising more than
their usual level of diligence in reviewing slides known to be from patients
having histories of abnormal smears. An analysis of the remaining cases revealed
that PREP demonstrated (i) improvement in specimen adequacy with a 45% reduction
in SBLB slides, (ii) higher screening sensitivity with a 17% improvement in the
detection of disease (LSIL or higher classification in the Bethesda System) and
(iii) a 46% improvement in the rate of cytotechnologist false negative
diagnoses.
The Company's analysis of data obtained from clinical studies is subject to
confirmation and interpretation by the FDA which could delay, limit or prevent
FDA approval of a PMA. The Company excluded approximately 1,350 specimens from
the study as noncompliant with protocol criteria. Based on its internal review
of these excluded specimens, the Company believes that the inclusion of these
specimens in the trial data would not have materially affected the data analysis
or other information included in the PREP PMA submission. If, however, the FDA
were to determine that these specimens should be included in the FDA's
statistical calculations, the PREP PMA and other claims may have to be revised.
SCREEN System
In October 1996, the Company began blinded clinical trials for SCREEN. This
clinical trial involves rescreening PREP slides from the PREP clinical trial
sites using the SCREEN system and comparing these results with the results from
a manual review of the PREP slides. The Company expects to complete this
clinical trial for primary screening and adjunctive testing and submit a PMA for
SCREEN to the FDA by the end of 1997 or early 1998. There can be no assurance
that this clinical trial will be completed or that any PMA for SCREEN will be
submitted to the FDA or if submitted will be accepted.
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Pathology Workstation
The Company has received FDA clearance of premarket notification ("510(k)")
covering Image Titer, an application for the Pathology Workstation currently
being sold by the Company. The Company believes that it will need to obtain
clearance of 510(k)s or approval of PMAs in the United States to market certain
additional Pathology Workstation applications currently being developed.
MARKETING AND SALES
Automated slide preparation and screening products have recently been
introduced into the cervical cancer screening market and the Company expects
that it will benefit from the increased awareness and acceptance of these new
technologies. AutoCyte's systems are already in various stages of evaluation and
use in major universities and laboratories in several countries. The Company
began limited commercial sales of PREP for use in non-gynecological applications
in 1993 and currently has installed over 35 PREP systems throughout the world.
The first commercial use of both PREP and SCREEN for cervical cancer screening
has begun in Australian laboratories.
The Company generates revenue from PREP on either a sale or a rental basis.
On a sale basis, customers purchase the instrument and make separate purchases
of reagents and other disposables. On a rental basis, the Company places the
PREP instrument on site without charge and customers are required to purchase a
minimum monthly quantity of reagents and other disposables. For SCREEN, the
Company intends to place instruments without charge at customer locations and to
charge customers on a per test, or Fee-Per-Use ("FPU"), basis. As an important
element of its business strategy, the Company intends to seek third-party
financing to support rentals of PREP and placements of SCREEN. There can be no
assurance that the Company will be able to obtain such financing or, if so, on
favorable terms.
Marketing Strategy
The Company expects to commence marketing PREP and SCREEN in the United
States for cervical cancer screening when and if FDA approval for cervical
cancer screening is obtained. PREP is designed to be sold as either a
stand-alone system or as an integrated system with SCREEN. The Company intends
to achieve market acceptance of PREP alone and then to target its PREP customer
base for its initial marketing efforts of SCREEN. The Company's marketing
strategy is to achieve broad market acceptance for the integrated PREP and
SCREEN system for cervical cancer screening. In implementing this strategy, the
Company will address the needs of the constituencies described below.
Large clinical laboratories. Conventional Pap smear testing has become a
concentrated market in the United States with three major clinical laboratories,
Laboratory Corporation of America Holdings Inc., Quest Diagnostics, Inc.,
formerly known as Corning Clinical Laboratories, Inc., and SmithKline Beecham
Clinical Laboratories, accounting for almost 18 million conventional Pap smears
annually. Other large testing laboratories, which perform more than 10 million
conventional Pap smears in the United States annually, account for another 20%
of the market, concentrating approximately 55% of cervical cancer test volume
among a relatively small number of large laboratories. AutoCyte believes that
PREP's high throughput will enable the Company to market PREP successfully to
this concentrated market segment and that pressures associated with rising
health care costs, rising litigation costs and the limited supply of qualified
cytotechnologists will facilitate adoption of PREP and SCREEN by the large
laboratory market. Large clinical laboratories have used centrifuges and
liquid-based analytical techniques for a variety of applications and,
accordingly, the Company believes that the familiar nature of its underlying
technologies will enable its products to be more readily accepted in the market
than products based on other technologies. Due to the concentrated nature of the
large clinical laboratory market, the Company believes that a relatively small
number of employees will be able to effectively market the Company's systems to
these customers.
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Medium and small clinical laboratories. The Company also intends to devote
a substantial portion of its marketing resources to targeting medium and small
clinical laboratories. Hospital consolidation, and particularly the
consolidation of laboratories of the larger hospitals, is creating a new medium
sized customer for the Company's products. The Company expects that the medium
and small clinical laboratory segment of the market generally will utilize the
Company's equipment rental program.
Third-party payors. To achieve market acceptance for its products, the
Company will need to ensure that the use of its products is supported by
third-party payors. The Company will promote the clinical and economic benefits
of its PREP and SCREEN systems to national managed care providers, major private
insurers and other third-party payors. The Company's cervical cancer screening
system will initially be more expensive than conventional Pap smear testing on a
per test variable cost basis. Because the up-front, direct costs of using the
Company's products will be greater than the cost of the Pap smear, the Company
will need to convince third-party payors that the overall cost savings,
resulting from earlier detection of cervical cancer, reduction of unnecessary
biopsies and colposcopies, improved specimen adequacy and otherwise, will more
than offset the cost of the Company's products. At least two of the Company's
competitors have achieved third-party reimbursement for products which are
similar to PREP and SCREEN. See "-- Third-Party Reimbursement."
Health care providers. The Company intends to promote the clinical and
economic benefits of PREP and SCREEN directly to gynecologists and primary care
physicians. AutoCyte's sales and marketing program will include a significant
educational effort to communicate the advantages of its integrated cervical
cancer screening system to the medical community.
Marketing and Sales Organization
The Company currently employs 14 persons worldwide to market, sell and
provide after sale support of its products. The Company anticipates that its
worldwide base of employees to market, sell and provide after sale support of
its products will grow to 35 to 40 individuals by the end of 1998.
In the United States, the Company plans to market its cervical cancer
screening system through a direct sales force, if PMA approvals are obtained.
The majority of the direct sales organization will focus on the laboratory
market to ensure appropriate market penetration, acceptance and availability of
the Company's products. A smaller, specialized sales force will focus all
efforts on managed care and other third-party payor organizations to ensure
appropriate reimbursement levels and to create demand for the products. Finally,
the Company will consider co-marketing agreements with sales organizations of
major reference laboratories and pharmaceutical manufacturers (with an emphasis
on women's health care products) sales organizations to market its products
directly to health care providers.
In international markets the Company markets and sells its products through
distributors. To support these efforts, the Company employs six people,
consisting of sales professionals, supporting product managers and after sales
support personnel located in Europe, Japan and Australia. The Company
anticipates that these distributor organizations will ultimately assume
responsibility for all sales and after sales support activities as well as a
portion of the Company's marketing activities. Both large distribution
organizations with products focused on the clinical diagnostic market and
smaller distribution organizations with products focused specifically on the
cytology market are being considered.
After sale support services, including customer training, product
installation, telephone technical support and repair service will be offered on
direct to customer basis in the United States. Personnel providing these
services will be located both at the Company's headquarters and in select major
metropolitan areas. Internationally, the Company plans to provide these services
through distributor organizations.
MANUFACTURING
The Company believes that its existing manufacturing and assembly processes
are adequate to meet the near-term, full-scale production requirements of PREP
for cervical cancer screening. The Company currently manufactures its CytoRich
line of reagents and stains for PREP at its facility in
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Burlington, North Carolina. The Company also assembles, tests and packages PREP
at the Burlington facility. The Company purchases the PREP instruments from a
single OEM supplier in Europe and purchases several disposable items used with
PREP, including glass slides, centrifuge tubes, pipette tips, settling chambers,
and other disposable components, from certain third-party vendors. The Company's
OEM supplier and, in some cases, its vendors are currently sole suppliers. The
Company intends to qualify additional suppliers with the FDA for critical
components of the Company's products, although there can be no assurance that
the Company will be successful in doing so.
The Company intends to assemble, test and package its SCREEN system at the
Burlington facility. The SCREEN system is composed of a sophisticated automated
microscope, a robotic slide handler, a digital color camera, a computer, and
other related components. The Company is reliant upon sole-source vendors for a
variety of these components. The Company intends to minimize this reliance by
qualifying other vendors, although there can be no assurance that the Company
will be successful in doing so.
The Company currently has only limited manufacturing and assembly
capabilities for SCREEN. The Company believes that it will have adequate
manufacturing capacity for SCREEN in place by the time the Company anticipates
receiving FDA approval of a PMA for the product. The Company has limited
experience manufacturing PREP reagents and stains and SCREEN instrumentation.
There can be no assurance that the Company will be able to manufacture and
supply PREP reagents and stains or SCREEN instrumentation in a timely manner or
at a cost or in quantities necessary to make them commercially viable. The
Company has no experience in managing problems that might result from
manufacturing commercial quantities of its products, such as instrument
reliability, production costs or component quality. The Company also anticipates
that it will require additional manufacturing capacity for reagents used in its
PREP product by the end of 1999. An inability by the Company to increase its
manufacturing capacity when required, or to contract with third parties for the
manufacture of its products on commercially viable terms, would adversely effect
the Company's business, financial condition and results of operations.
The Company's manufacturing process is subject to pervasive and continuing
regulation by the FDA, including the FDA's Quality System ("QS," formerly
current good manufacturing practice, or "GMP") requirements. Failure to comply
with such requirements would materially impair the Company's ability to achieve
or maintain commercial-scale production. If the Company is unable to achieve
full-scale production capability, acceptance by the market of PREP and SCREEN
could be impaired. Such inability would have a material adverse effect on the
Company's business, financial condition, and results of operations.
In addition to QS manufacturing requirements, the Company may be required
to meet certain requirements relating to ISO 9001 certification. A European CE
certification may also be required in order to successfully sell PREP and SCREEN
in Europe. Although the OEM supplier of PREP instrumentation has ISO 9001
certification and has obtained CE certification for PREP, the Company does not
currently have either ISO 9001 certification or a CE mark for either PREP or
SCREEN. Although the Company is in the process of pursuing a CE mark in Europe
and intends to pursue ISO 9001 certification for PREP and SCREEN, there can be
no assurance that it will be successful in obtaining these certifications.
RESEARCH AND DEVELOPMENT
The Company's research and development programs are currently focused on
(i) continued enhancement of the PREP instrument, related reagents and
disposables and further automation of the PREP slide preparation and handling
process, (ii) continued development of the next generation SCREEN product
("SCREEN II") and (iii) development of additional Pathology Workstation
applications to address the needs of the broader pathology automation market.
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Enhancements under development to PREP are particularly focused on
increasing the efficiency and cost effectiveness of the system, including the
introduction of a front-end automated slide processor and improved functionality
of its CytoRich line of reagents and preservatives.
SCREEN II is designed to increase throughput, incorporate more
off-the-shelf components and facilitate slide handling. SCREEN II will rely on
an enhanced proprietary algorithm classification technology and will be designed
to have increased information management and storage capabilities. The Company
is developing SCREEN II to include networking and sophisticated database
capabilities.
The Company is continuing to develop additional applications to run on its
Pathology Workstation platform. These applications include quantitative image
analysis, tumor grading and slide management. One image analysis application
performs a quantitative analysis of DNA, nuclear texture and morphology to
assess the aggressiveness of various types of tumors. Another image analysis
application, immunocytochemistry, performs quantitative analysis of hormone
receptors and proliferation markers in histological sections and single cell
preparations. The tumor grading application is designed to evaluate the
arrangement of tumor cells within sections, much the same way that tissue
sections are evaluated and graded by a pathologist. The slide manager module
facilitates slide mapping and computer assisted manual cytology screening and
cell relocation.
There can be no assurance that any product enhancement or development
project undertaken by the Company either currently or in the future will be
successfully completed, receive regulatory approvals or be successfully
commercialized. The failure of any such project to be completed, approved or
commercialized could prevent the Company from successfully competing in its
targeted markets and could have a material adverse effect on the Company's
business, financial condition and results of operations.
As of March 31, 1997, the Company had 34 employees engaged in research and
development. The Company's expenditures for research and development (which
includes clinical trials, regulatory affairs and engineering) were approximately
$8.5 million, $7.9 million, $4.4 million and $1.2 million for the years ended
December 31, 1994, 1995 and 1996 (pro forma combined) and the three months ended
March 31, 1997, respectively.
THIRD-PARTY REIMBURSEMENT
Successful commercialization of PREP and SCREEN for cervical cancer
screening in the United States and other countries will depend on the
availability of reimbursement from third-party payors such as private insurers
and managed care organizations. Because the up-front, direct costs of using the
Company's products will be greater than the cost of the conventional Pap smear,
the Company will need to convince third-party payors that the overall cost
savings, resulting from earlier detection of cervical cancer, reduction of
unnecessary biopsies and colposcopies, improved specimen adequacy and otherwise,
will more than offset the cost of the Company's products. The Company intends to
focus on obtaining coverage and reimbursement from major national and regional
managed care organizations and insurance carriers throughout the United States.
Most third-party payor organizations independently evaluate new diagnostic
procedures by reviewing the published literature and the Medicare coverage and
reimbursement policy on the specific diagnostic procedure. To assist third-party
payors in their respective evaluations of PREP and SCREEN, the Company intends
to provide scientific and clinical data to support its claims of the safety and
efficacy of the Company's products. The Company expects to focus on disease
detection and cost savings benefits in seeking to obtain reimbursement for PREP
and SCREEN for cervical cancer screening.
A critical component in the reimbursement decision by most private insurers
and the United States Health Care Financing Administration, which administers
Medicare, is the assignment of a Current Procedural Terminology ("CPT") code
which is used in the submission of claims to insurers for reimbursement for
medical services. CPT codes are assigned, maintained and revised by the CPT
Editorial Board administered by the American Medical Association. The Company is
aware that certain clinical laboratories using other gynecological monolayer
systems have received reimbursement from
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certain third-party payors using existing CPT codes. The Company believes that
the CPT Editorial Board is considering modifying an existing CPT code or
establishing a separate CPT code which will be broad enough to include PREP.
There can be no assurance that the CPT Editorial Board will modify or establish
such a CPT code on a timely basis, if at all. Failure to secure a modification
to an existing code or to establish a separate code from the CPT Editorial Board
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company has very limited experience in obtaining reimbursement for its
products in the United States or other countries. In addition, third-party
payors are routinely limiting reimbursement and coverage for medical devices and
in many instances are exerting significant pressure on medical suppliers to
lower their prices. Lack of or inadequate reimbursement by government and other
third-party payors for the Company's products would have a material adverse
effect on the Company's business, financial condition and results of operations.
Further, outside of the United States, health care reimbursement systems vary
from country to country, and there can be no assurance that third-party
reimbursement will be made available at an adequate level, if at all, for PREP
or SCREEN under any other reimbursement system.
Although several of the Company's competitors have already received
reimbursement approval for their products, there is significant uncertainty
concerning third-party reimbursement for the use of any medical device
incorporating new technology. Reimbursement by a third-party payor depends on a
number of factors, including the level of demand by health care providers and
the payor's determination that the use of PREP and SCREEN represents a clinical
advance compared to current technology and is safe and effective, medically
necessary, cost-effective and appropriate for specific patient populations.
Since reimbursement approval is required from each payor individually, seeking
such approvals is a time-consuming and costly process which requires the Company
to provide scientific and clinical data to support the use of PREP and SCREEN to
each payor separately. There can be no assurance that third-party payors will
provide such coverage or coverage for any other products developed by the
Company, that reimbursement levels will be adequate or that health care
providers or clinical laboratories will use PREP and SCREEN for cervical cancer
screening in lieu of the conventional Pap smear method.
Recent health care cost containment initiatives in the United States that
have focused on reduction in reimbursement levels may effect the Company
negatively. However, emphasis on preventive measures to reduce the overall costs
to the health care system could lead to more frequent testing for cervical
cancer and use of PREP and SCREEN if approved by the FDA. The Company is unable
to predict the outcome or the effect on its business of the current health care
reform debate.
PATENTS, COPYRIGHTS, LICENSES AND PROPRIETARY RIGHTS
The Company relies on a combination of patents, trade secrets, copyrights
and confidentiality agreements to protect its proprietary technology, rights and
know-how. The Company holds four issued United States patents as well as
corresponding foreign patent applications, and has one United States patent
application that has been allowed but not issued, relating to various aspects of
its PREP and SCREEN technologies. These patents cover system components, such as
the disaggregation syringe, as well as the PREP process and the interactivity of
the cytotechnologist with the SCREEN system. The Company has also filed numerous
patent applications which are pending both in the United States and abroad.
There can be no assurance, however, that the claims allowed in any of the
Company's existing or future patents will provide competitive advantages for the
Company's products or will not be successfully challenged or circumvented by
competitors. Under current law, patent applications in the United States are
maintained in secrecy until patents are issued and patent applications in
foreign countries are maintained in secrecy for a period after filing. The right
to a patent in the United States is attributable to the first to invent, not the
first to file a patent application. The Company cannot be sure that its products
or technologies do not infringe patents that may be granted in the future
pursuant to pending patent applications or that its products do not infringe any
patents or proprietary rights of third parties. The Company is aware that
several of its competitors hold several patents relating to automated screening.
Based on the advice of counsel, the Company believes that PREP and SCREEN
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do not infringe these third-party patents and that certain of these third-party
patents may be invalid. However, there can be no assurance that a court would
rule that the Company's products do not infringe such third-party patents or
would invalidate such third-party patents. The Company may incur substantial
legal fees in defending against a patent infringement claim or in asserting
claims of invalidity against this third party. In the event that any relevant
claims of third-party patents are upheld as valid and enforceable, the Company
could be prevented from selling its products or could be required to obtain
licenses from the owners of such patents or be required to redesign its products
to avoid infringement. There can be no assurance that such licenses would be
available or, if available, would be on terms acceptable to the Company or that
the Company would be successful in any attempt to redesign its products or
processes to avoid infringement. The Company's failure to obtain these licenses
or to redesign its products would have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company has entered into confidentiality agreements with all of its
employees and several of its consultants and third-party vendors. There can be
no assurance that the obligations of employees of the Company and third parties
with whom the Company has entered into confidentiality agreements to maintain
the confidentiality of such trade secrets and proprietary information will
effectively prevent disclosure of the Company's confidential information or
provide meaningful protection for the Company's confidential information if
there is unauthorized use or disclosure, or that the Company's trade secrets or
proprietary information will not be independently developed by the Company's
competitors. The Company also holds unregistered rights to copyrights on
documentation and operating software developed by it for the PREP and SCREEN
systems. There can be no assurance that any copyrights owned by the Company will
provide competitive advantages for the Company's products or will not be
challenged or circumvented by its competitors. Litigation may be necessary to
defend against claims of infringement, to enforce patents and copyrights of the
Company, or to protect trade secrets and could result in substantial cost to,
and diversion of effort by, the Company. There can be no assurance that the
Company would prevail in any such litigation. In addition, the laws of some
foreign countries do not protect the Company's proprietary rights to the same
extent as do the laws of the United States.
COMPETITION
The cervical cancer screening market is comprised of the conventional Pap
smear process and certain technologies which have been introduced in recent
years or are currently under development to provide improvements over the
conventional Pap smear process. The Company's competitors in the development and
commercialization of alternative cervical cancer screening technologies include
both publicly traded and privately held companies. The alternative technologies
known to the Company have focused on improvements in slide sample preparation,
the development of automated, computerized screening systems and adjunctive
testing technologies. To date, the Company knows of no competitor which has
developed an integrated sample preparation and image analysis system, such as
PREP and SCREEN which have been designed to function together. Nevertheless,
some competitors' products have already received FDA approval and are being
marketed. In addition, certain of the Company's competitors have substantially
greater financial, marketing, sales, distribution and technical resources than
the Company, and more experience in research and development, clinical trials,
regulatory matters, customer support, manufacturing and marketing. In addition,
some of these companies may have received third-party reimbursement for their
products. The Company believes that its products will compete on the basis of a
number of factors, including slide specimen adequacy, screening sensitivity,
ease of use, efficiency, cost to customers and nature of claims allowed by the
FDA. While the Company believes that its products will have competitive
advantages based on some of these factors, there can be no assurance that
various competitors' products will not have competitive advantages based on
other factors that, when coupled with the earlier market entry of some products,
will adversely effect the market acceptance of PREP and SCREEN. Moveover, there
can be no assurance that the Company will be able to compete successfully
against current or future competitors or that competition, including the
development and commercialization of new products and technologies, will not
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company's products could be rendered obsolete or
uneconomical by technological advances of the
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Company's current or potential competitors, the introduction and market
acceptance of competing products or by other approaches.
The Company's primary competitor in monolayer slide preparation is Cytyc
Corporation ("Cytyc"). Cytyc's system, the ThinPrep(R) 2000, is based on a
membrane-filtration separation system rather than the centrifugation approach
used in PREP. ThinPrep 2000 is the only monolayer sample preparation system
approved by the FDA for cervical cytology applications. It is also used for non-
gynecological applications. The FDA has allowed Cytyc's claim that ThinPrep 2000
sample preparation is "significantly more effective in detecting LSIL and more
severe lesions than the conventional Pap smear for a variety of patient
populations." Cytyc also has FDA-approved claims that specimen quality with the
ThinPrep 2000 system is significantly improved over that of conventional Pap
smear preparation in a variety of patient populations. There can be no assurance
that the FDA will approve the Company's PMA for PREP, or, if approved, what
claims will be allowed.
Cytyc has announced that it is developing a higher throughput version of
its ThinPrep 2000 system. Cytyc has also recently announced that it has entered
into a multi-year sales and marketing agreement with a large pharmaceutical
company for the ThinPrep 2000. In October of 1996, Cytyc announced a
non-exclusive co-marketing agreement with Digene Corporation, which has
developed a product that detects the presence or absence of HPV in precancerous
cervical lesions. If this alliance is successful in marketing a product with
adjunctive testing capabilities from a single sample, in the absence of a
comparable offering from AutoCyte, the Company's business, financial condition
and results of operations could be adversely affected. The Company believes that
in choosing among different monolayer preparation systems, a potential customer
for PREP will consider a variety of factors, including screening accuracy,
specimen adequacy, ease of use, cost-per-test, overall productivity and the
nature of claims allowed by the FDA. Cytyc's successful implementation of any of
the foregoing developments or marketing initiatives may make it more difficult
for the Company to promote PREP in markets in which it competes with Cytyc.
In automated screening the Company faces direct competition primarily from
two companies, NeoPath, Inc. ("NeoPath") and Neuromedical Systems, Inc. ("NSI"),
both of which currently market imaging systems to reexamine or rescreen
conventional Pap smears previously diagnosed as negative. NeoPath is marketing
an imaging system designed to enhance quality control in connection with the
rescreening of the 10% of the slides that are initially classified as negative,
as required by CLIA. NSI is marketing an adjunctive screening system to
supplement primary slide screening. The Company believes that these rescreening
systems, without further adaptation and FDA approval, could not be used with
PREP and, therefore, if either of such systems is installed at or used by
hospitals and reference laboratories, the Company's ability to market its
products to such hospitals and laboratories could be materially adversely
affected. The Company is also aware that NeoPath is developing an automated
primary screening device. If either NeoPath or NSI receives FDA approval of its
current system or any future product as a primary screening system to replace
some or all of the manual screening of conventional Pap smears, marketing of
these systems for such purpose could have a material adverse effect on the
Company's business, financial condition and results of operations.
In November 1996, Cytyc and NeoPath announced the completion of a joint
study of the feasibility of screening cervical specimens using the ThinPrep 2000
in conjunction with NeoPath's AutoPap(R) QC automated screening device. The
development and commercialization of such a combined product could have a
material adverse affect on the Company's business, financial condition and
results of operations.
GOVERNMENT REGULATION
The manufacture and sale of medical diagnostic devices are subject to
extensive governmental regulation in the United States and in other countries.
PREP and SCREEN are regulated for cervical cytology applications in the United
States as medical devices by the FDA under the Federal Food, Drug and Cosmetic
Act (the "FDC Act") and require premarket approval by the FDA prior to
commercial distribution. In addition, certain modifications to medical devices,
their manufacture or
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their labeling also are subject to FDA review and approval before marketing.
Pursuant to the FDC Act, the FDA regulates the preclinical and clinical testing,
manufacture, labeling, distribution, sales, marketing, advertising and promotion
of medical devices in the United States. Noncompliance with applicable
requirements, including good clinical practice requirements can result in the
refusal of the government to grant premarket approval for devices, suspension or
withdrawal of clearances or approvals, total or partial suspension of
production, distribution, sales and marketing, fines, injunctions, civil
penalties, recall or seizure of products, and criminal prosecution of a company
and its officers and employees.
Medical devices are classified into one of three classes, Class I, II or
III, on the basis of the controls deemed by the FDA to be necessary to
reasonably ensure their safety and effectiveness. Class I devices are subject to
general controls (e.g., labeling, premarket notification and adherence to GMPs).
Class II devices are subject to general controls and to special controls (e.g.,
performance standards, post-market surveillance, patient registries and other
FDA guidelines). Generally, Class III devices are those that must receive
premarket approval by the FDA to ensure their safety and effectiveness (e.g.,
life-sustaining, life-supporting and implantable devices) and also include most
devices that were not on the market before May 28, 1976 ("new medical devices")
and for which the FDA has not made a finding of "substantial equivalence" based
on a premarket notification ("510(k)"). Class III devices usually require
clinical testing and FDA approval prior to marketing and distribution. The FDA
also has the authority to require clinical testing of Class I and Class II
devices.
If human clinical trials of a device are required and the device presents a
"significant risk," the sponsor of the trial (usually the manufacturer or
distributor of the device) is required to file an investigational new device
("IDE") application prior to commencing human clinical trials. The IDE
application must be supported by data, typically including the results of animal
and laboratory testing. If the IDE application is approved by the FDA (or the
FDA does not notify the sponsor 30 days after receipt of the application that
the trials may not begin) and one or more appropriate institutional review
boards ("IRBs") approves the study protocol, clinical trials may begin at a
specified number of investigational sites with a specific number of patients, as
approved by the FDA. If the device presents a "nonsignificant risk" to the
patient or is an exempt diagnostic device, a sponsor may begin the clinical
trial after obtaining approval for the study from one or more appropriate IRBs,
but FDA approval is not required unless the FDA notifies the sponsor that an IDE
application is required. Sponsors of clinical trials are permitted to sell
devices distributed in the course of the study provided the price charged does
not exceed recovery of the cost of manufacture, research, development and
handling. An IDE supplement must be submitted to, and approved by, the FDA (or
the FDA does not notify the sponsor 30 days after receipt of the supplement that
the change may not be implemented) before a sponsor or an investigator may make
a change to the investigational plan that may my affect its scientific soundness
or the rights, safety or welfare of human subjects. The FDA has the authority to
re-evaluate, alter, suspend or terminate clinical testing based on its
assessment of data collected throughout the trials.
Generally, before a new medical device can be introduced into the market,
the manufacturer must obtain FDA clearance of a 510(k) or approval of a
premarket approval application, unless the device is exempt from the requirement
of such clearance or approval. A 510(k) clearance will be granted if the
submitted information establishes that the device is "substantially equivalent"
to a legally marketed Class I or II medical device or to a legally marketed
Class III device that does not itself require an approved PMA prior to marketing
(a "predicate device"). A 510(k) must contain information to support a claim of
substantial equivalence, which may include laboratory test results or the
results of clinical studies of the device in humans. Such studies can take years
to complete, analyze, and prepare for submission to the FDA. Commercial
distribution of a device for which a 510(k) is required may begin only after the
FDA issues an order finding the device to be "substantially equivalent" to a
predicate device. The FDA has recently been requiring a more rigorous
demonstration of substantial equivalence than in the past and is more likely to
require the submission of data from one or more human clinical trials. It
generally takes from five to twelve months from the date of submission to
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obtain 510(k) clearance from the FDA, but it may take longer, and 510(k)
clearance may never be obtained.
No law or regulation specifies the time limit by which the FDA must respond
to a 510(k) premarket notification. An FDA order may declare that the device is
"substantially equivalent" to another legally marketed device and allow the
proposed device to be marketed in the United States. The FDA, however, may
determine that the proposed device is not "substantially equivalent" or require
further information, including clinical data, to make a determination of
substantial equivalence. Such determinations or requests for additional
information could prevent or delay market introduction of the product that is
the subject of the 510(k) premarket notification.
A PMA for a device must be filed with and approved by the FDA before
marketing of the device may begin if the device is not found by the FDA to be
"substantially equivalent" to a predicate device. A PMA must be supported by
valid scientific evidence that typically includes extensive data, including data
from preclinical testing and human clinical trials to demonstrate the safety and
effectiveness of the device. The FDA ordinarily requires the performance of at
least two independent, statistically significant human clinical trails that must
demonstrate the safety and effectiveness of the device in order to obtain FDA
approval of the PMA. The PMA must also contain the results of all relevant bench
tests, laboratory and animal studies, a complete description of the device and
its components, and a detailed description of the methods, facilities and
controls used to manufacture the device. In addition, the submission must
include the proposed labeling and promotional labeling.
Upon receipt of the PMA, the FDA makes a threshold determination as to
whether the application is sufficiently complete to permit a substantive review.
If the FDA so determines, the FDA will accept the PMA for filing and begin an
in-depth review of it. An FDA review of a PMA typically takes from one to two
years from the date the PMA application is filed, but may take significantly
longer if the FDA requests additional information and any major amendments to
the PMA are filed. The review time is often significantly extended by requests
from the FDA for more information or clarification of information already
provided in the submission. During the review period, an advisory committee,
including clinicians, may be convened to review and evaluate the application and
provide recommendations to the FDA as to whether the PMA should be approved. The
FDA is not bound by the recommendation of the advisory committee. The FDA will
usually inspect the applicant's manufacturing facility to ensure compliance with
QS requirements prior to approval of a PMA. The FDA also may conduct bioresearch
monitoring inspections of the clinical trial sites and the PMA applicant to
ensure data integrity, and that the studies were conducted in compliance with
the applicable FDA regulations.
If the FDA's evaluations of the clinical study sites' compliance with GCP
requirements and the GMP compliance of the manufacturing facilities are
acceptable, the FDA will issue either an approval letter (order) or an
"approvable letter" containing a number of conditions that must be met in order
to secure approval of a PMA. When and if those conditions have been fulfilled to
the satisfaction of the FDA, the agency will issue an order approving the PMA,
authorizing commercial marketing of the device for certain indications. If the
FDA's evaluation of the PMA, the clinical study sites or the manufacturing
facilities are not favorable, the FDA will deny approval of the PMA or issue a
"not approvable letter." The FDA may also determine that additional preclinical
testing or human clinical trials are necessary, in which case approval of the
PMA could be delayed for several years while additional testing or trials are
conducted and submitted in an amendment to the PMA. The IDE/PMA process is
expensive, uncertain and lengthy (typically taking five to seven years or more
to complete), and a number of devices for which FDA approval has been sought by
other companies have never been approved for marketing. There can be no
assurance that the Company will be able to obtain necessary regulatory approvals
for any proposed future products in a timely manner or at all. Delays in receipt
of approvals, failure to receive approvals, the loss of previously received
approvals, or failure to comply with existing or future regulatory requirements,
would have a material adverse effect on the Company's business, financial
condition and results of operations.
44
<PAGE> 47
The FDA's regulations require agency approval of a PMA supplement for
certain changes if they affect the safety and effectiveness of the device,
including, but not limited to, new indications for use; labeling changes; the
use of a different facility or establishment to manufacture, process, or package
the device; changes in vendors supplying components for the device; changes in
manufacturing methods, or quality control systems; changes in performance or
design specifications; and certain labeling changes. Any such change will
require FDA approval of an PMA supplement before marketing.
The Company submitted a PMA for PREP to the FDA on May 12, 1997 and the
PREP PMA was accepted for substantive review by letter dated filing June 11,
1997. In accepting the PREP PMA for filing, the FDA indicated to the Company
that no review of the PMA by the FDA's Medical Devices Advisory Panel would be
required. The Company is currently conducting clinical trials for SCREEN and
anticipates submitting a PMA to the FDA by late 1997 or early 1998. The Company
anticipates that other applications for use on its Pathology Workstation will
require FDA clearance of 510(k)s or approval of PMAs. There can be no assurance
that FDA or other necessary approvals will be obtained on a timely basis or, if
obtained, that desirable claims will be allowed.
PREP and SCREEN and any other products manufactured or distributed by the
Company pursuant to an approved PMA application and supplements (or to 510(k)
clearances) will be subject to pervasive and continuing regulation by the FDA,
including record-keeping requirements and reporting of adverse experience with
the use of the device. Device manufacturers are required to register their
establishments and list their devices with the FDA. The FDC Act requires that
medical devices be manufactured in accordance with the FDA's GMP regulation.
This regulation requires, among other things, that (i) the manufacturing process
be regulated, controlled and documented 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.
The regulation also requires investigation of any deficiencies in the
manufacturing process or in the products produced and detailed record keeping.
Manufacturing facilities are 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 manufacturing facilities, the
FDA can prohibit further manufacturing, distribution and sale of the devices
until the violations are cured. On October 7, 1996, the FDA published a revision
of its GMP requirements, incorporating them into a new regulation called the
quality system regulation. The QS regulation requires, among other things,
preproduction design controls, purchasing controls, and maintenance of service
records. The QS regulation took effect on June 1, 1997, except that the FDA has
stated that as long as manufacturers are taking reasonable steps to come into
compliance with the design control requirements, the FDA will not initiate
action (including enforcement cases) based on a failure to comply with these
requirements before June 1, 1998. The QS regulation is expected to increase the
cost of complying with the FDA GMP and related requirements. Other applicable
requirements include the FDA's medical device (manufacturer) reporting
regulation, which requires that the device manufacturer provide information to
the FDA on deaths or serious injuries alleged to have been associated with the
use of its marketed devices, as well as product malfunctions that would likely
cause or contribute to a death or serious injury if the malfunction were to
recur. Product labeling and promotional activities are also subject to scrutiny
by the FDA and, in certain instances, by the Federal Trade Commission. Products
may only be promoted by the Company and any of its distributors for their
approved indications. No assurance can be given that modifications to the
labeling which may be required by the FDA in the future will not adversely
affect the Company's ability to market or sell PREP, SCREEN or other products of
the Company.
The Company also is subject to numerous federal, state and local laws
relating to such matters as safe working conditions, manufacturing practices,
environmental protection, fire hazard control and disposal of hazardous or
potentially hazardous substances. There can be no assurance that the Company
will not be required to incur significant costs to comply with such laws and
regulations in the future, or that such laws or regulations will not have a
material adverse effect upon the Company's business, financial condition and
results of operations.
45
<PAGE> 48
Sales of medical devices outside of the United States are subject to
foreign regulatory requirements that vary widely from country to country. The
time required to obtain approval by a foreign country may be longer or shorter
than that required for FDA approval, and the requirements may differ. No
assurance can be given that such foreign regulatory approvals will be granted on
a timely basis, or at all. Export sales of investigational devices that are
subject to PMA or IDE application requirements and have not received FDA
marketing approval generally may be subject to FDA export permit requirements
depending upon, among other things, the purpose of the export (investigational
or commercial), the country to which the device is intended for export, and on
whether the device has valid marketing authorization in a country listed in the
FDA Export Reform and Enhancement Act of 1996, e.g., any member country of the
European Union and certain other countries including but not limited to
Australia, Canada, Israel, Japan, New Zealand, and South Africa. In order to
obtain such a permit, when one is required, the Company must provide the FDA
with documentation from the medical device regulatory authority of the country
in which the purchaser is located, stating that the device has the approval of
the country. In addition, the FDA must find the exportation of the device is not
contrary to the public health and safety of the country in order for the Company
to obtain the permit. There can be no assurance that the Company will meet the
FDA's export requirements or receive FDA export approval when such approval is
necessary, or that countries to which the devices are to be exported will
approve the devices for import. Failure of the Company to meet the FDA's export
requirements or obtain FDA export approval when required to do so, or to obtain
approval for import, could have a material adverse effect on the Company's
business, financial condition and results of operations.
The laboratories that would purchase the Company's PREP and SCREEN products
are subject to extensive regulation under CLIA, which requires laboratories to
meet specified standards in the areas of personnel qualifications,
administration, participation in proficiency testing, patient test management,
quality control, quality assurance and inspections. The Company believes that
its PREP and SCREEN products operate in a manner that will allow laboratories
using the products to comply with CLIA requirements. However, there can be no
assurance that interpretations of current CLIA regulations or future changes in
CLIA regulations would not make compliance by the laboratory difficult or
impossible and therefore have an adverse effect on sales of the Company's
products.
PRODUCT LIABILITY
Commercial use of any Company products may expose the Company to product
liability claims. The Company currently has limited product liability insurance.
The medical device industry has experienced increasing difficulty in obtaining
and maintaining reasonable product liability coverage, and substantial increases
in insurance premium costs in many cases have rendered coverage economically
impractical. There can be no assurance that the Company's existing product
liability insurance will be adequate or that additional product liability
insurance will be available to the Company at a reasonable cost, or that any
product liability claim would not have a material adverse effect on the
Company's business, financial condition and results of operations.
FACILITIES
The Company currently leases a total of 13,500 square feet of space,
devoted to administrative, research and development and engineering functions,
at 112 Orange Drive, Elon College, North Carolina under a lease expiring in
December 31, 1997, but renewable until April 24, 2000. The Company also
currently leases a 20,000 square foot manufacturing facility at 780 Plantation
Drive in Burlington, North Carolina. In addition to manufacturing, the
Burlington facility houses the Company's systems integration support, product
warehousing and shipping and receiving operations. The current Burlington lease
expires in March 1998 with a renewal extension through March 1999, and the
Company is currently negotiating an extension through March 31, 2005. The new
lease is expected to include a 23,000 square foot addition to the Burlington
facility which will permit the Company to consolidate all of its operations in a
single facility. The Company anticipates that the addition will be ready for
occupancy in the second quarter of 1998.
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<PAGE> 49
EMPLOYEES
As of March 31, 1997 the Company employed 71 persons on a full-time basis.
The Company believes that its relations with its employees are good. None of the
Company's employees is a party to a collective bargaining agreement. See
"Management -- Executive Officers and Directors."
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
47
<PAGE> 50
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the executive
officers, directors and key employees of the Company as of June 27, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------- --- -----------------------------------------
<S> <C> <C>
James B. Powell, M.D. 58 President, Chief Executive Officer and
Director
Ernest A. Knesel 51 Executive Vice President
Thomas Gahm, Ph.D. 41 Vice President of Computer Science
James W. Geyer, Ph.D. 52 Vice President of Laboratory Science
William O. Green 39 Chief Financial Officer, Vice President
of Finance and Treasurer
Eric W. Linsley 35 Vice President of Operations and Business
Development
Steven C. McPhail 43 Vice President of Sales and Marketing
Richard A. Charpie, Ph.D.(1)(2) 45 Chairman of the Board
Robert E. Curry, Ph.D.(1)(2) 50 Director
Thomas P. Mac Mahon(1) 50 Director
Susan E. Whitehead(2) 43 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
JAMES B. POWELL, M.D. has served as a director of AutoCyte since November
1996 and as its President and Chief Executive Officer since January 1997. Prior
to joining AutoCyte, Dr. Powell served as the President and Chief Executive
Officer of Laboratory Corporation of America Holdings ("LabCorp") from May 1995
until January 1997. From 1982 until May 1995, Dr. Powell served as President of
Biomedical Reference Laboratories/Roche Biomedical Laboratories ("RBL"), the
predecessor to both LabCorp and RIAS, which he co-founded. He continues to serve
on the board of directors of LabCorp, a publicly traded company. Dr. Powell
received a B.A. degree from Virginia Military Institute and an M.D. from Duke
University, and is board certified in anatomical and clinical pathology.
ERNEST A. KNESEL has served as Executive Vice President of the Company
since November 1996. Previously, Mr. Knesel was a founder of RIAS, the
predecessor to AutoCyte, and served as President of RIAS from May 1989 until
joining AutoCyte. Mr. Knesel also was a co-founder of RBL, for which he served
as Senior Vice President and was responsible for Scientific Affairs from June
1969 until 1993. Mr. Knesel received a B.S. in medical technology and an M.S. in
biochemistry from Fairleigh Dickinson University.
THOMAS GAHM, PH.D. has served as Vice President of Computer Science of the
Company since November 1996. Previously, he served RIAS and RBL in the same
capacity since August 1993. From 1983 to 1993, Dr. Gahm was a Scientific Advisor
and Project Coordinator of Kontron Electronics, Image Analysis Division, where
he focused on the commercial development of microscopic image analysis. Dr. Gahm
received an engineering degree from the University of Stuttgart (Institute of
Physical Electronics) and a Ph.D. from the Medical and Technical University of
Hannover.
JAMES W. GEYER, PH.D. has served as Vice President of Laboratory Science of
the Company since November 1996. From 1991 until November 1996, Dr. Geyer served
RIAS in the same capacity. He also served as Vice President of Product
Development for RBL from 1991 until 1994. In September 1986, Dr. Geyer founded
Genetic Design Inc. ("GDI"), a genetic testing laboratory, and served as Vice
President of Scientific Affairs of GDI until it was acquired by Genzyme
Corporation in 1991. From 1975 until 1986, Dr. Geyer served as Vice President of
Research and Development at RBL. Dr. Geyer
48
<PAGE> 51
received a Ph.D. in immunology and microbiology and an M.S. in biochemistry,
both from Wayne State University School of Medicine.
WILLIAM O. GREEN joined AutoCyte as Controller in January 1997 and became
Chief Financial Officer in April 1997. Prior to joining AutoCyte, Mr. Green
served from 1994 to 1996 as Vice President and Chief Financial Officer of CORPEX
Technologies, Inc. ("CORPEX"), a specialty chemical company. Prior to joining
CORPEX, Mr. Green held various positions at Mann Industries, Inc. ("Mann"), a
privately held manufacturer of technical man-made fibers and yarns, from 1989 to
1993, serving most recently as Chief Operating Officer from 1992 to 1993. From
1981 to 1989, Mr. Green worked as a certified public accountant at Arthur
Andersen & Co. (now Arthur Andersen LLP). He received a B.S. degree in business
administration from the University of North Carolina, Chapel Hill.
ERIC W. LINSLEY has served as Vice President of Operations and Business
Development of the Company since May 1997. Prior to joining AutoCyte, Mr.
Linsley was a partner with Ampersand Ventures ("Ampersand"), a venture capital
firm, from 1991 to May 1997, and, in connection with such position, served as
interim management in operating and financial roles for various industrial
products and health care companies. From 1989 to 1991, Mr. Linsley was a
management consultant with Bain & Co. In 1988, he served in the same capacity
with McKinsey & Co. He also has worked as a certified public accountant with
Arthur Andersen LLP from 1984 to 1987. He received a B.A. degree from Trinity
College, an M.S. in accounting from New York University and an M.B.A. from the
Wharton School at the University of Pennsylvania.
STEVEN C. MCPHAIL has served as Vice President of Sales and Marketing of
the Company since May 1997. Prior to joining AutoCyte, Mr. McPhail served as
Vice President of Sales and Marketing from January 1992 to May 1997 for DYNEX
Technologies, Inc. ("DYNEX"), a division of Thermo BioAnalysis Corporation and a
manufacturer of microtiter technology products serving both clinical and
research laboratory customers. Prior to joining DYNEX, Mr. McPhail served in
sales and marketing positions from 1981 to 1992 with Abbott Laboratories
Diagnostics Division. He has a B.S. in biology from San Diego State University.
RICHARD A. CHARPIE, PH.D. has served as Chairman of the Board of the
Company since November 1996. Dr. Charpie is the Managing General Partner of
Ampersand and all of its affiliated partnerships. He founded Ampersand in 1988
as a spin-off from PaineWebber Incorporated. Dr. Charpie is currently a director
of several privately held companies. Dr. Charpie holds an M.S. in physics and a
Ph.D. in applied economics and finance, both from the Massachusetts Institute of
Technology.
ROBERT E. CURRY, PH.D. has served as a director of the Company since
November 1996. Dr. Curry joined the Sprout Group ("Sprout"), a submanager of
various Donaldson, Lufkin & Jenrette venture capital funds, as a General Partner
in May 1991 and is currently Vice President of DLJ Capital Corporation, the
management company for Sprout. Prior to joining Sprout, Dr. Curry served in
various capacities with Merrill Lynch R&D Management and Merrill Lynch Venture
Capital from 1984, including as President of both organizations from January
1990 to May 1991. Previously, Dr. Curry was a Vice President of Becton Dickinson
from May 1980 to July 1984, and General Manager of Bio-Rad Laboratory Inc.'s
Diagnostics Systems Division from August 1976 to May 1980. He currently is a
director of Biocircuits Corporation, Diatide, Inc. and Photon Technology
International, Inc. Dr. Curry received a B.S. from the University of Illinois,
and an M.S. and Ph.D. in chemistry from Purdue University.
THOMAS P. MAC MAHON has served as a director of the Company since November
1996. Mr. Mac Mahon succeeded Dr. Powell as President and Chief Executive
Officer of LabCorp in January 1997. Mr. Mac Mahon served as Senior Vice
President of Hoffmann-La Roche Inc. from 1993 to January 1997 and President of
Roche Diagnostics Group and a Director and member of the Executive Committee of
Hoffmann-La Roche Inc. from 1988 to January 1997. A graduate of St. Peter's
College, Mr. Mac Mahon received an M.B.A. in marketing from Fairleigh Dickinson
University.
49
<PAGE> 52
SUSAN E. WHITEHEAD has served as a director of the Company since March
1997. Currently, Ms. Whitehead is Acting Chair of the Whitehead Institute for
Biomedical Research, a trustee of the Massachusetts Institute of Technology, and
Vice-Chair of the Horizons Initiative, a Boston-based group focused on the needs
of homeless children. From 1989 to October 1995, Ms. Whitehead was an attorney
in private practice in Boston, Massachusetts. From 1982 until 1987, she served
as a prosecutor in New York City. Ms. Whitehead received a J.D. from Cardozo
School of Law, and a B.S. from Cornell University.
CLASSIFICATION OF THE BOARD OF DIRECTORS
The Company's Restated Certificate, to be filed concurrently with the
closing of this Offering, provides for a classified board of directors
consisting of three classes, with each class being as nearly equal in number as
possible. The term of one class expires and their successors are elected for a
term of three years at each annual meeting of the Company's stockholders. The
Company has designated one class I director (James B. Powell), two class II
directors (Richard A. Charpie and Robert E. Curry) and two class III directors
(Thomas P. Mac Mahon and Susan E. Whitehead). These class I, class II and class
III directors will serve until the annual meeting of stockholders to be held in
1998, 1999 and 2000, respectively, and until their respective successors are
duly elected and qualified, or until their earlier resignation or removal. The
Restated Certificate provides that directors may be removed only for cause by a
majority of stockholders. See "Description of Capital Stock -- Anti-Takeover
Measures."
Each officer serves at the discretion of the Board of Directors. There are
no family relationships among any of the directors or executive officers.
BOARD COMMITTEES
The Company has standing Audit and Compensation Committees of the Board of
Directors. The Audit Committee consists of Dr. Charpie, Dr. Curry and Ms.
Whitehead. The primary function of the Audit Committee is to assist the Board of
Directors in the discharge of its duties and responsibilities by providing the
Board with an independent review of the financial health of the Company and of
the reliability of the Company's financial controls and financial reporting
systems. The Audit Committee reviews the general scope of the Company's annual
audit, the fee charged by the Company's independent accountants and other
matters relating to internal control systems.
The Compensation Committee of the Board of Directors determines the
compensation to be paid to all executive officers of the Company, including the
Chief Executive Officer. The Compensation Committee's duties include the
administration of the Company's Amended and Restated 1996 Equity Incentive Plan
(the "Equity Plan"). The Compensation Committee is currently composed of Dr.
Charpie, Dr. Curry and Mr. Mac Mahon.
DIRECTOR COMPENSATION
Directors currently receive no compensation for their service on the
Company's Board of Directors except pursuant to the 1997 Director Stock Option
Plan (the "Director Plan"), adopted by the Board of Directors and stockholders
of the Company in June 1997. All of the directors who are not employees of the
Company (the "Eligible Directors") are currently eligible to participate in the
Director Plan. There are 100,000 shares of Common Stock reserved for issuance
under the Director Plan. Commencing after the closing of this offering, upon the
election or reelection of an Eligible Director, such director will be
automatically granted an option to purchase 10,000 shares of Common Stock (the
"Option") with an exercise price equal to the market value on the grant date.
Each Option becomes exercisable with respect to 2,000 shares on each anniversary
of the date of grant for a period of five years, provided that the optionee is
still a director of the Company at the opening of business on such date. The
Options have a term of ten years. The exercise price for the Options is equal to
the last sale price for the Common Stock on the business day immediately
preceding the date of grant, as reported
50
<PAGE> 53
on the Nasdaq National Market. The exercise price may be paid in cash or shares
of Common Stock, or a combination of both.
On December 1, 1996, Ms. Whitehead was granted an option to purchase 4,918
shares of Common Stock as an inducement to become a director of the Company.
These options vested immediately and have an exercise price of $0.2033 per
share.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
paid in the fiscal year ended December 31, 1996 to the Company's three most
highly compensated executive officers whose total salary and bonus for such
fiscal year exceeded $100,000 (together, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE (1)
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------------
------------------------- SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS(2) UNDERLYING OPTIONS COMPENSATION(3)
- ----------------------------- --------- ----------- ------------------ ------------------
<S> <C> <C> <C> <C>
James B. Powell, M.D......... $ -- --$ $-- -$-
President and Chief
Executive Officer(4)
Ernest A. Knesel............. 193,931 57,713 245,941 22,771
Executive Vice President(5)
Thomas Gahm, Ph.D............ 159,509 16,425 135,268 6,775
Vice President of Computer
Science
James W. Geyer, Ph.D......... 124,672 15,159 98,376 4,186
Vice President of
Laboratory Science
</TABLE>
- ---------------
(1) The amounts shown represent amounts paid by RIAS, the Company's predecessor,
for services performed from January 1, 1996 to November 21, 1996, and
amounts paid by the Company for services performed from November 22, 1996 to
December 31, 1996.
(2) All amounts shown in this column were paid by RIAS.
(3) All amounts shown in this column represent payments made by RIAS in
connection with the formation of the Company for accrued vacation time with
RIAS.
(4) Dr. Powell joined the Company as President and Chief Executive Officer in
January 1997. His base salary for 1997 is $140,000.
(5) Mr. Knesel served as interim President from November 22, 1996 until January
1997. During that period, no executive officer held the title of Chief
Executive Officer.
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<PAGE> 54
The following table sets forth certain information regarding options
granted during the fiscal year ended December 31, 1996 by the Company to the
Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANT
----------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE VALUE
NUMBER OF TOTAL OF ASSUMED ANNUAL RATES
SECURITIES OPTIONS OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERMS($)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ----------------------------
GRANTED(#)(1) FISCAL YEAR ($/SHARE) DATE 0%(2) 5%(2)(3) 10%(2)(3)
------------- ------------ ----------- ---------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Ernest A. Knesel.............. 245,941 37.3% 0.2033 12/1/06 149,999 275,778 468,747
Thomas Gahm, Ph.D............. 135,268 20.5% 0.2033 12/1/06 82,500 151,678 257,812
James W. Geyer, Ph.D.......... 98,376 14.9% 0.2033 12/1/06 60,000 110,311 187,498
</TABLE>
- ---------------
(1) These options become exercisable as to 1/48th of the shares on the first day
of each month following the date of grant. The grant date for Mr. Knesel,
Dr. Gahm and Dr. Geyer was December 1, 1996.
(2) The values in these columns are based on the applicable rate of appreciation
applied to the fair market value of the Common Stock on the date of grant
($0.8132 per share).
(3) The dollar amounts shown in these columns are the result of calculations at
the 5% and 10% rates set by the Securities and Exchange Commission and,
therefore, are not intended to forecast possible future appreciation, if
any, in the price of the Common Stock. Actual gains, if any, on stock option
exercises will depend on the future performance of the Common Stock, the
option holder's continued employment through the option period, and the date
on which the options are exercised.
The following table sets forth certain information concerning exercisable
and unexercisable stock options held by the Named Executive Officers as of
December 31, 1996. No shares were acquired on exercise by the Named Executive
Officers in the last fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
YEAR-END(#) FISCAL YEAR-END($)(1)
EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
----------------------------- -------------------------
<S> <C> <C>
Ernest A. Knesel............ 0/245,941 0/149,999
Thomas Gahm................. 0/135,268 0/ 82,500
James W. Geyer.............. 0/ 98,376 0/ 60,000
</TABLE>
- ---------------
(1) There was no public trading market for the Common Stock as of December 31,
1996. These values are calculated based on the fair market value of the
Common Stock on the date of grant ($0.8132 per share), less the applicable
exercise price.
STOCK PLANS
Amended and Restated 1996 Equity Incentive Plan. The Company's 1996 Equity
Incentive Plan was adopted in November 1996 and amended and restated in June
1997 (as amended and restated, the "Equity Plan"). The Equity Plan is designed
to provide the Company flexibility in awarding equity incentives by providing
for multiple types of incentives that may be awarded. The purpose of the Equity
Plan is to attract and retain key personnel of the Company and to enable them to
participate in the
52
<PAGE> 55
long-term growth of the Company. The Equity Plan provides for the grant of stock
options (incentive and nonstatutory), stock appreciation rights, performance
shares, restricted stock or stock units for the purchase of an aggregate of
2,086,325 shares of Common Stock, subject to adjustment for stock-splits and
similar capital changes. Awards under the Equity Plan can be granted to
officers, employees, directors and other individuals as determined by the
committee of the Board of Directors which administers the Equity Plan, each of
whose members is a "non-employee director" within the meaning of Rule 16b-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Compensation Committee of the Board of Directors administers the Equity Plan.
The Compensation Committee selects the participants and establishes the terms
and conditions of each option or other equity right granted under the Equity
Plan, including the exercise price, the number of shares subject to options or
other equity rights and the time at which such options become exercisable. The
exercise price of all "incentive stock options" within the meaning of Section
422 of the Internal Revenue Code, granted under the Equity Plan must be at least
equal to 100% of the fair market value of the option shares on the date of
grant. The term of any incentive stock option granted under the Equity Plan may
not exceed ten years.
As of March 31, 1997, options to purchase an aggregate of 717,379 shares of
Common Stock had been granted under the Equity Plan. In addition, 590,260 shares
of Common Stock had been issued as restricted stock under the Equity Plan. As of
such date, no options have been exercised, and options to purchase an aggregate
of 1,383 shares have been cancelled. All such restricted stock and 715,996 of
such options were outstanding as of such date. Of these, 49,188 shares of such
restricted stock were vested and options to purchase 48,585 shares of Common
Stock were exercisable as of March 31, 1997. No stock appreciation rights or
awards other than option grants and restricted stock have been granted under the
Equity Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Richard A. Charpie, Ph.D.,
Robert E. Curry, Ph.D. and Thomas P. Mac Mahon. Mr. Mac Mahon succeeded Dr.
Powell as President and Chief Executive Officer of LabCorp. Dr. Powell is
currently a director of LabCorp. See "Certain Transactions."
53
<PAGE> 56
CERTAIN TRANSACTIONS
References to the Company's Common Stock and Series A Preferred Stock in
this section are presented on a pre-reverse split basis.
In November 1996, in connection with the Company's formation, the Company
issued 7,500,000 shares of Common Stock to RIAS in exchange for substantially
all of RIAS's assets used in connection with the cytology and pathology
automation business, including but not limited to certain patents, trademarks,
contracts and equipment. Simultaneously therewith, the Company sold: (i) an
aggregate of 1,662,437 shares of Series A Preferred Stock at a purchase price of
$1.00756 per share to certain purchasers affiliated with the issuer, including
1,315,062 shares to Dr. Powell, 198,500 shares to Mr. Knesel, 99,250 shares to
Mr. Mac Mahon and 49,625 shares to Dr. Gahm; (ii) an aggregate of 3,970,000
shares of Series A Preferred Stock at a purchase price of $1.00756 per share to
Ampersand Specialty Materials and Chemicals III Limited Partnership and
Laboratory Partners I Limited Partnership (collectively, with their respective
companion funds, the "Ampersand Funds"); and (iii) an aggregate of 3,970,000
shares of Series A Preferred Stock at a purchase price of $1.00756 per share to
Sprout Capital VII, L.P., DLJ First ESC L.L.C., DLJ Capital Corporation and the
Sprout CEO Fund, L.P. (the "Sprout Funds").
The transaction of November 1996 also included the issuance and sale of
1,200,000 shares of Common Stock at a purchase price of $0.10 per share to Dr.
Powell. These shares are subject to the Company's option to repurchase any
unvested shares if Dr. Powell ceases to be employed by the Company. The shares
vest over a period of four years with one-forty-eighth of the shares vesting
each month. In November, 1996 Allemanni, LLC, an affiliate of Dr. Powell
("Allemanni"), purchased 1,300,000 shares of Common Stock from RIAS. In December
1996, Allemanni purchased an additional 99,250 shares of Series A Preferred
Stock from the Company at a purchase price of $1.00756 per share.
The Company has entered into certain ongoing arrangements with LabCorp, a
public company of which Dr. Powell formerly was President and Chief Executive
Officer and currently is a director, for selling its products to LabCorp. In
1996, LabCorp purchased approximately $299,000 worth of products from RIAS and
the Company, both for its own use and for placement with its hospital laboratory
customers. The Company expects LabCorp's purchases of its products in 1997 to
exceed 5% of the Company's consolidated gross revenues for 1996.
During 1996, RIAS and the Company reimbursed LabCorp approximately $313,200
for payments made on their behalf to employees' medical plans. The Company also
has continuing arrangements with LabCorp (i) for leasing a portion of LabCorp's
facility in Elon College, North Carolina and (ii) for providing cytology
services in support of the Company's clinical trials. In 1996, RIAS and the
Company paid LabCorp approximately $109,800 and $29,430, respectively, under
each of these arrangements.
On June 27, 1997, the Company entered into a credit agreement with the
Ampersand Funds, the Sprout Funds and Dr. Powell (the "Lenders"). The agreement
provides the Company with access to funds of up to $8,000,000 at an interest
rate equal to the prime rate established by Fleet National Bank plus one
percent. In consideration of this credit agreement, the Company issued to the
Lenders warrants to purchase an aggregate of 421,429 shares of its Common Stock
at an exercise price of $1.00 per share, consisting of warrants to purchase
139,157 shares issued to Allemanni, warrants to purchase 141,136 shares issued
to the Ampersand Funds and warrants to purchase 141,136 shares issued to the
Sprout Funds. The Company will issue warrants with respect to an additional
1,344,984 shares of Common Stock pro rata based on the amount drawn on the
credit agreement. There is currently no outstanding balance under the credit
agreement. The Company has the right to accelerate the expiration date of the
warrants to the closing of this Offering and intends to do so. The credit
agreement will terminate upon the closing of this Offering.
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<PAGE> 57
PRINCIPAL STOCKHOLDERS
The following table and footnotes set forth certain information regarding
the beneficial ownership of the Company's Common Stock as of June 27, 1997 by
(i) persons known by the Company to beneficially own 5% or more of the Company's
Common Stock, (ii) the Named Executive Officers, (iii) each director of the
Company and (iv) all current executive officers and directors as a group.
<TABLE>
<CAPTION>
PERCENTAGE
BENEFICIALLY OWNED
NUMBER OF SHARES ----------------------------------
NAME OF BENEFICIAL OWNERS BENEFICIALLY OWNED(1) BEFORE OFFERING AFTER OFFERING
- ------------------------------------ --------------------- --------------- --------------
<S> <C> <C> <C>
Roche Image Analysis Systems,
Inc............................... 3,049,680 33.3% 24.9%
1080 U.S. Highway 202
Somerville, NJ 08876-3771
Ampersand Specialty Materials and
Chemicals III Limited Partnership
and certain related entities(2)... 2,022,199 21.9 16.4
55 William Street, Suite 240
Wellesley, MA 02181-4003
Sprout Capital VII, L.P. and certain
related entities(3)............... 2,022,198 21.9 16.4
3000 Sand Hill Road
Bldg 4, Suite 270
Menlo Park, CA 94025-7114
Allemanni, LLC(4)................... 1,993,834 21.6 16.2
2307 York Road
Burlington, NC 27215
James B. Powell, M.D.(5)............ 1,993,834 21.6 16.2
Richard A. Charpie, Ph.D.(6)........ 2,022,199 21.9 16.4
Robert E. Curry, Ph.D.(7)........... 2,022,198 21.9 16.4
Thomas P. Mac Mahon................. 48,819 * *
Susan E. Whitehead(8)............... 4,918 * *
Ernest A. Knesel(9)................. 138,628 1.5 1.1
Thomas Gahm, Ph.D.(10).............. 46,954 * *
James W. Geyer, Ph.D.(11)........... 28,601 * *
William O. Green(12)................ 27,893 * *
Eric W. Linsley(13)................. 29,174 * *
Steven C. McPhail(14)............... 13,527 * *
All current executive officers and
directors as a group (11
persons)(15)...................... 6,376,745 67.3 50.7
</TABLE>
- ---------------
* Indicates less than 1%.
(1) Reflects the conversion, prior to or contemporaneously with the closing of
this offering, of all outstanding shares of Series A Preferred Stock of the
Company into an aggregate of 4,881,935 shares of Common Stock. The number
of shares of Common Stock deemed outstanding after this offering includes
the 3,100,000 shares of Common Stock of the Company being offered for sale
in this Offering. The persons and entities named in the table have sole
voting and investment power with respect to the shares beneficially owned
by them, except as noted below. Share numbers include shares of Common
Stock issuable pursuant to the outstanding options and warrants that may be
exercised within the 60-day period following June 27, 1997.
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<PAGE> 58
(2) Consists of the following shares and shares that may be acquired within 60
days of June 27, 1997 upon the exercise of warrants: (1) 1,561,246 shares
and a warrant to purchase 55,503 shares held by Ampersand Specialty
Materials and Chemicals III Limited Partnership ("ASMC III"); 25,386 shares
and a warrant to purchase 902 shares held by Ampersand Specialty Materials
and Chemicals III Companion Fund Limited Partnership ("ASMC III C.F.");
256,302 shares and a warrant to purchase 9,111 shares held by Laboratory
Partners I Limited Partnership("Lab Partners I"); and 109,844 shares and a
warrant to purchase 3,905 shares held by Laboratory Partners Companion Fund
Limited Partnership ("Lab Partners C.F."). ASMC-III MCLP LLP is the general
partner of ASMC III Management Company Limited Partnership, which itself is
the general partner of both ASMC III and ASMC III C.F. and has voting and
investment control over the shares held by those two entities. Ampersand
Lab Partners MCLP LLP is the general partner of Ampersand Lab Partners
Management Company Limited Partnership, which itself is the general partner
of both Lab Partners I and Lab Partners C.F. and has voting and investment
control over the shares held by those two entities.
(3) Consists of the following shares and shares that may be acquired within 60
days of June 27, 1997 upon the exercise of warrants: 1,698,713 shares and a
warrant to purchase 60,390 shares held by Sprout Capital VII, L.P.
("Sprout"); 195,277 shares and a warrant to purchase 6,942 shares held by
DLJ First ESC, L.L.C. ("DLJ First"); 39,055 shares and a warrant to
purchase 1,388 shares held by DLJ Capital Corporation ("DLJ Capital"); and
19,732 shares and a warrant to purchase 701 shares held by The Sprout CEO
Fund, L.P. ("Sprout CEO"). DLJ Capital is the managing corporation of
Sprout and the general partner of Sprout CEO and has voting and investment
control over the shares held by those two stockholders. DLJ LBO Plans
Management Corporation ("DLJ LBO") is the manager of DLJ First and has
voting and investment control over the shares held by DLJ First.
(4) Includes 68,449 shares that may be acquired within 60 days of June 27, 1997
upon the exercise of warrants.
(5) Consists solely of shares described in note (4). Dr. Powell is the manager
of Allemanni, LLC and has voting and investment control over the shares
held by that entity. Dr. Powell disclaims beneficial ownership of such
shares except to the extent of his pecuniary interest.
(6) Consists solely of shares described in note (2). Dr. Charpie is a general
partner of ASMC-III MCLP LLP and Ampersand Lab Partners MCLP LLP and thus
may be considered the beneficial owner of the shares described in note (2).
Dr. Charpie disclaims beneficial ownership of such shares except to the
extent of his pecuniary interest.
(7) Consists solely of shares described in note (3). Dr. Curry is a general
partner of Sprout Group, a division of DLJ Capital, and DLJ LBO and thus
may be considered the beneficial owner of the shares described in note (3).
Dr. Curry disclaims beneficial ownership of such shares except to the
extent of his pecuniary interest.
(8) Consists of 4,918 shares that may be acquired within 60 days of June 27,
1997 upon the exercise of options.
(9) Includes 97,638 shares held by LE'BET, LLC ("LE'BET"). Mr. Knesel is the
general manager of LE'BET and has voting and investment control over the
shares held by that entity. Mr. Knesel disclaims beneficial ownership of
such shares. Also includes 40,990 shares that may be acquired within 60
days of June 27, 1997 upon the exercise of options.
(10) Includes 22,545 shares that may be acquired within 60 days of June 27, 1997
upon the exercise of options.
(11) Includes 16,396 shares that may be acquired within 60 days of June 27, 1997
upon the exercise of options.
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<PAGE> 59
(12) Includes 7,173 shares that may be acquired within 60 days of June 27, 1997
upon the exercise of options.
(13) Includes 8,454 shares that may be acquired within 60 days of June 27, 1997
upon the exercise of options.
(14) Includes 6,149 shares that may be acquired within 60 days of June 27, 1997
upon the exercise of options.
(15) See notes (2) through (14) above. Includes 313,916 shares that may be
acquired within 60 days of June 27, 1997 upon the exercise of options and
warrants.
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<PAGE> 60
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company currently consists of
20,650,000 shares of Common Stock, $0.01 par value per share, and 9,925,000
shares of Series A Preferred Stock, $0.01 par value per share. Upon the closing
of this Offering, the authorized capital stock of the Company will consist of
20,650,000 shares of Common Stock and 1,000,000 shares of Preferred Stock after
giving effect to the amendment and restatement of the Company's Certificate of
Incorporation. Prior to this Offering, there were outstanding an aggregate of
(i) 4,279,389 shares of Common Stock and (ii) 9,925,000 shares of Series A
Preferred Stock, which shares will automatically convert into an aggregate of
4,881,935 shares of Common Stock upon the consummation of the closing of this
Offering. As of the date of this Prospectus, the Company had 22 stockholders.
Upon the closing of this Offering, the Company will have 12,261,324 shares of
Common Stock outstanding.
The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and qualified
in its entirety by (i) the provisions of the Company's Restated Certificate of
Incorporation and Amended and Restated By-laws (each as filed and effective,
respectively, on or before the closing of this offering and included as exhibits
to the Registration Statement) and (ii) the provisions of applicable law.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on matters to be
voted upon by the stockholders. There are no cumulative voting rights. Holders
of Common Stock are entitled to receive dividends if, as and when declared by
the Board of Directors out of funds legally available therefor. See "Dividend
Policy." Upon the liquidation, dissolution or winding up of the Company, holders
of Common Stock are entitled to share ratably in the assets of the Company
available for distribution to its stockholders, subject to the preferential
rights of any then outstanding shares of Preferred Stock. No shares of Preferred
Stock will be outstanding immediately following the closing of this Offering.
The Common Stock outstanding upon the effective date of the Registration
Statement, and the shares offered by the Company hereby, upon issuance and sale,
will be fully paid and nonassessable.
PREFERRED STOCK
The Company is currently authorized to issue 9,925,000 shares of Series A
Preferred Stock. Upon the consummation of the Offering, all of the issued and
outstanding shares of Series A Preferred Stock will be converted into an
aggregate of 4,881,935 shares of Common Stock. Immediately following such
conversion, all currently outstanding shares of Series A Preferred Stock will be
cancelled, retired and eliminated from the Company's authorized shares of
capital stock, and the number of authorized shares of Preferred Stock will be
decreased to 1,000,000 shares.
Upon consummation of the Offering, the Company's Board of Directors will
have the authority to issue up to 1,000,000 shares of Preferred Stock in one or
more series and to fix the relative rights, preferences, privileges,
qualifications, limitations and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences, sinking fund terms and the number of
shares constituting any series or the designation of such series, without
further vote or action by the stockholders. The Company believes that the power
to issue Preferred Stock will provide flexibility in connection with possible
corporate transactions. The issuance of Preferred Stock could adversely affect
the voting power of the holders of Common Stock and restrict their rights to
receive payment upon liquidation and could have the effect of delaying,
deferring or preventing a change-in-control of the Company. See "Description of
Capital Stock -- Anti-Takeover Provisions." The Company has no present plans to
issue any shares of Preferred Stock.
STOCK PURCHASE WARRANTS
As a commitment fee in connection with the establishment of a revolving
line of credit, the Company issued warrants to purchase an aggregate of 207,292
shares of Common Stock to the
58
<PAGE> 61
Ampersand Funds, the Sprout Funds and James B. Powell, M.D. These warrants have
an exercise price of $2.033 per share, are immediately exercisable in full and
expire on June 27, 2007. The Company may accelerate the expiration of these
warrants to the closing date of this Offering.
ANTI-TAKEOVER MEASURES
In addition to the Board of Directors' ability to issue shares of Preferred
Stock, the Restated Certificate and the By-laws contain several other provisions
that are commonly considered to discourage unsolicited takeover bids. The
Restated Certificate includes a provision classifying the Board of Directors
into three classes with staggered three-year terms, and the By-laws include a
provision prohibiting stockholder action by written consent except as otherwise
provided by law. Under the Restated Certificate and By-laws, the Board of
Directors may enlarge the size of the Board and fill any vacancies on the Board.
The Restated Certificate requires the approval of the holders of at least
66 2/3% of the outstanding capital stock of the Company prior to (i) the merger
of the Company into another entity, (ii) the sale or disposition of all or
substantially all of the Company's assets, (iii) the issuance or transfer by the
Company of its securities having a market value in excess of $500,000 and (iv)
engaging in any other business combination transaction; unless such transaction
has been approved by a majority of the Board of Directors. Further, provisions
of the By-laws and the Restated Certificate provide that the stockholders may
amend the By-laws or certain provisions of the Restated Certificate only with
the affirmative vote of 66 2/3% of the Company's capital stock. The By-laws
provide that nominations for directors may not be made by stockholders at any
annual or special meeting unless the stockholder intending to make a nomination
notifies the Company of its intention a specified period in advance and
furnishes certain information. The By-laws also provide that special meetings of
the Company's stockholders may be called only by the President or the Board of
Directors and require advance notice of business to be brought by a stockholder
before the annual meeting.
Upon the consummation of this Offering made hereby, the Company will be
subject to the provisions of Section 203 of the Delaware General Corporation
Law, a law regulating corporate takeovers (the "Anti-Takeover Law"). In certain
circumstances, the Anti-Takeover Law prevents certain Delaware corporations,
including those whose securities are listed on the Nasdaq National Market, from
engaging in a "business combination" (which includes a merger or sale of more
than ten percent of the corporation's assets) with an "interested stockholder"
(a stockholder who owns 15% or more of the corporation's outstanding voting
stock) for three years following the date on which such stockholder became an
"interested stockholder" subject to certain exceptions, unless the transaction
is approved by the board of directors and the holders of at least 66 2/3% of the
outstanding voting stock of the corporation (excluding shares held by the
interested stockholder). The statutory ban does not apply if, upon consummation
of the transaction in which any person becomes an interested stockholder, the
interested stockholder owns at least 85% of the outstanding voting stock of the
corporation (excluding shares held by persons who are both directors and
officers or by certain employee stock plans). A Delaware corporation subject to
the Anti-Takeover Law may "opt out" of the Anti-Takeover Law with an express
provision either in its certificate of incorporation or by-laws resulting from a
stockholders' amendment approved by at least a majority of the outstanding
voting shares; such an amendment is effective following expiration of twelve
months from adoption. The Company has not "opted out" of the Anti-Takeover Law.
The foregoing provisions of the Restated Certificate and By-laws and
Delaware law could have the effect of discouraging others from attempting
hostile takeovers of the Company and, as a consequence, they may also inhibit
temporary fluctuations in the market price of the Common Stock that might result
from actual or rumored hostile takeover attempts. Such provisions may also have
the effect of preventing changes in the management of the Company. It is
possible that such provisions could make it more difficult to accomplish
transactions which stockholders may otherwise deem to be in their best
interests.
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<PAGE> 62
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is American Stock
Transfer and Trust Company. Its telephone number is (212) 936-5100.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 12,261,324 shares
of Common Stock outstanding, assuming no exercise of the Underwriters'
over-allotment option or of any other outstanding options. Of these shares, the
3,100,000 shares sold in this Offering (plus any additional shares sold upon
exercise of the Underwriters' over-allotment option) will be freely tradable,
without restriction or further registration under the Securities Act, except for
shares purchased by "affiliates" of the Company as that term is defined in Rule
144 under the Securities Act.
The remaining 9,161,324 outstanding shares of Common Stock owned by
existing stockholders together with 991,848 shares and 207,292 shares of Common
Stock issuable upon the exercise of outstanding options and warrants,
respectively, are deemed "Restricted Shares" under Rule 144. These may not be
resold, except pursuant to an effective registration statement or an applicable
exemption from registration. Of these remaining shares, approximately 48,862
shares of Common Stock will be eligible for sale under Rules 144 and 701 on the
ninety-first day after the effectiveness of this Offering. Stockholders of the
Company, holding in the aggregate 9,161,324 shares of Common Stock, warrants to
purchase 207,292 shares of Common Stock and options to purchase 774,712 shares
of Common Stock have agreed to enter into the 180-day lock-up agreements
described below. At the end of such 180-day period, an additional 9,589,288
shares of Common Stock (including 427,964 shares of Common Stock issuable upon
the exercise of vested options and outstanding warrants) will be eligible for
sale under Rules 144 and 701. The remaining Restricted Shares will become
eligible from time to time thereafter upon the expiration of the minimum
one-year holding period prescribed by Rule 144 and, in the case of shares of
Common Stock issuable upon the exercise of options, subject to vesting.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
Restricted Shares for at least one year from the later of the date such
Restricted Shares were acquired from the Company and (if applicable) the date
they were acquired from an affiliate, 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 public market during the four calendar weeks preceding such sale. Sales
under Rule 144 are also subject to certain requirements as to the manner and
notice of sale and the availability of public information concerning the
Company. All sales of shares of the Company's Common Stock, including Restricted
Shares, held by affiliates of the Company must be sold under Rule 144, subject
to the foregoing volume limitations and other restrictions.
The Company's executive officers and directors and all of its existing
stockholders, warrantholders and certain optionholders have agreed, subject to
certain limited exceptions, not to offer, sell, contract to sell, pledge, grant
any option to purchase, transfer, or otherwise dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or warrants or other rights to
purchase or acquire shares of Common Stock for a period of 180 days after the
effective date of the Registration Statement filed in connection with the
Offering without the prior written consent of Dillon, Read & Co. Inc.
The Company plans to file a registration statement under the Securities Act
to register approximately 2,086,325 shares of Common Stock, issuable under the
Equity Plan and 100,000 shares of Common Stock issuable under the Director Plan,
90 days after the date of this Prospectus. Upon registration, such shares will
be eligible for immediate resale upon exercise, subject to lock-up restrictions
described above and, in the case of affiliates, to the volume, manner of sale
and notice requirements of Rule 144.
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<PAGE> 63
No prediction can be made as to the effect, if any, that market sales of
additional shares or the availability of such additional shares for sale will
have on the market price of the Common Stock. Nevertheless, sales of substantial
amounts of Common Stock in the public market may have an adverse impact on the
market price for the Common Stock. See "Risk Factors -- Dilution."
REGISTRATION RIGHTS
The holders of the 9,161,324 shares of Common Stock and Common Stock to be
issued on conversion of the Series A Preferred Stock (the "Registrable Shares")
are entitled to certain rights with respect to registration of the Registrable
Shares under the Securities Act beginning at the end of the lock-up period. If
the Company proposes to register any of its securities under the Securities Act,
either for its own account or for the account of other security holders, such
holders are entitled to notice of such registration and are entitled to include
such Registrable Shares in the registration. The rights are subject to certain
conditions and limitations, among them, the right of the underwriters of a
registered offering to limit the number of shares included in such registration.
Holders of Registrable Shares benefiting from these rights may also require the
Company to file at its expense a registration statement under the Securities Act
with respect to their shares of Common Stock and, subject to certain conditions
and limitations, the Company is required to use its best efforts to effect such
registration. Furthermore, such holders may, subject to certain conditions and
limitations, require the Company to file additional registration statements on
Form S-3 with respect to such Registrable Shares. Such holders waived their
right to have shares of Common Stock registered under the Securities Act as part
of this Offering.
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<PAGE> 64
UNDERWRITING
The names of the Underwriters of the shares of Common Stock offered hereby
and the aggregate number of shares which each has severally agreed to purchase
from the Company, subject to the terms and conditions specified in the
Underwriting Agreement, are as follows:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------------------------------------------------------ ----------------
<S> <C>
Dillon, Read & Co. Inc......................................
UBS Securities LLC..........................................
---------
Total............................................... 3,100,000
=========
</TABLE>
The Managing Underwriters are Dillon, Read & Co. Inc. and UBS Securities
LLC.
If any shares of Common Stock offered hereby are purchased by the
Underwriters, all such shares will be so purchased. The Underwriting Agreement
contains certain provisions whereby if any Underwriter defaults in its
obligation to purchase such shares and if the aggregate obligations of the
Underwriters so defaulting do not exceed 10% of the shares offered hereby, the
remaining Underwriters, or some of them, must assume such obligations.
The shares of Common Stock offered hereby are being initially offered
severally by the Underwriters for sale at the price set forth on the cover page
hereof, or at such price less a concession not to exceed $ per share on
sales to certain dealers. The Underwriters may allow, and such dealers may
reallow, a concession not to exceed $ per share to certain other dealers.
The offering of the shares of Common Stock is made for delivery when, as, and if
accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offer without notice. The Underwriters
reserve the right to reject any order for the purchase of the shares of Common
Stock offered hereby. After the initial public offering of the Common Stock, the
price to the public, the concession and the reallowance may be changed by the
Managing Underwriters.
The Company has granted to the Underwriters an option to purchase up to an
additional 465,000 shares of Common Stock on the same terms per share. If the
Underwriters exercise this option, each of the Underwriters will have a firm
commitment, subject to certain conditions, to purchase approximately the same
proportion of the aggregate shares so purchased as the number of shares to be
purchased by it shown in the above table bears to the total number of shares in
such table. The Underwriters may exercise such option on or before the thirtieth
day from the date of the Underwriting Agreement and only to cover
over-allotments, if any, in connection with the Offering.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
The Company, its executive officers and directors and all of its existing
stockholders, warrantholders and certain of its optionholders have agreed,
subject to certain limited exceptions, not to offer, sell, contract to sell,
pledge, grant any option to purchase, transfer, or otherwise dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock or warrants or other rights
to purchase or acquire shares of Common Stock for a period of 180 days after the
effective date of the Registration Statement filed in connection with the
Offering without the prior written consent of Dillon, Read & Co. Inc.
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<PAGE> 65
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock, including over-allotment, stabilization, syndicate covering
transactions and imposition of penalty bids. In an over-allotment, the
Underwriters would allot more shares of Common Stock to their customers in the
aggregate than are available for purchase by the Underwriters under the
Underwriting Agreement. Stabilizing means the placing of any bid, or the
effecting of any purchase, for the purpose of pegging, fixing or maintaining the
price of a security. In a syndicate covering transaction, the Underwriters would
place a bid or effect a purchase to reduce a short position created in
connection with the Offering. Pursuant to a penalty bid, Dillon, Read & Co.
Inc., on behalf of the Underwriters, would be able to reclaim a selling
concession from an Underwriter if shares of Common Stock originally sold by such
Underwriter are purchased in syndicate covering transactions. These transactions
may result in the price of the Common Stock being higher than the price that
might otherwise prevail in the open market. These transactions may be effected
on the Nasdaq National Market, in the over-the-counter market or otherwise, and,
if commenced, may be discontinued at any time.
Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price will be determined by
negotiations among the Company and the Managing Underwriters. Among the
principal factors to be considered in determining the initial public offering
price are prevailing market and general economic conditions, the
price-to-earnings ratios of other publicly traded companies, projected revenues
and earnings of the Company, the current financial position of the Company,
estimates of the business potential of the Company, the present state of the
Company's development, the Company's management and other factors deemed
relevant. Additionally, consideration will be given to the general state of the
securities market, the market conditions for new issues of securities and the
demand for securities of comparable companies at the time the Offering was made.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Palmer & Dodge LLP, Boston, Massachusetts. Certain legal
matters are being passed upon for the Underwriters by Mintz, Levin, Cohen,
Ferris, Glovsky and Popeo, P.C., Boston, Massachusetts.
EXPERTS
The financial statements of AutoCyte, Inc. at December 31, 1996 and for the
period from November 22, 1996 (inception) to December 31, 1996 and of the
Cytology and Pathology Automation Business of Roche Image Analysis Systems, Inc.
as of December 31, 1995 and November 21, 1996 and for the years ended December
31, 1994 and 1995 and for the period from January 1, 1996 to November 21, 1996
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
The statements in the Prospectus under the captions "Risk
Factors -- Dependence on Patents, Copyrights, Licenses and Proprietary Rights;
Risk of Third-Party Claims of Infringement," and "Business -- Patents,
Copyrights, Licenses and Proprietary Rights" have been reviewed and approved by
Bell, Seltzer, Park & Gibson, as experts on such matters, and are included in
this Prospectus in reliance on that review and approval.
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<PAGE> 66
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act, with respect to the shares of Common Stock
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement and the exhibits and
schedules thereto. All statements made in this Prospectus regarding the contents
of any contract, agreement or other document filed as an exhibit to the
Registration Statement are not necessarily complete and are qualified by
reference to the copy of such document filed as an exhibit to the Registration
Statement. The Registration Statement can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and also will be available for
inspection and copying at the following regional offices of the Commission: New
York Regional Office, 7 World Trade Center, New York, New York 10048, and
Chicago Regional Office, Suite 1400, Northwest Atrium Center, 500 West Madison
Street, Chicago, Illinois 60661-2511 and at the Commission website located at
(http://www.sec.gov). Copies of such material also can be obtained from the
Commission at prescribed rates through its Public Reference Section at 450 Fifth
Street, N.W., Washington, D.C. 20549.
The Company intends to distribute to its shareholders annual reports
containing financial statements audited by its independent auditors and will
make available copies of quarterly reports for the first three quarters of each
fiscal year containing unaudited financial information.
64
<PAGE> 67
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AUTOCYTE, INC.
PERIOD FROM NOVEMBER 22, 1996 (INCEPTION) THROUGH DECEMBER 31, 1996
Report of Independent Auditors........................................................ F-2
AUDITED FINANCIAL STATEMENTS
Balance Sheets........................................................................ F-3
Statements of Operations.............................................................. F-4
Statements of Redeemable Convertible Preferred Stock and Shareholders' Equity......... F-5
Statements of Cash Flows.............................................................. F-6
Notes to Financial Statements......................................................... F-7
CYTOLOGY AND PATHOLOGY AUTOMATION BUSINESS OF ROCHE IMAGE ANALYSIS SYSTEMS, INC.
YEARS ENDED DECEMBER 31, 1994 AND 1995, AND THE PERIOD FROM JANUARY 1, 1996 THROUGH
NOVEMBER 21, 1996
Report of Independent Auditors........................................................ F-15
AUDITED FINANCIAL STATEMENTS
Balance Sheets........................................................................ F-16
Statements of Operations.............................................................. F-17
Statements of Cash Flows.............................................................. F-18
Notes to Financial Statements......................................................... F-19
</TABLE>
F-1
<PAGE> 68
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
AutoCyte, Inc.
We have audited the accompanying balance sheet of AutoCyte, Inc. as of
December 31, 1996, and the related statements of operations, shareholders'
equity and cash flows for the period from November 22, 1996 (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 audit.
We conducted our audit 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 audit provides 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 AutoCyte, Inc. at December
31, 1996, and the results of its operations and its cash flows for the period
from November 22, 1996 (inception) through December 31, 1996 in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Raleigh, North Carolina
June 13, 1997
F-2
<PAGE> 69
AUTOCYTE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
REDEEMABLE
CONVERTIBLE
PREFERRED STOCK
AND SHAREHOLDERS'
EQUITY
DECEMBER 31, MARCH 31, MARCH 31, 1997
1996 1997 (NOTE 2)
------------ ----------- -----------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 9,517,274 $ 7,812,221
Accounts receivable, less allowance for doubtful
accounts of $17,500 and $57,500 (unaudited) at
December 31, 1996 and March 31, 1997,
respectively.................................. 761,117 450,435
Inventory........................................ 1,911,406 1,798,758
Other current assets............................. 49,208 60,824
----------- -----------
Total current assets.......................... 12,239,005 10,122,238
Property and equipment, net of accumulated
depreciation of $39,800 and $138,000 (unaudited)
at December 31, 1996 and March 31, 1997,
respectively..................................... 1,459,932 1,459,286
----------- -----------
Total assets.................................. $ 13,698,937 $11,581,524
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 227,521 $ 191,714
Accrued payroll and related benefits............. 117,615 83,741
Other accrued expenses........................... 1,221,358 1,348,898
----------- -----------
Total current liabilities..................... 1,566,494 1,624,353
Redeemable convertible preferred stock............. 9,882,000 9,882,000 --
Shareholders' equity:
Common stock, $0.01 par value; 20,500,000 shares
authorized; 4,279,389 shares issued and
outstanding at December 31, 1996 and March 31,
1997 and 9,112,508 shares issued and
outstanding pro forma......................... 42,794 42,794 $ 91,125
Additional paid-in capital....................... 3,857,956 3,878,956 13,712,625
Deferred compensation............................ (764,547) (730,600) (730,600)
Accumulated deficit.............................. (885,760) (3,115,979) (3,115,979)
----------- ----------- -----------
Total shareholders' equity............... 2,250,443 75,171 $ 9,957,171
------------ ----------- ----------------
----------------
Total liabilities and shareholders'
equity................................. $ 13,698,937 $11,581,524
=========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 70
AUTOCYTE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 22,
1996 THREE MONTHS
(INCEPTION) ENDED MARCH 31,
THROUGH -----------------------------
DECEMBER 31, 1996 1997
1996 (PREDECESSOR) (AUTOCYTE)
------------ ------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Sales.............................................. $ 129,189 $ 603,162 $ 383,397
Cost of goods sold................................. 111,826 457,392 346,178
---------- ---------- ----------
Gross profit.................................. 17,363 145,770 37,219
Operating expenses:
Research and development......................... 451,814 875,321 1,175,795
Selling, general and administrative.............. 493,740 611,839 1,199,812
---------- ---------- ----------
945,554 1,487,160 2,375,607
---------- ---------- ----------
Operating loss..................................... (928,191) (1,341,390) (2,338,388)
Interest income.................................... 42,431 -- 108,169
---------- ---------- ----------
Net loss...................................... $ (885,760) $ (1,341,390) $(2,230,219)
========== ========== ==========
Pro forma net loss per share....................... $ (0.09) $ (0.22)
========== ==========
Shares used in computing pro forma net loss per share... 10,311,225 10,311,225
---------- ----------
</TABLE>
See accompanying notes.
F-4
<PAGE> 71
AUTOCYTE, INC.
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
REDEEMABLE
CONVERTIBLE ADDITIONAL TOTAL
PREFERRED COMMON PAID-IN DEFERRED ACCUMULATED SHAREHOLDERS'
STOCK STOCK CAPITAL COMPENSATION DEFICIT EQUITY
---------- ------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at inception................. $ -- $ -- $ -- $ -- $ -- $ --
Contribution of assets in exchange
for common stock................... -- 36,891 2,963,109 -- -- 3,000,000
Issuance of common stock............. -- 5,903 114,097 -- -- 120,000
Issuance of redeemable convertible
preferred stock.................... 9,882,000 -- -- -- -- --
Deferred compensation................ -- -- 780,750 (780,750) -- --
Amortization of deferred
compensation....................... -- -- -- 16,203 -- 16,203
Net loss for period.................. -- -- -- -- (885,760) (885,760)
---------- -----------------------------------------------------------------
Balance at December 31, 1996......... 9,882,000 42,794 3,857,956 (764,547) (885,760) 2,250,443
Deferred compensation (unaudited).... -- -- 21,000 (21,000) -- --
Amortization of deferred compensation
(unaudited)........................ -- -- -- 54,947 -- 54,947
Net loss for period (unaudited)...... -- -- -- -- (2,230,219) (2,230,219)
---------- -----------------------------------------------------------------
Balance at March 31, 1997
(unaudited)........................ $9,882,000 $42,794 $3,878,956 $ (730,600) $(3,115,979) $ 75,171
=========== ======== ========== ============= ============ ============
</TABLE>
See accompanying notes.
F-5
<PAGE> 72
AUTOCYTE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 22,
1996 THREE MONTHS
(INCEPTION) ENDED MARCH 31,
THROUGH --------------------------
DECEMBER 31, 1996 1997
1996 (PREDECESSOR) (AUTOCYTE)
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................... $ (885,760) $(1,341,390) $(2,230,219)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation................................. 39,797 339,882 99,186
Amortization of deferred compensation........ 16,203 -- 54,947
Changes in operating assets and liabilities:
Accounts receivable.......................... (48,792) (64,482) 310,682
Inventory.................................... (128,674) 281,362 112,648
Other current assets......................... 65 3,700 (11,616)
Accounts payable............................. 225,511 165,387 (35,807)
Accrued payroll and related benefits......... 117,615 -- (33,874)
Other accrued expenses....................... 217,170 120,624 127,540
----------- ----------- -----------
Net cash used in operating activities..... (446,865) (494,917) (1,606,513)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............ (47,889) (82,217) (98,540)
Net cash acquired in acquisition of business... 10,028 -- --
----------- ----------- -----------
Net cash used in investing activities..... (37,861) (82,217) (98,540)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock......... 120,000 -- --
Proceeds from the issuance of redeemable
convertible preferred stock, net of issuance costs... 9,882,000 -- --
Advances from Roche............................ -- 567,604 --
----------- ----------- -----------
Net cash provided by financing
activities.............................. 10,002,000 567,604 --
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents....................................... 9,517,274 (9,530) (1,705,053)
Cash and cash equivalents at beginning of period.... -- 9,530 9,517,274
----------- ----------- -----------
Cash and cash equivalents at end of period.......... $ 9,517,274 $ -- $ 7,812,221
=========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 73
AUTOCYTE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(INFORMATION PERTAINING TO THE THREE MONTH PERIODS ENDED MARCH 31, 1996 AND 1997
IS UNAUDITED)
1. THE COMPANY
AutoCyte, Inc. ("AutoCyte" or the "Company"), a Delaware Corporation, was
formed on October 24, 1996 to acquire the cytology and pathology automation
business of Roche Image Analysis Systems, Inc. ("RIAS"), a wholly-owned
subsidiary of Roche Holding Ltd. ("Roche"). The Company develops, manufactures
and markets the only integrated sample preparation and automated imaging
analysis system to support cytologists in cervical cancer screening. The
Company's integrated system is comprised of the AutoCyte PREP ("PREP") sample
preparation system and the AutoCyte SCREEN ("SCREEN") automated image analysis
system. The Company will also continue to market and further develop other
pathology automation products previously commercialized by RIAS.
On November 22, 1996, the Company entered into a Contribution Agreement
with Roche and RIAS whereby the Company acquired the net assets and liabilities
of the cytology and pathology automation business of RIAS in exchange for
3,689,129 shares of Common Stock.
Revenues from sales of products have not generated sufficient cash to
support the Company's operations. Both the Company and its predecessor have
incurred substantial losses. The Company has funded its operations primarily
through the private sale of equity securities, and the predecessor's operations
were funded by Roche. The Company continues to be subject to certain risks and
uncertainties common to early stage medical device companies including the
uncertainty of availability of additional financing, extensive government
regulation, uncertainty of market acceptance of its PREP and SCREEN systems
which are still under development, limited manufacturing, marketing and sales
experience, uncertainty of future profitability and the uncertainty of United
States Food and Drug Administration ("FDA") approval of its products.
The Company must obtain FDA approval in order to market its products in the
United States for their principal intended use. Generally, before a new medical
device can be introduced into the market in the United States, the manufacturer
must obtain FDA approval of a premarket approval application ("PMA") or FDA
clearance of a 510(k) premarket notification. Each of the Company's two
principal products, PREP and SCREEN, are subject to the PMA process; however,
neither has yet received such approval. The Company's failure to obtain or
maintain FDA regulatory approval for its products would have a material adverse
effect on the Company's business, financial condition and results of operations.
2. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentrations of Credit Risk
The Company's principal financial instrument subject to potential
concentration of credit risk is unsecured accounts receivable. The Company
provides an allowance for doubtful accounts equal to the estimated losses to be
incurred in the collection of accounts receivable.
F-7
<PAGE> 74
AUTOCYTE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Revenue Recognition
Revenue is recognized from product sales and rentals. Product sales revenue
is recognized when products are shipped, and product rental revenue is
recognized as earned.
Product Warranty
The Company's products generally carry a one-year warranty against defects.
The Company provides for estimated warranty costs in the period the related
sales are made.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Inventory
Inventory is stated at the lower of cost or net realizable value. Cost is
determined using the average cost method. Consideration is given to
deterioration, obsolescence and other factors in evaluating net realizable
value.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives (three to five years)
of the individual assets. Depreciation expense amounted to $39,797 during the
period from November 22, 1996 (inception) to December 31, 1996 and $339,882 and
$99,186 during the three month periods ended March 31, 1996 and 1997,
respectively.
Included in property and equipment is demonstration equipment, which
consists of units being used for demonstration purposes by salespeople; being
evaluated by clinics, laboratories, hospitals, doctors offices or universities;
or being used in clinical trials. As this equipment will likely not be sold
within the next year, the amounts are recorded as a component of property and
equipment rather than inventory, and are depreciated over their estimated useful
life of four years.
Research and Development Costs
Research and development costs are charged to operations as incurred.
Income Taxes
The Company accounts for income taxes using the liability method. Under the
liability method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets and
liabilities.
Pro Forma Presentation of Redeemable Convertible Preferred Stock and
Shareholders' Equity (Unaudited)
The Company has issued and outstanding redeemable convertible preferred
stock which automatically converts into common stock with the closing of an
initial public offering of the Company's common stock of at least $30 million.
The pro forma presentation in the accompanying balance sheet gives effect to the
conversion of the preferred stock on the assumption that the Company will become
a public entity and the conditions for conversion, as described in Note 7, will
be satisfied.
F-8
<PAGE> 75
AUTOCYTE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Stock-Based Compensation
The Company accounts for stock options in accordance with Accounting
Principles Board Opinion No. 25. "Accounting for Stock Issued to Employees"
("APB 25"). Under APB 25, no compensation expense is recognized for stock or
stock options issued at fair value. For stock options granted at exercise prices
below the deemed fair value, the Company records deferred compensation expense
for the difference between the exercise price of the shares and the deemed fair
value. The resulting deferred compensation expense is amortized ratably over the
vesting period of the individual options.
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("SFAS 123"), which provides an alternative to APB 25 in
accounting for stock-based compensation issued to employees. SFAS 123 provides
for a fair value-based method of accounting for employee stock options and
similar equity instruments. However, for companies that continue to account for
stock-based compensation arrangements under APB 25, SFAS 123 requires disclosure
of the pro forma effect on net income (loss) and earnings (loss) per share as if
the fair value based method prescribed by SFAS 123 had been applied. The
disclosure requirements are effective for fiscal years beginning after December
1, 1995, or upon initial adoption of the statement, if earlier. The Company
plans to continue to account for stock based compensation arrangements under APB
No. 25 and has adopted the pro forma disclosure requirements of SFAS 123 (Note
7).
3. SALES AND ACCOUNTS RECEIVABLE
The Company operates in a single industry and is engaged in the development
and sale of cytology and pathology automation systems for use in clinical
laboratory testing. Revenues from significant customers, those representing 10%
or more of total revenues for the respective periods, are summarized as follows:
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 22,
1996
(INCEPTION)
THROUGH THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
1996 1996 1997
------------ --------------- ------------
(PREDECESSOR) (AUTOCYTE)
<S> <C> <C> <C>
Customer 1.................... 70.4% -- 45.8%
Customer 2.................... -- 40.5% --
Customer 3.................... -- 20.7% --
Customer 4.................... -- 13.3% --
Customer 5.................... -- -- 11.1%
</TABLE>
The Company sells its products to international customers. These sales
represented 20.3% of sales for the three months ended March 31, 1997 and were
less than 10% of total sales during all other periods presented.
4. INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
DECEMBER
31, MARCH 31,
1996 1997
---------- ----------
<S> <C> <C>
Raw materials................................... $ 787,050 $ 761,664
Finished goods.................................. 1,124,356 1,037,094
---------- ----------
$1,911,406 $1,798,758
========== ==========
</TABLE>
F-9
<PAGE> 76
AUTOCYTE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. LEASES
The Company leases its office and warehouse facilities under two separate
operating leases which expired on April 30, 1997 and March 31, 1997,
respectively (Note 9). At December 31, 1996, future minimum payments under these
leases amounted to $62,957. Rent expense amounted to $25,245 during the period
from November 22, 1996 (inception) to December 31, 1996 and $115,040 and $75,114
during the three month periods ended March 31, 1996 and 1997, respectively.
Effective April 1, 1997, the Company extended the warehouse lease for an
additional one-year term at a rate of $8,610 per month. Effective May 1, 1997,
the Company extended the office lease until December 31, 1997 at a rate of
$9,281 per month.
6. INCOME TAXES
At December 31, 1996 and March 31, 1997, the Company has cumulative net
operating loss carryforwards available to offset future taxable income of
approximately $1,011,000 and $2,362,000, respectively, which expire in the years
2011 and 2012, respectively. Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
Components of deferred taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
<S> <C> <C>
Deferred tax assets:
Inventory............................... $ 1,538,000 $ 1,616,000
Property & equipment.................... 1,992,000 1,841,000
Intangible assets....................... 690,000 674,000
Net operating loss...................... 390,000 1,009,000
Other................................... 84,000 99,000
------------ ------------
Total deferred tax asset..................... 4,694,000 5,239,000
Valuation allowance for deferred tax asset... (4,694,000) (5,239,000)
------------ ------------
Net deferred taxes........................... $ 0 $ 0
============ ============
</TABLE>
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
Redeemable Convertible Preferred Stock
The Company's redeemable convertible preferred stock consists of Series A
Convertible Preferred Stock (the "Series A Preferred Stock"), $0.01 par value,
9,925,000 shares authorized, 9,825,750 shares issued and outstanding. The Series
A Preferred Stock is convertible at the option of the holder on a one-for-2.033
basis into shares of Common Stock. Additionally, each share of Series A
Preferred Stock will automatically convert into Common Stock upon the closing of
an initial public offering of the Company's Common Stock resulting in gross
proceeds to the Company of at least $30 million. As of December 31, 1996 and
March 31, 1997, there were 9,825,750 shares of Common Stock reserved for future
issuance in the event of a conversion of the Series A Preferred Stock.
Each holder of Series A Preferred Stock is entitled to the number of votes
equal to the number of whole shares of Common Stock into which the shares of
Series A Preferred Stock held by such holder are convertible. The Company cannot
declare or pay any distributions on shares of Common Stock until the holders of
the Series A Preferred Stock then outstanding have first received a distribution
equal to the product of (i) the per share amount of the dividends on other
distributions to be declared, paid or set aside for the Common Stock, multiplied
by (ii) the number of whole shares of Common Stock into which the Series A
Preferred Stock is then convertible.
F-10
<PAGE> 77
AUTOCYTE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
On November 22 in each of 2001, 2002 and 2003, each holder of Preferred
Stock may cause the Company to redeem up to 33.3%, 50% and 100%, respectively,
of the shares of Preferred Stock held by such holder on such date at an initial
redemption price equal to the issuance price of $1.00756 per share. The
redemption price is subject to adjustment in the event of a stock split, stock
dividend, combination, reorganization, or other similar event involving a change
in the Preferred Stock.
Reverse Stock Split
On June 24, 1997, the Company's Board of Directors approved a 1-for-2.033
reverse stock split of the Company's Common Stock to be effective immediately.
All common and preferred share, option and warrant data have been restated to
reflect the split.
Equity Incentive Plan
At inception, the Company adopted the 1996 Equity Incentive Plan (the
"Plan") under which incentive and nonstatutory stock options, stock appreciation
rights and restricted stock may be granted to employees or consultants of the
Company. Generally, options and restricted stock grants vest ratably over a 48
month term. Stock options expire ten years from the date of grant.
A summary of activity under the Plan is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------
SHARES WEIGHTED
AVAILABLE NUMBER OF EXERCISE AVERAGE
FOR GRANT SHARES PRICE FAIR VALUE
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
Shares reserved........................ 1,512,543 -- $ -- $ --
Restricted stock granted............... (590,260) -- -- --
Options granted........................ (689,836) 689,836 0.2033 0.8132
---------- --------- -----
Balance at December 31, 1996................ 232,447 689,836 0.2033 0.8132
Options granted........................ (27,543) 27,543 0.2033 1.4383
Options cancelled...................... 1,384 (1,384) 0.2033 0.8132
---------- --------- -----
Balance at March 31, 1997................... 206,288 715,995 $0.2033 $ 0.8372
========== ========= =====
</TABLE>
At December 31, 1996, no options were exercisable, and all outstanding
options had a remaining contractual life of 120 months.
At inception, the Company sold 590,260 shares of restricted Common Stock
with a deemed fair value of $0.8132 per share to the Company's CEO at a price of
$0.2033 per share. Under the terms of the restricted stock purchase agreement,
the shares vest ratably over a 48 month term and are subject to repurchase by
the Company at the issuance price if the CEO ceases to be employed by the
Company.
SFAS 123
The Company has adopted the disclosure-only provisions of SFAS 123. In
accordance with SFAS 123, the fair value of each option grant was determined by
using the Black-Scholes option-pricing model with the following weighted average
assumptions; dividend yield of 0.00%; risk free interest rate of 6.56%;
volatility factor of the expected market price of the Company's Common Stock of
60%; and an expected option life of 48 months. Had compensation cost for the
Company's stock options been determined based on the fair value at the date of
grant consistent with the provisions of SFAS 123, the Company's net loss and net
loss per share would not have differed materially from those amounts
F-11
<PAGE> 78
AUTOCYTE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
reported in the consolidated statements of operations, therefore, supplemental
pro forma information has not been separately disclosed, as permitted by SFAS
123.
Common Stock Reserved for Future Issuance
The Company has reserved authorized shares of Common Stock for future
issuance as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ ---------
------------------------
<S> <C> <C>
Outstanding stock options......................... 689,836 715,995
Possible future issuance under equity incentive
plan............................................ 232,447 206,288
Redeemable convertible preferred stock............ 4,881,936 4,881,936
---------
Total shares reserved............................. 5,804,219 5,804,219
=========
</TABLE>
Deferred Compensation
The Company recorded deferred compensation of $780,750 during the period
from November 22, 1996 (inception) to December 31, 1996 and $21,000 during the
three month period ended March 31, 1997, for the difference between the exercise
price and the deemed fair value of the Company's common stock option and
restricted stock grants. The amount is being amortized over the vesting period
of the individual options, generally 48 months. Amortization of deferred
compensation totaled $16,203 and $54,947 during the period from November 22,
1996 (inception) to December 31, 1996 and during the three month period ended
March 31, 1997, respectively.
8. LOSS PER SHARE OF COMMON STOCK
Pro forma net loss per share of common stock and historical net loss per
share of common stock computed in accordance with Accounting Principles Board
Opinion No. 15, "Earnings Per Share" ("APB 15") are computed using the weighted
average number of shares of common stock and the dilutive effect of common stock
equivalents outstanding. The pro forma calculation assumes the conversion of all
the outstanding shares of Preferred Stock.
In accordance with Securities and Exchange Commission requirements, all
issuances of the Company's common stock options, convertible preferred stock and
other potentially dilutive securities, at prices below the expected initial
public offering price during the twelve month period preceding the planned
offering, have been included in the pro forma and historical calculations as
common stock equivalents as if they had been issued at the Company's inception
(using the treasury stock method and the estimated initial public offering
price). Application of these SEC requirements causes the pro forma and
historical loss per share calculations to result in equivalent results for all
periods presented.
In February 1997, the FASB issued Statement No. 128, "Earnings Per Share,"
("SFAS 128") which requires public companies to report basic and diluted
earnings (loss) per share using the calculation methodologies set forth in the
statement. SFAS 128 is effective for years ended after December 15, 1997; thus
this pronouncement will be adopted by the Company for its fiscal year ended
December 31, 1997. Application of this pronouncement, and continuing the
application of SEC requirements as discussed in the preceding paragraph, would
not materially change the pro forma or historical loss per share amounts for the
periods presented.
9. RELATED PARTY TRANSACTIONS
The Company rents its office facilities from Laboratory Corporation of
America Holdings, Inc. ("LabCorp"), a public company partially owned by Roche of
which AutoCyte's President and Chief
F-12
<PAGE> 79
AUTOCYTE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Executive Officer is a Director. Total rent paid to LabCorp amounted to $11,600
during the period from November 22, 1996 (inception) to December 31, 1996 and
$27,436 and $27,843 during the three month periods ended March 31, 1996 and
1997, respectively.
10. RETIREMENT PLAN
The Company has a qualified 401(k) retirement plan (the "Plan").
Substantially all full-time employees are eligible to participate and
participants may contribute from 1% to 15% of their compensation to the Plan.
The Company matches 50% of each participant's contribution up to 6% of the
employees' compensation, and may make additional matching contributions at the
discretion of management, not to exceed 15% of the employees compensation. Total
expense for the plan was $5,572 and $21,322 during the period from November 22,
1996 (inception) to December 31, 1996 and during the three month period ended
March 31, 1997, respectively.
11. PRO FORMA COMBINED RESULTS OF OPERATIONS
The pro forma combined results of operations as if AutoCyte had acquired
the predecessor entity on January 1, 1996 and had been in operation for the
entire year as a stand-alone entity would have been as follows:
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM YEAR
JANUARY 1, NOVEMBER 22, ENDED
1996 TO 1996 TO DECEMBER 31,
NOVEMBER 21, DECEMBER 31, 1996
1996 1996 (PRO FORMA
(PREDECESSOR) (AUTOCYTE) COMBINED)
------------ ------------ ------------
<S> <C> <C> <C>
Sales.......................................... $ 1,747,209 $ 129,189 $ 1,876,398
Cost of goods sold............................. 2,796,802 111,826 2,908,628
------------ --------- ------------
Gross profit (loss)............................ (1,049,593) 17,363 (1,032,230)
Operating expenses:
Research and development.................. 3,907,682 451,814 4,359,496
Selling, general and administrative....... 11,965,813 493,740 12,459,553
------------ --------- ------------
15,873,495 945,554 16,819,049
------------ --------- ------------
Operating loss................................. (16,923,088) (928,191) (17,851,279)
Interest income................................ -- 42,431 42,431
------------ --------- ------------
Net loss....................................... $(16,923,088) $ (885,760) $(17,808,848)
============ ========= ============
Pro forma combined net loss per share.......... $ (1.73)
============
Shares used in computing pro forma combined net
loss per share............................... 10,311,225
============
</TABLE>
- ---------------
12. SUBSEQUENT EVENTS (UNAUDITED)
Stock Options
From April 1, 1997 through June 27, 1997, the Company granted options under
the 1996 Equity Incentive Plan to acquire 274,469 shares of Common Stock at an
exercise price of $0.2033 per share. The Company has estimated that the deferred
compensation expense related to these options is approximately $1,416,400, which
will be recorded in the second quarter of 1997 and amortized over the vesting
period of the individual options, generally 48 months.
F-13
<PAGE> 80
AUTOCYTE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Sale of Redeemable Convertible Preferred Stock
On May 19, 1997, the Company sold to certain employees an additional 92,250
shares of Series A Preferred Stock with the same features and preferences as
discussed more fully in Note 7, at a purchase price of $1.00756 per share. The
Company has estimated that the compensation expense related to the sale of these
shares at less than fair value to be approximately $397,000, all of which was
expensed at the time of sale.
Credit Agreement
On June 27, 1997, the Company entered into a credit agreement with certain
of its institutional shareholders and the Company's President. The agreement
provides the Company with access to a credit line of up to $8,000,000 at an
interest rate of prime plus 1%. As consideration for this credit agreement, the
Company issued warrants to purchase 207,292 shares of its Common Stock at an
exercise price of $2.033 per share. The warrants were immediately exercisable,
and expire ten years from the date of issuance. At the Company's election, the
expiration date of the warrants accelerates to the closing date of the Company's
initial public offering. The Company estimated the expense associated with the
warrant issuance to be approximately $1,475,000, all of which was expensed at
the time of issuance.
The Company has agreed to issue to the lenders warrants for 661,576
additional Common Shares at an exercise price of $2.033 per share, issuable on a
pro-rata basis as funds are drawn against the credit agreement. Assuming the
closing of this Offering, the Company does not anticipate making any borrowings
under the arrangement. The credit arrangement will terminate upon the closing of
this Offering.
F-14
<PAGE> 81
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
AutoCyte, Inc.
We have audited the accompanying balance sheets of the Cytology and
Pathology Automation Business of Roche Image Analysis Systems, Inc. (the
"Business") as of December 31, 1995 and November 21, 1996, and the related
statements of operations, shareholders' equity and cash flows for the years
ended December 31, 1994 and 1995 and for the period from January 1, 1996 to
November 21, 1996. These financial statements are the responsibility of the
Business's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
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 the Cytology and Pathology
Automation Business of Roche Image Analysis Systems, Inc. at December 31, 1995
and November 21, 1996, and the results of its operations and its cash flows for
the years ended December 31, 1994 and 1995 and for the period from January 1,
1996 to November 21, 1996 in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Raleigh, North Carolina
June 13, 1997
F-15
<PAGE> 82
CYTOLOGY AND PATHOLOGY AUTOMATION BUSINESS
OF ROCHE IMAGE ANALYSIS SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 21,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash........................................................... $ 9,530 $ 10,028
Accounts receivable, net....................................... 744,288 712,325
Inventory...................................................... 3,508,756 1,782,732
Other current assets........................................... 34,575 49,273
----------- ----------
Total current assets........................................ 4,297,149 2,554,358
Property and equipment, net of accumulated depreciation of
$4,448,000 and $5,732,000 at December 31, 1995 and November 21,
1996, respectively............................................. 6,416,967 1,451,840
----------- ----------
Total assets................................................ $ 10,714,116 $4,006,198
=========== ==========
LIABILITIES AND BUSINESS EQUITY
Current liabilities:
Accounts payable............................................... $ 411,647 $ 2,010
Accrued expenses............................................... 300,231 1,004,188
----------- ----------
Total current liabilities................................... 711,878 1,006,198
Business equity............................................. 10,002,238 3,000,000
----------- ----------
Total liabilities and business equity....................... $ 10,714,116 $4,006,198
=========== ==========
</TABLE>
See accompanying notes.
F-16
<PAGE> 83
CYTOLOGY AND PATHOLOGY AUTOMATION BUSINESS
OF ROCHE IMAGE ANALYSIS SYSTEMS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED DECEMBER 31, 1996 TO
----------------------------- NOVEMBER 21,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Sales to LabCorp and its predecessor........... $ 844,593 $ 598,174 $ 297,047
Sales to third parties......................... 2,551,717 2,797,656 1,450,162
------------ ------------
3,396,310 3,395,830 1,747,209
Cost of goods sold............................. 2,599,859 2,413,886 2,796,802
------------ ------------
Gross profit (loss)....................... 796,451 981,944 (1,049,593)
Operating expenses:
Research and development..................... 3,604,898 5,073,764 3,907,682
Selling, general and administrative.......... 8,479,057 7,895,394 11,965,813
------------ ------------
12,083,955 12,969,158 15,873,495
------------ ------------
Net loss.................................. $(11,287,504) $(11,987,214) $(16,923,088)
============ ============
</TABLE>
See accompanying notes.
F-17
<PAGE> 84
CYTOLOGY AND PATHOLOGY AUTOMATION BUSINESS
OF ROCHE IMAGE ANALYSIS SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED DECEMBER 31, 1996 TO
----------------------------- NOVEMBER 21,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................. $(11,287,504) $(11,987,214) $(16,923,088)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation........................... 1,915,481 2,242,320 1,359,527
Write-down for asset impairment........ 1,980,596 506,241 5,256,680
Changes in operating assets and
liabilities:
Accounts receivable.................... 1,916,368 105,938 31,963
Inventory.............................. (162,485) (1,208,216) 403,810
Other current assets................... 105,086 (15,150) (14,698)
Accounts payable....................... (477,270) 157,953 417
Accrued expenses....................... 384,384 (1,024,112) 293,903
------------ ------------ ------------
Net cash used in operating
activities........................ (5,625,344) (11,222,240) (9,591,486)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment...... (1,702,032) (1,800,295) (328,866)
------------ ------------ ------------
Net cash used in investing
activities........................ (1,702,032) (1,800,295) (328,866)
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from Roche...................... 7,329,932 13,023,796 9,920,850
------------ ------------ ------------
Net cash provided by financing
activities........................ 7,329,932 13,023,796 9,920,850
------------ ------------ ------------
Net increase in cash and cash equivalents..... 2,556 1,261 498
Cash and cash equivalents at beginning of period... 5,713 8,269 9,530
------------ ------------ ------------
Cash and cash equivalents at end of period.... $ 8,269 $ 9,530 $ 10,028
============ ============ ============
</TABLE>
See accompanying notes.
F-18
<PAGE> 85
CYTOLOGY AND PATHOLOGY AUTOMATION BUSINESS
OF ROCHE IMAGE ANALYSIS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 21, 1996
1. DESCRIPTION OF THE BUSINESS
The Cytology and Pathology Automation Business (the "Business") of Roche
Image Analysis Systems, Inc. ("RIAS") was engaged in the manufacturing and
marketing of automated pathology workstations, and in the development and
marketing of an integrated sample preparation and automated imaging system to
support cytologists in cervical cancer screening. The Business represents the
predecessor entity of AutoCyte, Inc. ("AutoCyte"), a company formed on October
24, 1996 to acquire the Business including its two principal product candidates,
the AutoCyte PREP ("PREP") sample preparation system and the AutoCyte SCREEN
("SCREEN") automated image analysis system. In addition to this Business, RIAS,
a wholly-owned subsidiary of Roche Holding Ltd. ("Roche"), was also engaged in
the sale of human leukocyte antigen ("HLA") kits used for paternity testing. The
HLA business was not acquired by AutoCyte and is thus not included in these
predecessor entity financial statements.
On November 22, 1996, RIAS entered into a Contribution Agreement with
AutoCyte and Roche whereby RIAS exchanged the net assets and liabilities of the
Business for 3,689,129 shares of AutoCyte common stock.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared as if the Business
had existed as a separate, stand-alone entity during the periods presented and
include the historical assets, liabilities, revenues and expenses that are
directly related to the Business's operations. However, these financial
statements are not necessarily indicative of the financial position and results
of operations which would have occurred had the Business been an independent
company.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentrations of Credit Risk
The Business's principal financial instrument subject to potential
concentration of credit risk is unsecured accounts receivable. The Business
provides an allowance for doubtful accounts equal to the estimated losses to be
incurred in the collection of accounts receivable.
Revenue Recognition
Revenue from product sales is recognized when products are shipped.
Cash and Cash Equivalents
The Business considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Product Warranty
The Business's products generally carry a one year warranty against
defects. The Business provides for estimated warranty costs in the period the
related sales are made.
F-19
<PAGE> 86
CYTOLOGY AND PATHOLOGY AUTOMATION BUSINESS
OF ROCHE IMAGE ANALYSIS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Impairment of Long-Lived Assets
The Business adopted the Financial Accounting Standards Board Statement No
121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of"
("SFAS 121") in the first quarter of 1996. During 1996, the Business decided to
focus on its newer generation PREP and SCREEN systems. Accordingly, the Business
evaluated the ongoing value of the older model systems and other equipment
included in property and equipment. Based on this evaluation, the Business
determined that assets with a carrying amount of approximately $5.4 million were
impaired and wrote them down by $3.9 million to their estimated fair value. Fair
value was based on the estimated price at which the assets could be sold.
Income Taxes
The results of the Business's operations were included in the consolidated
income tax returns of its parent company. No provision for income taxes has been
included in these financial statements since the Business's significant
operating losses would have precluded recording any deferred tax assets if the
Business was a stand-alone taxpayer.
Business Equity
Because the Business operated as part of a wholly-owned subsidiary of
Roche, its equity accounts have been combined and presented as "Business Equity"
which includes net amounts advanced to the Business by Roche (Note 7).
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost
is determined using the average cost method. Consideration is given to
deterioration, obsolescence and other factors in evaluating net realizable
value.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives (three to five years)
of the individual assets. Depreciation expense amounted to $1,915,481,
$2,242,320 and $1,359,527 during 1994, 1995 and the period from January 1, 1996
to November 21, 1996, respectively.
Included in property and equipment is demonstration equipment, which
consists of units being used for demonstration purposes by salespeople; being
evaluated by clinics, laboratories, hospitals, doctors offices or universities;
or being used in clinical trials. As this equipment will likely not be sold
within the next year, the amounts are recorded as a component of property and
equipment rather than inventory, and are being depreciated over their estimated
useful life of four years.
Research and Development Costs
Research and development costs are charged to operations as incurred.
Advertising Expense
The cost of advertising is expensed as incurred. Advertising expense
amounted to $302,444, $478,662 and $405,572 during 1994, 1995 and the period
from January 1, 1996 to November 21, 1996, respectively.
F-20
<PAGE> 87
CYTOLOGY AND PATHOLOGY AUTOMATION BUSINESS
OF ROCHE IMAGE ANALYSIS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. SALES AND ACCOUNTS RECEIVABLE
The Business operates in a single industry and is engaged in the development of
cytology and pathology automation systems for use in clinical laboratory
testing. Revenues from significant customers, those representing 10% or more of
total revenues for the respective periods, are summarized as follows:
<TABLE>
<CAPTION>
PERIOD FROM
YEARS ENDED JANUARY 1,
DECEMBER 31, 1996 TO
--------------------------- NOVEMBER 21,
1994 1995 1996
---------- ---------- ------------
<S> <C> <C> <C>
Customer 1............................... 24.9% 17.6% 17.0%
Customer 2............................... 19.5 -- --
Customer 3............................... -- -- 13.7
</TABLE>
The Business sells its products to international customers, however, these
sales accounted for less than 10% of total sales during all periods presented.
4. INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 21,
1995 1996
------------ ------------
<S> <C> <C>
Raw materials................................. $1,119,173 $ 802,580
Finished goods................................ 2,389,583 980,152
------------ ------------
$3,508,756 $1,782,732
========== ==========
</TABLE>
5. LEASES
The Business leases its office and warehouse facilities and certain
equipment space under operating leases. Rent expense amounted to $391,684,
$480,725 and $421,812 during 1994, 1995 and during the period from January 1,
1996 to November 21, 1996, respectively.
6. CORPORATE ALLOCATIONS
Roche provided substantial services to the Business, including, but not
limited to, general administration, treasury, tax, financial reporting, payroll
administration, insurance, human resources and legal functions. Roche, has
traditionally charged the Business for certain of these services through
corporate allocations which were generally based on a percent of sales. The
amount of corporate allocations was dependent upon the total amount of
anticipated allocable costs incurred by Roche, less amounts charged as a
specific cost or expense rather than by allocation. The amounts allocated are
not necessarily indicative of amounts that would have been incurred by the
Business had it operated on a stand-alone basis.
F-21
<PAGE> 88
CYTOLOGY AND PATHOLOGY AUTOMATION BUSINESS
OF ROCHE IMAGE ANALYSIS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. BUSINESS EQUITY
A summary of the Business equity account activity is as follows:
<TABLE>
<CAPTION>
ADVANCES ACCUMULATED
FROM ROCHE DEFICIT TOTAL
------------- ------------ ------------
<S> <C> <C> <C>
Balance at December 31, 1993.......... $ 22,044,244 $ (9,121,016) $ 12,923,228
Advances from Roche.............. 7,329,932 -- 7,329,932
Net loss for year................ -- (11,287,504) (11,287,504)
----------- ------------ ------------
Balance at December 31, 1994.......... 29,374,176 (20,408,520) 8,965,656
Advances from Roche.............. 13,023,796 -- 13,023,796
Net loss for year................ -- (11,987,214) (11,987,214)
----------- ------------ ------------
Balance at December 31, 1995.......... 42,397,972 (32,395,734) 10,002,238
Advances from Roche.............. 9,920,850 -- 9,920,850
Net loss for period.............. -- (16,923,088) (16,923,088)
----------- ------------ ------------
Balance at November 21, 1996.......... $ 52,318,822 $(49,318,822) $ 3,000,000
=========== ============ ============
</TABLE>
8. RELATED PARTY TRANSACTIONS
The Business entered into certain product sale arrangements with Laboratory
Corporation of America Holdings, Inc. or its predecessor ("LabCorp"), a public
company partially owned by Roche. Sales to LabCorp amounted to $844,593,
$598,174 and $297,047 during 1994, 1995 and during the period from January 1,
1996 to November 21, 1996, respectively.
Additionally, the Business rented its office facility from LabCorp. Rent
paid to LabCorp amounted to $96,000, $102,500 and $100,000 during 1994, 1995 and
during the period from January 1, 1996 to November 21, 1996, respectively.
F-22
<PAGE> 89
APPENDIX
Description of Illustration that appears on page 30:
1. [Drawing of two 2. [Drawing of two 3. [Drawing of two vials
vials, one with vials and two and two syringes
sampling device] syringes] in centrifuge tube]
The collection device The vial is vortexed to The vial and the syringe
with the cell sample randomize the cell sample, together are placed in a
is placed into a vial then the disaggregating centrifuge tube where the
of CytoRich syringe is placed in the cell sample is layered
preservative fluid. vial. onto a density reagent.
4. [Drawing of the centrifuge 5. [Drawing of settling column
tube containing fluid and containing sample]
sample]
The syringe is removed and the tube The concentrated cells are resus-
is centrifuged, removing debris and pended in deionized water. A cell
excess inflammatory cells. The sample is placed into a settling
diagnostic cells are concentrated column with additional fluid and
in the bottom of the tube the cells are allowed to settle.
The resulting monolayer slide is
then stained.
Description of Illustration that appears on page 32:
[Diagram depicting interaction between the cytotechnologist and SCREEN]
<PAGE> 90
============================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHO-
RIZED BY THE COMPANY OR UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, SHARES OF COMMON STOCK IN
ANY JURISDICTION TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH OFFER
OR SOLICITATION IN SUCH JURISDICTION OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 3
Risk Factors............................... 7
Use of Proceeds............................ 17
Dividend Policy............................ 17
Capitalization............................. 18
Dilution................................... 19
Selected Financial Data.................... 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 21
Business................................... 25
Management................................. 48
Certain Transactions....................... 54
Principal Stockholders..................... 55
Description of Capital Stock............... 58
Shares Eligible for Future Sale............ 60
Underwriting............................... 62
Legal Matters.............................. 63
Experts.................................... 63
Additional Information..................... 64
Index to Financial Statements.............. F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
============================================================
============================================================
[AUTOCYTE LOGO]
------------------------
3,100,000 SHARES
COMMON STOCK
PROSPECTUS
, 1997
------------------------
DILLON, READ & CO. INC.
UBS SECURITIES
============================================================
<PAGE> 91
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the expenses of issuance and distribution of the Common
Stock registered hereunder on Form S-1 other than underwriting discounts and
commissions:
<TABLE>
<S> <C>
SEC registration fee...................................... $ 15,125
Nasdaq listing fee........................................ $ 50,000
NASD filing fee........................................... $ 5,500
Blue Sky fees and expenses................................ $ 5,000
Printing and engraving expenses........................... $100,000
Accounting fees and expenses.............................. $250,000
Legal fees and expenses................................... $435,000
Transfer Agent and Registrar fees......................... $ 2,000
Miscellaneous expenses.................................... $ 22,375
------
Total................................................ $885,000
======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law grants the Registrant
the power to indemnify each person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative by reason of the fact
that he is or was a director, officer, employee or agent of the Registrant, or
is or was serving at the request of the Registrant as a director, officer,
employee or agent of another corporation, partnership, joint venture, 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 any such action, suit or proceeding if (i) 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 (ii) with respect to any criminal action or
proceeding, he had no reasonable cause to believe his conduct was unlawful,
provided, however, no indemnification shall be made in connection with any
proceeding brought by or in the right of the Registrant where the person
involved is adjudged to be liable to the Registrant to the amendment except to
the extent approved by a court.
Article NINTH of the Registrant's Restated Certificate of Incorporation
provides that a director shall not be personally liable to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent that the elimination or limitation of liability is not
permitted under the Delaware General Corporation Law as in effect when such
liability is determined.
Article TENTH of the Registrant's Restated Certificate of Incorporation
provides that the Registrant shall, to the fullest extent permitted by the
Delaware General Corporation Law, as amended from time to time, indemnify each
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding by reason of the
fact that he is or was, or has agreed to become a director or officer of the
Registrant, or is or was serving, or has agreed to serve, at the request of the
Registrant, as a director, officer or trustee of, or in a similar capacity with,
another corporation, partnership, joint venture, trust or other enterprise. The
indemnification provided for in Article TENTH is expressly not exclusive of any
other rights to which those seeking indemnification may be entitled under any
law, agreement or vote of stockholders or disinterested directors or otherwise,
and shall inure to the benefit of the heirs, executors and administrators of
such persons. Article TENTH further permits the Board of Directors to authorize
the grant of indemnification rights to other employees and agents of the
Registrant and such rights may be equivalent to, or greater or less than, those
set forth in Article TENTH.
II-1
<PAGE> 92
Article V, Section 1 of the Registrant's Amended and Restated By-laws
provides that the Registrant shall, to the full extent permitted by the Delaware
General Corporation Law, as amended from time to time, and the certificate of
incorporation, indemnify each person whom it may indemnify pursuant thereto.
Article V, Section 2 of the Registrant's By-Laws provides that the
Registrant shall have the power to purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
Registrant, or is or was serving at the request of the Registrant as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against such person and
incurred by such person in any such capacity or arising out of such person's
status as such whether or not the Registrant would have the power to indemnify
such person against such liability under the provisions of the General
Corporation Law of the State of Delaware.
The Registrant's Restated Certificate of Incorporation provides that
directors of the Registrant will not be personally liable to the Registrant or
its stockholders for monetary damages for breach of fiduciary duty as a
director, whether or not an individual continues to be a director at the time
such liability is asserted, except for liability (i) for any breach of the
director's duty of loyalty to the Registrant or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derives an
improper personal benefit.
The Registrant expects to enter into agreements with certain officers and
directors affirming the Registrant's obligation to indemnify them to the fullest
extent permitted by law and providing various other protections.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since 1996, the Registrant has sold and issued the following unregistered
securities (references to the Company's Common Stock and Series A Preferred
Stock in this item are presented an a pre-reverse split basis):
On November 22, 1996, the Registrant sold an aggregate of 7,500,000 shares
of Common Stock to RIAS in exchange for substantially all of RIAS's assets used
in connection with the cytology and pathology business. Simultaneously
therewith, the Registrant also sold: (i) an aggregate of 1,697,175 shares of
Series A Preferred Stock at an aggregate price of $1,710,000 to certain
purchasers affiliated with the Registrant; (ii) an aggregate of 89,325 shares of
Series A Preferred Stock at an aggregate price of $90,000 to certain purchasers
affiliated with RIAS or its affiliates; (iii) an aggregate of 3,970,000 shares
of Series A Preferred Stock at an aggregate price of $4,000,000 to Ampersand
Specialty Materials and Chemicals III Limited Partnership and Laboratory
Partners I Limited Partnership (collectively, with their companion funds, the
"Ampersand Funds"); and (iv) an aggregate of 3,970,000 shares of Series A
Preferred Stock at an aggregate price of $4,000,000 to Sprout Capital VII, L.P.,
DLJ First ESC L.L.C., DLJ Capital Corporation and the Sprout CEO Fund, L.P. (the
"Sprout Funds").
The transaction on November 22, 1996 also included the issuance and sale of
1,200,000 shares of Common Stock at an aggregate price of $120,000 to Dr.
Powell.
On December 19, 1996, the Registrant sold an aggregate of 99,250 shares of
Series A Preferred Stock at an aggregate price of $100,000 to Dr. Powell.
On June 26, 1997, the Registrant sold an aggregate of 99,250 shares of
Series A Preferred Stock at an aggregate price of $100,000 to certain purchasers
affiliated with the Registrant.
On June 27, 1997, the Registrant issued warrants to purchase an aggregate
of 421,429 shares of Common Stock at an exercise price of $1.00 per share to
certain principal stockholders as a commitment fee in connection with the
establishment of a credit agreement.
II-2
<PAGE> 93
Since its inception, the Registrant has issued options to purchase an
aggregate of 2,016,500 shares of Common Stock under the AutoCyte, Inc. 1996
Equity Incentive Plan, exercisable at a weighted average price of $0.10 per
share. No options have been exercised.
No underwriter was engaged in connection with the foregoing issuance of
securities. The above described issuances of Common Stock, Series A Preferred
Stock, options to purchase Common Stock and warrants to purchase Common Stock
were made in reliance upon Section 4(2) of the Securities Act of 1933, as
amended (the "Act"), as transactions not involving any public offering and Rule
701 promulgated thereunder. The Company has reason to believe that all of the
foregoing purchasers were familiar with or had access to information concerning
the operations and financial conditions of the Company, and all of those
individuals were acquiring the shares for investment and not with a view to the
distribution thereof. At the time of issuance, all of the foregoing shares of
Common Stock and Series A Preferred Stock were deemed to be restricted
securities for purposes of the Act and the certificates representing such
securities bore legends to that effect.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The following Exhibits are filed herewith:
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant.
3.2 Certificate of Amendment of Certificate of Incorporation of the Registrant,
dated November 22, 1996.
3.3 Certificate of Amendment of Certificate of Incorporation of the Registrant,
dated June 27, 1997.
3.4 Certificate of Amendment of Certificate of Incorporation of the Registrant,
dated June 27, 1997.
3.5 Form of Restated Certificate of Incorporation of Registrant, as proposed to be
amended and restated.
3.6 By-Laws of the Registrant.
3.7 Form of Amended and Restated By-laws of Registrant, as proposed to be amended
and restated.
4.1* Specimen of Common Stock Certificate.
4.2 Form of Warrant to Purchase Common Stock
5.1 Opinion of Palmer & Dodge LLP with respect to the legality of the securities
being registered.
10.1 Amended and Restated 1996 Equity Incentive Plan (including forms of incentive
stock option certificate and nonstatutory stock option certificate).
10.2 1997 Director Stock Option Plan (including form of director nonstatutory stock
option certificate).
10.3 Lease Agreement dated as of March 10, 1993 by and between Carolina Hosiery
Mills, Inc. and Roche Biomedical Laboratories, Inc., the predecessor of the
Registrant's predecessor (including notices of renewal thereof dated December
27, 1995 and March 24, 1997).
10.4 Lease Agreement dated April 25, 1995 by and between Roche Biomedical
Laboratories, Inc. and Roche Image Analysis Systems, Inc. ("RIAS"), the
Registrant's predecessor (including renewals thereof dated January 10, 1996
and March 18, 1997).
10.5+ Redesign and Production Transfer Agreement dated January 12, 1995 between
Tecan AG and RIAS, the Registrant's predecessor.
10.6+ OEM Supply Agreement dated January 13, 1995 between Tecan AG and RIAS, the
Registrant's predecessor.
10.7+ Amendment to the OEM Supply Agreement dated October 14, 1996 between Tecan AG
and RIAS, the Registrant's predecessor.
10.8+ Agreement dated July 26, 1993 by and between Technical Precision Plastics,
Inc. and RIAS, the Registrant's predecessor.
</TABLE>
II-3
<PAGE> 94
<TABLE>
<S> <C>
10.9 Registration Rights Agreement dated as of November 22, 1996 by and among the
Registrant and the individuals and entities listed on Exhibit A thereto
(including amendment thereof dated June 26, 1997).
10.10 Contribution Agreement dated as of November 22, 1996 by and among HLR Holdings
Inc., RIAS and the Registrant.
23.1 Consent of Palmer & Dodge LLP (included in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Bell, Seltzer, Park & Gibson.
24.1 Power of Attorney (included in signature page hereto).
24.2 Certified resolutions of the Registrant authorizing power of attorney.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
+ Certain confidential material contained in the document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
406 of the Securities Act of 1933, as amended.
* To be filed by amendment.
Exhibits 10.1 and 10.2 are management contracts or compensatory plans,
contracts or arrangements in which executive officers or directors of the
Registrant participate.
(b) Financial Statement Schedules
All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described under "Item
14-Indemnification of Directors and Officers" 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.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be a part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, 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.
(c) The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
II-4
<PAGE> 95
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 the City of Elon College, State of
North Carolina, on June 27, 1997.
AUTOCYTE, INC.
By: /s/ JAMES B. POWELL, M.D.
------------------------------------
James B. Powell, M.D.
President and Chief Executive
Officer
POWER OF ATTORNEY
We, the undersigned officers and directors of AutoCyte, Inc., hereby
severally constitute and appoint James B. Powell, William O. Green and William
T. Whelan, and each of them singly, our true and lawful attorneys, with full
power to them in any and all capacitates, to sign any amendments to this
Registration Statement on Form S-1 (including Pre-and Post-Effective
Amendments), and any related Rule 462(b) registration statement or amendment
thereto, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact may 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------- ----------------------------------------- ---------------
<C> <S> <C>
/s/ JAMES B. POWELL, M.D. President, Chief Executive Officer and June 27, 1997
- -------------------------- Director (Principal Executive Officer)
James B. Powell, M.D.
/s/ WILLIAM O. GREEN Chief Financial Officer, and Vice June 27, 1997
- -------------------------- President, Finance and Administration
William O. Green (Principal Financial Officer and
Principal Accounting Officer)
/s/ RICHARD A. CHARPIE Director June 27, 1997
- --------------------------
Richard A. Charpie
/s/ ROBERT E. CURRY Director June 27, 1997
- --------------------------
Robert E. Curry
/s/ THOMAS P. MAC MAHON Director June 27, 1997
- --------------------------
Thomas P. Mac Mahon
/s/ SUSAN E. WHITEHEAD Director June 27, 1997
- --------------------------
Susan E. Whitehead
</TABLE>
II-5
<PAGE> 96
EXHIBIT INDEX
The following Exhibits are filed herewith:
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant.
3.2 Certificate of Amendment of Certificate of Incorporation of the Registrant,
dated November 22, 1996.
3.3 Certificate of Amendment of Certificate of Incorporation of the Registrant,
dated June 27, 1997.
3.4 Certificate of Amendment of Certificate of Incorporation of the Registrant,
dated June 27, 1997.
3.5 Form of Restated Certificate of Incorporation of Registrant, as proposed to be
amended and restated.
3.6 By-Laws of the Registrant.
3.7 Form of Amended and Restated By-laws of Registrant, as proposed to be amended
and restated.
4.1* Specimen of Common Stock Certificate.
4.2 Form of Warrant to Purchase Common Stock
5.1 Opinion of Palmer & Dodge LLP with respect to the legality of the securities
being registered.
10.1 Amended and Restated 1996 Equity Incentive Plan (including forms of incentive
stock option certificate and nonstatutory stock option certificate).
10.2 1997 Director Stock Option Plan (including form of director nonstatutory stock
option certificate).
10.3 Lease Agreement dated as of March 10, 1993 by and between Carolina Hosiery
Mills, Inc. and Roche Biomedical Laboratories, Inc., the predecessor of the
Registrant's predecessor (including notices of renewal thereof dated December
27, 1995 and March 24, 1997).
10.4 Lease Agreement dated April 25, 1995 by and between Roche Biomedical
Laboratories, Inc. and Roche Image Analysis Systems, Inc. ("RIAS"), the
Registrant's predecessor (including renewals thereof dated January 10, 1996
and March 18, 1997).
10.5+ Redesign and Production Transfer Agreement dated January 12, 1995 between
Tecan AG and RIAS, the Registrant's predecessor.
10.6+ OEM Supply Agreement dated January 13, 1995 between Tecan AG and RIAS, the
Registrant's predecessor.
10.7+ Amendment to the OEM Supply Agreement dated October 14, 1996 between Tecan AG
and RIAS, the Registrant's predecessor.
10.8+ Agreement dated July 26, 1993 by and between Technical Precision Plastics,
Inc. and RIAS, the Registrant's predecessor.
10.9 Registration Rights Agreement dated as of November 22, 1996 by and among the
Registrant and the individuals and entities listed on Exhibit A thereto
(including amendment thereof dated June 26, 1997).
10.10 Contribution Agreement dated as of November 22, 1996 by and among HLR Holdings
Inc., RIAS and the Registrant.
23.1 Consent of Palmer & Dodge LLP (included in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Bell, Seltzer, Park & Gibson.
24.1 Power of Attorney (included in signature page hereto).
24.2 Certified resolutions of the Registrant authorizing power of attorney.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
+ Certain confidential material contained in the document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
406 of the Securities Act of 1933, as amended.
* To be filed by amendment.
<PAGE> 1
EXHIBIT 1.1
AUTOCYTE, INC.
3,100,000 Shares
Common Stock
($0.01 Par Value)
UNDERWRITING AGREEMENT
, 1997
<PAGE> 2
UNDERWRITING AGREEMENT
, 1997
DILLON, READ & CO. INC.
UBS SECURITIES LLC
as Managing Underwriters
c/o DILLON, READ & CO. INC.
535 Madison Avenue
New York, New York 10022
Ladies and Gentlemen:
AutoCyte, Inc., a Delaware corporation (the "Company"), proposes to
issue and sell to the underwriters named in Schedule A annexed hereto (the
"Underwriters") an aggregate of 3,100,000 shares (the "Firm Shares") of Common
Stock, $0.01 par value (the "Common Stock"), of the Company. In addition, solely
for the purpose of covering over-allotments, the Company proposes to grant to
the Underwriters the option to purchase from the Company up to an additional
465,000 shares of Common Stock (the "Additional Shares"). The Firm Shares and
the Additional Shares are hereinafter collectively sometimes referred to as the
"Shares". The Shares are described in the Prospectus which is referred to below.
The Company has filed, in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations thereunder
(collectively called the "Act"), with the Securities and Exchange Commission
(the "Commission") a registration statement on Form S-1, including a prospectus,
relating to the Shares. The Company has furnished to you, for use by the
Underwriters and by dealers, copies of one or more preliminary prospectuses
(each thereof being herein called a "Preliminary Prospectus") relating to the
Shares. Except where the context otherwise requires, the registration statement,
as amended when it becomes effective (together with any registration statement
filed pursuant to Rule 462(b) under the Act increasing the size of the offering
registered under the Act), including all documents filed as a part thereof, and
including any information contained in a prospectus subsequently filed with the
Commission pursuant to Rule 424(b) under the Act and deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430(A)
under the Act, is herein called the "Registration Statement", and the
prospectus, in the form filed by the Company with the Commission pursuant to
Rule 424(b) under the Act or, if no such filing is required, the form of final
prospectus included in the Registration Statement at the time it became
effective, is herein called the "Prospectus".
<PAGE> 3
The Company and the Underwriters agree as follows:
1. Sale and Purchase. Upon the basis of the warranties and
representations and the other terms and conditions herein set forth, the Company
agrees to sell to the respective Underwriters and each of the Underwriters,
severally and not jointly, agrees to purchase from the Company the aggregate
number of Firm Shares set forth opposite the name of such Underwriter in
Schedule A attached hereto in each case at a purchase price of $ per Share.
You shall release the Firm Shares for public sale promptly after this Agreement
becomes effective. You may from time to time increase or decrease the public
offering price after the initial public offering to such extent as you may
determine.
In addition, the Company hereby grants to the several Underwriters the
option to purchase, and upon the basis of the warranties and representations and
the other terms and conditions herein set forth, the Underwriters shall have the
right to purchase, severally and not jointly, from the Company, all or a portion
of the Additional Shares as may be necessary to cover over-allotments made in
connection with the offering of the Firm Shares, at the same purchase price per
share to be paid by the Underwriters to the Company for the Firm Shares. This
option may be exercised at any time on or before the thirtieth day following the
date hereof, by written notice from Dillon, Read & Co. Inc. to the Company. Such
notice shall set forth the aggregate number of Additional Shares as to which the
option is being exercised, and the date and time when the Additional Shares are
to be delivered (such date and time being herein referred to as the "additional
time of purchase"); provided, however, that the additional time of purchase
shall not be earlier than the time of purchase (as defined below) nor earlier
than the second business day* after the date on which the option shall have been
exercised nor later than the eighth business day after the date on which the
option shall have been exercised. The number of Additional Shares to be sold to
each Underwriter shall be the number which bears the same proportion to the
aggregate number of Additional Shares being purchased as the number of Firm
Shares set forth opposite the name of such Underwriter on Schedule A hereto
bears to the total number of Firm Shares (subject, in each case, to such
adjustment as you may determine to eliminate fractional shares).
2. Payment and Delivery. Payment of the purchase price for the Firm
Shares shall be made to the Company by [certified or official bank check/wire
transfer], in immediately available funds, against delivery of the certificates
for the Firm Shares to you for the respective accounts of the Underwriters. Such
payment and delivery shall be made at 10:00 A.M., New York City time, on , 1997
(unless another time shall be agreed to by you and the Company or unless
postponed in accordance with the provisions of Section 8 hereof). The time at
which such payment and delivery are actually made is hereinafter sometimes
called the "time of purchase". Certificates for the Firm Shares shall be
delivered to you in definitive form in such names and in such denominations as
you shall specify on the second business day preceding the time of purchase. For
the purpose of expediting the checking of the certificates for the Firm Shares
by
- ------------------------
* As used herein, "business day" shall mean a day on which the New York
Stock Exchange is open for trading.
2
<PAGE> 4
you, the Company agrees to make such certificates available to you for such
purpose at least one full business day preceding the time of purchase.
Payment of the purchase price for the Additional Shares shall be made
at the additional time of purchase in the same manner as the payment for the
Firm Shares. Certificates for the Additional Shares shall be delivered to you in
definitive form in such names and in such denominations as you shall specify on
the second business day preceding the additional time of purchase. For the
purpose of expediting the checking of the certificates for the Additional Shares
by you, the Company agrees to make such certificates available to you for such
purpose at least one full business day preceding the additional time of
purchase.
3. Representations and Warranties of the Company. The Company
represents and warrants (as to itself and, where the context permits and without
specific reference thereto, to the cytology and pathology automation business
conducted by its predecessor, Roche Image Analysis Systems, Inc.) to each of
the Underwriters that:
(a) Each Preliminary Prospectus filed as a part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the Act fully complied
when so filed in all material respects with the Act, and when the
Registration Statement becomes or became effective and at all times
subsequent thereto up to the time of purchase and the additional time
of purchase, the Registration Statement and the Prospectus and any
amendments or supplements thereto, fully complied and will fully comply
in all material respects with the provisions of the Act, and the
Registration Statement, and all amendments and supplements thereto, at
all such times did not and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, and
the Prospectus at all such times did not and will not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading;
provided, however, that the Company makes no warranty or representation
with respect to any statement contained in the Registration Statement
or the Prospectus in reliance upon and in conformity with information
concerning the Underwriters and furnished in writing by or on behalf of
any Underwriter through you to the Company expressly for use in the
Registration Statement or the Prospectus and set forth in the section
of the Registration Statement and Prospectus entitled "Underwriting."
(b) As of the date of this Agreement, the Company has an
authorized capitalization as set forth under the heading entitled
"Actual" in the section of the Registration Statement and the
Prospectus entitled "Capitalization" and, as of the time of purchase
and the additional time of purchase, as the case may be, the Company
shall have an authorized capitalization as set forth under the heading
entitled "Pro Forma, As Adjusted" in the section of the Registration
Statement and the Prospectus entitled "Capitalization"; all of the
issued and outstanding shares of capital stock including Common Stock
of the Company have been duly and validly authorized and issued and are
fully paid and non-assessable and free of any preemptive rights; except
as described in the
3
<PAGE> 5
Registration Statement and the Prospectus there are no outstanding
rights, subscriptions, warrants, calls, options or other agreements of
any kind with respect to the capital stock of the Company; the Company
has been duly incorporated and is validly existing as a corporation in
good standing under the laws of the State of Delaware, with full power
and authority to own its properties and conduct its business as
described in the Registration Statement and the Prospectus, to execute
and deliver this Agreement and to issue, sell and deliver the Shares as
herein contemplated.
(c) The Company has no subsidiaries, the Company does not own,
directly or indirectly, shares of capital stock of or other equity
interest in any corporation or other entity.
(d) The Company is duly qualified to do business and in good
standing in each jurisdiction in which it conducts its business; and
the Company is in compliance in all material respects with the laws,
orders, rules, regulations and directives issued or administered by
such jurisdictions.
(e) The Company is not in breach of, or in default under (nor
has any event occurred which with notice, lapse of time, or both would
constitute a breach of, or default under), its Certificate of
Incorporation or Bylaws or in the performance or observance of any
obligation, agreement, covenant or condition contained in any material
indenture, mortgage, deed of trust, bank loan or credit agreement or
other agreement or instrument to which the Company is a party or by
which the Company or any of its properties are bound; and the
execution, delivery and performance of this Agreement, the issuance of
the Shares, the incurrence of the obligations set forth herein and the
consummation of the transactions contemplated hereby will not conflict
with, or result in any breach of or constitute a default under (nor
constitute any event which with notice, lapse of time, or both would
constitute a breach of, or default under), any provisions of the
Certificate of Incorporation or Bylaws of the Company or under any
provision of any license, indenture, mortgage, deed of trust, bank loan
or credit agreement or other agreement or instrument to which the
Company is a party or by which the Company or any of its properties may
be bound or affected, or under any federal, state, local or foreign
law, regulation or rule or any decree, judgment or order applicable to
the Company.
(f) The Company is not a party to any litigation, and there is
no litigation pending or to the best knowledge of the Company,
threatened or contemplated, which seeks to enjoin or restrain the
execution, delivery and performance of this Agreement, the issuance of
the Shares, the incurrence of the obligations set forth herein or the
consummation of the transactions contemplated hereby.
(g) This Agreement has been duly authorized, executed and
delivered by the Company and is a legal, valid and binding agreement of
the Company enforceable in accordance with its terms; the Board of
Directors of the Company or a committee thereof duly authorized by the
Board of Directors of the Company has duly adopted resolutions
authorizing the issuance and sale of the Shares by the Company; the
Shares to be sold by
4
<PAGE> 6
the Company, when issued and delivered to the Underwriters as
contemplated hereby, will be duly and validly authorized and fully paid
and non-assessable, and free and clear of any pledge, lien, charge,
encumbrance, security interest, preemptive right or other claim.
(h) The capital stock of the Company, including the Shares,
conforms in all material respects to the description thereof contained
in the Registration Statement and Prospectus and the certificates for
the Shares are in due and proper form and the holders of the Shares
will not be subject to personal liability for the debts or other
liabilities or obligations of the Company by reason of being such
holders.
(i) No approval, authorization, consent or order of or filing
with any national, state or local governmental or regulatory
commission, board, body, authority or agency is required in connection
with the issuance and sale of the Shares as contemplated hereby other
than registration of the Shares under the Act, clearance of the
offering of such Shares with the National Association of Securities
Dealers, Inc. (the "NASD") and any necessary qualification under the
securities or blue sky laws of the various jurisdictions in which the
Shares are being offered by the Underwriters.
(j) Except for rights which have been waived pursuant to
waivers (true and accurate copies of which have been provided to the
Underwriters prior to the date of this Agreement) which are in full
force and effect on the date of this Agreement, as of the time of
purchase and as of the additional time of purchase, no person has the
right, contractual or otherwise, to cause the Company to issue to it,
or register pursuant to the Act, any shares of capital stock of the
Company upon the issue and sale of the Shares to the Underwriters
hereunder; no person has preemptive rights, rights of first refusal or
other rights to purchase any of the Shares; no person has any right to
have securities included in or registered pursuant to the Registration
Statement.
(k) Ernst & Young LLP, whose reports on the consolidated
financial statements of the Company are filed with the Commission as
part of the Registration Statement and Prospectus, are independent
public accountants as required by the Act and the rules and regulations
thereunder.
(l) All legal or governmental proceedings, contracts or
documents of a character required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement have been so described or filed as required.
(m) There are no actions, suits or proceedings pending or
threatened against the Company or any of its properties or affiliates,
at law or in equity, or before or by any federal, state, local or
foreign governmental or regulatory commission, board, body, authority
or agency which, individually or in the aggregate, could result in a
judgment, decree or order having a material adverse effect on the
properties, assets, liabilities, prospects, results of operations,
business or condition (financial or otherwise) of the Company (a
"Material Adverse Effect").
5
<PAGE> 7
(n) The audited financial statements (including the notes
thereto) included in the Registration Statement and the Prospectus
present fairly the financial position of the Company as of the dates
indicated and the results of operations and changes in financial
position of the Company for the periods specified; such financial
statements have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis during the periods
involved.
(o) The pro forma financial statements and other pro forma
financial information (including the notes thereto) included in the
Registration Statement and the Prospectus have been prepared in
accordance with the Commission's rules and guidelines with respect to
pro forma financial statements and have been properly computed on the
bases described therein. The assumptions used in the preparation of the
pro forma financial statements and other pro forma information in the
Registration Statement and the Prospectus are set forth therein and are
reasonable, and the adjustments used therein are appropriate to give
pro forma effect to the transactions or circumstances referred to
therein. The other financial and statistical information and data
relating to the Company set forth in the Registration Statement and the
Prospectus have been prepared on a basis consistent with the financial
statements and books and records of the Company. The other statistical
and market-related data set forth in the Registration Statement and the
Prospectus are based on or derived from sources that the Company
believes to be reliable and accurate.
(p) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, and except as
may be otherwise stated in the Registration Statement or Prospectus,
there has not been (A) any material and unfavorable change, financial
or otherwise, in the business, properties, assets, prospects,
regulatory environment, results of operations or condition (financial
or otherwise), present or prospective, of the Company, (B) any
transaction, which is material to the business, properties, assets,
prospects, regulatory environment, results of operations or condition
(financial or otherwise), present or prospective, of the Company,
contemplated or entered into by the Company or (C) any obligation,
contingent or otherwise, directly or indirectly incurred by the Company
which is material to the business, properties, assets, prospects,
regulatory environment, results of operations or condition (financial
or otherwise), present or prospective, of the Company.
(q) The Company has good title to all properties and assets
owned or leased by it, in each case, except as set forth in the
Registration Statement and the Prospectus, free and clear of all
pledges, liens, encumbrances, security interests, charges, mortgages
and defects of title other than liens for taxes which taxes are not yet
due and payable.
(r) Each issuance of securities referred to in Item 15 of the
Registration Statement (i) was effected in reliance upon a valid
exemption from the registration requirements of the Act and (ii) was
effected in compliance with the securities or blue sky laws of each
jurisdiction in which such securities were offered or sold.
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<PAGE> 8
(s) The Company has not violated any foreign, federal, state
or local law, regulation, decree, order, directive, requirement or
judgment applicable to the Company relating to the protection of human
health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("Environmental Laws"), nor any
federal or state law relating to discrimination in the hiring,
promotion or pay of employees nor any applicable federal or state wages
and hours laws, nor any provisions of the Employee Retirement Income
Security Act or the rules and regulations promulgated thereunder, and
the Company has not received any notice which is pending alleging any
violation thereof or liability thereunder.
(t) The Company has such permits, licenses, consents,
approvals, franchises and authorizations required by federal, state,
local, foreign or other governmental or regulatory authorities
("Permits"), and has made all filings required, including without
limitation under any applicable Environmental Laws, as are necessary to
own, lease and operate its properties and to conduct its business. The
Company is not in material violation of, and has fulfilled and
performed all of its material obligations with respect to its Permits,
and the Company has not received notice from any Governmental Authority
of the revocation or termination, or threatened revocation or
termination, of any Permits or any other material impairment of the
rights of the holder of any Permit; and, except as described in the
Prospectus, the Permits contain no restrictions that are materially
burdensome to the Company.
(u) Compliance by the Company with Environmental Laws (as
currently in effect), including any capital or operating expenditure
required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related
constraints on operating activities, singly or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect.
(v) There is no claim pending or, to the best knowledge of the
Company, threatened or contemplated under any Environmental Laws
against the Company which, if adversely determined, individually or in
the aggregate, would have a Material Adverse Effect; there are no past
or present actions or conditions, including, without limitation, the
release of any hazardous substance or waste regulated under any
Environmental Law that are likely to form the basis of any such claim
against the Company, if adversely determined, individually or in the
aggregate would have a Material Adverse Effect.
(w) Neither the Company nor any employee of the Company has
made any payment of funds of the Company prohibited by law, and no
funds of the Company have been set aside to be used for any payment
prohibited by law.
(x) The Company has filed all federal or state income and
franchise tax returns required to be filed and has paid all taxes shown
thereon as due, and there is no material tax deficiency which has been
or might be asserted against the Company; all material tax liabilities
of the Company are adequately provided for on the books of the Company.
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<PAGE> 9
(y) Neither the Company nor any of its affiliates has incurred
any liability for any finder's fees or similar payments in connection
with the transactions herein contemplated.
(z) The Company has in effect, with financially sound and
reputable insurers, insurance with respect to its business and
properties against loss or damage of the kind customarily insured
against by corporations of established reputation engaged in the same
or similar businesses and similarly situated, of such type and in such
amounts as are customarily carried under similar circumstances by such
other corporations.
(aa) Except as specifically disclosed in the Prospectus, the
Company owns or possesses adequate rights to use all patents, patent
rights, inventions, trade secrets, know-how, trademarks, service marks,
trade names and copyrights (collectively, "Intellectual Property
Rights") which are necessary to conduct its businesses as described or
contemplated in the Registration Statement and Prospectus; the Company
has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of the Company by
others with respect to any Intellectual Property Rights; the Company
has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of others with respect
to any Intellectual Property Rights which, singly or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, might
have a Material Adverse Effect; and to the knowledge of the Company,
none of the patents owned by the Company are unenforceable or invalid.
The Company has duly and properly filed or caused to be filed with the
United States Patent and Trademark Office (the "PTO") and applicable
foreign and international patent authorities all patent applications
described or referred to in the Prospectus, and believes it has
complied with the PTO's duty of candor and disclosure for each of the
United States patent applications described or referred to in the
Prospectus; the Company is unaware of any facts which would preclude
the grant of a patent from each of the patent applications described or
referred to in the Prospectus; and the Company has no knowledge of any
facts which would preclude it from having clear title to its patent
applications described or referred to in the Prospectus.
(bb) No labor disturbance by the employees of the Company
exists or, to the Company's knowledge, is imminent; the Company is not
aware of any existing or imminent labor disturbance by the employees of
any of its principal suppliers, subassemblers, value added resellers,
subcontractors, original equipment manufacturers, authorized dealers or
international distributors that might be expected to result in a
Material Adverse Effect. No collective bargaining agreement exists with
any of the Company's employees and, to the best of the Company's
knowledge, no such agreement is imminent.
(cc) Neither the Company nor any of its officers, directors or
affiliates (within the meaning of the Act) has taken, directly or
indirectly, any action which might in the future reasonably be expected
to cause or result in stabilization or manipulation of the price of the
Common Stock, to facilitate the sale or resale of the Shares or
otherwise.
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<PAGE> 10
(dd) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets, (iii) access to assets is permitted only in accordance with
management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
(ee) The Company has made all filings and received all
regulatory authorizations necessary to conduct the Company's business
as it is currently conducted in any foreign countries, including but
not limited to Australia and Switzerland, based on all available
information provided to the Company through the date hereof by
applicable regulatory authorities; the Company is in compliance with
all such regulatory authorizations; and the Company has no reason to
believe that any party granting any such authorization is considering
limiting, suspending or revoking the same and knows of no basis for any
such limitation, suspension or revocation.
(ff) The Company has obtained the agreement of each of its
directors, officers and securityholders not to sell, contract to sell,
grant any option to sell or otherwise dispose of, directly or
indirectly, any shares of Common Stock or securities convertible into
or exchangeable for Common Stock or warrants or other rights to
purchase Common Stock for a period of 180 days after the date of this
Agreement.
(gg) The Company is not, and after application of the proceeds
as described under the caption "Use of Proceeds" in the Registration
Statement and the Prospectus, will not be an "investment company" or an
affiliated person of, or "promoter" or "principal underwriter" for, an
"investment company," as such terms are defined in the Investment
Company Act of 1940, as amended, and the rules and regulations
thereunder.
4. Certain Covenants of the Company. The Company hereby agrees:
(a) to furnish such information as may be required and
otherwise to cooperate in qualifying the Shares for offering and sale
under the securities or blue sky laws of such states as you may
designate and to maintain such qualifications in effect so long as
required for the distribution of the Shares, provided that the Company
shall not be required to qualify as a foreign corporation or to consent
to the service of process under the laws of any such state (except
service of process with respect to the offering and sale of the
Shares); and to promptly advise you of the receipt by the Company of
any notification with respect to the suspension of the qualification of
the Shares for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; and to make every
reasonable effort to obtain the withdrawal of any order or suspension
as soon as practicable;
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<PAGE> 11
(b) to make available to you in New York City or such other
places as you may designate, as soon as practicable after the
Registration Statement becomes effective, and thereafter from time to
time to furnish to the Underwriters, as many copies of the Prospectus
(or of the Prospectus as amended or supplemented if the Company shall
have made any amendments or supplements thereto after the effective
date of the Registration Statement) as the Underwriters may reasonably
request for the purposes contemplated by the Act;
(c) to advise you promptly and (if requested by you) to
confirm such advice in writing, (i) when the Registration Statement has
become effective and when any post-effective amendment thereto becomes
effective and (ii) if Rule 430A under the Act is used, when the
Prospectus is filed with the Commission pursuant to Rule 424(b) under
the Act (which the Company agrees to file in a timely manner under such
Rules);
(d) to advise you promptly, confirming such advice in writing,
of any request by the Commission for amendments or supplements to the
Registration Statement or Prospectus or for additional information with
respect thereto, or of notice of institution of proceedings for, or the
entry of a stop order suspending the effectiveness of the Registration
Statement and, if the Commission should enter a stop order suspending
the effectiveness of the Registration Statement, to make every
reasonable effort to obtain the lifting or removal of such order as
soon as possible; to advise you promptly of any proposal to amend or
supplement the Registration Statement or Prospectus and to file no such
amendment or supplement to which you shall object in writing; to file
promptly with the Commission any amendment to the Registration
Statement or Prospectus or any supplement to the Prospectus that may,
in the judgment of the Company or you, be required by the Securities
Act or requested by the Commission; and to file promptly, if the
Company elects to rely on Rule 462(b), a Registration Statement
pursuant to Rule 462(b) with the Commission in compliance with such
rule and pay the applicable fees in accordance with Rule 111 of the
Rules and Regulations by the earlier of (i) 10:00 P.M., New York time
on the date of this Agreement or (ii) the time confirmations are sent
or given, as specified by Rule 462(b);
(e) to furnish to you and, upon request, to each of the other
Underwriters for a period of five years from the date of this Agreement
(i) copies of any reports or other communications which the Company
shall send to its stockholders or shall from time to time publish or
publicly disseminate, (ii) copies of all annual, quarterly and current
reports filed with the Commission on Forms 10-K, 10-Q and 8-K, or such
other similar form as may be designated by the Commission, and any
other document filed by the Company pursuant to Sections 12, 13, 14 or
15(d) of the Securities and Exchange Act of 1934, as amended, and (iii)
such other information as you may reasonably request regarding the
Company;
(f) to advise the Underwriters promptly of the happening of
any event known to the Company within the time during which a
prospectus relating to the Shares is required to be delivered under the
Act which, in the judgment of the Company, would
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<PAGE> 12
require the making of any change in the Prospectus then being used so
that the Prospectus, as then supplemented, would not include an untrue
statement of material fact or omit to state a material fact necessary
to make the statements therein, in the light of the circumstances under
which they are made, not misleading, and, during such time, to prepare
and furnish, at the Company's expense, to the Underwriters promptly
such amendments or supplements to such Prospectus as may be necessary
to reflect any such change and to furnish you a copy of such proposed
amendment or supplement before filing any such amendment or supplement
with the Commission;
(g) to make generally available to its security holders, and
to deliver to you, an earnings statement of the Company (which will
satisfy the provisions of Section 11(a) of the Act) covering a period
of twelve months beginning after the effective date of the Registration
Statement but ending not later than 15 months after the effective date
of the Registration Statement, as soon as is reasonably practicable
after the termination of such twelve-month period;
(h) to furnish to you four signed copies of the Registration
Statement, as initially filed with the Commission, and of all
amendments thereto (including all exhibits thereto) and sufficient
conformed copies of the foregoing (other than exhibits) for
distribution of a copy to each of the other Underwriters;
(i) to furnish to you as early as practicable prior to the
time of purchase and the additional time of purchase, as the case may
be, but not later than two business days prior thereto, a copy of the
latest available unaudited interim financial statements, if any, of the
Company and its Subsidiaries which have been read by the Company's
independent certified public accountants, as stated in their letter
furnished pursuant to Section 6(d) of this Agreement; to refrain from
investing the proceeds from the sale of the Shares in a manner to cause
the Company to become an "investment company" within the meaning of the
Investment Company Act of 1940, as amended;
(j) to apply the net proceeds from the sale of the Shares in
the manner set forth under the caption "Use of Proceeds" in the
Registration Statement and the Prospectus;
(k) whether or not the transactions contemplated by this
Agreement are consummated or this Agreement otherwise becomes effective
or is terminated, to pay all expenses, fees and taxes (other than any
transfer taxes and fees and disbursements of counsel for the
Underwriters except as set forth under Section 5 hereof and clauses
(iii), (iv) and (vi) below) in connection with (i) the preparation and
filing of the Registration Statement, each Preliminary Prospectus, the
Prospectus, and any amendments or supplements thereto, and the printing
and furnishing of copies of each thereof to the Underwriters and to
dealers (including costs of mailing and shipment), (ii) the
preparation, issuance, sale and delivery of the Shares, (iii) the word
processing and/or printing of this Agreement, any Agreement Among
Underwriters, any dealer agreements, any Statements of Information and
Powers of Attorney and the reproduction and/or printing and
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<PAGE> 13
furnishing of copies of each thereof to the Underwriters and to dealers
(including costs of mailing and shipment), (iv) the qualification of
the Shares for offering and sale under state laws and the determination
of their eligibility for investment under state law as aforesaid
(including the legal fees and filing fees and other disbursements of
counsel for the Underwriters) and the printing and furnishing of copies
of any blue sky surveys or legal investment surveys to the Underwriters
and to dealers, (v) any listing of the Shares on any securities
exchange or qualification of the Shares for quotation on the NASDAQ
National Market and any registration thereof under the Securities
Exchange Act of 1934 (the "Exchange Act"), (vi) any filing for review
of the public offering of the Shares by the NASD and (vii) the
performance of the Company's other obligations hereunder;
(l) to furnish to you, before filing with the Commission
subsequent to the effective date of the Registration Statement and
during the period referred to in paragraph (f) above, a copy of any
document proposed to be filed pursuant to Sections 13, 14 or 15(d) of
the Exchange Act;
(m) not to sell, contract to sell, grant any option to sell or
otherwise dispose of, directly or indirectly, any shares of Common
Stock or securities convertible into or exchangeable for Common Stock
or warrants or other rights to purchase Common Stock or permit the
registration under the Act of any shares of Common Stock, except for
the registration of the Shares and the sales to the Underwriters
pursuant to this Agreement and except for issuances of Common Stock
upon the exercise of outstanding options, warrants and debentures, for
a period of 180 days after the date hereof, without the prior written
consent of Dillon, Read & Co. Inc. acting on behalf of the Managing
Underwriters;
(n) to use its best efforts to cause the Shares to be listed
on the NASDAQ National Market; and
(o) not to take, directly or indirectly, any action designed
to cause or to result in, or that might constitute the stabilization or
manipulation of the Common Stock to facilitate the sale or resale of
the Shares.
5. Reimbursement of Underwriters' Expenses. If the Shares are not
delivered for any reason other than the termination of this Agreement pursuant
to the first two paragraphs of Section 8 hereof or the default by one or more of
the Underwriters in its or their respective obligations hereunder, the Company
shall reimburse the Underwriters for all of their out-of-pocket expenses,
including the fees and disbursements of their counsel.
6. Conditions of Underwriters' Obligations. The several obligations of
the Underwriters hereunder are subject to the accuracy of the representations
and warranties on the part of the Company on the date hereof and at the time of
purchase (and the several obligations of the Underwriters at the additional time
of purchase are subject to the accuracy of the representations and warranties on
the part of the Company on the date hereof and at the time of
12
<PAGE> 14
purchase (unless previously waived) and at the additional time of purchase, as
the case may be), the performance by the Company of its obligations hereunder
and to the following conditions:
(a) The Company shall furnish to you at the time of purchase
and at the additional time of purchase, as the case may be, an opinion
of Palmer & Dodge LLP, counsel for the Company, addressed to the
Underwriters, and dated the time of purchase or the additional time of
purchase, as the case may be, with reproduced copies for each of the
other Underwriters and in form satisfactory to Mintz, Levin, Cohn,
Ferris, Glovsky and Popeo, P.C., counsel for the Underwriters, stating
that:
(i) the Company has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the State of Delaware, with full corporate power and
authority to own its properties and conduct its business as
described in the Registration Statement and the Prospectus, to
execute and deliver this Agreement and to issue, sell and
deliver the Shares as herein contemplated;
(ii) the Company has no subsidiaries;
(iii) the Company is duly qualified to do business in
and is in good standing in, each jurisdiction in which it
conducts its businesses, owns or leases real property or
maintains an office and in which such qualification is
necessary;
(iv) this Agreement has been duly authorized,
executed and delivered by the Company; the Board of Directors
of the Company or a committee thereof duly authorized by the
Board of Directors of the Company has duly adopted resolutions
authorizing the issuance and sale of the Shares by the
Company;
(v) the Shares, when issued and delivered to and paid
for by the Underwriters in accordance with the terms hereof,
will be duly and validly authorized and issued and will be
fully paid and non-assessable;
(vi) the Company has an authorized capitalization as
set forth in the Registration Statement and the Prospectus;
the outstanding shares of capital stock of the Company have
been duly and validly authorized and issued and are fully
paid, non-assessable and free of statutory and contractual
preemptive rights; the Shares when issued will be free of any
preemptive rights, pledges, liens, encumbrances or claims; the
certificates for the Shares are in due and proper form and the
holders of the Shares will not be subject to personal
liability for the debts or other liabilities or obligations of
the Company by reason of being such holders;
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<PAGE> 15
(vii) to the best of such counsel's knowledge, the
Company does not own, directly or indirectly, shares of
capital stock of or equity interest in any corporation or
other entity;
(viii) the capital stock of the Company, including
the Shares, conforms in all material respects to the
description thereof contained in the Registration Statement
and Prospectus;
(ix) the Registration Statement and the Prospectus
(except as to the financial statements and schedules and other
financial and statistical data contained or incorporated by
reference therein, as to which such counsel need express no
opinion) comply as to form in all material respects with the
requirements of the Act;
(x) the Registration Statement has become effective
under the Act and, to the best of such counsel's knowledge, no
stop order proceedings with respect thereto are pending or
threatened under the Act;
(xi) no approval, authorization, consent or order of
or filing with any national, state or local governmental or
regulatory commission, board, body, authority or agency is
required in connection with the issuance and sale of the
Shares as contemplated hereby other than registration of the
Shares under the Act and the clearance of the offering of such
shares with the NASD (except such counsel need express no
opinion as to any necessary qualification under the state
securities or blue sky laws of the various jurisdictions in
which the Shares are being offered by the Underwriters);
(xii) the execution, delivery and performance of this
Agreement by the Company and the consummation by the Company
of the transactions contemplated hereby do not and will not
conflict with, or result in any breach of, or constitute a
default under (nor constitute any event which with notice,
lapse of time, or both, would constitute a breach of or
default under), any provisions of the Certificate of
Incorporation or Bylaws of the Company or under any provision
of any license, indenture, mortgage, deed of trust, bank loan,
credit agreement or other agreement or instrument known to
such counsel to which the Company is a party or by which the
Company or any of its properties may be bound or affected, or
under any law, regulation or rule applicable to the Company or
under any decree, judgment or order known to such counsel
applicable to the Company;
(xiii) to the best of such counsel's knowledge, the
Company is not a party to any litigation, and there is no such
litigation pending or threatened, which seeks to enjoin or
restrain the execution, delivery and performance of this
Agreement, the incurrence of the obligations set forth herein
or the consummation of the transactions contemplated hereby;
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<PAGE> 16
(xiv) the Company is not in breach of, or in default
under (nor has any event occurred which with notice, lapse of
time, or both would constitute a breach of, or default under),
any license, indenture, mortgage, deed of trust, bank loan or
any other agreement or instrument known to such counsel to
which the Company is a party or by which the Company or any of
its properties may be bound or affected or under any law,
regulation or rule applicable to the Company or under any
decree, judgment or order known to such counsel applicable to
the Company;
(xv) there are no contracts, licenses, agreements,
leases or documents known to such counsel of a character which
are required to be filed as exhibits to the Registration
Statement or to be summarized or described in the Prospectus
which have not been so filed, summarized or described;
(xvi) to the best of such counsel's knowledge, there
are no actions, suits or proceedings pending or threatened
against the Company or any of its properties, at law or in
equity or before or by any commission, board, body, authority
or agency which are required to be described in the
Registration Statement and the Prospectus but are not so
described;
(xvii) each issuance of securities referred to in
Item 15 of the Registration Statement (i) was effected in
reliance upon a valid exemption from the registration
requirements of the Act and (ii) was effected in compliance
with the securities or blue sky laws of each jurisdiction in
which such securities were offered and sold;
(xviii) the Company is not, and after application of
the proceeds as described under the caption "Use of Proceeds"
in the Registration Statement and the Prospectus, will not be
an "investment company" or an affiliated person of, or
"promoter" or "principal underwriter" for, an "investment
company," as such terms are defined in the Investment Company
Act of 1940, as amended, and the rules and regulations
thereunder; and
(xix) such counsel have participated in conferences
with officers and other representatives of the Company,
representatives of the independent public accountants of the
Company and representatives of the Underwriters at which the
contents of the Registration Statement and Prospectus were
discussed and, although such counsel is not passing upon and
does not assume responsibility for the accuracy, completeness
or fairness of the statements contained in the Registration
Statement or Prospectus (except as and to the extent stated in
subparagraphs (vi) and (viii) above) and has not made any
independent verification or check of such statements (except
for purposes of subparagraphs (vi) and (viii) above), on the
basis of the foregoing (relying as to materiality to a large
extent upon the opinions of officers and other representatives
of the Company) nothing has come to the attention of such
counsel that causes them to believe that the
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<PAGE> 17
Registration Statement or any amendment thereto at the time
such Registration Statement or amendment became effective
contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or
that the Prospectus or any supplement thereto at the date of
such Prospectus or such supplement, and at all times up to and
including the time of purchase or additional time of purchase,
as the case may be, contains or contained an untrue statement
of a material fact or omits or omitted to state a material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading (it being understood that such
counsel need express no belief with respect to the financial
statements and schedules and other financial and statistical
data included in the Registration Statement or Prospectus).
(b) The Company shall furnish to you at the time of purchase
and at the additional time of purchase, as the case may be, an opinion
of Bell, Seltzer, Park & Gibson, patent counsel for the Company,
addressed to the Underwriters, and dated the time of purchase or the
additional time of purchase, as the case may be, with reproduced copies
for each of the other Underwriters and in form satisfactory to Mintz,
Levin, Cohn, Ferris, Glovsky and Popeo, P.C., counsel for the
Underwriters, stating that:
(i) all patents and pending patent applications owned
by or licensed to the Company known to such counsel and all
contracts known to such counsel pursuant to which the Company
has, or has granted, rights to any patents or pending patent
applications are listed on Schedule A;
(ii) based upon such counsel's (a) inquiry of the
Company's representatives responsible for patent matters, (b)
review of the documentation of patent transfers in connection
with the RIAS acquisition, (c) such counsel's review of the
chain of title in the United States Patent and Trademark
Office (the "US PTO") of the Company's United States patents
and patent applications listed in Schedule A and (d) inquiries
of foreign associates responsible for filing and prosecuting
applications in foreign jurisdictions with regard to the
foreign patents and patent applications listed in Schedule A:
(i) the patents listed on Schedule A (the "Patents") and
patent applications listed on Schedule A (the "Applications")
have been validly assigned to the Company and (ii) the Company
is listed as the sole holder of record in the records of the
US PTO (or in the case of foreign patents, the appropriate
foreign patent office) of each of the Patents and each of the
Applications. Such counsel knows of no claims of third parties
to any ownership interest or lien with respect to any of the
Patents or Applications and we have no knowledge of any facts
which would preclude the Company from having clear title and
unencumbered right to the Patents and Applications. None of
the pending Applications has been abandoned. [The Company has
obtained assignment documents from the named inventors for
each of its Patents and Applications, and to the inventions
described and claimed therein and foreign
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<PAGE> 18
applications filed for such inventions, and has caused these
assignments to be recorded in the US PTO and foreign patent
offices, as appropriate];
(iii) to the best of such counsel's knowledge, the
Company has complied with the US PTO duty of candor and
disclosure for each of the United States Patents and
Applications;
(iv) there are no legal or governmental proceedings
relating to the Company's patent rights, other than US PTO
reviews of Applications or comparable foreign proceedings, and
to the best of such counsel's knowledge, no such proceedings
are threatened or contemplated by government authorities or
others. To the best of such counsel's knowledge, there is no
pending or threatened interference proceeding or public use
proceeding with respect to any Application;
(v) no facts have come to such counsel's attention
that cause such counsel to believe that any of the claims of
the Patents or Applications is unenforceable or invalid. To
the best of such counsel's knowledge, there is no pending
action, suit, proceeding or claim by others challenging the
validity or enforceability of any claim of the Patents;
(vi) such counsel has conducted the following
searches with regard to the inventions claimed in the Patents
and Applications: [briefly describe] Based thereon and on
discussions with representatives of the Company responsible
for patent matters, such counsel is not aware of any patents
of others which are or would be infringed by the specific
current or proposed products or processes of the Company
referred to in the Prospectus. To the best of such counsel's
knowledge, there is no pending or threatened action, suit,
proceeding or claim by others that the Company is infringing
any patent;
(vii) except as described in the Prospectus, no
infringement by others of the claims of any of the Patents or
Applications has been brought to such counsel's attention, and
the Company has not requested that we render any advice
regarding issues of infringement by others;
(viii) such counsel has no knowledge of any facts
that would form a basis for the belief that the Company lacks
any rights or licenses to use all patents, know-how and other
intellectual property necessary to conduct the business now
conducted or proposed to be conducted by the Company as
described in the Prospectus;
(ix) to the best of such counsel's knowledge, the
statements in the Prospectus relating to patent, trademark and
licensing matters under the captions "Risk Factors-Dependence
on Patents, Copyrights, Licenses and Proprietary Rights; Risk
of Third Party Claims of Infringement" and "Business-Patents,
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<PAGE> 19
Copyrights, Licenses and Proprietary Rights," and other
references in the Prospectus to patent, trademark and
licensing matters, insofar as such statements constitute a
summary of legal matters, documents or proceedings, are
accurate and present fairly the matters set forth therein; and
(x) no facts have come to such counsel's attention
which cause such counsel to believe that the statements in the
Prospectus relating to patent, trademark and licensing matters
under the captions "Risk Factors-Dependence on Patents,
Copyrights, Licenses and Proprietary Rights; Risk of Third
Party Claims of Infringement" and "Business-Patents,
Copyrights, Licenses and Proprietary Rights," and other
references in the Prospectus to patent, trademark and
licensing matters, contained an untrue statement of material
fact or omitted to state a material fact necessary to make the
statements therein, in light of the circumstances in which
they were made, not misleading, or as of the date hereof,
contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading.
(c) The Company shall furnish to you at the time of purchase
and at the additional time of purchase, as the case may be, an opinion
of Fenwick & West, regulatory counsel to the Company, addressed to the
Underwriters, and dated the time of purchase or the additional time of
purchase, as the case may be, with reproduced copies for each of the
other Underwriters and in form satisfactory to Mintz, Levin, Cohn,
Ferris, Glovsky and Popeo, P.C., counsel for the Underwriters, stating
that:
(i) the statements in the Prospectus under the
captions "Risk Factors - Uncertainty Regarding Obtaining FDA
Approval," "Risk Factors - Extensive Government Regulation,"
"Business - Clinical Trials of PREP and SCREEN" and "Business
-- Government Regulation," and other references in the
Prospectus to those matters described in such sections, are
accurate and complete statements of the legal matters,
documents and proceedings set forth therein;
(ii) no facts have come to such counsel's attention
which cause such counsel to believe that the statements in the
Prospectus under the captions "Risk Factors - Uncertainty
Regarding Obtaining FDA Approval," "Risk Factors - Extensive
Government Regulation," "Business - Clinical Trials of PREP
and SCREEN" and "Business -- Government Regulation," and other
references in the Prospectus to those matters described in
such sections, at the time the Registration Statement became
effective, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or
as of the date hereof, contain an untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they
were made, not misleading; and
18
<PAGE> 20
(iii) such counsel has no actual knowledge of any
action, suit or proceeding pending or threatened by the FDA or
other federal regulatory authority, except in each case as
described in the Prospectus.
(d) You shall have received from Ernst & Young LLP, letters
dated, respectively, the date of this Agreement and the time of
purchase and additional time of purchase, as the case may be, and
addressed to the Underwriters (with reproduced copies for each of the
Underwriters) in the forms heretofore approved by the Managing
Underwriters.
(e) You shall have received at the time of purchase and at the
additional time of purchase, as the case may be, the favorable opinion
of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., counsel for the
Underwriters, dated the time of purchase or the additional time of
purchase, as the case may be, in form and substance reasonably
satisfactory to you.
(f) No amendment or supplement to the Registration Statement
or Prospectus shall be filed prior to the time the Registration
Statement becomes effective to which you object in writing.
(g) The Registration Statement shall become effective, or if
Rule 430A under the Act is used, the Prospectus shall have been filed
with the Commission pursuant to Rule 424(b) under the Act, at or before
5:00 P.M., New York City time, on the date of this Agreement, unless a
later time (but not later than 5:00 P.M., New York City time, on the
second full business day after the date of this Agreement) shall be
agreed to by the Company and you in writing or by telephone, confirmed
in writing; provided, however, that the Company and you and any group
of Underwriters, including you, who have agreed hereunder to purchase
in the aggregate at least 50% of the Firm Shares may from time to time
agree on a later date.
(h) Prior to the time of purchase or the additional time of
purchase, as the case may be, (i) no stop order with respect to the
effectiveness of the Registration Statement shall have been issued
under the Act or proceedings initiated under Section 8(d) or 8(e) of
the Act; (ii) the Registration Statement and all amendments thereto, or
modifications thereof, if any, shall not contain an untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and
(iii) the Prospectus and all amendments or supplements thereto, or
modifications thereof, if any, shall not contain an untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of
the circumstances under which they are made, not misleading.
(i) Between the time of execution of this Agreement and the
time of purchase or the additional time of purchase, as the case may
be, (i) no material and unfavorable change, financial or otherwise
(other than as referred to in the Registration Statement and
19
<PAGE> 21
Prospectus), in the properties, assets, liabilities, results of
operations, business, condition (financial or otherwise) or prospects
of the Company and its Subsidiaries taken as a whole shall occur or
become known and (ii) no transaction which is material and unfavorable
to the Company shall have been entered into by the Company or any of
its Subsidiaries.
(j) The Company will, at the time of purchase or additional
time of purchase, as the case may be, deliver to you a certificate of
its chief executive officer and chief financial officer to the effect
that the representations and warranties of the Company as set forth in
this Agreement and the conditions set forth in paragraph (h) and
paragraph (i) have been met and that they are true and correct as of
each such date.
(k) You shall have received signed letters from each of the
directors, officers and securityholders of the Company to the effect
that such persons shall not sell, contract to sell, grant any option to
sell or otherwise dispose of, directly or indirectly, any shares of
Common Stock of the Company or securities convertible into or
exchangeable for Common Stock or warrants or other rights to purchase
Common Stock for a period of 180 days after the date of this Agreement
without the prior written consent of Dillon, Read & Co. Inc. acting on
behalf of the Managing Underwriters.
(l) The Company shall have furnished to you such other
documents and certificates as to the accuracy and completeness of any
statement in the Registration Statement and the Prospectus and other
matters as of the time of purchase and the additional time of purchase,
as the case may be, as you may reasonably request.
(m) The Company shall have performed such of its obligations
under this Agreement as are to be performed by the terms hereof at or
before the time of purchase and at or before the additional time of
purchase, as the case may be.
(n) The Company shall have taken all actions necessary to (i)
effect a reverse stock split so that every ____________ shares of
Common Stock become one share of Common Stock, (ii) amend the Company's
Certificate of Incorporation to provide for the automatic conversion of
the Company's Series A Convertible Preferred Stock into Common Stock
upon the consummation of the offering contemplated by this Agreement
and (iii) terminate the Stockholders Agreement between the Company and
certain stockholders dated November 22, 1996.
(o) The Shares shall have been approved for listing on the
NASDAQ National Market, subject only to notice of issuance at or prior
to the time of purchase.
7. Effective Date of Agreement; Termination. This Agreement shall
become effective (i) if Rule 430A under the Act is not used, when you shall have
received notification of the effectiveness of the Registration Statement, or
(ii) if Rule 430A under the Act is used, when the parties hereto have executed
and delivered this Agreement.
20
<PAGE> 22
The obligations of the several Underwriters hereunder shall be subject
to termination in the absolute discretion of you or in the absolute discretion
of Dillon, Read & Co. Inc., acting on your behalf, or any group of Underwriters
(which may include you) which has agreed to purchase in the aggregate at least
50% of the Firm Shares, if, at any time prior to the time of purchase or, with
respect to the purchase of any Additional Shares, the additional time of
purchase, as the case may be, trading in securities on the New York Stock
Exchange shall have been suspended or minimum prices shall have been established
on the New York Stock Exchange, or if a banking moratorium shall have been
declared either by the United States or New York State authorities, or if the
United States shall have declared war in accordance with its constitutional
processes or there shall have occurred any material outbreak or escalation of
hostilities or other national or international calamity or crisis of such
magnitude in its effect on the financial markets of the United States as, in
your judgment or in the judgment of Dillon, Read & Co. Inc., acting on your
behalf, or in the judgment of such group of Underwriters, to make it
impracticable to market the Shares.
If you or Dillon, Read & Co. Inc., acting on your behalf, or any group
of Underwriters elects to terminate this agreement as provided in this Section
7, the Company and each other Underwriter shall be notified promptly by letter
or telegram.
If the sale to the Underwriters of the Shares, as contemplated by this
Agreement, is not carried out by the Underwriters for any reason permitted under
this Agreement or if such sale is not carried out because the Company shall be
unable to comply with any of the terms of this Agreement, the Company shall not
be under any obligation or liability under this Agreement (except to the extent
provided in Sections 4(k), 5 and 9 hereof), and the Underwriters shall be under
no obligation or liability to the Company under this Agreement (except to the
extent provided in Section 9 hereof) or to one another hereunder.
8. Increase in Underwriters' Commitments. If any Underwriter shall
default in its obligation to take up and pay for the Firm Shares to be purchased
by it hereunder and if the number of Firm Shares which all Underwriters so
defaulting shall have agreed but failed to take up and pay for does not exceed
10% of the total number of Firm Shares, the non-defaulting Underwriters shall
take up and pay for (in addition to the aggregate principal amount of Firm
Shares they are obligated to purchase pursuant to Section 1 hereof) the number
of Firm Shares agreed to be purchased by all such defaulting Underwriters, as
hereinafter provided. Such Shares shall be taken up and paid for by such
non-defaulting Underwriter or Underwriters in such amount or amounts as you may
designate with the consent of each Underwriter so designated or, in the event no
such designation is made, such Shares shall be taken up and paid for by all
non-defaulting Underwriters pro rata in proportion to the aggregate number of
Firm Shares set opposite the names of such non-defaulting Underwriters in
Schedule A.
Without relieving any defaulting Underwriter from its obligations
hereunder, the Company agrees with the non-defaulting Underwriters that it will
not sell any Firm Shares hereunder unless all of the Firm Shares are purchased
by the Underwriters (or by substituted Underwriters selected by you with the
approval of the Company or selected by the Company with your approval).
21
<PAGE> 23
If a new Underwriter or Underwriters are substituted by the
Underwriters or by the Company for a defaulting Underwriter or Underwriters in
accordance with the foregoing provision, the Company or you shall have the right
to postpone the time of purchase for a period not exceeding five business days
in order that any necessary changes in the Registration Statement and Prospectus
and other documents may be effected.
The term Underwriter as used in this agreement shall refer to and
include any Underwriter substituted under this Section 8 with like effect as if
such substituted Underwriter had originally been named in Schedule A.
9. Indemnity by the Company and the Underwriters.
(a) The Company agrees to indemnify, defend and hold harmless
each Underwriter, any person who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, and
their respective agents, representatives, employees, officers, partners
and directors (collectively, the "Underwriter indemnified parties"),
from and against any loss, expense, damage, judgment, liability or
claim (including the costs of investigating, defending or settling such
matters and fees and expenses of counsel in connection therewith) as
they are incurred (and regardless of whether the Underwriter
indemnified party is a party to the litigation, if any) which, jointly
or severally, any such Underwriter indemnified party may incur under
the Act, the Exchange Act or otherwise insofar as such loss, expense,
damage, judgment, liability or claim arises out of or is based upon any
untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement (or in the Registration
Statement as amended by any post-effective amendment thereof by the
Company) or in a Prospectus (the term Prospectus for the purpose of
this Section 9 being deemed to include any Preliminary Prospectus, the
Prospectus and the Prospectus as amended or supplemented by the
Company), or arises out of or is based upon any omission or alleged
omission to state a material fact required to be stated in either such
Registration Statement or Prospectus or necessary to make the
statements made therein not misleading, except insofar as any such
loss, expense, damage, judgment, liability or claim arises out of or is
based upon any untrue statement or alleged untrue statement of a
material fact contained in and in conformity with information furnished
in writing by any Underwriter through you to the Company expressly for
use with reference to such Underwriter in such Registration Statement
or such Prospectus or arises out of or is based upon any omission or
alleged omission to state a material fact in connection with such
information required to be stated in either such Registration Statement
or Prospectus or necessary to make such information not misleading.
If any action or proceeding (including any governmental or
regulatory investigation or proceeding) is brought or asserted against
any Underwriter indemnified party in respect of which indemnity may be
sought against the Company pursuant to the foregoing paragraph, such
Underwriter indemnified party shall promptly notify the Company in
writing of the institution of such action or proceeding and the Company
shall assume the defense of such action or proceeding, including the
employment of counsel
22
<PAGE> 24
satisfactory to the Underwriter indemnified party and payment of all
fees and expenses; provided that the omission to so notify the Company
shall not in any way relieve the Company from any liability it may have
to an Underwriter indemnified party. An Underwriter indemnified party
shall have the right to employ separate counsel in any such case, but
the fees and expenses of such counsel shall be at the expense of such
Underwriter indemnified party unless the employment of such counsel
shall have been authorized in writing by the Company in connection with
the defense of such action or the Company shall not have employed
counsel to have charge of the defense of such action within a
reasonable period of time or such Underwriter indemnified party or
parties shall have reasonably concluded that there may be one or more
defenses available to it or them which are different from or additional
to those available to the Company (in which case the Company shall not
have the right to direct the defense of such action on behalf of the
Underwriter indemnified party or parties), in any of which events such
fees and expenses shall be borne by the Company and paid as incurred
(it being understood, however, that the Company shall not be liable for
the expenses of more than one separate counsel (in addition to local
counsel), which counsel shall be designated by Dillon, Read & Co. Inc.,
in any one action or series of related actions in the same jurisdiction
representing the Underwriter indemnified parties who are parties to
such action). Anything in this paragraph to the contrary
notwithstanding, the Company shall not be liable for any settlement of
any such claim or action effected without its written consent (which
consent shall not be unreasonably withheld or delayed) unless the
Company shall be in breach of its obligations to pay fees and expenses
pursuant to this Agreement, but if settled with the written consent of
the Company, or if there is a final judgment with respect thereto, the
Company agrees to indemnify and hold harmless each Underwriter
indemnified party from and against any loss or liability by reason of
such settlement or judgment.
(b) Each Underwriter severally agrees to indemnify, defend and
hold harmless the Company, its directors and officers, and any person
who controls the Company within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act (each, a "Company indemnified party")
from and against any loss, expense, damage, judgment, liability or
claim (including the costs of investigating, defending or settling such
matters and fees and expenses of counsel in connection with therewith)
as they are incurred (and regardless of whether the Company indemnified
party is a party to the litigation if any) which, jointly or severally,
such Company indemnified party may incur under the Act or otherwise,
insofar as such loss, expense, damage, judgment, liability or claim
arises out of or is based upon any untrue statement or alleged untrue
statement of a material fact contained in and in conformity with
information furnished in writing by or on behalf of such Underwriter
through you to the Company expressly for use with reference to such
Underwriter in the Registration Statement (or in the Registration
Statement as amended by any post-effective amendment thereof by the
Company) or in a Prospectus, or arises out of or is based upon any
omission or alleged omission to state a material fact in connection
with such information required to be stated either in such Registration
Statement or Prospectus or necessary to make such information not
misleading.
23
<PAGE> 25
If any action is brought against the Company or any such
person in respect of which indemnity may be sought against any
Underwriter pursuant to the foregoing paragraph, the Company or such
person shall promptly notify such Underwriter in writing of the
institution of such action and such Underwriter shall assume the
defense of such action, including the employment of counsel and payment
of expenses. The Company or such person shall have the right to employ
its own counsel in any such case, but the fees and expenses of such
counsel shall be at the expense of the Company or such person unless
the employment of such counsel shall have been authorized in writing by
such Underwriter in connection with the defense of such action or such
Underwriter shall not have employed counsel to have charge of the
defense of such action or such indemnified party or parties shall have
reasonably concluded that there may be defenses available to it or them
which are different from or additional to those available to such
Underwriter (in which case such Underwriter shall not have the right to
direct the defense of such action on behalf of the indemnified party or
parties), in any of which events such fees and expenses shall be borne
by such Underwriter and paid as incurred (it being understood, however,
that such Underwriter shall not be liable for the expenses of more than
one separate counsel in any one action or series of related actions in
the same jurisdiction representing the indemnified parties who are
parties to such action). Anything in this paragraph to the contrary
notwithstanding, no Underwriter shall be liable for any settlement of
any such claim or action effected without the written consent of such
Underwriter.
(c) If the indemnification provided for in this Section 9 is
unavailable to an indemnified party under the foregoing subsections of
this Section 9 in respect of any losses, expenses, damages, judgments,
liabilities or claims referred to therein, then each applicable
indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, expenses, liabilities or claims (if
and only to the extent that indemnification of such indemnified party
would be required under this Section 9 if the indemnification provided
for in this Section 9 were available) (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on
the one hand and the Underwriters on the other hand from the offering
of the Shares or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and of
the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, expenses, damages, judgments,
liabilities or claims, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other shall be deemed to be in the
same proportion as the total proceeds from the offering (net of
underwriting discounts and commissions but before deducting expenses)
received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in
the table on the cover page of the Prospectus. The relative fault of
the Company on the one hand and of the Underwriters on the other shall
be determined by reference to, among other things, whether the untrue
statement or alleged untrue statement of a material fact or omission or
alleged omission relates to
24
<PAGE> 26
information supplied by the Company or by the Underwriters and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The
amount paid or payable by a party as a result of the losses, expenses,
damages, judgments, liabilities and claims referred to above shall be
deemed to include any legal or other fees or expenses reasonably
incurred by such party in connection with investigating or defending
any claim or action.
(d) The Company and the Underwriters agree that it would not
be just and equitable if contribution pursuant to this Section 9 were
determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable considerations
referred to in subsection (c) above. Notwithstanding the provisions of
this Section 9, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the
Shares underwritten by such Underwriter and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue
statement or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The
Underwriter's obligations to contribute pursuant to this Section 9 are
several in proportion to their respective underwriting commitments and
not joint.
(e) The indemnity and contribution agreements contained in
this Section 9 and the covenants, warranties and representations of the
Company contained in this Agreement shall remain in full force and
effect regardless of any investigation made by or on behalf of any
Underwriter indemnified party, or by or on behalf of any Company
indemnified party, and shall survive any termination of this Agreement
or the issuance and delivery of the Shares. The indemnity and
contribution agreements contained in this Section 9 are in addition to
any other remedies that the parties hereto may have in equity or at
law. The Company and each Underwriter agree promptly to notify the
others of the commencement of any litigation or proceeding against it
and, in the case of the Company, against any of the Company's officers
and directors in connection with the issuance and sale of the Shares,
or in connection with the Registration Statement or Prospectus.
10. Notices. Except as otherwise herein provided, all statements,
requests, notices and agreements shall be in writing or by telegram and, if to
the Underwriters, shall be sufficient in all respects if delivered or sent to
Dillon, Read & Co. Inc., 535 Madison Avenue, New York, N.Y. 10022, Attention:
Syndicate Department and, if to the Company, shall be sufficient in all respects
if delivered or sent to the Company at the offices of the Company at 112 Orange
Drive, Elon College, North Carolina 27244, Attention: President and Chief
Executive Officer.
25
<PAGE> 27
11. Construction. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAW. THE SECTION HEADINGS IN THIS AGREEMENT HAVE BEEN INSERTED
AS A MATTER OF CONVENIENCE OF REFERENCE AND ARE NOT A PART OF THIS AGREEMENT.
12. Parties at Interest. The Agreement herein set forth has been and is
made solely for the benefit of the Underwriters and the Company and the
Underwriter indemnified parties and the Company indemnified parties referred to
in Section 9 hereof, and their respective successors, assigns, executors and
administrators. No other person, partnership, association or corporation
(including a purchaser, as such purchaser, from any of the Underwriters) shall
acquire or have any right under or by virtue of this Agreement.
13. Counterparts. This agreement may be signed by the parties in
counterparts which together shall constitute one and the same agreement among
the parties.
[INTENTIONALLY LEFT BLANK]
26
<PAGE> 28
If the foregoing correctly sets forth the understanding among the
Company and the Underwriters, please so indicate in the space provided below for
the purpose, whereupon this letter and your acceptance shall constitute a
binding agreement among the Company and the Underwriters, severally.
Very truly yours,
AUTOCYTE, INC.
By:_____________________________________
Name:
Title:
Accepted and agreed to as of the date
first above written, on behalf of
themselves, UBS SECURITIES LLC and
the other several Underwriters named
in Schedule A
DILLON, READ & CO. INC.
UBS SECURITIES LLC
By: DILLON, READ & CO. INC., as
Managing Underwriter
By:_______________________________
Name:
Title:
27
<PAGE> 29
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Underwriter Firm Shares
- ----------- -----------
<S> <C>
DILLON, READ & CO. INC.
UBS SECURITIES LLC
Total........................................................... 3,000,000
- ----- ---------
</TABLE>
28
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
AUTOCYTE, INC.
The undersigned, for the purpose of forming a corporation under the laws
of the State of Delaware, hereby certifies as follows:
FIRST. The name of the corporation is AutoCyte, Inc.
SECOND. The address of the corporation's registered office in the State of
Delaware is 1209 Orange Street, City of Wilmington, County of New Castle, State
of Delaware. The name of its registered agent at such address is The Corporation
Trust Company.
THIRD. The purpose of the corporation 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.
FOURTH. The total number of shares of stock which the corporation shall
have authority to issue is 3,000 shares of Common Stock with a par value of One
Cent ($.01) per share.
FIFTH. The name and mailing address of the incorporator are as follows:
<TABLE>
<CAPTION>
NAME MAILING ADDRESS
---- ---------------
<S> <C>
Stephen C. McEvoy Palmer & Dodge
One Beacon Street
Boston, Massachusetts 02108
</TABLE>
SIXTH. The corporation is to have perpetual existence.
SEVENTH. Election of directors need not be by written ballot unless the
by-laws of the corporation shall so provide.
EIGHTH. The Board of Directors of the corporation is expressly authorized
to adopt, amend or repeal the by-laws of the corporation.
<PAGE> 2
NINTH. A director shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent that the elimination or limitation of liability is not
permitted under the Delaware General Corporation Law as in effect when such
liability is determined. No amendment or repeal of this provision shall deprive
a director of the benefits hereof with respect to any act or omission occurring
prior to such amendment or repeal.
TENTH. 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.
Signed this 21st day of October, 1996.
/s/ Stephen C. McEvoy
----------------------------------
Stephen C. McEvoy, Incorporator
- 2 -
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
AUTOCYTE, INC.
Pursuant to Section 242
of the General Corporation Law of
the State of Delaware
AutoCyte, Inc. (hereinafter called the "Corporation"), organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify as follows:
At a meeting of the Board of Directors of the Corporation the following
resolutions were duly adopted, pursuant to Section 242 of the General
Corporation Law of the State of Delaware, setting forth certain amendments to
the Certificate of Incorporation of the Corporation and declaring said
amendments to be advisable. The stockholders of the Corporation duly approved
said proposed amendments by written consent in accordance with Sections 228 and
242 of the General Corporation Law of the State of Delaware, and written notice
of such consent has been given to all stockholders who have not consented in
writing to said amendments. The resolutions setting forth the amendments are as
follows:
RESOLVED: That Article FOURTH of the Certificate of Incorporation of the
Corporation be and hereby is deleted in its entirety and the following Article
FOURTH is inserted in lieu thereof:
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is Thirty Million Four-Hundred and
Twenty-Five Thousand (30,425,000) shares consisting of Twenty Million
Five-Hundred Thousand (20,500,000) shares of common stock, par value $0.01 per
share ("Common Stock"), and Nine Million Nine Hundred and Twenty Five Thousand
(9,925,000) shares of preferred stock, par value $0.01 per share ("Preferred
Stock").
<PAGE> 2
A. COMMON STOCK
1. General. The voting, liquidation and dividend rights of the holders of
the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. Voting Rights. Subject to the rights and preferences of any then
outstanding Preferred Stock, the holders of shares of Common Stock shall be
entitled to one vote for each share so held with respect to all matters voted on
by the stockholders of the Corporation. There shall be no cumulative voting.
3. Liquidation Rights. Subject to the rights and preferences of any then
outstanding Preferred Stock, upon any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holders of
Common Stock shall be entitled to receive all assets of the Corporation
available for distribution to its stockholders.
4. Dividends. Subject to the rights and preferences of any then
outstanding Preferred Stock, the holders of shares of Common Stock shall be
entitled to receive such dividends from time to time as may be declared by the
Board of Directors out of the funds lawfully available therefor.
B. PREFERRED STOCK
1. Designation. Nine Million Nine Hundred and Twenty Five Thousand
(9,925,000) shares of the authorized and unissued Preferred Stock of the
Corporation are hereby designated "Series A Convertible Preferred Stock" (the
"Series A Preferred Stock").
2. Liquidation Rights.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holders of
shares of Series A Preferred Stock then outstanding shall be entitled to be paid
out of the assets of the Corporation available for distribution to its
stockholders, after and subject to the payment in full of all amounts required
to be distributed to the holders of any other class or series of stock of the
Corporation ranking on liquidation prior and in preference to the Series A
Preferred Stock (collectively referred to as "Senior Preferred Stock"), but
before any payment shall be made to the holders of Common Stock or any other
class or series of stock ranking on liquidation junior to the Series A Preferred
Stock (such Common Stock and other stock being collectively referred to as
"Junior Stock") by reason of their ownership thereof, an amount equal to
$1.00756 per share (subject to appropriate adjustment in the event of any stock
dividend, stock split, combination or other similar recapitalization affecting
such shares), plus any dividends declared but unpaid on such shares. If upon any
such liquidation, dissolution or winding up of the Corporation the remaining
assets of the Corporation available for distribution to its stockholders shall
be insufficient to pay the holders of shares of Series A Preferred Stock the
full amount to which they shall be entitled, the holders of shares of Series A
Preferred Stock and any class or series of stock ranking on liquidation on a
parity with the Series A Preferred Stock shall share ratably in any distribution
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<PAGE> 3
of the remaining assets and funds of the Corporation in proportion to the
respective amounts which would otherwise be payable in respect of the shares
held by them upon such distribution if all amounts payable on or with respect to
such shares were paid in full.
(b) All of the preferential amounts to be paid to the holders of the
Series A Preferred Stock pursuant to this Section 2 shall be paid or set apart
for payment before the payment or setting apart for payment of any amount for,
or the distribution of any assets of the Corporation to, the holders of the
Junior Stock in connection with such liquidation, dissolution or winding up.
After payment or the setting apart of payment of all preferential amounts
required to be paid to the holders of the Senior Preferred Stock, Series A
Preferred Stock and any other class or series of stock of the Corporation
ranking on liquidation on a parity with the Series A Preferred Stock, all
remaining assets of the Corporation available for distribution (after payment or
provision for payment of all debts and liabilities of the Corporation) shall be
distributed among the holders of shares of Common Stock and any other class or
series of stock entitled to participate in liquidation distributions with the
holders of Common Stock, pro rata based on the number of shares of Common Stock
held by each (assuming conversion into Common Stock of all such shares).
(c) A consolidation or merger of the Corporation or a 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 within
the meaning of this Section 2, unless the holders of a majority of the then
outstanding shares of Series A Preferred Stock elect not to treat any of the
foregoing events as a liquidation, dissolution or winding up by giving written
notice thereof to the Corporation at least fifteen (15) days prior to the
effective date of such event. If such notice is given, the provisions of Section
3(d)(ii) shall apply. The amount deemed distributed to the holders of Series A
Preferred Stock upon any such merger or consolidation shall be the cash or the
value of the property, rights or securities distributed to such holders by the
acquiring person, firm or other entity. The value of such property, rights or
other securities shall be determined in good faith by the Board of Directors of
the Corporation.
3. Conversion. The holders of the Series A Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred Stock shall
be convertible at the option of the holder thereof, at any time after the date
of issuance and without the payment of any additional consideration therefor,
into that number of fully paid and nonassessable shares of Common Stock as is
determined by dividing $1.00756 by the Conversion Price (determined as
hereinafter provided) in effect at the time of conversion. The Conversion Price
at which shares of Common Stock shall be deliverable upon conversion (the
"Conversion Price") shall initially be $1.00756 per share of Common Stock. Such
initial Conversion Price shall be subject to adjustment (in order to adjust the
number of shares of Common Stock into which the Series A Preferred Stock is
convertible) as hereinafter provided.
(b) Automatic Conversion. Each share of Series A Preferred Stock
shall automatically be converted into shares of Common Stock at the then
effective Conversion Price upon the closing of the sale of shares of Common
Stock for the account of the Corporation, at a price per share which exceeds
500% of the then effective Conversion Price, in a firm
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<PAGE> 4
commitment underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, resulting in gross
proceeds to the Corporation of not less than $30,000,000.
(c) Mechanics of Conversion.
(i) No fractional shares of Common Stock shall be issued upon
conversion of the Series A Preferred Stock. In lieu of any fractional shares to
which the holder would otherwise be entitled, the Corporation shall pay cash
equal to such fraction multiplied by the then effective Conversion Price. Before
any holder of Series A Preferred Stock shall be entitled to convert the same
into full shares of Common Stock, such holder shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Corporation or of any
transfer agent for the Series A Preferred Stock, and shall give written notice
to the Corporation at such office that such holder elects to convert the same
and shall state therein such holder's name or the name or names of the nominees
of such holder in which he wishes the certificate or certificates for shares of
Common Stock to be issued, together with the applicable federal taxpayer
identification number. The Corporation shall, as soon as practicable thereafter,
issue and deliver at such office to such holder of Series A Preferred Stock, or
to his or its nominee or nominees, a certificate or certificates for the number
of shares of Common Stock to which such holder shall be entitled, together with
cash in lieu of any fraction of a share. Such conversion shall be deemed to have
been made immediately prior to the close of business on the date of such
surrender of the shares of Series A Preferred Stock to be converted, and the
person or persons entitled to receive the shares of Common Stock issuable upon
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on such date.
(ii) The Corporation shall at all times when the Series A
Preferred Stock shall be outstanding, reserve and keep available out of its
authorized but unissued stock, for the purpose of effecting the conversion of
the Series A Preferred Stock, such number of its duly authorized shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding Series A Preferred Stock. Before taking any action which
would cause an adjustment reducing the Conversion Price below the then par value
of the shares of Common Stock issuable upon conversion of the Series A Preferred
Stock, the Corporation will take any corporate action which, in the opinion of
its counsel, may be necessary in order that the Corporation may validly and
legally issue fully paid and nonassessable shares of Common Stock at such
adjusted Conversion Price.
(iii) All shares of Series A Preferred Stock which shall have
been surrendered for conversion as herein provided shall no longer be deemed to
be outstanding and all rights with respect to such shares, including the rights,
if any, to receive notices and to vote, shall immediately cease and terminate on
the Conversion Date, except only the right of the holders thereof to receive
shares of Common Stock in exchange therefor and payment of any dividends
declared but unpaid thereon. Any shares of Series A Preferred Stock so converted
shall be retired and cancelled and shall not be reissued, and the Corporation
(without the need for stockholder action) may from time to time take such
appropriate action as may be necessary to reduce the authorized Series A
Preferred Stock accordingly.
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<PAGE> 5
(iv) The Corporation shall pay any and all issue and other
taxes that may be payable in respect of any issuance or delivery of shares of
Common Stock upon conversion of shares of Series A Preferred Stock pursuant to
this Section 3. The Corporation shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of shares of Common Stock in a name other than that in which the shares
of Series A Preferred Stock so converted were registered, and no such issuance
or delivery shall be made unless and until the person or entity requesting such
issuance has paid to the Corporation the amount of any such tax or has
established, to the satisfaction of the Corporation, that such tax has been
paid.
(d) Adjustments to Conversion Price for Diluting Issues:
(i) Adjustment for Dividends, Distributions, Subdivisions,
Combinations or Consolidation of Common Stock.
(1) Stock Dividends, Distributions or Subdivisions. In
the event the Corporation shall issue additional shares of Common Stock in a
stock dividend, stock distribution or subdivision, the Conversion Price in
effect immediately prior to such stock dividend, stock distribution or
subdivision shall, concurrently with the effectiveness of such stock dividend,
stock distribution or subdivision, be proportionately decreased.
(2) Combinations or Consolidations. In the event the
outstanding shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common Stock,
the Conversion Price in effect immediately prior to such combination or
consolidation shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
(ii) Adjustment for Merger or Reorganization. Subject to
Section 2(c), in case of any consolidation or merger of the Corporation with or
into another Corporation or the conveyance of all or substantially all of the
assets of the Corporation to another Corporation, each share of Series A
Preferred Stock shall thereafter be convertible into the number of shares of
stock or other securities or property to which a holder of the number of shares
of Common Stock of the Corporation deliverable upon conversion of such Series A
Preferred Stock would have been entitled upon such consolidation, merger or
conveyance. In any such case, appropriate adjustment (as determined in good
faith by the Board of Directors) shall be made in the application of the
provisions set forth in this Section B of Article FOURTH with respect to the
rights and interest thereafter of the holders of the Series A Preferred Stock,
to the end that the provisions (including provisions with respect to changes in
and other adjustments of the Conversion Price) shall thereafter be applicable,
as nearly as reasonably may be, in relation to any shares of stock or other
property thereafter deliverable upon the conversion of the Series A Preferred
Stock.
(e) No Impairment. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation but will at
all times in good faith assist in the carrying out of all the provisions of
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<PAGE> 6
this Section 3 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series A Preferred Stock against impairment.
(f) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 3,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with these terms and furnish to each holder of Series
A Preferred Stock a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. The Corporation shall, upon the written request at any time of any holder
of Series A Preferred Stock, furnish or cause to be furnished to such holder a
like certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Price at the time in effect, and (iii) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of Series A Preferred Stock.
(g) Notices of Record Date. In the event (i) that the Corporation
fixes a record date for the purpose of determining the holders of any class of
securities who are entitled to receive any dividend (other than a cash dividend
which is the same as cash dividends paid in previous quarters) or other
distribution, or (ii) of any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger or consolidation of the Corporation, and any transfer of all or
substantially all of the assets of the Corporation to any other Corporation, or
any other entity or person, or any voluntary or involuntary dissolution,
liquidation or winding up of the Corporation, the Corporation shall mail to each
holder of Series A Preferred Stock at least 20 days prior to the record date
specified therein, a notice specifying (A) the record date of such dividend,
distribution, subdivision or combination, or, if a record is not to be taken,
the date as of which the stockholders of record to be entitled to such dividend,
distribution, subdivision or combination are to be determined, or (B) the date
on which any such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up is expected to become effective,
and 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, transfer, consolidation, merger,
dissolution, liquidation or winding up.
(h) Termination of Dividends. The conversion of the Series A
Preferred pursuant to the provisions of this Section 3 shall terminate the right
of the holders thereof to receive, and of the Corporation's obligation to pay,
any and all accrued but undeclared and unpaid dividends with respect to such
shares of Series A Preferred Stock then being converted, but shall not
extinguish the right to receive any unpaid dividends which have been declared.
4. Redemption.
(a) On the 22nd day of November in each of 2001, 2002 and 2003
(collectively, the "Redemption Dates" and individually, each a "Redemption
Date"), each holder of Series A Preferred Stock shall have the right to require
the Corporation to redeem up to 33.3%, 50% and 100%, respectively, of the shares
of Series A Preferred Stock held by such holder on such date, or such lesser
number of shares of Series A Preferred Stock as the holder
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<PAGE> 7
may determine; provided, however, that on each Redemption Date following the
first Redemption Date, in addition to any shares of Series A Preferred Stock
then eligible for redemption, each holder of Series A Preferred Stock, may
require the Corporation to redeem any shares of Series A Preferred Stock such
holder could have previously required, but elected not to require, the
Corporation to redeem on any prior Redemption Date. Any holder desiring to
exercise the redemption right granted herein (a "Requesting Holder") shall
provide written notice to the Corporation setting forth the number of shares to
be redeemed and designating the date, which shall not be less than 60 days
following the date of such notice, on which the redemption is to occur (the
"Redemption Date"). On the Redemption Date and upon a holder's surrender of his
or its certificates representing shares to be redeemed, the redemption price
shall be paid by the Corporation in cash in an amount equal to $1.00756 per
share (subject to adjustment as indicated in the next sentence), plus an amount
equal to all accrued but unpaid dividends payable thereon (the "Redemption
Price"). The Redemption Price shall be subject to equitable adjustment whenever
there shall occur a stock split, stock dividend, combination, reorganization,
recapitalization, reclassification or other similar event involving a change in
the Series A Preferred Stock.
(b) Within five days following its receipt from a Requesting Holder
of a notice of intent to exercise redemption rights pursuant to Section 4(a),
the Corporation shall provide each holder of Series A Preferred Stock, other
than the Requesting Holder, with a written notice (addressed to the holder at
its address as it appears on the stock transfer books of the Corporation)
containing an offer to redeem shares of Series A Preferred Stock as provided
above, which notice shall specify the applicable Redemption Price. Each holder
of Series A Preferred Stock, other than the Requesting Holder, will have until
10 days prior to the Redemption Date to provide the Corporation with written
notice of such holder's acceptance of the redemption offer, which notice shall
specify the number of shares to be redeemed. All notices or offers hereunder
shall be sent by first class or registered mail, postage prepaid, and shall be
deemed to have been provided when mailed.
(c) In the event that any holder of Series A Preferred Stock, other
than the Requesting Holder, does not provide the Corporation with written notice
of the holder's acceptance of the redemption offer on or before the date 10 days
prior to the applicable Redemption Date, the Corporation shall have no
obligation to redeem any shares of Series A Preferred Stock of such holder on
the applicable Redemption Date.
(d) Notwithstanding the foregoing, the Corporation's obligation to
redeem shares of Series A Preferred Stock on the Redemption Date shall be waived
if the holders of a majority of the then outstanding shares of Series A
Preferred Stock shall request such waiver by written notice given to the
Corporation at least ten days prior to such Redemption Date. The Corporation
shall immediately notify all holders of Series A Preferred Stock of any such
waiver and shall not be required to redeem the shares of Series A Preferred
Stock of any holder of Series A Preferred Stock on such Redemption Date.
(e) On or prior to the Redemption Date, unless waived pursuant to
Section 4(d), the Requesting Holder and each other holder of Series A Preferred
Stock accepting the Corporation's redemption offer shall surrender his or its
certificate or certificates representing the shares to be redeemed, in the
manner and at the place designated in the
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<PAGE> 8
Corporation's redemption offer. If less than all shares represented by such
certificate or certificates are redeemed, the Corporation shall issue a new
certificate for the unredeemed shares. From and after the Redemption Date,
unless there shall be a default in payment of the Redemption Price, all rights
of each holder with respect to shares of Series A Preferred Stock redeemed on
the Redemption Date shall cease (except the right to receive the Redemption
Price without interest upon surrender of the certificate or certificates
therefor), and such shares shall not be deemed to be outstanding for any purpose
whatsoever. Such shares of Series A Preferred Stock shall not be reissued, and
the Corporation may from time to time take such appropriate action as may be
necessary to reduce the authorized Preferred Stock accordingly. Nothing herein
shall prevent or restrict the purchase by the Corporation, from time to time, of
the whole or any part of the Series A Preferred Stock at such price or prices as
the Corporation may determine subject to the provisions of applicable law.
(f) For the purpose of determining whether funds are legally
available for redemption of shares of Series A Preferred Stock as provided
herein, the Corporation shall value its assets at the highest amount permissible
under applicable law. If on the Redemption Date funds of the Corporation legally
available therefor shall be insufficient to redeem all the shares of Series A
Preferred Stock required to be redeemed as provided herein, funds to the extent
legally available shall be used for such purpose and the Corporation shall
effect such redemption pro rata according to the number of shares of Series A
Preferred Stock held by each holder accepting the Corporation's redemption
offer. The redemption requirements provided hereby shall be continuous, so that
if on the Redemption Date such requirements shall not be fully discharged,
without further action by any holder of Series A Preferred Stock, funds legally
available shall be applied therefor until such requirements are fully
discharged.
5. Voting Rights.
(a) Each holder of outstanding shares of Series A Preferred Stock
shall be entitled to the number of votes equal to the number of whole shares of
Common Stock into which the shares of Series A Preferred Stock held by such
holder are convertible (as adjusted from time to time pursuant to Section 4
hereof), as of the recorded date for each meeting of stockholders of the
Corporation (or as of the date of each written action of stockholders in lieu of
a meeting) with respect to any and all matters presented to the stockholders of
the Corporation for their action or consideration. Except as provided by law or
in Section 5(b), holders of Series A Preferred Stock shall vote together with
the holders of Common Stock as a single class.
(b) The holders of the Series A Preferred Stock, voting separately
as a class, initially shall be entitled to nominate and elect two (2) members of
the Board of Directors of the Corporation, but in no event less than that number
of directors constituting at least 40% of the total number of directors. One of
the directors initially elected by the holders of the Series A Preferred Stock
shall be designated by Ampersand Specialty Materials and Chemicals III Limited
Partnership and Laboratory Partners II Limited Partnership, and one of the
directors elected by the holders of the Series A Preferred Stock shall be
designated by Sprout Capital VII, L.P. The holders of Series A Preferred Stock
shall have the right to nominate and elect a third member of the Board of
Directors, subject to the approval of the holders of a majority of the
outstanding shares of Common Stock of the Corporation, provided that such
director shall not be an employee of the Corporation. At any meeting held for
the purpose of electing directors, the
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<PAGE> 9
presence in person or by proxy of the holders of the majority of the shares of
Series A Preferred Stock then outstanding shall constitute a quorum of the
Series A Preferred Stock for the purpose of electing directors by holders of the
Series A Preferred Stock. A vacancy in any directorship elected by the holders
of the Series A Preferred Stock shall be filled only by vote or written consent
in lieu of a meeting of the holders of the Series A Preferred Stock.
6. Dividend Rights.
(a) The Corporation shall not declare or pay any distributions (as
defined below) on shares of Common Stock until the holders of the Series A
Preferred Stock then outstanding shall have first received, or simultaneously
receive, a distribution on each outstanding share of Series A Preferred Stock in
an amount at least equal to the product of (i) the per share amount, if any, of
the dividends or other distributions to be declared, paid or set aside for the
Common Stock, multiplied by (ii) the number of whole shares of Common Stock into
which such share of Series A Preferred Stock is then convertible.
(b) For purposes of this Section 6, unless the context requires
otherwise, "distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
Common Stock or other securities of the Corporation, or the purchase or
redemption of shares of the Corporation (other than repurchases of Common Stock
held by employees or directors of, or consultants to, the Corporation upon
termination of their employment or services pursuant to agreements providing for
such repurchase at a price equal to the original issue price of such shares and
other than redemptions in liquidation or dissolution of the Corporation) for
cash or property, including any such transfer, purchase or redemption by a
subsidiary of this Corporation.
7. Residual Rights. All rights accruing to the outstanding shares of the
Corporation not expressly provided for to the contrary shall be vested in the
Common Stock.
RESOLVED: That Article NINTH of the Certificate of Incorporation be and
hereby is amended by adding the following language as a second paragraph:
The Corporation shall, to the fullest extent permitted by the
Delaware General Corporation Law, indemnify and reimburse each of its
Directors and officers for any and all obligations, liabilities and
expenses, including but not limited to attorneys' fees and expenses and
the expense of investigation incurred, and advance all such expenses to
such Directors and officers, in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, against such Directors and officers in
connection with their service as a Director, officer, employee or agent of
the Corporation or in connection with their service at the request or on
behalf of the Corporation as a director, officer, employee, agent, trustee
or fiduciary of any other corporation, partnership, joint venture, trust
or other enterprise (as defined in Section 145 of the Delaware General
Corporation Law).
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<PAGE> 10
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Amendment to be signed by its President
this 22nd day of November, 1996.
AUTOCYTE, INC.
By: /s/ Ernest A. Knesel, Jr.
-------------------------------
Name: Ernest A. Knesel, Jr.
Title: President
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<PAGE> 1
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
AUTOCYTE, INC.
Pursuant to Section 242
of the General Corporation Law of
the State of Delaware
AutoCyte, Inc. (hereinafter called the "Corporation"), organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify as follows:
By written consent of the Board of Directors of the Corporation, a
resolution was duly adopted, pursuant to Sections 141 and 242 of the General
Corporation Law of the State of Delaware, setting forth certain amendments to
the Certificate of Incorporation of the Corporation and declaring said
amendments to be advisable. The stockholders of the Corporation duly approved
said proposed amendments by written consent in accordance with Sections 228 and
242 of the General Corporation Law of the State of Delaware, and written notice
of such consent has been given to all stockholders who have not consented in
writing to said amendments. The resolutions setting forth the amendments are as
follows:
RESOLVED: That Article FOURTH of the Certificate of Incorporation of the
Corporation be and hereby is amended by deleting the first paragraph in its
entirety and replacing it with the following:
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is Thirty Million Five-Hundred and
Seventy-Five Thousand (30,575,000) shares consisting of Twenty Million
Six-Hundred and Fifty Thousand (20,650,000) shares of common stock, par value
$0.01 per share ("Common Stock"), and Nine Million Nine Hundred and Twenty Five
Thousand (9,925,000) shares of preferred stock, par value $0.01 per share
("Preferred Stock").
<PAGE> 2
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Amendment of Certificate of Incorporation
to be signed by its President this 27th day of June 1997.
AUTOCYTE, INC.
/s/ James B. Powell
By:_______________________________
Name: James B. Powell
Title: President
ATTEST:
/s/ William T. Whelan
By:___________________________
William T. Whelan
Secratary
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<PAGE> 1
EXHIBIT 3.4
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
AUTOCYTE, INC.
Pursuant to Section 242
of the General Corporation Law of
the State of Delaware
AutoCyte, Inc. (hereinafter called the "Corporation"), organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify as follows:
By written consent of the Board of Directors of the Corporation, a
resolution was duly adopted, pursuant to Sections 141 and 242 of the General
Corporation Law of the State of Delaware, setting forth certain amendments to
the Certificate of Incorporation of the Corporation and declaring said
amendments to be advisable. The stockholders of the Corporation duly approved
said proposed amendments by written consent in accordance with Sections 228 and
242 of the General Corporation Law of the State of Delaware, and written notice
of such consent has been given to all stockholders who have not consented in
writing to said amendments. The resolutions setting forth the amendments are as
follows:
RESOLVED: That Article FOURTH of the Corporation's Certificate of
Incorporation be and hereby is amended by adding the following language as a
second paragraph:
Upon the effectiveness of this Certificate of Amendment, each
2.033 issued and outstanding shares of Common Stock of the
Corporation shall thereby be combined into one validly issued,
fully paid, and nonassessable share of Common Stock of the
Corporation. No scrip or fractional shares will be issued, and
each fractional share resulting from such combination shall be
redeemed by the Corporation for cash at a price per share
equal the fair market value of a share of Common Stock of the
Corporation on the date of the approval of this Certificate of
Amendment by the Board of Directors, as determined by the
Board of
<PAGE> 2
Directors. There shall not be any change in the number of
shares authorized by reason of such combination.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Amendment of Certificate of Incorporation
to be signed by its President this 27th day of June, 1997.
AUTOCYTE, INC.
/s/ James B. Powell
By: ___________________________________
James B. Powell
President
ATTEST:
/s/ William T. Whelan
By: ________________________________
William T. Whelan
Secretary
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<PAGE> 1
EXHIBIT 3.5
RESTATED CERTIFICATE OF INCORPORATION
OF
AUTOCYTE, INC.
The undersigned, James B. Powell and William T. Whelan, do hereby certify:
A. They are the duly elected and acting President and Secretary,
respectively, of AutoCyte, Inc., a Delaware corporation (the "Corporation").
B. The original Certificate of Incorporation of the Corporation was filed
with the Secretary of State on October 24, 1996, and the name under which the
Corporation was originally incorporated is AutoCyte, Inc.
C. The Certificate of Incorporation, as previously amended, is further
amended and restated to read in full as follows:
FIRST: The name of the Corporation is AutoCyte, Inc.
SECOND: The address of the registered office of the Corporation in the
state of Delaware is Corporation Trust Center, 1209 Orange Street, City of
Wilmington, County of New Castle, State of Delaware. The name of its registered
agent at such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation 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.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 21,650,000 shares, consisting of:
(i) 20,650,000 shares of Common Stock, $.01 par value per share ("Common
Stock"), and (ii) 1,000,000 shares of Preferred Stock, $.01 par value per share
("Preferred Stock").
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the Corporation.
A. PREFERRED STOCK
The Board of Directors is authorized, subject to limitations prescribed by
law and the provisions of this Article FOURTH, to provide by resolution for the
issuance of the shares of Preferred Stock in one or more series, and by filing a
certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, and to fix the designations, powers, preferences and rights of the
shares of each such series and any qualifications, limitations or restrictions
thereof.
<PAGE> 2
The authority of the Board with respect to each series shall include, but
shall not be limited to, determination of the following:
(a) The number of shares constituting that series and the distinctive
designation of that series;
(b) The dividend rate, if any, on the shares of that series, whether
dividends shall be cumulative, and if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on shares of the
series;
(c) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;
(d) Whether that series shall have conversion privileges, and, if so, the
terms and conditions of such conversion, including provision for adjustment of
the conversion rate in such events as the Board of Directors shall determine;
(e) Whether or not the shares of that series shall be redeemable, and if
so, the terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable, and the amount per share payable
in case of redemption, which amount may vary under different conditions and at
different redemption dates;
(f) Whether that series shall have a sinking fund for the redemption or
purchase of shares of that series, and if so, the terms and amount of such
sinking fund;
(g) The rights of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, and the
relative rights of priority, if any, of payment of shares of that series; and
(h) Any other relative rights, preferences and limitations of that series.
B. COMMON STOCK
The Common Stock is subject to the rights and preferences of the Preferred
Stock as hereinbefore set forth or authorized.
Subject to the provisions of any applicable law or of the By-laws of the
Corporation, as from time to time amended, with respect to the fixing of a
record date for the determination of stockholders entitled to vote, and except
as otherwise provided herein or by law or by the resolution or resolutions
providing for the issue of any series of Preferred Stock, the holders of
outstanding shares of Common Stock shall have exclusive voting rights for the
election of directors and for all other purposes, each holder of record of
shares of Common Stock being entitled to one vote for each share of Common Stock
standing in his name on the books of the Corporation.
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Subject to the rights of any one or more series of Preferred Stock, the
holders of Common Stock shall be entitled to receive such dividends from time to
time as may be declared by the Board of Directors out of any funds of the
Corporation legally available for the payment of such dividends.
In the event of the liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, after payment shall have been
made to the holders of the Preferred Stock the full amount to which they are
entitled, the holders of Common Stock shall be entitled to share ratably
according to the number of shares of Common Stock held by them, in all remaining
assets of the Corporation available for distribution to its stockholders.
C. ISSUANCE
Subject to the provisions of this Restated Certificate of Incorporation
and except as otherwise provided by law, the shares of stock of the Corporation,
regardless of class, may be issued for such consideration and for such corporate
purposes as the Board of Directors may from time to time determine.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: The Board of Directors shall consist of not less than three
directors, the exact number to be determined from time to time by resolution
adopted by the affirmative vote of a majority of the directors then in office.
The directors shall be divided into three classes, as nearly equal in number as
the then total number of directors constituting the entire Board of Directors
permits, with the term of office of one class expiring each year. The initial
directors of the first class shall be elected to hold office for a term expiring
at the next succeeding annual meeting, the initial directors of the second class
shall be elected to hold office for a term expiring at the second succeeding
annual meeting and the initial directors of the third class shall be elected to
hold office for a term expiring at the third succeeding annual meeting. At each
succeeding annual meeting of stockholders beginning in the first year following
the election of such staggered Board of Directors, successors to the class of
directors whose term expires at that meeting shall be elected for a three-year
term. If the number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in each
class as nearly equal as possible, and any additional directors of any class
elected to fill a vacancy resulting from an increase in the size of such class
shall hold office for a term that shall coincide with the remaining term of that
class, but in no event will a decrease in the number of directors shorten the
term of any incumbent director. Any vacancies in the Board of Directors for any
reason, and any directorships resulting from any increase in the number of
directors, may be filled by the Board of Directors, acting by a majority of the
directors then in office, although less than a quorum, and any directors so
chosen shall hold office until the next election of the class for which such
directors shall have been chosen. Notwithstanding the foregoing, and except as
otherwise required by law, whenever the holders of any one or more series of
Preferred Stock shall have the right, voting separately as a class, to elect one
or more directors of the
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Corporation, the election, term of office and other features of such
directorships shall be governed by the terms of this Restated Certificate of
Incorporation and certificates of designation applicable thereto, and such
directors so elected shall not be divided into classes pursuant to this Article
SIXTH unless expressly provided by such terms. Subject to the foregoing, at each
annual meeting of stockholders the successors to the class of directors whose
terms shall then expire shall be elected to hold office for a term expiring at
the annual meeting for the year in which their term expires and until their
successors shall be elected and qualified, subject to prior death, resignation,
retirement or removal.
Except as otherwise determined by the Board of Directors in establishing a
series of Preferred Stock as to directors elected by holders of such series, at
any special meeting of the stockholders called at least in part for the purpose,
any director or directors may, by the affirmative vote of the holders of at
least a majority of the stock entitled to vote for the election of directors, be
removed from office for cause. The provisions of this subsection shall be the
exclusive method for the removal of directors. This Article SIXTH may not be
amended, revised or revoked, in whole or in part, except by the affirmative vote
of the holders of 66 2/3% of the voting power of the shares of all classes of
stock of the Corporation entitled to vote for the election of directors,
considered for the purposes of this Article SIXTH as one class of stock.
SEVENTH: The Board of Directors shall have the right to make, alter or
repeal the By-laws of the Corporation.
EIGHTH: Elections of directors need not be by written ballot unless the
By-laws of the Corporation shall so provide.
NINTH: A director shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent that the elimination or limitation of liability is not
permitted under the General Corporation Law of the State of Delaware as in
effect when such liability is determined. No amendment or repeal of this
provision shall deprive a director of the benefits hereof with respect to any
act or omission occurring prior to such amendment or repeal.
TENTH: The Corporation shall, to the fullest extent permitted by Section
145 of the General Corporation Law of the State of Delaware, as amended from
time to time, indemnify each person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was, or has agreed to become, a director or officer of the
Corporation, or is or was serving, or has agreed to serve, at the request of the
Corporation, as a director, officer or trustee of, or in a similar capacity
with, another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such action, suit or proceeding and any appeal
therefrom.
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Indemnification may include payment by the Corporation of expenses in
defending an action or proceeding in advance of the final disposition of such
action or proceeding upon receipt of any undertaking by the person indemnified
to repay such payment if it is ultimately determined that such person is not
entitled to indemnification under this Article TENTH, which undertaking may be
accepted without reference to the financial ability of such person to make such
repayments.
The Corporation shall not indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person unless the initiation thereof was approved by the Board of Directors
of the Corporation.
The indemnification rights provided in this Article TENTH (i) shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
under any law, agreement or vote of stockholders or disinterested directors or
otherwise, and (ii) shall inure to the benefit of the heirs, executors and
administrators of such persons. The Corporation may, to the extent authorized
from time to time by its Board of Directors, grant indemnification rights to
other employees or agents of the Corporation or other persons serving the
Corporation and such rights may be equivalent to, or greater or less than, those
set forth in this Article TENTH.
ELEVENTH: (a) Except as set forth in part (b) of this Article ELEVENTH,
the affirmative vote of the holders of 66 2/3% of the shares of all classes of
stock of the Corporation entitled to vote for the election of directors,
considered for the purposes of this Article ELEVENTH as one class, shall be
required (i) for the adoption of any agreement for the merger or consolidation
of the Corporation or any Subsidiary (as hereinafter defined) with or into any
Other Corporation (as hereinafter defined), (ii) to authorize any sale, lease,
exchange, mortgage, pledge or other disposition of all or substantially all of
the assets of the Corporation or any Subsidiary to any Other Corporation, (iii)
to authorize the issuance or transfer by the Corporation of any Substantial
Amount (as hereinafter defined) of securities of the Corporation in exchange for
the securities or assets of any Other Corporation, or (iv) to engage in any
other transaction the effect of which is to combine the assets and business of
the Corporation or any Subsidiary with any Other Corporation. Such affirmative
vote shall be in addition to the vote of the holders of the stock of the
Corporation otherwise required by law, the Restated Certificate of Incorporation
of the Corporation or any agreement or contract to which the Corporation is a
party.
(b) The provisions of part (a) of this Article ELEVENTH shall
not be applicable to any transaction described therein if such transaction is
approved by a resolution of the Board of Directors of the Corporation, provided
that the directors voting in favor of such resolution include a majority of the
persons who were duly elected and acting members of the Board of Directors prior
to the time any such Other Corporation became a Beneficial Owner (as hereinafter
defined) of 5% or more of the shares of stock of the Corporation entitled to
vote for the election of directors. In considering such transaction, the Board
of Directors shall give due consideration to such factors as it deems relevant,
which may
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include without limitation the social and economic effects on the employees,
customers, suppliers and other constituents of the Corporation and its
Subsidiaries and on the communities in which the Corporation and its
Subsidiaries operate or are located.
(c) The Board of Directors shall have the power and duty to
determine for the purposes of this Article ELEVENTH, on the basis of information
known to such Board, if and when any Other Corporation is the Beneficial Owner
of 5% or more of the outstanding shares of stock of the Corporation entitled to
vote for the election of directors. Any such determination, if made in good
faith, shall be conclusive and binding for all purposes of this Article
ELEVENTH.
(d) As used in this Article ELEVENTH, the following terms
shall have the meanings indicated:
"Other Corporation" means any person, firm, corporation
or other entity, other than a Subsidiary of the Corporation, which is the
Beneficial Owner of 5% or more of the shares of stock of the Corporation
entitled to vote in the election of directors.
"Subsidiary" means any corporation in which the
Corporation owns, directly or indirectly, more than 50% of the voting
securities.
"Substantial Amount" means any securities of the
Corporation having a then fair market value of more than $500,000.
An Other Corporation (as defined above) shall be deemed
to be the "Beneficial Owner" of stock if such Other Corporation or any
"affiliate" or "associate" of such Other Corporation (as those terms are defined
in Rule 12b-2 promulgated under the Securities and Exchange Act of 1934 (15
U.S.C. 78 aaa et seq.), as amended from time to time), directly or indirectly,
controls the voting of such stock or has any options, warrants, conversion or
other rights to acquire such stock.
(e) This Article ELEVENTH may not be amended, revised or
revoked, in whole or in part, except by the affirmative vote of the holders of
66 2/3% of the shares of all classes of stock of the Corporation entitled to
vote for the election of directors, considered for the purposes of this Article
ELEVENTH as one class of stock.
TWELFTH: No action required to be taken or that may be taken at any annual
or special meeting of stockholders of the Corporation may be taken by written
consent without a meeting, and the power of stockholders to consent in writing,
without a meeting, to the taking of any action is specifically denied.
This Article TWELFTH may not be amended, revised or revoked, in whole or
in part, except by the affirmative vote of the holders of 66 2/3% of the voting
power of the
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shares of all classes of stock of the Corporation entitled to vote for the
election of directors, considered for the purposes of this Article TWELFTH as
one class of stock.
THIRTEENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Restated 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.
D. The foregoing Restated Certificate of Incorporation has been duly
adopted by the Board of Directors of the Corporation.
E. The foregoing Restated Certificate of Incorporation was approved by the
written consent of the holders of (i) a majority of the outstanding shares of
Common Stock and Series A Convertible Preferred Stock, voting as a single class
and (ii) a majority of the outstanding shares of Series A Convertible Preferred
Stock, voting as a separate class, in accordance with Sections 228, 242, and 245
of the Delaware General Corporation Law.
IN WITNESS WHEREOF, AutoCyte, Inc. has caused this Restated Certificate of
Incorporation to be signed by James B. Powell, its President, and attested by
Steven N. Farber, its Secretary, this ___ day of _____________ 1997.
AUTOCYTE, INC.
By:_______________________________
James B. Powell
President
ATTEST:
By:__________________________
William T. Whelan
Secretary
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EXHIBIT 3.6
BY-LAWS
OF
AUTOCYTE, INC.
ARTICLE I
STOCKHOLDERS
SECTION 1. Place of Meetings. All meetings of stockholders shall be
held at the principal office of the corporation or at such other place as may be
named in the notice.
SECTION 2. Annual Meeting. The annual meeting of stockholders for
the election of directors and the transaction of such other business as may
properly come before the meeting shall be held on such date and at such hour and
place as the directors or an officer designated by the directors may determine.
If the annual meeting is not held on the date designated therefor, the directors
shall cause the meeting to be held as soon thereafter as convenient.
SECTION 3. Special Meetings. Special meetings of the stockholders
may be called at any time by the President, the Chairman of the Board, if any,
or the Board of Directors, or by the Secretary or any other officer upon the
written request of one or more stockholders holding of record at least a
majority of the outstanding shares of stock of the corporation entitled to vote
at such meeting. Such written request shall state the purpose or purposes of the
proposed meeting. Business transacted at any special meeting of stockholders
shall be limited to matters relating to the purpose or purposes stated in the
notice of meeting.
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SECTION 4. Notice of Meetings. Except where some other notice is
required by law, written notice of each meeting of stockholders, stating the
place, date and hour thereof and the purposes for which the meeting is called,
shall be given by or under the direction of the Secretary, not less than ten nor
more than sixty days before the date fixed for such meeting, to each stockholder
entitled to vote at such meeting of record at the close of business on the day
fixed by the Board of Directors as a record date for the determination of the
stockholders entitled to vote at such meeting or, if no such date has been
fixed, of record at the close of business on the day before the day on which
notice is given. Notice shall be given personally to each stockholder or left at
his or her residence or usual place of business or mailed postage prepaid and
addressed to the stockholder at his or her address as it appears upon the
records of the corporation. In case of the death, absence, incapacity or refusal
of the Secretary, such notice may be given by a person designated either by the
Secretary or by the person or persons calling the meeting or by the Board of
Directors. A waiver of such notice in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent to such notice. Attendance of a person at a meeting of
stockholders shall constitute a waiver of notice of such meeting, except when
the stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders need be
specified in any written waiver of notice. Except as required by statute, notice
of any adjourned meeting of the stockholders shall not be required.
SECTION 5. Voting List. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten days before every
meeting of
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stockholders, a complete list of the stockholders, arranged in alphabetical
order, and 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. The stock ledger shall be the only
evidence as to who are the stockholders entitled to examine the stock ledger,
the list required by this section or the books of the corporation, or to vote at
any meeting of stockholders.
SECTION 6. Quorum of Stockholders. At any meeting of the
stockholders, the holders of a majority in interest of all stock issued and
outstanding and entitled to vote upon a question to be considered at the
meeting, present in person or represented by proxy, shall constitute a quorum
for the consideration of such question, but a smaller group may adjourn any
meeting from time to time. When a quorum is present at any meeting, a majority
of the stock represented thereat and entitled to vote shall, except where a
larger vote is required by law, by the certificate of incorporation, or by these
by-laws, decide any question brought before such meeting. Any election by
stockholders shall be determined by a plurality of the vote cast by the
stockholders entitled to vote at the election.
SECTION 7. Proxies and Voting. Unless otherwise provided in the
certificate of incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of the
capital stock held of record by such stockholder, but no proxy shall be voted or
acted upon after three years from its date, unless
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said proxy provides for a longer period. Persons holding stock in a fiduciary
capacity shall be entitled to vote the shares so held, and persons whose stock
is pledged shall be entitled to vote, unless in the transfer by the pledgor on
the books of the corporation the pledgee shall have been expressly empowered to
vote thereon, in which case only the pledgee or the pledgee's proxy may
represent said stock and vote thereon. Shares of the capital stock of the
corporation belonging to the corporation or to another corporation, a majority
of whose shares entitled to vote in the election of directors is owned by the
corporation, shall neither be entitled to vote nor be counted for quorum
purposes.
SECTION 8. Conduct of Meeting. Meetings of the stockholders shall be
presided over by one of the following officers in the order of seniority and if
present and acting: the Chairman of the Board, if any, the Vice-Chairman of the
Board, if any, the President, a Vice-President, or, if none of the foregoing is
in office and present and acting, a chairman to be chosen by the stockholders.
The Secretary of the corporation, if present, or an Assistant Secretary, shall
act as secretary of every meeting, but if neither the Secretary nor an Assistant
Secretary is present the chairman of the meeting shall appoint a secretary of
the meeting.
SECTION 9. Action Without Meeting. Any action required or permitted
to be taken at any annual or special meeting of stockholders of the corporation
may be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, is signed by the holders
or by proxy for 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 on such action were present
and voted. Prompt notice of the taking of corporate action without a meeting by
less
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than unanimous written consent shall be given to those stockholders who have not
consented in writing.
ARTICLE II
DIRECTORS
SECTION 1. General Powers. The business and affairs of the
corporation shall be managed by or under the direction of a Board of Directors,
who may exercise all of the powers of the corporation which are not by law
required to be exercised by the stockholders. In the event of a vacancy in the
Board of Directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full Board until the vacancy is filled.
SECTION 2. Number; Election; Tenure and Qualification. The initial
Board of Directors shall consist of four (4) persons and shall be elected by the
incorporator. Thereafter, the number of directors which shall constitute the
whole Board shall be fixed by resolution of the Board of Directors, but in no
event shall be less than one. Each director shall be elected by the stockholders
at the annual meeting and all directors shall hold office until the next annual
meeting and until their successors are elected and qualified, or until their
earlier death, resignation or removal. The number of directors may be increased
or decreased by action of the Board of Directors. Directors need not be
stockholders of the corporation.
SECTION 3. Enlargement of the Board. The number of the Board of
Directors may be increased at any time, such increase to be effective
immediately, by vote of a majority of the directors then in office.
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SECTION 4. Vacancies. Unless and until filled by the stockholders,
any vacancy in the Board of Directors, however occurring, including a vacancy
resulting from an enlargement of the Board and an unfilled vacancy resulting
from the removal of any director for cause or without cause, may be filled by
vote of a majority of the directors then in office although less than a quorum,
or by the sole remaining director. A director elected to fill a vacancy shall
hold office until the next annual meeting of stockholders and until his or her
successor is elected and qualified or until his or her earlier death,
resignation, or removal. When one or more directors shall resign from the Board,
effective at a future date, a majority of the directors then in office,
including those who have so resigned, shall have the power to fill such vacancy
or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective. If at any time there are no directors in
office, then an election of directors may be held in accordance with the General
Corporation Law of the State of Delaware.
SECTION 5. Resignation. Any director may resign at any time upon
written notice to the corporation. Such resignation shall take effect at the
time specified therein, or if no time is specified, at the time of its receipt
by the President or Secretary.
SECTION 6. Removal. Except as may otherwise be provided by the
General Corporation Law, any director or the entire Board of Directors may be
removed, with or without cause, at an annual meeting or at a special meeting
called for that purpose, by the holders of a majority of the shares then
entitled to vote at an election of directors. The vacancy or vacancies thus
created may be filled by the stockholders at the meeting held for the purpose of
removal or, if not so filled, by the directors in the manner provided in Section
4 of this Article II.
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SECTION 7. Committees. The Board of Directors may, by resolution or
resolutions passed by a majority of the whole Board of Directors, designate one
or more committees, each committee to consist of one or more directors of the
corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of
any member of such committee or committees, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of such absent or
disqualified member.
A majority of all the members of any such committee may fix its rules of
procedure, determine its action and fix the time and place, whether within or
without the State of Delaware, of its meetings and specify what notice thereof,
if any, shall be given, unless the Board of Directors shall otherwise by
resolution provide. The Board of Directors shall have the power to change the
members of any such committee at any time, to fill vacancies therein and to
discharge any such committee, either with or without cause, at any time.
Any such committee, unless otherwise provided in the resolution of the
Board of Directors, or in these by-laws, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, 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 denied it by Section 141 of the General Corporation Law
of the State of Delaware.
Each committee shall keep regular minutes of its meetings and make such
reports as the Board of Directors may from time to time request.
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SECTION 8. Meetings of the Board of Directors. Regular meetings of
the Board of Directors may be held without call or formal notice at such places
either within or without the State of Delaware and at such times as the Board
may by vote from time to time determine. A regular meeting of the Board of
Directors may be held without call or formal notice immediately after and at the
same place as the annual meeting of the stockholders, or any special meeting of
the stockholders at which a Board of Directors is elected.
Special meetings of the Board of Directors may be held at any place either
within or without the State of Delaware at any time when called by the Chairman
of the Board of Directors, the President, Treasurer, Secretary, or two or more
directors. Reasonable notice of the time and place of a special meeting shall be
given to each director unless such notice is waived by attendance or by written
waiver in the manner provided in these by-laws for waiver of notice by
stockholders. Notice may be given by, or by a person designated by, the
Secretary, the person or persons calling the meeting, or the Board of Directors.
No notice of any adjourned meeting of the Board of Directors shall be required.
In any case it shall be deemed sufficient notice to a director to send notice by
mail at least seventy-two hours, or by telegram at least forty-eight hours,
before the meeting, addressed to such director at his or her usual or last known
business or home address.
Directors or members of any committee designated by the directors may
participate in a meeting of the Board of Directors or such committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation by
such means shall constitute presence in person at such meeting.
SECTION 9. Quorum and Voting. A majority of the total number of
directors shall constitute a quorum, except that when a vacancy or vacancies
exist in the
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Board, a majority of the directors then in office (but not less than one-third
of the total number of the directors) shall constitute a quorum. A majority of
the directors present, whether or not a quorum is present, may adjourn any
meeting from time to time. The vote of a majority of the directors present at
any meeting at which a quorum is present shall be the act of the Board of
Directors, except where a different vote is required or permitted by law, by the
certificate of incorporation, or by these by-laws.
SECTION 10. Compensation. The Board of Directors may fix fees for
their services and for their membership on committees, and expenses of
attendance may be allowed for attendance at each meeting. Nothing herein
contained shall be construed to preclude any director from serving the
corporation in any other capacity as an officer, agent or otherwise, and
receiving compensation therefor.
SECTION 11. Action Without Meeting. 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, and without notice, if a written
consent thereto is signed by all members of the Board of Directors, or of such
committee, as the case may be, and such written consent is filed with the
minutes of proceedings of the Board of Directors or such committee.
ARTICLE III
OFFICERS
SECTION 1. Titles. The officers of the corporation shall consist of
a President, a Secretary, a Treasurer, and such other officers with such other
titles as the Board of Directors shall determine, including without limitation a
Chairman of the Board, a
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Vice-Chairman of the Board, and one or more Vice-Presidents, Assistant
Treasurers, or Assistant Secretaries.
SECTION 2. Election and Term of Office. The officers of the
corporation shall be elected annually by the Board of Directors at its first
meeting following the annual meeting of the stockholders. Each officer shall
hold office until his or her successor is elected and qualified, unless a
different term is specified in the vote electing such officer, or until his or
her earlier death, resignation or removal.
SECTION 3. Qualification. Unless otherwise provided by resolution of
the Board of Directors, no officer, other than the Chairman or Vice-Chairman of
the Board, need be a director. No officer need be a stockholder. Any number of
offices may be held by the same person, as the directors shall determine.
SECTION 4. Removal. Any officer may be removed, with or without
cause, at any time, by resolution adopted by the Board of Directors.
SECTION 5. Resignation. Any officer may resign by delivering a
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt or at
such later time as may be specified therein.
SECTION 6. Vacancies. The Board of Directors may at any time fill
any vacancy occurring in any office for the unexpired portion of the term and
may leave unfilled for such period as it may determine any office other than
those of President, Treasurer and Secretary.
SECTION 7. Powers and Duties. The officers of the corporation shall
have such powers and perform such duties as are specified herein and as may be
conferred upon or assigned to them by the Board of Directors, and shall have
such additional powers and
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duties as are incident to their office except to the extent that resolutions of
the Board of Directors are inconsistent therewith.
SECTION 8. President and Vice-Presidents. The President shall be the
chief executive officer of the corporation, shall preside at all meetings of the
stockholders and the Board of Directors unless a Chairman or Vice-Chairman of
the Board is elected by the Board, empowered to preside, and present at such
meeting, shall have general and active management of the business of the
corporation and general supervision of its officers, agents and employees, and
shall see that all orders and resolutions of the Board of Directors are carried
into effect.
In the absence of the President or in the event of his or her inability or
refusal to act, the Vice-President if any (or in the event there be more than
one Vice-President, the Vice-Presidents in the order designated by the
directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. The Board of Directors may assign to any Vice-President the title of
Executive Vice-President, Senior Vice-President or any other title selected by
the Board of Directors.
SECTION 9. Secretary and Assistant Secretaries. The Secretary shall
attend all meetings of the Board of Directors and of the stockholders and record
all the proceedings of such meetings in a book to be kept for that purpose,
shall give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board of Directors, shall maintain a stock ledger and
prepare lists of stockholders and their addresses as required and shall have
custody of the corporate seal which the Secretary or any Assistant Secretary
shall have authority to affix to any instrument requiring it and attest by any
of their
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signatures. The Board of Directors may give general authority to any other
officer to affix and attest the seal of the corporation.
The Assistant Secretary if any (or if there be more than one, the
Assistant Secretaries in the order determined by the Board of Directors of if
there be no such determination, then in the order of their election) shall, in
the absence of the Secretary or in the event of the Secretary's inability or
refusal to act, perform the duties and exercise the powers of the Secretary.
SECTION 10. Treasurer and Assistant Treasurers. The Treasurer shall
have the custody of the corporate funds and securities, shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
corporation and shall deposit all moneys and other valuable effects in the name
and to the credit of the corporation in such depositories as may be designated
by the Board of Directors. The Treasurer shall disburse the funds of the
corporation as may be ordered by the Board of Directors or the President, taking
proper vouchers for such disbursements, and shall render to the President and
the Board of Directors, at its regular meetings, or whenever they may require
it, an account of all transactions and of the financial condition of the
corporation.
The Assistant Treasurer if any (or if there be more than one, the Assistant
Treasurers in the order determined by the Board of Directors or if there be no
such determination, then in the order of their election) shall, in the absence
of the Treasurer or in the event of his or her inability or refusal to act,
perform the duties and exercise the powers of the Treasurer.
SECTION 11. Bonded Officers. The Board of Directors may require any
officer to give the corporation a bond in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors upon such terms and
conditions as the Board of Directors may specify, including without limitation a
bond for the faithful performance of
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the duties of such officer and for the restoration to the corporation of all
property in his or her possession or control belonging to the corporation.
SECTION 12. Salaries. Officers of the corporation shall be entitled
to such salaries, compensation or reimbursement as shall be fixed or allowed
from time to time by the Board of Directors.
ARTICLE IV
STOCK
SECTION 1. Certificates of Stock. One or more certificates of stock,
signed by the Chairman or Vice-Chairman of the Board of Directors or by the
President or Vice-President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary, shall be issued to each stockholder
certifying, in the aggregate, the number of shares owned by the stockholder in
the corporation. Any or all signatures on any such certificate may be
facsimiles. In case any officer, transfer agent or registrar who shall have
signed or whose facsimile signature shall have been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he or she were such officer, transfer agent or registrar at the date of
issue.
Each certificate for shares of stock which are subject to any restriction
on transfer pursuant to the certificate of incorporation, the by-laws,
applicable securities laws, or any agreement among any number of shareholders or
among such holders and the corporation shall have conspicuously noted on the
face or back of the certificate either the full text of the restriction or a
statement of the existence of such restriction.
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SECTION 2. Transfers of Shares of Stock. Subject to the
restrictions, if any, stated or noted on the stock certificates, shares of stock
may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the corporation or its transfer agent may reasonably require. The
corporation shall be entitled to treat the record holder of stock as shown on
its books as the owner of such stock for all purposes, including the payment of
dividends and the right to vote with respect to that stock, regardless of any
transfer, pledge or other disposition of that stock, until the shares have been
transferred on the books of the corporation in accordance with the requirements
of these by-laws.
SECTION 3. Lost Certificates. A new certificate of stock may be
issued in the place of any certificate theretofore issued by the corporation and
alleged to have been lost, stolen, destroyed, or mutilated, upon such terms in
conformity with law as the Board of Directors shall prescribe. The directors
may, in their discretion, require the owner of the lost, stolen, destroyed or
mutilated certificate, or the owner's legal representatives, to give the
corporation a bond, in such sum as they may direct, to indemnify the corporation
against any claim that may be made against it on account of the alleged loss,
theft, destruction or mutilation of any such certificate, or the issuance of any
such new certificate.
SECTION 4. Record Date. The Board of Directors may fix in advance a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders or to express consent to corporate action
in writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or
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exchange of stock, or for the purpose of any other lawful action. Such record
date shall not be more than 60 nor less than l0 days before the date of such
meeting, nor more than 60 days prior to any other action to which such record
date relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of 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. Unless otherwise fixed by the Board of
Directors, the record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is necessary, shall be the day on which the first
written consent is expressed. The record date for determining stockholders for
any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating to such purpose.
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.
SECTION 5. Fractional Share Interests. The corporation may, but
shall not be required to, issue fractions of a share. If the corporation does
not issue fractions of a share, it shall (l) arrange for the disposition of
fractional interests by those entitled thereto, (2) pay in cash the fair value
of fractions of a share as of the time when those entitled to receive such
fractions are determined, or (3) issue scrip or warrants in registered or bearer
form which shall entitle the holder to receive a certificate for a full share
upon the surrender of such scrip or warrants aggregating a full share. A
certificate for a fractional share shall, but scrip or warrants shall not unless
otherwise provided therein, entitle the holder to
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exercise voting rights, to receive dividends thereon, and to participate in any
of the assets of the corporation in the event of liquidation. The Board of
Directors may cause scrip or warrants to be issued subject to the conditions
that they shall become void if not exchanged for certificates representing full
shares before a specified date, or subject to the conditions that the shares for
which scrip or warrants are exchangeable may be sold by the corporation and the
proceeds thereof distributed to the holders of scrip or warrants, or subject to
any other conditions which the Board of Directors may impose.
SECTION 6. Dividends. Subject to the provisions of the certificate
of incorporation, the Board of Directors may, out of funds legally available
therefor, at any regular or special meeting, declare dividends upon the common
stock of the corporation as and when they deem expedient.
ARTICLE V
INDEMNIFICATION AND INSURANCE
SECTION 1. Indemnification. The corporation shall, to the extent
permitted by the certificate of incorporation, as amended from time to time,
indemnify each person whom it may indemnify pursuant thereto.
SECTION 2. Insurance. The corporation shall have power to 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 such person and incurred by such person in any such
capacity or arising out of such person's status as such, whether or not the
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corporation would have the power to indemnify such person against such liability
under the provisions of the General Corporation Law of the State of Delaware.
ARTICLE VI
GENERAL PROVISIONS
SECTION 1. Fiscal Year. Except as otherwise designated from time to
time by the Board of Directors, the fiscal year of the corporation shall begin
on the first day of January and end on the last day of December.
SECTION 2. Corporate Seal. The corporate seal shall be in such form
as shall be approved by the Board of Directors. The Secretary shall be the
custodian of the seal. The Board of Directors may authorize a duplicate seal to
be kept and used by any other officer.
SECTION 3. Certificate of Incorporation. All references in these
by-laws to the certificate of incorporation shall be deemed to refer to the
certificate of incorporation of the corporation, as in effect from time to time.
SECTION 4. Execution of Instruments. The Chairman and Vice-Chairman
of the Board of Directors, if any, the President, any Vice-President, and the
Treasurer shall have power to execute and deliver on behalf and in the name of
the corporation any instrument requiring the signature of an officer of the
corporation, including deeds, contracts, mortgages, bonds, notes, debentures,
checks, drafts, and other orders for the payment of money. In addition, the
Board of Directors may expressly delegate such powers to any other officer or
agent of the corporation.
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SECTION 5. Voting of Securities. Except as the directors may
otherwise designate, the President or Treasurer may waive notice of, and act as,
or appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of substitution) at any meeting of
stockholders or shareholders of any other corporation or organization the
securities of which may be held by this corporation.
SECTION 6. Evidence of Authority. A certificate by the Secretary, or
an Assistant Secretary, or a temporary secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall, as to all persons who rely on the certificate in good faith,
be conclusive evidence of that action.
SECTION 7. Transactions with Interested Parties. No contract or
transaction between the corporation and one or more of the directors or
officers, or between the corporation and any other corporation, partnership,
association, or other organization in which one or more of the directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for that reason, or solely because the director or officer is
present at or participates in the meeting of the Board of Directors or a
committee of the Board of Directors which authorizes the contract or transaction
or solely because the vote of any such director is counted for such purpose, if:
(1) The material facts as to the relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors or
the committee, and the Board or committee in good faith authorizes the contract
or transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or
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(2) The material facts as to the relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation as of the
time it is authorized, approved or ratified by the Board of Directors, a
committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
SECTION 8. Books and Records. The books and records of the
corporation shall be kept at such places within or without the State of Delaware
as the Board of Directors may from time to time determine.
ARTICLE VII
AMENDMENTS
SECTION 1. By the Board of Directors. These by-laws may be altered,
amended or repealed or new by-laws may be adopted by the affirmative vote of a
majority of the directors present at any regular or special meeting of the Board
of Directors at which a quorum is present.
SECTION 2. By the Stockholders. These by-laws may be altered,
amended or repealed or new by-laws may be adopted by the affirmative vote of the
holders of a majority of the shares of the capital stock of the corporation
issued and outstanding and entitled to vote at any regular meeting of
stockholders, or at any special meeting of
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stockholders provided notice of such alteration, amendment, repeal or adoption
of new by-laws shall have been stated in the notice of such special meeting.
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EXHIBIT 3.7
AMENDED AND RESTATED BY-LAWS
OF
AUTOCYTE, INC.
ARTICLE I
STOCKHOLDERS
SECTION 1. Place of Meetings. All meetings of stockholders shall be
held at such place within or without the State of Delaware as may be designated
from time to time by the Board of Directors or, if not so designated, at the
principal office of the corporation.
SECTION 2. Annual Meeting. The annual meeting of stockholders for
the election of directors and the transaction of such other business as may
properly come before the meeting shall be held on such date and at such hour and
place as the directors or an officer designated by the directors may determine.
If the annual meeting is not held on the date designated therefor, the directors
shall cause the meeting to be held as soon thereafter as convenient.
SECTION 3. Special Meetings. Special meetings of the stockholders
may be called at any time by the President or the Board of Directors.
SECTION 4. Notice of Meetings. Except where some other notice is
required by law, written notice of each meeting of stockholders, stating the
place, date and hour thereof and the purposes for which the meeting is called,
shall be given by or under the direction of the Secretary, not less than 10 nor
more than 60 days before the date fixed for such meeting, to each stockholder
entitled to vote at such meeting of record at the close of business on the day
fixed by the Board of Directors as a record date for the determination of the
stockholders entitled to vote at such meeting or, if no such date has been
fixed, of record at the close of business on the day before the day on which
notice is given. Notice shall be given personally to each stockholder or left at
his or her residence or usual place of business or mailed postage prepaid and
addressed to the stockholder at his or her address as it appears upon the
records of the corporation. In case of the death, absence, incapacity or refusal
of the Secretary, such notice may be given by a person designated either by the
Secretary or by the person or persons calling the meeting or by the Board of
Directors. A waiver of such notice in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent to such notice. Attendance of a person at a meeting of
stockholders shall constitute a waiver of notice of such meeting, except when
the stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders need be
specified in any written waiver of notice. Notice of any meeting of the
stockholders shall be deemed to have been given to any person who may become a
stockholder of record after the
<PAGE> 2
mailing of such notice and prior to such meeting. Except as required by statute,
notice of any adjourned meeting of the stockholders shall not be required.
SECTION 5. Stockholder Nominations of Directors. Only persons who
are nominated in accordance with the following procedures shall be eligible for
election as directors at any annual or special meeting. Nominations of persons
for election as directors may be made by or at the direction of the Board of
Directors, or by any stockholder entitled to vote for the election of directors
at the meeting who complies with the notice procedures set forth in this Section
5. Such nominations, other than those made by or at the direction of the Board,
shall be made pursuant to timely notice in writing to the Chairman, if any, the
President, the Secretary or the Treasurer. To be timely, a stockholder's notice
shall be delivered to or mailed and received at the principal executive offices
of the corporation not less than 50 days nor more than 75 days prior to the
meeting; provided, however, that if less than 65 days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be so received not later than the close of
business on the 15th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. Such stockholder's
notice shall set forth: (a) as to each person whom the stockholder proposes to
nominate for election or re-election as a director, (i) the name, age, business
address and residence address of the person, (ii) the principal occupation or
employment of the person, (iii) the class and number of shares of capital stock
of the corporation which are beneficially owned by the person and (iv) any other
information relating to the person that is required to be disclosed in
solicitations for proxies for election of directors pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended; and (b) as to the
stockholder giving the notice (i) the name and record address of such
stockholder and (ii) the class and number of shares of capital stock of the
corporation which are beneficially owned by such stockholder. No person shall be
eligible for election as a director at any annual or special meeting of
stockholders unless nominated in accordance with the procedures set forth
herein. Nothing in this Section 5 shall be deemed to grant stockholders the
right have such nominations included on the agenda or in the notice or proxy
materials for such meeting except as otherwise required by law.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
SECTION 6. Record Date. The Board of Directors may fix in advance a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action. Such record date shall not be
more than 60 days nor less than 10 days before the date of such meeting, nor
more than 60 days prior to any other action to which such record date relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given, or, if
notice is waived, at the close of business on the day before
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the day on which the meeting is held. The record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating to such purpose.
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.
SECTION 7. Advance Notice of Stockholder-Proposed Business at Annual
Meetings. At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be brought
properly before an annual meeting, business must be either (a) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the President or the Board of Directors, (b) otherwise properly brought before
the meeting by or at the direction of the Board or (c) otherwise properly
brought before the meeting by a stockholder. In addition to any other applicable
requirements, for business to be brought properly before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Chairman, if any, the President, the Secretary or the Treasurer. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the corporation not less than 50 days nor
more than 75 days prior to the meeting; provided, however, that if less than 65
days' notice or prior public disclosure of the date of the meeting is given or
made to stockholders, notice by the stockholder to be timely must be so received
not later than the close of business on the 15th day following the day on which
such notice of the date of the annual meeting was mailed or such public
disclosure was made. A stockholder's notice shall set forth as to each matter
the stockholder proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and record address of the stockholder proposing such business, (iii) the class
and number of shares of the corporation which are beneficially owned by the
stockholder and (iv) any material interest of the stockholder in such business.
Notwithstanding anything in these by-laws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 6, provided, however, that nothing in this
Section 7 shall be deemed to preclude discussion by any stockholder of any
business properly brought before the annual meeting in accordance with said
procedure; provided, further, that nothing in this Section 7 shall be deemed to
grant stockholders the right have such business included on the agenda or in the
notice or proxy materials for such meeting except as otherwise required by law.
The chairman of an annual meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Section 7, and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.
SECTION 8. Voting List. The officer who has charge of the stock
ledger of the corporation shall make or have made, at least 10 days before every
meeting of stockholders, a complete list of the stockholders, arranged in
alphabetical order, and 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,
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during ordinary business hours, for a period of at least 10 days prior to the
meeting, either at a place within the city or other municipality or community
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. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the corporation, or to vote at any meeting of
stockholders.
SECTION 9. Quorum of Stockholders. At any meeting of the
stockholders, the holders of a majority in interest of all stock issued and
outstanding and entitled to vote upon a question to be considered at the
meeting, present in person or represented by proxy, shall constitute a quorum
for the consideration of such question, but a smaller group may adjourn any
meeting from time to time. When a quorum is present at any meeting, a majority
of the stock represented thereat and entitled to vote shall, except where a
larger vote is required by law, by the Certificate of Incorporation, or by these
by-laws, decide any question brought before such meeting. Any election by
stockholders shall be determined by a plurality of the vote cast by the
stockholders entitled to vote at the election.
SECTION 10. Proxies and Voting. Unless otherwise provided in the
Certificate of Incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of the
capital stock held of record by such stockholder, but no proxy shall be voted or
acted upon after three years from its date, unless said proxy provides for a
longer period. Persons holding stock in a fiduciary capacity shall be entitled
to vote the shares so held, and persons whose stock is pledged shall be entitled
to vote, unless in the transfer by the pledger on the books of the corporation
the pledgee shall have been expressly empowered to vote thereon, in which case
only the pledgee or the pledgee's proxy may represent said stock and vote
thereon. Shares of the capital stock of the corporation belonging to the
corporation or to another corporation, a majority of whose shares entitled to
vote in the election of directors is owned by the corporation, shall neither be
entitled to vote nor be counted for quorum purposes. Except as otherwise
provided by law, stockholders may not act by written consent.
SECTION 11. Conduct of Meeting. Meetings of the stockholders shall
be presided over by one of the following officers in the order of seniority and
if present and acting: the President, a Vice President, the Chairman of the
Board, if any, the Vice Chairman of the Board, if any, or, if none of the
foregoing is in office and present and acting, a chairman to be chosen by the
stockholders. The Secretary of the corporation, if present, or an Assistant
Secretary, shall act as secretary of every meeting, but if neither the Secretary
nor an Assistant Secretary is present the chairman of the meeting shall appoint
a secretary of the meeting.
ARTICLE II
DIRECTORS
SECTION 1. General Powers. The business and affairs of the
corporation shall be managed by or under the direction of a Board of Directors,
who may exercise all of the
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powers of the corporation which are not by law or the Certificate of
Incorporation required to be exercised by the stockholders. In the event of a
vacancy in the Board of Directors, the remaining directors, except as otherwise
provided by law, may exercise the powers of the full Board until the vacancy is
filled.
SECTION 2. Number, Election, Tenure and Qualification. Subject to
any restrictions contained in the Certificate of Incorporation, the number of
directors that shall constitute the Board of Directors shall be fixed by
resolution of the Board of Directors but in no event shall be less than three.
Directors shall be elected in the manner provided in the Certificate of
Incorporation by such stockholders as have the right to vote thereon. The number
of directors may be increased or decreased by action of the Board of Directors.
Directors need not be stockholders of the corporation.
SECTION 3. Enlargement of the Board. Subject to the restrictions
contained in the Certificate of Incorporation, the number of the Board of
Directors may be increased at any time, such increase to be effective
immediately, by vote of a majority of the directors then in office.
SECTION 4. Vacancies. Unless and until filled by the stockholders,
any vacancy in the Board of Directors, however occurring, including a vacancy
resulting from an enlargement of the Board and an unfilled vacancy resulting
from the removal of any director for cause, may be filled in the manner provided
in the Certificate of Incorporation. When one or more directors shall resign
from the Board, effective at a future date, a majority of the directors then in
office, including those who have so resigned, shall have the power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective. If at any time there are no directors in
office, then an election of directors may be held in accordance with the General
Corporation Law of the State of Delaware.
SECTION 5. Resignation. Any director may resign at any time upon
written notice to the corporation. Such resignation shall take effect at the
time specified therein, or if no time is specified, at the time of its receipt
by the President or Secretary.
SECTION 6. Removal. Directors may be removed from office only as
provided in the Certificate of Incorporation. The vacancy or vacancies thus
created may be filled by the stockholders at the meeting held for the purpose of
removal or, if not so filled, by the directors in the manner provided in Section
4 of this Article II.
SECTION 7. Committees. The Board of Directors may, by resolution or
resolutions passed by a majority of the whole Board of Directors, designate one
or more committees, each committee to consist of one or more directors of the
corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of
any member of such committee or committees, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of such absent or
disqualified member.
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A majority of all the members of any such committee may fix its rules of
procedure, determine its action and fix the time and place, whether within or
without the State of Delaware, of its meetings and specify what notice thereof,
if any, shall be given, unless the Board of Directors shall otherwise by
resolution provide. The Board of Directors shall have the power to change the
members of any such committee at any time, to fill vacancies therein and to
discharge any such committee, either with or without cause, at any time.
Any such committee, unless otherwise provided in the resolution of the
Board of Directors, or in these By-laws, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
such power or authority in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending a dissolution of the corporation
or a revocation of a dissolution, or amending the By-laws of the corporation,
and, unless the resolution or these By-laws expressly so provide, no such
committee shall have the power or the authority to declare a dividend or to
authorize the issuance of stock.
Each committee shall keep regular minutes of its meetings and make such
reports as the Board of Directors may from time to time request.
SECTION 8. Meetings of the Board of Directors. Regular meetings of
the Board of Directors may be held without call or formal notice at such places
either within or without the State of Delaware and at such times as the Board
may by vote from time to time determine. A regular meeting of the Board of
Directors may be held without call or formal notice immediately after and at the
same place as the annual meeting of the stockholders, or any special meeting of
the stockholders at which a Board of Directors is elected.
Special meetings of the Board of Directors may be held at any place either
within or without the State of Delaware at any time when called by the Chairman
of the Board of Directors, if any, the President, Treasurer, Secretary, or two
or more directors. Reasonable notice of the time and place of a special meeting
shall be given to each director unless such notice is waived by attendance or by
written waiver in the manner provided in these By-laws for waiver of notice by
stockholders. Notice may be given by, or by a person designated by, the
Secretary, the person or persons calling the meeting, or the Board of Directors.
No notice of any adjourned meeting of the Board of Directors shall be required.
In any case it shall be deemed sufficient notice to a director to send notice by
mail at least 72 hours, or by telegram at least 48 hours, before the meeting,
addressed to such director at his or her usual or last known business or home
address.
Directors or members of any committee designated by the directors may
participate in a meeting of the Board of Directors or such committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation by
such means shall constitute presence in person at such meeting
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<PAGE> 7
SECTION 9. Quorum and Voting. A majority of the total number of
directors shall constitute a quorum, except that when a vacancy or vacancies
exist in the Board, a majority of the directors then in office (but not less
than one-third of the total number of the directors) shall constitute a quorum.
A majority of the directors present, whether or not a quorum is present, may
adjourn any meeting from time to time. The vote of a majority of the directors
present at any meeting at which a quorum is present shall be the act of the
Board of Directors, except where a different vote is required or permitted by
law, by the Certificate of Incorporation, or by these by-laws.
SECTION 10. Compensation. The Board of Directors may fix fees for
their services and for their membership on committees, and expenses of
attendance may be allowed for attendance at each meeting. Nothing herein
contained shall be construed to preclude any director from serving the
corporation in any other capacity as an officer, agent or otherwise, and
receiving compensation therefor.
SECTION 11. Action Without Meeting. 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, and without notice, if a written
consent thereto is signed by all members of the Board of Directors, or of such
committee, as the case may be, and such written consent is filed with the
minutes of proceedings of the Board of Directors or such committee.
ARTICLE III
OFFICERS
SECTION 1. Titles. The officers of the corporation shall consist of
a President, a Secretary, a Treasurer, and such other officers with such other
titles as the Board of Directors shall determine, including without limitation a
Chairman of the Board, a Vice Chairman of the Board, and one or more Vice
Presidents, Assistant Treasurers, or Assistant Secretaries.
SECTION 2. Election and Term of Office. The officers of the
corporation shall be elected annually by the Board of Directors at its first
meeting following the annual meeting of the stockholders. Each officer shall
hold office until his or her successor is elected and qualified, unless a
different term is specified in the vote electing such officer, or until his or
her earlier death, resignation or removal.
SECTION 3. Qualification. Unless otherwise provided by resolution of
the Board of Directors, no officer, other than the Chairman or Vice Chairman of
the Board, need be a director. No officer need be a stockholder. Any number of
offices may be held by the same person, as the directors shall determine.
SECTION 4. Removal. Any officer may be removed, with or without
cause, at any time, by resolution adopted by the Board of Directors.
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<PAGE> 8
SECTION 5. Resignation. Any officer may resign by delivering a
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt or at
such later time as may be specified therein.
SECTION 6. Vacancies. The Board of Directors may at any time fill
any vacancy occurring in any office for the unexpired portion of the term and
may leave unfilled for such period as it may determine any office other than
those of President, Treasurer and Secretary.
SECTION 7. Powers and Duties. The officers of the corporation shall
have such powers and perform such duties as are specified herein and as may be
conferred upon or assigned to them by the Board of Directors, and shall have
such additional powers and duties as are incident to their office except to the
extent that resolutions of the Board of Directors are inconsistent therewith.
SECTION 8. President and Vice Presidents. The President shall be the
chief executive officer of the corporation, shall preside at all meetings of the
stockholders and the Board of Directors unless a Chairman or Vice Chairman of
the Board is elected by the Board, empowered to preside, and present at such
meeting, shall have general and active management of the business of the
corporation and general supervision of its officers, agents and employees, and
shall see that all orders and resolutions of the Board of Directors are carried
into effect.
In the absence of the President or in the event of his or her inability or
refusal to act, the Vice President if any (or in the event there be more than
one Vice President, the Vice Presidents in the order designated by the
directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. The Board of Directors may assign to any Vice President the title of
Executive Vice President, Senior Vice President or any other title selected by
the Board of Directors.
SECTION 9. Secretary and Assistant Secretaries. The Secretary shall
attend all meetings of the Board of Directors and of the stockholders and record
all the proceedings of such meetings in a book to be kept for that purpose,
shall give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board of Directors, shall maintain a stock ledger and
prepare lists of stockholders and their addresses as required and shall have
custody of the corporate seal which the Secretary or any Assistant Secretary
shall have authority to affix to any instrument requiring it and attest by any
of their signatures. The Board of Directors may give general authority to any
other officer to affix and attest the seal of the corporation.
The Assistant Secretary if any (or if there be more than one, the
Assistant Secretaries in the order determined by the Board of Directors or if
there be no such determination, then in the order of their election) shall, in
the absence of the Secretary or in the event of the Secretary's inability or
refusal to act, perform the duties and exercise the powers of the Secretary.
SECTION 10. Treasurer and Assistant Treasurers. The Treasurer shall
have the custody of the corporate funds and securities, shall keep full and
accurate accounts of receipts
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<PAGE> 9
and disbursements in books belonging to the corporation and shall deposit all
moneys and other valuable effects in the name and to the credit of the
corporation in such depositories as may be designated by the Board of Directors.
The Treasurer shall disburse the funds of the corporation as may be ordered by
the Board of Directors or the President, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or whenever they may require it, an account of all
transactions and of the financial condition of the corporation.
The Assistant Treasurer if any (or if there be more than one, the
Assistant Treasurers in the order determined by the Board of Directors or if
there be no such determination, then in the order of their election) shall, in
the absence of the Treasurer or in the event of his or her inability or refusal
to act, perform the duties and exercise the powers of the Treasurer.
SECTION 11. Bonded Officers. The Board of Directors may require any
officer to give the corporation a bond in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors upon such terms and
conditions as the Board of Directors may specify, including without limitation a
bond for the faithful performance of the duties of such officer and for the
restoration to the corporation of all property in his or her possession or
control belonging to the corporation.
SECTION 12. Salaries. Officers of the corporation shall be entitled
to such salaries, compensation or reimbursement as shall be fixed or allowed
from time to time by the Board of Directors.
ARTICLE IV
STOCK
SECTION 1. Certificates of Stock. One or more certificates of stock,
signed by the Chairman or Vice Chairman of the Board of Directors or by the
President or Vice President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary, shall be issued to each stockholder
certifying, in the aggregate, the number of shares owned by the stockholder in
the corporation. Any or all signatures on any such certificate may be
facsimiles. In case any officer, transfer agent or registrar who shall have
signed or whose facsimile signature shall have been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he or she were such officer, transfer agent or registrar at the date of
issue.
Each certificate for shares of stock which are subject to any restriction
on transfer pursuant to the Certificate of Incorporation, the By-laws,
applicable securities laws, or any agreement among any number of stockholders or
among such holders and the corporation shall have conspicuously noted on the
face or back of the certificate either the full text of the restriction or a
statement of the existence of such restriction.
SECTION 2. Transfers of Shares of Stock. Subject to the
restrictions, if any, stated or noted on the stock certificates, shares of stock
may be transferred on the books of the
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<PAGE> 10
corporation by the surrender to the corporation or its transfer agent of the
certificate representing such shares properly endorsed or accompanied by a
written assignment or power of attorney properly executed, and with such proof
of authority or the authenticity of signature as the corporation or its transfer
agent may reasonably require. The corporation shall be entitled to treat the
record holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
to that stock, regardless of any transfer, pledge or other disposition of that
stock, until the shares have been transferred on the books of the corporation in
accordance with the requirements of these By-laws.
SECTION 3. Lost Certificates. A new certificate of stock may be
issued in the place of any certificate theretofore issued by the corporation and
alleged to have been lost, stolen, destroyed, or mutilated, upon such terms in
conformity with law as the Board of Directors shall prescribe. The directors
may, in their discretion, require the owner of the lost, stolen, destroyed or
mutilated certificate, or the owner's legal representatives, to give the
corporation a bond, in such sum as they may direct, to indemnify the corporation
against any claim that may be made against it on account of the alleged loss,
theft, destruction or mutilation of any such certificate, or the issuance of any
such new certificate.
SECTION 4. Fractional Share Interests. The corporation may, but
shall not be required to, issue fractions of a share. If the corporation does
not issue fractions of a share, it shall (1) arrange for the disposition of
fractional interests by those entitled thereto, (2) pay in cash the fair value
of fractions of a share as of the time when those entitled to receive such
fractions are determined or (3) issue scrip or warrants in registered or bearer
form which shall entitle the holder to receive a certificate for a full share
upon the surrender of such scrip or warrants aggregating a full share. A
certificate for a fractional share shall, but scrip or warrants shall not unless
otherwise provided therein, entitle the holder to exercise voting rights, to
receive dividends thereon, and to participate in any of the assets of the
corporation in the event of liquidation. The Board of Directors may cause scrip
or warrants to be issued subject to the conditions that they shall become void
if not exchanged for certificates representing full shares before a specified
date, or subject to the conditions that the shares for which scrip or warrants
are exchangeable may be sold by the corporation and the proceeds thereof
distributed to the holders of scrip or warrants, or subject to any other
conditions which the Board of Directors may impose.
SECTION 5. Dividends. Subject to the provisions of the Certificate
of Incorporation, the Board of Directors may, out of funds legally available
therefor, at any regular or special meeting, declare dividends upon the common
stock of the corporation as and when they deem expedient.
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<PAGE> 11
ARTICLE V
INSURANCE
SECTION 1. Indemnification. The corporation shall, to the full
extent permitted by the General Corporation Law of the State of Delaware, as
amended from time to time, the Certificate of Incorporation, and any agreement
of the Corporation, indemnify each person whom it may indemnify pursuant
thereto.
SECTION 2. Insurance. The corporation shall have power to 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 such person and incurred by such person in any such
capacity or arising out of such person's status as such, whether or not the
corporation would have the power to indemnify such person against such liability
under the provisions of the General Corporation Law of the State of Delaware.
ARTICLE VI
GENERAL PROVISIONS
SECTION 1. Fiscal Year. Except as otherwise designated from time to
time by the Board of Directors, the fiscal year of the corporation shall begin
on the first day of January and end on the last day of December.
SECTION 2. Corporate Seal. The corporate seal shall be in such form
as shall be approved by the Board of Directors. The Secretary shall be the
custodian of the seal. The Board of Directors may authorize a duplicate seal to
be kept and used by any other officer.
SECTION 3. Certificate of Incorporation. All references in these
By-laws to the Certificate of Incorporation shall be deemed to refer to the
Certificate of Incorporation of the corporation, as in effect from time to time.
SECTION 4. Execution of Instruments. The Chairman and Vice Chairman
of the Board of Directors, if any, the President, any Vice President, and the
Treasurer shall have power to execute and deliver on behalf and in the name of
the corporation any instrument requiring the signature of an officer of the
corporation, including deeds, contracts, mortgages, bonds, notes, debentures,
checks, drafts, and other orders for the payment of money. In addition, the
Board of Directors may expressly delegate such powers to any other officer or
agent of the corporation.
SECTION 5. Voting of Securities. Except as the directors may
otherwise designate, the President or Treasurer may waive notice of, and act as,
or appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of
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<PAGE> 12
substitution) at any meeting of stockholders or shareholders of any other
corporation or organization the securities of which may be held by this
corporation.
SECTION 6. Evidence of Authority. A certificate by the Secretary, or
an Assistant Secretary, or a temporary secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall, as to all persons who rely on the certificate in good faith,
be conclusive evidence of that action.
SECTION 7. Transactions with Interested Parties. No contract or
transaction between the corporation and one or more of the directors or
officers, or between the corporation and any other corporation, partnership,
association, or other organization in which one or more of the directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for that reason, or solely because the director or officer is
present at or participates in the meeting of the Board of Directors or a
committee of the Board of Directors which authorizes the contract or transaction
or solely because the vote of any such director is counted for such purpose, if:
(1) The material facts as to the relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors or
the committee, and the Board or committee in good faith authorizes the contract
or transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or
(2) The material facts as to the relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation as of the
time it is authorized, approved or ratified by the Board of Directors, a
committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
SECTION 8. Books and Records. The books and records of the
corporation shall be kept at such places within or without the State of Delaware
as the Board of Directors may from time to time determine.
ARTICLE VII
AMENDMENTS
SECTION 1. By the Board of Directors. These By-laws may be altered,
amended or repealed or new by-laws may be adopted by the affirmative vote of a
majority of
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<PAGE> 13
the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
SECTION 2. By the Stockholders. These By-laws may be altered,
amended or repealed or new by-laws may be adopted by the affirmative vote of the
holders of a majority of the shares of the capital stock of the corporation
issued and outstanding and entitled to vote at any regular meeting of
stockholders, or at any special meeting of stockholders provided notice of such
alteration, amendment, repeal or adoption of new by-laws shall have been stated
in the notice of such special meeting.
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<PAGE> 1
EXHIBIT 4.2
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS
AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS
BEEN REGISTERED UNDER THE ACT AND SUCH LAWS OR (1) REGISTRATION
UNDER APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED AND (2) AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS FURNISHED TO
THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT
REQUIRED.
AUTOCYTE, INC.
WARRANT TO PURCHASE COMMON STOCK
This certifies that, for value received, ________________________ (the
"Holder") is entitled to subscribe for and purchase up to
___________________________ (_________) shares (subject to adjustment from time
to time pursuant to the provisions of Section 5 hereof) of fully paid and
nonassessable Common Stock of AutoCyte, Inc., a Delaware corporation (the
"Company"), at the Warrant Price (as defined in Section 2 hereof), subject to
the provisions and upon the terms and conditions hereinafter set forth.
As used herein, the term "Common Stock" shall mean the Company's
presently authorized Common Stock, $.01 par value per share, and any stock into
or for which such Common Stock may hereafter be converted or exchanged.
1. Term of Warrant. The purchase or conversion right represented by
this warrant (hereinafter the "Warrant") is exercisable, in whole or in part, at
any time during the period commencing on June 24, 1997 and continuing until June
24, 2007, provided, that, the term of this Warrant may, upon notification of the
Company to the holder hereof, expire upon an earlier closing of an initial
public offering of the Company's Common Stock.
2. Warrant Price. The initial exercise price of this Warrant is $1.00
per share, subject to adjustment from time to time pursuant to the provisions of
Section 5 hereof (the "Warrant Price").
3. Method of Exercise or Conversion; Payment; Issuance of New Warrant.
(a) Exercise. Subject to Section 1 hereof, the purchase right
represented by this Warrant may be exercised by the holder hereof during the
term of this Warrant, in whole or in part, by the surrender of this Warrant
(with the notice of exercise form attached hereto as Exhibit 1 duly executed) at
the principal office of the Company and by the payment to the Company, by check
or wire transfer, of an amount equal to the then applicable Warrant Price per
share multiplied by the number of shares then being purchased. The Company
agrees that the shares so purchased shall be deemed to be issued to the holder
hereof as the record owner of such shares as of the close of business on the
date on which this Warrant shall have been surrendered and payment made for such
shares as aforesaid. In the event of any exercise of this Warrant, certificates
for the shares of stock so purchased
<PAGE> 2
shall be delivered to the holder hereof within 15 days thereafter and, unless
this Warrant has been fully exercised or expired, a new Warrant representing the
portion of the shares, if any, with respect to which this Warrant shall not then
have been exercised, shall also be issued to the holder hereof within such 15
day period.
(b) Conversion. Subject to Section 1 hereof, the Holder may convert
this Warrant (the "Conversion Right"), in whole or in part, into the number of
shares of Common Stock of the Company calculated pursuant to the following
formula by surrendering this Warrant (with the notice of exercise form attached
hereto as Exhibit 1 duly executed) at the principal office of the Company
specifying the number of shares of Common Stock of the Company, the rights to
purchase which the Holder desires to convert:
Y (A - B)
X = ---------
A
where: X = the number of shares of Common Stock to be issued to the
Holder;
Y = the number of shares of Common Stock subject to this
Warrant for which the Conversion Right is being
exercised;
A = the fair market value of one share of Common Stock;
B = the Warrant Price.
As used herein, the fair market value of a share of Common Stock shall
mean with respect to each share of Common Stock the closing price per share of
the Company's Common Stock on the principal national securities exchange on
which the Common Stock is then listed or admitted to trading or, if not then
listed or admitted to trading on any such exchange, on the NASDAQ National
Market System, or if not then listed or traded on any such exchange or system,
the bid price per share on NASDAQ Small-Cap Market or in the sole discretion of
the Board of Directors of the Company, any other over-the-counter market,
including the OTC Bulletin Board, which reports bid, asked and last sale prices
and volume of sales (approval of which will not be unreasonably withheld by such
directors), averaged over the 10 trading days consisting of the day as of which
the current fair market value of Common Stock is being determined and the nine
consecutive business days prior to such day. If at any time such quotations are
not available, the current fair market value of a share of Common Stock shall be
the highest price per share which the Company could obtain from a willing buyer
(not a current employee or director) for shares of Common Stock sold by the
Company, from authorized but unissued shares, as determined in good faith by the
Board of Directors of the Company, unless (i) the Company shall become subject
to a merger, acquisition or other consolidation pursuant to which the Company is
not the surviving party, in which case the current fair market value of a share
of Common Stock shall be deemed to be the value received by the holders of the
Company's Common Stock for each share of
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<PAGE> 3
Common Stock pursuant to the Company's acquisition; or (ii) the Holder shall
exercise its Conversion Right to purchase such shares within 15 days prior to
the closing date of the initial underwritten public offering of the Company's
Common Stock pursuant to a registration statement filed under the Act, in which
case, the fair market value of a share of Common Stock shall be the price per
share at which all registered shares are sold to the public in such offering.
The Company agrees that the shares so converted shall be deemed to be issued to
the holder hereof as the record owner of such shares as of the close of business
on the date on which this Warrant shall have been surrendered as aforesaid. In
the event of any conversion of this Warrant, certificates for the shares of
stock so converted shall be delivered to the holder hereof within 15 days
thereafter and, unless this Warrant has been fully converted or expired, a new
Warrant representing the portion of the shares, if any, with respect to which
this Warrant shall not then have been converted, shall also be issued to the
holder hereof within such 15 day period.
4. Stock Fully Paid; Reservation of Shares. All Common Stock which may
be issued upon the exercise or conversion of this Warrant will, upon issuance,
be fully paid and nonassessable, and free from all taxes, liens and charges with
respect to the issue thereof. During the period within which the rights
represented by this Warrant may be exercised, the Company will at all times have
authorized, and reserved for the purpose of the issuance upon exercise of the
purchase rights evidenced by this Warrant, a sufficient number of shares of its
Common Stock to provide for the exercise of the rights represented by this
Warrant.
5. Adjustment of Purchase Price and Number of Shares. The kind of
securities purchasable upon the exercise of this Warrant, the Warrant Price and
the number of shares purchasable upon exercise of this Warrant shall be subject
to adjustment from time to time upon the occurrence of certain events as
follows:
(a) Reclassification, Consolidation or Merger. In case of any
reclassification or change of outstanding securities of the class issuable upon
exercise of this Warrant (other than a change in par value, or from par value to
no par value, or from no par value to par value, or as a result of a subdivision
or combination), or in case of any consolidation or merger of the Company with
or into another corporation, other than a merger with another corporation in
which the Company is a continuing corporation and which does not result in any
reclassification or change of outstanding securities issuable upon exercise of
this Warrant, or in case of any sale of all or substantially all of the assets
of the Company, the Company, or such successor or purchasing corporation, as the
case may be, shall execute a new Warrant, providing that the holder of this
Warrant shall have the right to exercise such new Warrant and procure upon such
exercise, in lieu of each share of Common Stock theretofore issuable upon
exercise of this Warrant, the kind and amount of shares of stock, other
securities, money and property receivable upon such reclassification, change,
consolidation, or merger by a holder of one share of Common Stock. Such new
Warrant shall provide for adjustments which shall be as nearly equivalent as may
be practicable to the adjustments provided for in this Section 5. No
consolidation or merger of the Company with or into another corporation referred
to in the first sentence of this paragraph (b) shall be
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<PAGE> 4
consummated unless the successor or purchasing corporation referred to above
shall have agreed to issue a new Warrant as provided in this Section 5. The
provisions of this subsection (b) shall similarly apply to successive
reclassification, changes, consolidations, mergers and transfers.
(b) Subdivision or Combination of Shares. If the Company at any time
while this Warrant remains outstanding and unexpired shall subdivide or combine
its Common Stock, the Warrant Price shall be proportionately decreased in the
case of a subdivision or increased in the case of a combination.
(c) Stock Dividends. If the Company at any time while this Warrant
is outstanding and unexpired shall pay a dividend with respect to Common Stock
payable in, or make any other distribution with respect to Common Stock (except
any distribution specifically provided for in the foregoing subparagraphs (b) or
(c)) of, Common Stock, then the Warrant Price shall be adjusted, from and after
the date of determination of shareholders entitled to receive such dividend or
distribution, to that price determined by multiplying the Warrant Price in
effect immediately prior to such date of determination by a fraction (a) the
numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution and (b) the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend or distribution.
(d) Adjustment of Number of Shares. Upon each adjustment in the
Warrant Price pursuant to any of Sections 5 (a) through (c), the number of
shares of Common Stock purchasable hereunder shall be adjusted, to the nearest
whole share, to the product obtained by multiplying the number of shares
purchasable immediately prior to such adjustment in the Warrant Price by a
fraction, the numerator of which shall be the Warrant Price immediately prior to
such adjustment and the denominator of which shall be the Warrant Price
immediately thereafter.
6. Notice of Adjustments. Whenever any Warrant Price shall be adjusted
pursuant to Section 5 hereof, the Company shall prepare a certificate signed by
its chief financial officer setting forth, in reasonable detail, the event
requiring the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated, the Warrant Price after giving effect to such
adjustment and the number of shares then purchasable upon exercise of this
Warrant, and shall cause copies of such certificate to be mailed (by first class
mail, postage prepaid) to the holder of this Warrant at the address specified in
Section 11(d) hereof, or at such other address as may be provided to the Company
in writing by the holder of this Warrant.
7. Fractional Shares. No fractional shares of Common Stock will be
issued in connection with any exercise hereunder, but in lieu of such fractional
shares the Company shall make a cash payment therefor upon the basis of the
Warrant Price then in effect.
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<PAGE> 5
8. Compliance with the Act.
(a) Compliance with the Act. The holder of this Warrant, by
acceptance hereof, agrees that this Warrant and the shares of Common Stock to be
issued upon exercise hereof are being acquired for investment for such holder's
own account and not with a view toward distribution thereof, and that it will
not offer, sell or otherwise dispose of this Warrant or any shares of Common
Stock to be issued upon exercise hereof unless this Warrant has been registered
under the Act and applicable state securities laws or (i) registration under
applicable state securities laws is not required and (ii) an opinion of counsel
satisfactory to the Company is furnished to the Company to the effect that
registration under the Act is not required.
9. Transfer and Exchange of Warrant.
(a) Transfer. This Warrant may be transferred or succeeded to by an
person; provided however, that the Company is given written notice by the
transferee at the time of such transfer stating the name and address of the
transferee and identifying the securities with respect to which such rights are
being assigned.
(b) Exchange. Subject to compliance with the terms hereof, this
Warrant and all rights hereunder are transferable, in whole or in part, at the
office of the Company by the holder hereof in person or by duly authorized
attorney, upon surrender of this Warrant properly endorsed. Each taker and
holder of this Warrant, by taking or holding the same, consents and agrees that
this Warrant, when endorsed in blank, shall be deemed negotiable; provided, that
the last holder of this Warrant as registered on the books of the Company may be
treated by the Company and all persons dealing with this Warrant as the absolute
owner hereof for any purposes and as the person entitled to exercise the rights
represented by this Warrant or to transfer hereof on the books of the Company,
any notice to the contrary notwithstanding, unless and until such holder seeks
to transfer registered ownership of this Warrant on the books of the Company and
such transfer is effected.
10. Miscellaneous.
(a) No Rights as Shareholder. Except as provided in the Agreement,
no holder of the Warrant or Warrants shall be entitled to vote or receive
dividends or be deemed the holder of Common Stock or any other securities of the
Company which may at any time be issuable on the exercise hereof for any
purpose, nor shall anything contained herein be construed to confer upon the
holder of this Warrant, as such, any of the rights of a shareholder of the
Company or any right to vote for the election of directors or upon any matter
submitted to shareholders at any meeting thereof, or to give or withhold consent
to any corporate action (whether upon any recapitalization, issuance of stock,
reclassification of stock, change of par value or change of stock to no par
value, consolidation, merger, conveyance or otherwise) or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise until the
Warrant or Warrants shall have been exercised and
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<PAGE> 6
the shares purchasable upon the exercise hereof shall have become deliverable,
as provided herein.
(b) Replacement. On receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of this Warrant and,
in the case of loss, theft or destruction, on delivery of an indemnity
agreement, or bond reasonably satisfactory in form and amount to the Company or,
in the case of mutilation, on surrender and cancellation of this Warrant, the
Company, at its expense, will execute and deliver, in lieu of this Warrant, a
new Warrant of like tenor.
(c) Notice of Capital Changes. In case:
(i) the Company shall declare any dividend or distribution
payable to the holders of its Common Stock;
(ii) there shall be any capital reorganization or
reclassification of the capital stock of the Company, or consolidation or merger
of the Company with, or sale of all or substantially all of its assets to,
another corporation or business organization; or
(iii) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give the
holder of this Warrant written notice, in the manner set forth in subparagraph
(d) below, of the date on which a record shall be taken for such dividend, or
distribution or for determining shareholders entitled to vote upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up and of the date when any such transaction shall take
place, as the case may be. Such written notice shall be given at least 30 days
prior to the transaction in question and not less than 20 days prior to the
record date in respect thereof.
(d) Notice. Any notice given to either party under this Warrant
shall be in writing, and any notice hereunder shall be deemed to have been given
upon the earlier of delivery thereof by hand delivery, by courier, or by
standard form of telecommunication or three (3) business days after the mailing
thereof if sent registered mail with postage prepaid, addressed to the Company
at its principal executive offices and to the holder at its address set forth in
the Company's books and records or at such other address as the holder may have
provided to the Company in writing.
(e) No Impairment. The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed
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<PAGE> 7
hereunder by the Company, but will at all times in good faith assist in the
carrying out of all the provisions in the Warrant.
(f) Governing Law. This Warrant shall be governed by and construed
under the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, this Warrant is executed as of this ___ day of
_______, 199___.
AUTOCYTE, INC.
By: _____________________________
Title: President
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<PAGE> 8
EXHIBIT 1
NOTICE OF EXERCISE
TO: AUTOCYTE, INC.
1. Check Box that Applies:
/ / The undersigned hereby elects to purchase _____ shares of Common Stock
of AUTOCYTE, INC. pursuant to the terms of the attached Warrant, and tenders
herewith payment of the purchase price of such shares in full.
/ / The undersigned hereby elects to convert the attached warrant into
_________ shares of Common Stock of AUTOCYTE, INC. pursuant to the terms of the
attached Warrant.
2. Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
__________________________________
(Name)
__________________________________
__________________________________
(Address)
3. The undersigned represents that the aforesaid shares of Common Stock
are being acquired for the account of the undersigned for investment and not
with a view to, or for resale in connection with, the distribution thereof and
that the undersigned has no present intention of distributing or reselling such
shares.
_________________________________________
Signature
<PAGE> 1
EXHIBIT 5.1
PALMER & DODGE LLP
One Beacon Street
Boston, Massachusetts 02108
AutoCyte, Inc.
112 Orange Drive
Elon College, North Carolina 27244
We are rendering this opinion in connection with the Registration Statement
on Form S-1 (the "Registration Statement") filed by AutoCyte, Inc. (the
"Company") with the Securities and Exchange Commission under the Securities Act
of 1933, as amended, on or about the date hereof. The Registration Statement
relates to up to 3,565,000 shares of the Company's Common Stock, $0.01 par value
(the "Shares"). We understand that the Shares are to be offered and sold in the
manner described in the Registration Statement.
We have acted as your counsel in connection with the preparation of the
Registration Statement. We are familiar with the actions taken by the Board of
Directors of the Company at a meeting held on June 24, 1997 in connection with
the authorization, issuance and sale of the Shares (the "Resolutions"). We have
examined such other documents as we consider necessary to render this opinion.
Based upon the foregoing, we are of the opinion that the Shares have been
duly authorized and, when issued and delivered by the Company against payment
therefor at the price to be determined pursuant to the Resolutions, will be
validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as a part of the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus filed as part thereof.
Very truly yours,
/s/ Palmer & Dodge LLP
<PAGE> 1
EXHIBIT 10.1
This Plan was approved by the Board of Directors on November 22, 1996.
This Plan was amended by the Board of Directors on May 19, 1997.
This Plan, as amended, was approved by the stockholders on June 26, 1997.
This Plan was amended and restated by the Board of Directors on June 24, 1997.
This Plan, as amended and restated, was approved by the stockholders on June
26, 1997
AUTOCYTE, INC.
AMENDED AND RESTATED
1996 EQUITY INCENTIVE PLAN
1. PURPOSE
The purpose of the Autocyte, Inc. 1996 Amended and Restated Equity
Incentive Plan (the "Plan") is to attract and retain key personnel of the
Company and its Affiliates, to provide an incentive for them to achieve
long-range performance goals, and to enable them to participate in the long-term
growth of the Company by granting Awards with respect to the Company's Common
Stock.
2. ADMINISTRATION
The Plan shall be administered by the Committee, provided that the Board
may in any instance perform any of the functions delegated to the Committee
hereunder. The Committee shall select the Participants to receive Awards and
shall determine the terms and conditions of the Awards. The Committee shall have
authority to adopt, alter and repeal such administrative rules, guidelines and
practices governing the operation of the Plan as it shall from time to time
consider advisable, and to interpret the provisions of the Plan. The Committee's
decisions shall be final and binding. To the extent permitted by applicable law,
the Committee may delegate to one or more executive officers of the Company the
power to make Awards to Participants who are not Reporting Persons or Covered
Employees and all determinations under the Plan with respect thereto, provided
that the Committee shall fix the maximum amount of such Awards for all such
Participants and a maximum for any one Participant.
<PAGE> 2
3. ELIGIBILITY
All employees, directors and consultants of the Company or any Affiliate
capable of contributing significantly to the successful performance of the
Company, other than a person who has irrevocably elected not to be eligible, are
eligible to be Participants in the Plan. Incentive Stock Options may be granted
only to persons eligible to receive such Options under the Code.
4. STOCK AVAILABLE FOR AWARDS
(a) AMOUNT. Subject to adjustment under subsection (b), Awards may be made
under the Plan for up to 2,086,325 shares of Common Stock. If any Award expires
or is terminated unexercised or is forfeited or settled in a manner that
results in fewer shares outstanding than were awarded, the shares subject to
such Award, to the extent of such expiration, termination, forfeiture or
decrease, shall again be available for award under the Plan. Common Stock issued
through the assumption or substitution of outstanding grants from an acquired
company shall not reduce the shares available for Awards under the Plan. Shares
issued under the Plan may consist in whole or in part of authorized but unissued
shares or treasury shares.
(b) ADJUSTMENT. In the event that the Committee determines that any stock
dividend, extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination, exchange of shares or other
transaction affects the Common Stock such that an adjustment is required in
order to preserve the benefits intended to be provided by the Plan, then the
Committee (subject in the case of Incentive Stock Options to any limitation
required under the Code) shall equitably adjust any or all of (i) the number and
kind of shares in respect of which Awards may be made under the Plan, (ii) the
number and kind of shares subject to outstanding Awards, (iii) the exercise
price with respect to any of the foregoing, and (iv) if considered appropriate,
the Committee may make provision for a cash payment with respect to an
outstanding Award; provided that in the case (i) or (ii) above the number of
shares subject to any Award shall always be a whole number.
(c) LIMIT ON INDIVIDUAL GRANTS. The maximum number of shares of Common
Stock subject to Options and Stock Appreciation Rights that may be granted to
any Participant in the aggregate in any calendar year shall not exceed 1,000,000
shares, subject to adjustment under subsection (b).
5. STOCK OPTIONS
(a) GRANT OF OPTIONS. Subject to the provisions of the Plan, the Committee
may grant options ("Options") to purchase shares of Common Stock complying with
the requirements of Section 422 of the Code or any successor provision and any
regulations thereunder ("Incentive Stock Options") and (ii) not intended to
comply with such requirements ("Nonstatutory Stock Options"). The Committee
shall determine the number of shares subject to each Option and the exercise
price therefor, which in the case of Incentive Stock Options shall not be less
than 100% of the Fair Market Value of the Common Stock on the date of grant. No
Incentive Stock Option may be granted hereunder more than ten years after the
effective date of the Plan.
- 2 -
<PAGE> 3
(b) TERMS AND CONDITIONS. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Committee may specify in the
applicable grant or thereafter. The Committee may impose such conditions with
respect to the exercise of Options, including conditions relating to applicable
federal or state securities laws, as it considers necessary or advisable.
(c) PAYMENT. Payment for shares to be delivered pursuant to any exercise
of an Option may be made in whole or in part in cash or, to the extent permitted
by the Committee at or after the grant of the Option, by delivery of a note or
other commitment satisfactory to the Committee or shares of Common Stock owned
by the optionee, including Restricted Stock, or by retaining shares otherwise
issuable pursuant to the Option, in each case valued at their Fair Market Value
on the date of delivery or retention, or such other lawful consideration as the
Committee may determine.
6. STOCK APPRECIATION RIGHTS
(a) GRANT OF SARS. Subject to the provisions of the Plan, the Committee
may grant rights to receive any excess in value of shares of Common Stock over
the exercise price ("Stock Appreciation Rights" or "SARs") in tandem with an
Option (at or after the award of the Option), or alone and unrelated to an
Option. SARs in tandem with an Option shall terminate to the extent that the
related Option is exercised, and the related Option shall terminate to the
extent that the tandem SARs are exercised. The Committee shall determine at the
time of grant or thereafter whether SARs are settled in cash, Common Stock or
other securities of the Company, Awards or other property, and may define the
manner of determining the excess in value of the shares of Common Stock.
(b) EXERCISE PRICE. The Committee shall fix the exercise price of each SAR
or specify the manner in which the price shall be determined. An SAR granted in
tandem with an Option shall have an exercise price not less than the exercise
price of the related Option. An SAR granted alone and unrelated to an Option may
not have an exercise price less than 100% of the Fair Market Value of the Common
Stock on the date of the grant, provided that such an SAR granted to a new
employee or consultant within 90 days of the date of employment may have a lower
exercise price so long as it is not less than 100% of Fair Market Value on the
date of employment.
7. RESTRICTED STOCK
(a) GRANT OF RESTRICTED STOCK. Subject to the provisions of the Plan, the
Committee may grant shares of Common Stock subject to forfeiture ("Restricted
Stock") and determine the duration of the period (the "Restricted Period")
during which, and the conditions under which, the shares may be forfeited to the
Company and the other terms and conditions of such Awards. Shares of Restricted
Stock may be issued for no cash consideration, such minimum consideration as may
be required by applicable law or such other consideration as the Committee may
determine.
- 3 -
<PAGE> 4
(b) RESTRICTIONS. Shares of Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered, except as permitted by the
Committee, during the Restricted Period. Notwithstanding the foregoing, in the
Committee's discretion, Awards in the form of Restricted Stock may be made
transferable to a limited liability corporation controlled solely by the
Participant. Shares of Restricted Stock shall be evidenced in such manner as the
Committee may determine. Any certificates issued in respect of shares of
Restricted Stock shall be registered in the name of the Participant and unless
otherwise determined by the Committee, deposited by the Participant, together
with a stock power endorsed in blank, with the Company. At the expiration of the
Restricted Period, the Company shall deliver such certificates to the
Participant or if the Participant has died, to the Participant's Designated
Beneficiary.
8. GENERAL PROVISIONS APPLICABLE TO AWARDS
(a) REPORTING PERSON LIMITATIONS. Notwithstanding any other provision of
the Plan, Awards made to a Reporting Person shall not be transferable by such
person other than by will or the laws of descent and distribution and are
exercisable during such person's lifetime only by such person or by such
person's guardian or legal representative. Awards, unless Incentive Stock
Options, may also be made transferable pursuant to a domestic relations order as
defined in the Code or Title I of the Employee Retirement Income Security Act or
the rules thereunder.
(b) DOCUMENTATION. Each Award under the Plan shall be evidenced by a
writing delivered to the Participant specifying the terms and conditions thereof
and containing such other terms and conditions not inconsistent with the
provisions of the Plan as the Committee considers necessary or advisable to
achieve the purposes of the Plan or to comply with applicable tax and regulatory
laws and accounting principles.
(c) COMMITTEE DISCRETION. Each type of Award may be made alone, in
addition to or in relation to any other Award. The terms of each type of Award
need not be identical, and the Committee need not treat Participants uniformly.
Except as otherwise provided by the Plan or a particular Award, any
determination with respect to an Award may be made by the Committee at the time
of grant or at any time thereafter.
(d) DIVIDENDS AND CASH AWARDS. In the discretion of the Committee, any
Award under the Plan may provide the Participant with (i) dividends or dividend
equivalents payable currently or deferred with or without interest and (ii) cash
payments in lieu of or in addition to an Award.
(e) TERMINATION OF EMPLOYMENT. The Committee shall determine the effect on
an Award of the disability, death, retirement or other termination of employment
of a Participant and the extent to which, and the period during which, the
Participant's legal representative, guardian or Designated Beneficiary may
receive payment of an Award or exercise rights thereunder.
(f) CHANGE IN CONTROL. In order to preserve a Participant's rights under
an Award in the event of a "change in control" (as defined by the Committee) of
the Company, the Committee in its discretion may, at the time an Award is made
or at any time thereafter, take
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<PAGE> 5
one or more of the following actions: (i) provide for the acceleration of any
time period relating to the exercise or payment of the Award, (ii) provide for
payment to the Participant of cash or other property with a Fair Market Value
equal to the amount that would have been received upon the exercise or payment
of the Award had the Award been exercised or paid upon the change in control,
(iii) adjust the terms of the Award in a manner determined by the Committee to
reflect the change in control, (iv) cause the Award to be assumed, or new rights
substituted therefor, by another entity, or (v) make such other provision as the
Committee may consider equitable to Participants and in the best interests of
the Company.
(g) LOANS. The Committee may authorize the making of loans or cash
payments to Participants in connection with the grant or exercise of any Award
under the Plan, which loans may be secured by any security, including Common
Stock, underlying or related to such Award (provided that the loan shall not
exceed the Fair Market Value of the security subject to such Award), and which
may be forgiven upon such terms and conditions as the Committee may establish at
the time of such loan or at any time thereafter.
(h) WITHHOLDING TAXES. The Participant shall pay to the Company, or make
provision satisfactory to the Committee for payment of, any taxes required by
law to be withheld in respect of Awards under the Plan no later than the date of
the event creating the tax liability. In the Committee's discretion, such tax
obligations may be paid in whole or in part in shares of Common Stock, including
shares retained from the Award creating the tax obligation, valued at their Fair
Market Value on the date of delivery. The Company and its Affiliates may, to the
extent permitted by law, deduct any such tax obligations from any payment of any
kind otherwise due to the Participant.
(i) FOREIGN NATIONALS. Awards may be made to Participants who are foreign
nationals or employed outside the United States on such terms and conditions
different from those specified in the Plan as the Committee considers necessary
or advisable to achieve the purposes of the Plan or to comply with applicable
laws.
(j) AMENDMENT OF AWARD. The Committee may amend, modify or terminate any
outstanding Award, including substituting therefor another Award of the same or
a different type, changing the date of exercise or realization and converting an
Incentive Stock Option to a Nonstatutory Stock Option, provided that the
Participant's consent to such action shall be required if the action, taking
into account any related action, would adversely affect the Participant.
9. CERTAIN DEFINITIONS
"Affiliate" means any business entity in which the Company owns directly
or indirectly 50% or more of the total voting power or has a significant
financial interest as determined by the Committee.
"Award" means any Option, Stock Appreciation Right or Restricted Stock
granted under the Plan.
- 5 -
<PAGE> 6
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor law.
"Committee" means one or more committees each comprised of not less than
two members of the Board appointed by the Board to administer the Plan or a
specified portion thereof. If the Committee is authorized to grant Options to a
Reporting Person or a Covered Employee, each member shall be a "Non-Employee
Director" or the equivalent within the meaning of Rule 16b-3 under the Exchange
Act or an "outside director" or the equivalent within the meaning of Section
162(m) of the Code, respectively. In the event no such Committee is appointed,
then "Committee" means the Board.
"Common Stock" means the Common Stock, $0.01 par value, of the Company.
"Company" means AutoCyte, Inc., a Delaware corporation.
"Covered Employee" means a person whose income is subject to Section
162(m) of the Code.
"Designated Beneficiary" means the beneficiary designated by a
Participant, in a manner determined by the Committee, to receive amounts due or
exercise rights of the Participant in the event of the Participant's death. In
the absence of an effective designation by a Participant, "Designated
Beneficiary" means the Participant's estate.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, or any successor law.
"Fair Market Value" means, with respect to the Common Stock or any other
property, the fair market value of such property as determined by the Committee
in good faith or in the manner established by the Committee from time to time.
"Participant" means a person selected by the Committee to receive an Award
under the Plan.
"Reporting Person" means a person subject to Section 16 of the Exchange
Act.
10. MISCELLANEOUS
(a) NO RIGHT TO EMPLOYMENT. No person shall have any claim or right to be
granted an Award. Neither the Plan nor any Award hereunder shall be deemed to
give any employee the right to continued employment or to limit the right of the
Company to discharge any employee at any time.
(b) NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the applicable
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed under
the Plan until he or she becomes the holder
- 6 -
<PAGE> 7
thereof. A Participant to whom Common Stock is awarded shall be considered the
holder of the Stock at the time of the Award except as otherwise provided in the
applicable Award.
(c) EFFECTIVE DATE. The 1996 Equity Incentive Plan became effective on
November 22, 1996. Subject to the approval of the stockholders of the Company,
this Amended and Restated 1996 Equity Incentive Plan will be effective on June
26, 1997. Prior to such approval, awards may be made under the Plan expressly
subject to such approval.
(d) AMENDMENT OF PLAN. The Board may amend, suspend or terminate the Plan
or any portion thereof at any time, subject to such stockholder approval as the
Board determines to be necessary or advisable to comply with any tax or
regulatory requirement.
(e) GOVERNING LAW. The provisions of the Plan shall be governed by and
interpreted in accordance with the laws of Delaware.
-----------------------------------------
- 7 -
<PAGE> 8
No. __________ _________ Shares
AUTOCYTE, INC.
Amended and Restated 1996 Equity Incentive Plan
Incentive Stock Option Certificate
AutoCyte, Inc. (the "Company"), a Delaware corporation, hereby grants to
the person named below an option to purchase shares of Common Stock, $0.01 par
value, of the Company (the "Option") under and subject to the Company's Amended
and Restated 1996 Equity Incentive Plan (the "Plan") exercisable on the
following terms and conditions and those set forth on the reverse side of this
certificate:
Name of Optionholder: ____________________________
Address: ____________________________
____________________________
Social Security No. ____________________________
Number of Shares: __________________
Option Price: __________________
Date of Grant: __________________
Exercisability Schedule: [to be set at the time of Grant]
Expiration Date: [ten years from the Date of Grant as stated above]
This Option is intended to be treated as an Incentive Stock Option under
section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
By acceptance of this Option, the Optionholder agrees to the terms and
conditions hereof.
AUTOCYTE, INC.
By: ____________________________
<PAGE> 9
AUTOCYTE, INC. AMENDED AND RESTATED 1996 EQUITY INCENTIVE PLAN
INCENTIVE STOCK OPTION TERMS AND CONDITIONS
1. Plan Incorporated by Reference. This Option is issued pursuant to the
terms of the Plan and may be amended as provided in the Plan. Capitalized terms
used and not otherwise defined in this certificate have the meanings given to
them in the Plan. This certificate does not set forth all of the terms and
conditions of the Plan, which are incorporated herein by reference. The
Committee administers the Plan and its determinations regarding the operation of
the Plan are final and binding. Copies of the Plan may be obtained upon written
request without charge from the Corporate Counsel of the Company.
2. Option Price. The price to be paid for each share of Common Stock
issued upon exercise of the whole or any part of this Option is the Option Price
set forth on the face of this certificate.
3. Exercisability Schedule. This Option may be exercised at any time and
from time to time for the number of shares and in accordance with the
exercisability schedule set forth on the face of this certificate, but only for
the purchase of whole shares. This Option may not be exercised as to any shares
after the Expiration Date.
4. Method of Exercise. To exercise this Option, the Optionholder shall
deliver written notice of exercise to the Company specifying the number of
shares with respect to which the Option is being exercised accompanied by
payment of the Option Price for such shares in cash, by certified check or in
such other form, including shares of Common Stock of the Company valued at their
Fair Market Value on the date of delivery or a payment commitment of a financial
or brokerage institution. Promptly following such notice, the Company will
deliver to the Optionholder a certificate representing the number of shares with
respect to which the Option is being exercised.
5. Rights as a Stockholder or Employee. The Optionholder shall not have
any rights in respect of shares as to which the Option shall not have been
exercised and payment made as provided above. The Optionholder is an
employee-at-will unless, and only to the extent, provided in a separate written
agreement executed by the chief executive officer of the Company or his duly
authorized designee, and neither the Plan nor the grant of this Option shall be
deemed to give the Optionholder the right to continued employment or to limit
the right of the Company to discharge the Optionholder at any time.
6. Recapitalization, Mergers, Etc. As provided in the Plan, in the event
of corporate transactions affecting the Company's outstanding Common Stock, the
Committee shall equitably adjust the number and kind of shares subject to this
Option and the exercise price hereunder or make provision for a cash payment. If
such transaction involves a consolidation or merger of the Company with another
entity, the sale, lease or exchange of all or substantially all of the assets of
the Company or a reorganization or liquidation of the Company, then in lieu of
the foregoing, the Committee shall upon written notice to the Optionholder
provide that this Option shall terminate on a date not less than 20 days after
the date of such notice unless theretofore exercised. In connection with such
notice, the Committee shall accelerate or waive any deferred exercise period.
7. Option Not Transferable. This Option is not transferable by the
Optionholder otherwise than by will or the laws of descent and distribution,
and is exercisable, during the Optionholder's lifetime, only by the
Optionholder. The naming of a Designated Beneficiary does not constitute a
transfer.
8. Exercise of Option After Termination of Employment. If the
Optionholder's status as an employee or consultant of (a) the Company, (b) an
Affiliate, or (c) a corporation (or parent or subsidiary corporation of such
corporation) issuing or assuming a stock option in a transaction to which
section 424(a) of the Code applies, is terminated for cause the Optionholder may
exercise the rights that were available to the Optionholder at the time of such
termination only within 10 days from the date of termination. If such status is
terminated for reason other than for cause, by retirement at normal retirement
age, or by disability (within the meaning of the section 22(e)(3) of the Code),
the Optionholder's rights hereunder may be exercised within 12 months from the
date of termination. Upon the death of the Optionholder, his or her Designated
Beneficiary shall have the right, at any time within 12 months after the date of
death, to exercise in whole or in part any rights that were available to the
Optionholder at the time of death. Notwithstanding the foregoing, no rights
under this Option may be exercised after the Expiration Date. For purposes of
this paragraph, if the Optionholder is on military leave, approved sick leave,
or other bona fide leave of absence, his or her employment will be treated as
continuing throughout the period of absence if (a) such period does not exceed
90 days or (b), if longer, so long as the Optionholder's right to reemployment
is guaranteed either by statute or by written agreement with the Company;
otherwise, the Optionholder's employment will be deemed to have terminated for
cause on the 91st day of such absence.
9. Compliance with Securities Laws. It shall be a condition to the
Optionholder's right to purchase shares of Common Stock hereunder that the
Company may, in its discretion, require (a) that the shares of Common Stock
reserved for issue upon the exercise of this Option shall have been duly listed,
upon official notice of issuance, upon any national securities exchange or
automated quotation system on which the Company's Common Stock may then be
listed or quoted, (b) that either (i) a registration statement under the
Securities Act of 1933 with respect to the shares shall be in effect, or (ii) in
the opinion of counsel for the Company, the proposed purchase shall be exempt
from registration under that Act and the Optionholder shall have made such
undertakings and agreements with the Company as the Company may reasonably
require, and (c) that such other steps, if any, as counsel for the Company shall
consider necessary to comply with any law applicable to the issue of such shares
by the Company shall have been taken by the Company or the Optionholder, or
both. The certificates representing the shares purchased under this Option may
contain such legends as counsel for the Company shall consider necessary to
comply with any applicable law.
10. Payment of Taxes. The Optionholder shall pay to the Company, or make
provision satisfactory to the Company for payment of, any taxes required by law
to be withheld with respect to the exercise of this Option. The Committee may,
in its discretion, require any other Federal or state taxes imposed on the sale
of the shares to be paid by the Optionholder. In the Committee's discretion,
such tax obligations may be paid in whole or in part in shares of Common Stock,
including shares retained from the exercise of this Option, valued at their Fair
Market Value on the date of delivery. The Company and its Affiliates may, to the
extent permitted by law, deduct any such tax obligations from any payment of any
kind otherwise due to the Optionholder.
11. Notice of Sale of Shares Required. The Optionholder agrees to notify
the Company in writing within 30 days of the disposition of any shares purchased
upon exercise of this Option if such disposition occurs within two years of the
date of the grant of this Option or within one year after such purchase.
Adopted 6/97
<PAGE> 10
No._________ _________ Shares
AUTOCYTE, INC.
Amended and Restated 1996 Equity Incentive Plan
Nonstatutory Stock Option Certificate
AutoCyte, Inc. (the "Company"), a Delaware corporation, hereby grants to
the person named below an option to purchase shares of Common Stock, $0.01 par
value, of the Company (the "Option") under and subject to the Company's Amended
and Restated 1996 Incentive Stock Option Plan (the "Plan") exercisable on the
following terms and conditions and those set forth on the reverse side of this
certificate:
Name of Optionholder: ____________________________
Address: ____________________________
____________________________
Social Security No. ____________________________
Number of Shares: __________________
Option Price: __________________
Date of Grant: __________________
Exercisability Schedule: [to be set at the time of Grant]
Expiration Date: [ten years from the Date of Grant as stated above]
This Option shall not be treated as an Incentive Stock Option under
section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
By acceptance of this Option, the Optionholder agrees to the terms and
conditions hereof.
AUTOCYTE, INC.
By: ____________________________
<PAGE> 11
AUTOCYTE, INC. AMENDED AND RESTATED 1996 EQUITY INCENTIVE PLAN
NONSTATUTORY STOCK OPTION TERMS AND CONDITIONS
1. Plan Incorporated by Reference. This Option is issued pursuant to the
terms of the Plan and may be amended as provided in the Plan. Capitalized terms
used and not otherwise defined in this certificate have the meanings given to
them in the Plan. This certificate does not set forth all of the terms and
conditions of the Plan, which are incorporated herein by reference. The
Committee administers the Plan and its determinations regarding the operation of
the Plan are final and binding. Copies of the Plan may be obtained upon written
request without charge from the Corporate Counsel of the Company.
2. Option Price. The price to be paid for each share of Common Stock
issued upon exercise of the whole or any part of this Option is the Option Price
set forth on the face of this certificate.
3. Exercisability Schedule. This Option may be exercised at any time and
from time to time for the number of shares and in accordance with the
exercisability schedule set forth on the face of this certificate, but only for
the purchase of whole shares. This Option may not be exercised as to any shares
after the Expiration Date.
4. Method of Exercise. To exercise this Option, the Optionholder shall
deliver written notice of exercise to the Company specifying the number of
shares with respect to which the Option is being exercised accompanied by
payment of the Option Price for such shares in cash, by certified check or in
such other form, including shares of Common Stock of the Company valued at their
Fair Market Value on the date of delivery or a payment commitment of a financial
or brokerage institution. Promptly following such notice, the Company will
deliver to the Optionholder a certificate representing the number of shares with
respect to which the Option is being exercised.
5. Rights as a Stockholder or Employee. The Optionholder shall not have
any rights in respect of shares as to which the Option shall not have been
exercised and payment made as provided above. The Optionholder is an
employee-at-will unless, and only to the extent, provided in a separate written
agreement executed by the chief executive officer of the Company or his duly
authorized designee, and neither the Plan nor the grant of this Option shall be
deemed to give the Optionholder the right to continued employment or to limit
the right of the Company to discharge the Optionholder at any time.
6. Recapitalization, Mergers, Etc. As provided in the Plan, in the event
of corporate transactions affecting the Company's outstanding Common Stock, the
number and kind of shares subject to this Option and the exercise price
hereunder shall be equitably adjusted. If such transaction involves a
consolidation or merger of the Company with another entity, the sale, lease or
exchange of all or substantially all of the assets of the Company or a
reorganization or liquidation of the Company, then in lieu of the foregoing, the
Committee shall upon written notice to the Optionholder provide that this Option
shall terminate on a date not less than 20 days after the date of such notice
unless theretofore exercised. In connection with such notice, the Committee
shall accelerate or waive any deferred exercise period.
7. Option Not Transferable. This Option is not transferable by the
Optionholder otherwise than to the extent permitted by the Plan, and is
exercisable, during the Optionholder's lifetime, only by the Optionholder or the
Optionholder's immediate transferee as permitted by the Plan. The naming of a
Designated Beneficiary does not constitute a transfer.
8. Exercise of Option After Termination of Employment. If the
Optionholder's status as an employee or consultant of (a) the Company, (b) an
Affiliate, or (c) a corporation (or parent or subsidiary corporation of such
corporation) issuing or assuming a stock option in a transaction to which
section 424(a) of the Code applies, is terminated for cause the Optionholder may
exercise the rights that were available to the Optionholder at the time of such
termination only within 10 days from the date of termination. If such status is
terminated for reason other than for cause, by retirement at normal retirement
age, or by disability (within the meaning of section 22(e)(3) of the Code), the
Optionholder's rights hereunder may be exercised within 12 months from the date
of termination. Upon the death of the Optionholder, his or her Designated
Beneficiary shall have the right, at any time within 12 months after the date of
death, to exercise in whole or in part any rights that were available to the
Optionholder at the time of death. Notwithstanding the foregoing, no rights
under this Option may be exercised after the Expiration Date. For purposes of
this paragraph, if the Optionholder is on military leave, approved sick leave,
or other bona fide leave of absence, his or her employment will be treated as
continuing throughout the period of absence if (a) such period does not exceed
90 days or (b), if longer, so long as the Optionholder's right to reemployment
is guaranteed either by statute or by written agreement with the Company;
otherwise, the Optionholder's employment will be deemed to have terminated for
cause on the 91st day of such absence.
9. Compliance with Securities Laws. It shall be a condition to the
Optionholder's right to purchase shares of Common Stock hereunder that the
Company may, in its discretion, require (a) that the shares of Common Stock
reserved for issue upon the exercise of this Option shall have been duly listed,
upon official notice of issuance, upon any national securities exchange or
automated quotation system on which the Company's Common Stock may then be
listed or quoted, (b) that either (i) a registration statement under the
Securities Act of 1933 with respect to the shares shall be in effect, or (ii) in
the opinion of counsel for the Company, the proposed purchase shall be exempt
from registration under that Act and the Optionholder shall have made such
undertakings and agreements with the Company as the Company may reasonably
require, and (c) that such other steps, if any, as counsel for the Company shall
consider necessary to comply with any law applicable to the issue of such shares
by the Company shall have been taken by the Company or the Optionholder, or
both. The certificates representing the shares purchased under this Option may
contain such legends as counsel for the Company shall consider necessary to
comply with any applicable law.
10. Payment of Taxes. The Optionholder shall pay to the Company, or make
provision satisfactory to the Company for payment of, any taxes required by law
to be withheld with respect to the exercise of this Option. The Committee may,
in its discretion, require any other Federal or state taxes imposed on the sale
of the shares to be paid by the Optionholder. In the Committee's discretion,
such tax obligations may be paid in whole or in part in shares of Common Stock,
including shares retained from the exercise of this Option, valued at their Fair
Market Value on the date of delivery. The Company and its Affiliates may, to the
extent permitted by law, deduct any such tax obligations from any payment of any
kind otherwise due to the Optionholder.
Adopted 6/97
<PAGE> 1
EXHIBIT 10.2
AUTOCYTE, INC.
1997 Director Stock Option Plan
1. Purpose.
This 1997 Director Stock Option Plan (the "Plan") governs options to
purchase Common Stock, $.01 par value per share (the "Common Stock"), of
AutoCyte, Inc. (the "Company") granted by the Company to members of the Board of
Directors of the Company who are not also officers or employees of the Company.
The purpose of the Plan is to attract and retain qualified persons to serve as
Directors of the Company and to encourage ownership of the Common Stock of the
Company by such Directors.
2. Administration.
Grants of stock options under the Plan shall be automatic as provided in
Section 8. However, all questions of interpretation of the Plan or of any
options granted hereunder shall be determined by the Board of Directors of the
Company (the "Board"). Any and all powers of the Board under the Plan may be
exercised by a committee consisting of one or more Directors appointed by the
Board.
3. Eligibility.
Members of the Board who are not also officers or employees of the Company
shall be eligible to participate in the Plan.
4. Shares Subject to the Plan.
Options may be granted under the Plan in respect of a maximum of 100,000
shares of Common Stock, subject to adjustment as provided in Section 5 below.
Shares to be issued upon the exercise of options granted under the Plan may be
either authorized but unissued shares or shares held by the Company in its
treasury. Whenever options under the Plan lapse or terminate or otherwise become
unexercisable, the shares of Common Stock which were available for such options
shall again be available for the grant of options under the Plan. The Company
shall at all times while the Plan is in force reserve such number of shares of
Common Stock as will be sufficient to satisfy the requirements of the Plan.
<PAGE> 2
5. Adjustment of Number of Option Shares.
In the event of a stock dividend, split-up, combination or
reclassification of shares, recapitalization or other similar capital change
relating to the Company's Common Stock, the maximum aggregate number and kind of
shares or securities of the Company as to which options may be granted under
this Plan and as to which options then outstanding shall be exercisable, and the
option price of such options shall be appropriately adjusted so that the
proportionate number of shares or other securities as to which options may be
granted and the proportionate interest of holders of outstanding options shall
be maintained as before the occurrence of such event.
In the event of any reorganization, consolidation or merger to which the
Company is a party and in which the Company does not survive, or upon the
dissolution or liquidation of the Company, all outstanding options shall
terminate; provided, however, that (i) in the event of the liquidation or
dissolution of the Company, or in the event of any such reorganization,
consolidation or merger in which the Company does not survive and with respect
to which the resulting or surviving corporation does not assume such outstanding
option or issue a substitute option therefor, such option shall be exercisable
in full, without regard to any installment restrictions on exercise imposed
pursuant to this Plan or any Option Agreement, during such period preceding the
effective date of such liquidation, dissolution, reorganization, consolidation
or merger (unless such option is terminated earlier by its terms) as may be
specified by the Board; and (ii) in the event of any such reorganization,
consolidation or merger, the Board may, in its good faith discretion, arrange to
have the resulting or surviving corporation assume such outstanding option or
issue a substitute option therefor.
No fraction of a share shall be purchasable or deliverable upon exercise
of an option, but, in the event any adjustment hereunder of the number of shares
covered by the option shall cause such number to include a fraction of a share,
such fraction shall be adjusted to the nearest smaller whole number of shares.
6. Non-Statutory Stock Options.
All options granted under the Plan shall be non-statutory options not
entitled to special tax treatment under Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code").
7. Form of Option Agreements.
Options shall be granted hereunder pursuant to the terms of Option
Agreements which shall be substantially in the form of the attached Exhibit A or
in such other form as the Board may from time to time determine.
8. Grant of Options and Option Terms.
Automatic Grant of Options. Commencing after the closing of the initial
public offering of the Company's Common Stock, each non-employee director of the
Company thereafter elected or reelected to the Board of Directors shall, upon
his or her election or reelection, automatically be granted options to purchase
10,000 shares of Common Stock. No options shall be granted hereunder after ten
years from the date on which this Plan was initially approved and adopted by the
Board.
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<PAGE> 3
Date of Grant. The "Date of Grant" for options granted under this Plan
shall be the date of the respective director's election or reelection.
Option Price. The option price for each option granted under this Plan
shall be the current fair market value of a share of Common Stock of the Company
as determined by the Board of Directors in good faith, provided that if the
Company's Common Stock is then quoted on the National Association of Securities
Dealers Automated Quotations National Market ("Nasdaq") or traded on any other
exchange, then the current fair market value of a share of Common Stock of the
Company shall be the closing price for the Company's Common Stock as reported by
Nasdaq, or the principal exchange on which the Company's Common Stock is then
traded, on the last trading day prior to the Date of Grant.
Term of Option. The term of each option granted under the Plan shall be
ten years from the Date of Grant.
Period of Exercise. Options granted under the Plan shall become
exercisable in five equal installments on each of the first, second, third,
fourth and fifth anniversaries of the Date of Grant if and only if the option
holder is a member of the Board at the opening of business on that anniversary
date. Directors holding exercisable options under the Plan who cease to serve as
members of the Board of the Company for any reason other than death may, for a
period of seven months following the date of cessation of service, exercise the
rights they had under such options at the time they ceased being a Director. Any
rights that have not yet become exercisable shall terminate upon cessation of
membership on the Board. Upon the death of a Director, those entitled to do so
under the Director's will or the laws of descent and distribution shall have the
right, at any time within twelve months after the date of death, to exercise in
whole or in part any rights which were available to the Director at the time of
his death. The rights of the option holder may be exercised by the holder's
guardian or legal representative in the case of disability and by the
beneficiary designated by the holder in writing delivered to the Company or, if
none has been designated, by the holder's estate or his or her transferee on
death in accordance with this Plan, in the case of death. Options granted under
the Plan shall terminate, and no rights thereunder may be exercised, after the
expiration of the applicable exercise period. Notwithstanding the
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<PAGE> 4
foregoing provisions, no rights under any options may be exercised after the
expiration of ten years from their Date of Grant.
Method of Exercise and Payment. Each exercise of an option hereunder may
be effected only by giving written notice, in the manner provided in Section 12
hereof, of intent to exercise the option, specifying the number of shares as to
which the option is being exercised, and accompanied by full payment of the
option price for the number of shares then being acquired. Such payment shall be
made in cash, by certified or bank check payable to the order of the Company,
credit to the Company's account at a financial or brokerage institution on the
date of exercise or a payment commitment of such an institution acceptable to
the Company, or if the option so provides, (i) in shares of Common Stock having
an aggregate Fair Market Value, at the time of such payment, equal to the total
option price for the number of shares of Common Stock for which payment is then
being made, or (ii) partly in cash or by certified or bank check payable to the
order of the Company and the balance in shares of Common Stock having an
aggregate Fair Market Value, at the time of such payment, equal to the
difference between the total option price for the number of shares of Common
Stock for which payment is then being made and the amount of the payment in cash
or by certified or bank check. Shares of Common Stock surrendered in payment of
all or part of the option price shall have been held by the person exercising
the option free of restrictions imposed by the Company for at least six months
unless otherwise permitted by the Board. For purposes hereof, the "Fair Market
Value" of the Common Stock shall be the current fair market value of a share of
Common Stock of the Common Stock of the Company as determined by the Board of
Directors in good faith, provided that if the Company's Common Stock is then
quoted on Nasdaq or traded on any other exchange, then the Fair Market Value
shall be the closing price for the Company's Common Stock as reported by Nasdaq,
or the principal exchange on which the Company's Common Stock is then traded,
for the business day immediately preceding the option exercise date.
Receipt by the Company of such notice and payment shall, for purposes of
this Plan, constitute exercise of the option or a part thereof. Within twenty
(20) days thereafter, the Company shall deliver or cause to be delivered to the
optionee a certificate or certificates for the number of shares of Common Stock
then being purchased by the optionee. Such shares shall be fully paid and
non-assessable. If any law or applicable regulation of the Securities and
Exchange Commission or other public regulatory authority (including, but not
limited to, a stock exchange) shall require the Company or the optionee (i) to
register or qualify, under the Securities Act of 1933, as amended (the
"Securities Act"), any similar federal statute then in force or any state law
regulating the sale of securities, any shares of Common Stock covered by an
option with respect to which notice of intent to exercise shall have been
delivered to the Company or (ii) to take any other action in connection with
such shares before issuance thereof may be effected, then the delivery of the
certificate or certificates for such shares shall be postponed until completion
of the necessary action, which the Company shall take in good faith and without
delay. All such action shall be taken by the Company at its own expense.
To the extent determined necessary by counsel to the Company to comply
with any applicable law, the Company may require an individual exercising an
option to represent that
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<PAGE> 5
his purchase of shares of Common Stock pursuant to such exercise is for his own
account, for investment and without a view to resale or distribution, and that
he will not sell or otherwise dispose of any such shares except pursuant to (i)
an effective registration statement covering such transaction filed with the
Securities and Exchange Commission and in compliance with all of the applicable
provisions of the Securities Act, and the rules and regulations thereunder, or
(ii) an opinion of Company counsel that such registration is not required.
Non-transferability. Options granted under the Plan shall not be
transferable by the holder thereof otherwise than by will or the laws of descent
and distribution or by such other means as may be permitted by Rule 16b-3 (or
any successor provision) under the Securities Exchange Act of 1934, as amended.
9. Limitation of Rights.
No Right to Continue as a Director. Neither the Plan, nor the granting of
an option or any other action taken pursuant to the Plan, shall constitute an
agreement or understanding, express or implied, that the Company will retain an
optionee as a Director for any period of time or at any particular rate of
compensation.
No Stockholders' Rights for Options. Directors shall have no rights as
stockholders with respect to the shares covered by their options until the date
they exercise such options and pay the option price to the Company, and no
adjustment will be made for dividends or other rights for which the record date
is prior to the date such option is exercised and paid for.
10. Stockholder Approval.
The Plan is subject to approval by the stockholders of the Company by the
affirmative vote of the holders of a majority of the shares of voting capital
stock present or represented and entitled to vote at a meeting of the Company's
stockholders. In the event such approval is not obtained, all options granted
under this Plan shall be void and without effect.
11. Amendment or Termination.
The Board may amend or terminate this Plan at any time subject to any
stockholder approval that the Board deems necessary.
12. Notices.
Any communication or notice required or permitted to be given under this
Plan shall be in writing and mailed by registered or certified mail or delivered
in hand, if to the Company, to its Vice President, Finance at AutoCyte, Inc.,
112 Orange Drive, Elon College, North Carolina 27244 and, if to an optionee, to
such address as the optionee shall last have furnished to the Company.
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<PAGE> 6
13. Governing Law.
The Plan shall be governed by and construed in accordance with the laws of
Delaware.
As adopted by the Board of Directors on
June 24, 1997
As approved by the Stockholders on
June 24, 1997
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<PAGE> 7
EXHIBIT A
1996 DSO - _______ ________ Shares
AUTOCYTE, INC.
1997 Director Stock Option Plan
Non-statutory Stock Option Agreement
_______________ __, 199_
AutoCyte, Inc. (the "Company"), a Delaware corporation, hereby grants to
the person named below an option to purchase shares of Common Stock, $.01 par
value per share of the Company (the "Option") under and subject to the Company's
1997 Director Stock Option Plan (the "Plan") exercisable only on the following
terms and conditions and those set forth on the reverse side of this Agreement:
Name of Optionee:
Address:
Social Security No.
Option Price:
Date of Grant:
Exercisability Schedule:
at any time on or after the first anniversary of the date hereof, as to
_________ shares,
at any time on or after the second anniversary of the date hereof, as to
_________ additional shares,
at any time on or after the third anniversary of the date hereof, as to
_________ additional shares,
at any time on or after the fourth anniversary of the date hereof, as to
_________ additional shares,
at any time on or after the fifth anniversary of the date
hereof, as to _________ additional shares,
provided that this Optionee is a member of the Board of Directors of the Company
(the "Board") at the opening of business on the date described above and
provided that this Option may not be exercised as to any shares after the
expiration of ten years from the date hereof.
By signing this Stock Option Agreement and returning on signed copy of to
the Company, the Optionee accepts the Option described herein on the terms and
conditions set forth herein or in the plan.
AUTOCYTE, INC. Accepted and agreed to:
By: ____________________ _______________________
Title: Optionee
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<PAGE> 8
AUTOCYTE, INC.
1997 DIRECTOR STOCK OPTION PLAN TERMS AND CONDITIONS
1. This Option may be exercised from time to time in accordance with the
exercisability Schedule for up to the aggregate number of shares specified
herein, but in no event for the purchase of other than full shares; provided,
however, that this Option may not be exercised as to any shares after the
expiration of ten years from the date hereof. Written notice of exercise shall
be delivered to the Company specifying the number of shares with respect to
which the Option is being exercised. Not later than twenty days after the date
of the delivery of such notice the Company will deliver to the Optionee a
certificate for the number of shares with respect to which the Option is being
exercised against payment therefor in cash or by check, credit to the Company's
account at a financial or brokerage institution on the date of exercise or a
payment commitment of such an institution acceptable to the Company or by shares
of the Company's Common Stock, valued at their fair market value as of the date
of exercise as determined as provided in the Plan, or in any combination of
cash, check and shares of Common Stock. Shares of Common Stock surrendered in
payment of the option price shall have been held by the person exercising the
option free of restrictions imposed by the Company for at least six months
unless otherwise permitted by the Board.
2. The Optionee shall not be deemed, for any purpose, to have any rights
whatever in respect of shares to which the Option shall not have been exercised
and payment made as aforesaid. The Optionee shall not be deemed to have any
rights to continued service as director by virtue of the grant of this Option.
3. In the event of stock dividend, split-up, combination or
reclassification of shares, recapitalization or other similar capital change
relating to the Common Stock, the maximum aggregate number and kind of shares of
securities of the Company subject to this Option and the exercise price of this
Option shall be appropriately adjusted by the Board (whose determination shall
be conclusive) so that the proportionate number of shares or other securities
subject to this Option and the proportionate interest of the Optionholder shall
be maintained as before the occurrence of such event.
4. In the event of any reorganization, consolidation or merger to which
the Company is a party and in which the Company does not survive, or upon the
dissolution or liquidation of the Company, this option, to the extent
outstanding and unexercised, shall terminate; provided, however, that (i) in the
event of the liquidation of dissolution of the Company, or in the event of any
such reorganization, consolidation or merger in which the Company does not
survive and with respect to which the resulting or surviving corporation does
not assume such outstanding option or issue a substitute option herefor, this
option shall be exercisable in full, without regard to any installment
restrictions on exercise imposed pursuant to the Plan or this Option Agreement,
during such period preceding the effective date of such liquidation,
dissolution, reorganization, consolidation or merger (unless this option is
terminated earlier by its terms) as may be specified by the Board; and (ii) in
the event of any such reorganization, consolidation or merger, the Board may, in
its good faith discretion, arrange to have the resulting or surviving
corporation assume this option, to the extent outstanding and unexercised, or
issue a substitute option therefor.
5. This Option is not transferable by the Optionee otherwise than by will
or the laws of descent and distribution or by such other means as may be
permitted by Rule 16b-3 (or any successor provision) under the Securities
Exchange Act of 1934, as amended. This Option is exercisable during the
Optionee's lifetime only by the Optionee, provided that this Option may be
exercised by the Optionholder's guardian or legal representative in the case of
disability and by the beneficiary designated by the Optionholder in writing
delivered to the Company, or, if none has been designated, by the Optionholder's
estate or his or her transferee on death in accordance with this Section, in the
case of death.
6. If the Optionee ceases to serve as a member of the Board for any reason
other than death, the Optionee may, for a period of seven months following such
cessation of service, exercise the rights which the Optionee had hereunder at
the time the Optionee ceased being a director. Upon the death of the Optionee,
those entitled to do so shall have the right, at any time within twelve months
after the date of death (subject to the prior expiration of the Option exercise
period), to exercise in whole or in part any rights which were available to the
Optionee at the time of the Optionee's death. This Option shall terminate after
the expiration of the applicable exercise period. Notwithstanding the foregoing
provisions of this Section 6, no rights under this Option may be exercised after
the expiration of ten years from the date hereof.
7. It shall be a condition to the Optionee's right to purchase shares of
Common Stock hereunder that the Company may, in its discretion, require (a) that
the shares of Common Stock reserved for issue upon the exercise of this Option
shall have been duly listed, upon official notice of issuance, upon any national
securities exchange on which the Company's Common Stock may then be listed, (b)
that either (i) a Registration Statement under the Securities Act of 1933, as
amended, with respect to said shares shall be in effect, or (ii) in the opinion
of counsel for the Company the proposed purchase shall be exempt from
registration under said Act and the Optionee shall have made such undertakings
and agreements with the Company as the Company may reasonably require, and (c)
that such other steps, if any, as counsel for the Company shall deem necessary
to comply with any law, rule or regulation applicable to the issue of such
shares by the Company shall have been taken by the Company or the Optionee, or
both. The certificates representing the shares purchased under this Option may
contain such legends as counsel for the Company shall deem necessary to comply
with any applicable law, rule or regulation.
8. Any exercise of this Option is conditioned upon the payment, if the
Company so requests, by the Optionee or such other person who may be entitled to
exercise this Option in accordance with the terms hereof, of all state and
federal taxes imposed upon the exercise of this Option and the issue to the
Optionee of the shares covered hereby.
9. This Option shall not be treated as an incentive stock option under
Section 422 of the Internal Revenue Code of 1986, as amended.
10. This Option is issued pursuant to the terms of the Plan. This
Certificate does not set forth all of the terms and conditions of the Plan,
which are incorporated herein by reference. Capitalized terms used and not
otherwise defined herein have the meanings given to them in the Plan. Copies of
the Plan may be obtained upon written request without charge from the Company.
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<PAGE> 1
EXHIBIT 10.3
STATE OF NORTH CAROLINA
LEASE AGREEMENT
COUNTY OF ALAMANCE
THIS LEASE AGREEMENT is made and entered into as of the 10th day of March,
1993, by and between Carolina Hosiery Mills, Inc., t/a Alamance Industrial Park
("Landlord") and Roche Biomedical Laboratories, Inc. ("Tenant").
W I T N E S S E T H:
In consideration of the rents hereinafter agreed to be paid and in
consideration of the mutual covenants and agreements hereinafter recited,
Landlord does hereby lease and demise unto Tenant and Tenant does hereby lease
and take as Tenant from Landlord those certain Premises with improvements
thereon containing approximately 20,160 square feet (the "Premises") situated on
certain land at 780-784 Plantation Drive, in the City of Burlington, County of
Alamance, State of North Carolina, and being more particularly described on
Exhibit "A" attached hereto.
TO HAVE AND TO HOLD the said Premises unto the Tenant upon the following
terms conditions:
1. Term. The Term of this Lease shall be for a period of three (3) years
commencing on the 1st day of April, 1993, at 12:01 a.m., and ending on the 31st
day of March 1996, unless sooner terminated as herein provided.
2. Option to Renew. So long as Tenant is not in default hereunder it is
agreed that, at the expiration of the initial term (the "Initial Term") of this
Lease, Tenant shall have the right and option to renew the Lease for three (3)
additional one-year term or terms (the "Renewal Term(s)"). Each such Renewal
Term shall commence as of the end of the Initial Term of this Lease and shall be
subject to and in accordance with all terms and conditions set forth in this
Lease. If Tenant shall desire to exercise this right and option, it shall give
Landlord written notice not less than ninety (90) days prior to the expiration
of the Initial Term of this Lease.
3. Occupancy. Tenant may take possession and occupy Area A of the Premises
as shown on Exhibit "A" of this Lease immediately upon execution of the Lease
Agreement. Tenant may take possession and occupy Area B of the Premises as shown
on Exhibit "A" of this Lease no later than sixty (60) days from the
above-referenced date of this Lease. Tenant shall take possession of the
Premises without any additions or alterations to the Premises being made by
Landlord, except that Landlord shall install at its expense three (3) 7 1/2 ton
heating and air conditioning units in Area B.
1
<PAGE> 2
4. Rental. Tenant shall pay to Landlord the sum of Three Thousand Nine
Hundred Six Dollars ($3,906.00) as rent for the month of April, 1993, or until
Tenant's occupancy and possession of Area B of the Premises, due on the first
day of April, 1993, or a subsequent month, but payable on or before the tenth
day of such month. Upon the availability in acceptable condition of Area B of
the Premises, Tenant shall pay to Landlord the sum of Ninety-three Thousand
Seven Hundred Forty-four Dollars ($93,744.00) per annum, payable in monthly
installments of Seven Thousand Eight Hundred Twelve Dollars ($7,812.00) each,
due on the first day of each month, in advance, but payable on or before the
tenth day of the month, during the remaining Initial Term of this Lease. In the
event the Term shall commence on a day other than the first day of a month or
terminate on a day other than the last day of a month, the rent for such partial
month shall be prorated.
In the event Tenant exercises its option for the Renewal Term(s), the
annual rent for each Renewal Term(s) shall be adjusted by the percentage of
change in the Consumer Price Index, published by the U.S. Department of Labor
from the commencement date of this Lease to the commencement date of the Renewal
Term.
5. Surrender of Premises. At the termination of this Lease, Tenant shall
surrender the Premises and all keys, if any, to Landlord. The Premises shall be
in the same condition as the commencement of the Term, normal wear and tear and
loss from casualty excepted and Tenant shall remove from the Premises all of its
property.
6. Holding Over. If Tenant remains in possession after expiration of the
Initial Term or any Renewal Term(s), the tenancy shall be continued
month-to-month and shall be terminable thereafter by either party upon thirty
(30) days written notice to the other.
7. Subletting and Assignment. Tenant may not sublease nor assign all or
any part of the Premises without the prior written consent of Landlord which
consent shall not be unreasonably withheld or delayed.
8. Use.
(a) The Premises shall be used and occupied by Tenant for manufacturing,
warehouse, storage and other associated and related purposes. Tenant, at
Tenant's expenses, shall comply with all applicable rules and regulations,
ordinances and laws of governmental authorities having jurisdiction of the
Premises, but only insofar as compliance shall pertain to the manner in which
Tenant shall use the Premises; the obligation to comply in every other instance
and all cases including but not limited to use, repairs, alterations, changes or
additions to the Premises being the responsibility of Landlord.
(b) Landlord hereby grants Tenant the right to install a satellite
communications system (the "VSAT") in or on the Premises to facilitate Tenant's
business operations. Landlord agrees to cooperate with Tenant in installing the
antennae and any and all equipment comprising the VSAT and shall execute such
documents reasonably required by Tenant, governmental
2
<PAGE> 3
authorities, or third parties in connection with the installation and use of
such VSAT. Tenant agrees to compensate Landlord for Landlord's reasonable
out-of-pocket expenses incurred by Landlord in assisting Tenant in obtaining the
consents necessary to meet zoning, building code, or other requirements, when
requested by Tenant. The indemnification provided for in this Lease shall
expressly extend to Tenant's operation and use of such VSAT and Tenant shall
comply with all building codes, ordinances and zoning regulations applicable to
the operation of such VSAT.
9. No Physician Interest. Landlord represents and warrants that no
physicians or physician's family members have an interest in the Premises either
directly or indirectly, through debt, equity, or otherwise. Landlord further
represents that no physicians or physician's family member shall receive or
share directly or indirectly in the proceeds of this Lease.
10. Change in Law or Regulations. Notwithstanding anything in this Lease
to the contrary, should legal counsel reasonably conclude that Tenant's use of
the Premises is or may be in violation of any law or regulation, or subsequent
changes in any applicable law or regulation, this Lease shall terminate upon
thirty (30) days notice to the other party unless within said thirty (30) day
period the parties agree to such modifications in this Lease and use of the
Premises that may be necessary to establish compliance with the law or
regulation.
11. Utilities and Other Services. Landlord shall cause electric service to
be furnished to the Premises. Landlord shall furnish adequate running water and
sewer to the Premises. Tenant shall pay promptly, when due, all charges for the
water, electricity and fuel consumed on the Premises.
12. Taxes. Landlord shall pay all ad valorem taxes and assessments which
may be levied, assessed or charged against the Premises except that Tenant shall
pay all license, privilege, ad valorem or other taxes levied, assessed or
charged against it on account of the operation of its business on the Premises
or on account of property belonging to Tenant and located on the Premises.
In the event ad valorem taxes charged or assessed for the Premises are at
any time greater than the taxes charged for 1993, Tenant shall pay promptly to
Landlord or Landlord's agent, upon receipt of written notice and supporting
documentation reasonable satisfactory to Tenant, such additional taxes.
13. Maintenance and Repairs. Landlord at its cost shall maintain in good
condition (i) the structural portions of the Premises and other improvements
that are a part of the Premises, which structural portions include the
foundations, load bearing, and exterior walls (excluding glass and doors),
sub-flooring and roof, (ii) the electrical, plumbing, and sewage systems, (iii)
window frames, gutter, and downspouts to the Premises and other improvements
that are a part of the Premises, and (iv) heating, ventilating and
air-conditioning systems servicing the Premises. Notwithstanding the above,
Landlord shall be responsible for maintaining the heating, ventilating and air
conditioning systems for (a) Part A of the Premises
3
<PAGE> 4
for the first six (6) months of the Term, and (b) Part B of the Premises for the
first six (6) months after installation of the systems.
In the event Landlord fails or refuses to commence repair of the defective
condition, or make replacement, as the case may be, after a period of ten (10)
days from receipt of notice, Tenant may cause the same to be remedied at
Landlord's expense and deduct the cost from the next succeeding installment(s)
of rent due by it to said Landlord, but, it is expressly understood and agreed
that Landlord shall not be liable to Tenant for any damage it may sustain to its
business, merchandise or equipment as a result of such defective condition.
Except as hereinabove provided, Tenant, at its own cost and expenses,
shall maintain and replace, when necessary, all other parts of the Premises
including mechanical equipment, doors, door framing, windows, window framing,
and glass in as good repair as when the Premises were received by it, normal
wear and tear and loss from casualty excepted.
14. Inspections, Access. Landlord, without abatement of rent and without
being deemed guilty of an eviction of the Tenant, may enter the Premises at
reasonable hours to exhibit the same to prospective purchasers or tenants; to
make repairs required of Landlord; and to make repairs, alterations or additions
which Landlord shall deem necessary and to take upon the Premises all materials
that may be required.
15. Alterations and Improvements; Signs. Tenant shall make no alterations
in nor additions to the Premises without first obtaining the Landlord's written
consent, which consent shall not be unreasonably withheld or delayed; provided,
however that Tenant is hereby authorized to place within the Premises drop
ceilings, interior walls, passageways between Areas A and B, and a flammable
storage area consistent with applicable fire codes. All erections, additions,
fixtures and improvements, (except the movable office furniture and partitions
of the Tenant), made in or upon the Premises, either by the Tenant or the
Landlord, shall be the Landlord's property and shall remain upon the Premises at
termination, by lapse of time or otherwise, without compensation to the Tenant.
Any mechanics or other liens placed on the Premises as a result of any Tenant
alterations made pursuant to this paragraph shall be promptly discharged by
Tenant unless Tenant is contesting such lien in good faith and Tenant has made
appropriate reserves therefore. Tenant shall not erect or install any signs on
the exterior of the Premises except with the prior written consent of Landlord,
which consent shall not be unreasonably withheld or delayed. Additionally,
Tenant shall arrange with the City of Burlington to be in compliance with sign
ordinances of the City.
16. Tenant's Property. All property placed on the Premises by, at the
direction of, or with the consent of Tenant, its employees, agents, licensees or
invitees, shall be at the risk of Tenant or the owner thereof, and Landlord
shall not be liable for any loss or damage to said property resulting from any
cause whatsoever unless such loss or damage is the result of Landlord's
negligent or willful acts or omissions.
4
<PAGE> 5
17. Insurance. Throughout the Initial Term of this Lease and any exercised
Renewal Term(s), Landlord shall carry fire and extend coverage insurance
insuring its interest in the Building and the Premises, such insurance to be
written by such insurance companies and in such amounts satisfactory to
Landlord. Tenant shall be responsible for fire and extended coverage insurance
insuring its interest, if any, in improvements to or in the Premises and its
interest in its office furniture, equipment, supplies and other property. Tenant
is self-insured as to public liability and certain other risks and shall
maintain financial resources sufficient to insure against any liability of
Tenant and its authorized representatives arising out of and in connection with
Tenant's use or occupancy of the Premises up to One Million Dollars ($1,000,000)
on account of bodily injuries to or death of one (1) person, and One Million
Dollars ($1,000,000) on account of bodily injuries to or death of more than one
(1) person as the result of any one (1) accident or disaster and Five Hundred
Thousand Dollars ($500,000) on account of damage to property.
18. Fire or Other Casualty. Tenant shall give immediate notice to Landlord
of partial damage to the Premises by fire or other casualty. Landlord shall
cause the damage to be repaired with reasonable speed. Rent shall be
proportionately reduced to the extent that the Premises are rendered
untenantable. If the Premises are destroyed or so damaged that in normal course
the Premises cannot be made tenantable within sixty (60) days, or if the damage
occurs during the last ninety (90) days of the term and Tenant does not exercise
any option to renew, either Landlord or Tenant may terminate this Lease by
written notice to the other. Rentals shall be adjusted as of the date of the
damage and Tenant shall vacate the Premises within twenty (20) days from the
notice of termination.
19. Condemnation. If the whole or any part of the Premises shall be taken
or condemned by any competent authority for any public or quasi public use or
purpose such as to render the Premises unsuitable for Tenant's use, in Tenant's
discretion, then the Term shall terminate from the date that possession of the
part taken shall be required and rentals shall be apportioned accordingly. The
condemnation award shall be paid to Landlord except such portion as may be
attributable to Tenant's property.
20. Quiet Enjoyment. Landlord agrees that Tenant upon paying the rent and
performing all the terms and conditions of this Lease shall quietly have, hold
and enjoy the Premises for the Term aforesaid.
21. Notices. Any notice or demand which by any provisions of this Lease is
required or permitted to be given by either party shall be deemed to have been
sufficiently given for all purposes when made in writing and hand-delivered or
sent in the United States mail as certified or registered mail, return receipt
requested, postage prepaid and addressed:
To Landlord: Carolina Hosiery Mills, Inc.
t/a Alamance Industrial Park
P.O. Box 850
Burlington, NC 27215
5
<PAGE> 6
To Tenant: Roche Biomedical Laboratories, Inc.
112 Orange Drive
Elon College, NC 27244
Attn: Ernest A. Knesel, Jr.
Roche Image Analysis Systems
With a Copy to: Division Counsel
Roche Biomedical Laboratories, Inc.
231 Maple Avenue
Burlington, NC 27215
22. Default. The occurrence of one or more of the following events (an
"Event of Default") shall constitute default by the Tenant:
(a) The rentals are not paid at the time and place due as provided herein.
Landlord shall give Tenant ten (10) days written notice of Landlord's
intent to declare Tenant in default hereunder and Tenant shall have the
right to cure such default within ten (10) days from receipt of the
notice.
(b) Tenant fails to comply in any material respect with any term,
provision, condition or covenant of the Lease (other than the payment of
rent), and does not cure such failure within thirty (30) days after
written notice by Landlord.
(c) Tenant files (or has filed against it) any petition or action for
relief under any creditor's law (including bankruptcy, reorganization, or
similar actions), either in state or federal court.
(d) Tenant becomes insolvent or makes an assignment for benefits of
creditors.
(e) A receiver is appointed for Tenant;
(f) The leasehold interest of Tenant is attached or levied upon.
23. Landlord's Remedies Upon Default by Tenant. Landlord shall have the
following remedies if Tenant commits an Event of Default. These remedies are not
exclusive; they are cumulative in addition to any remedies now or later allowed
by law.
(a) Landlord shall have the right to terminate this Lease and Tenant's
rights to possession of the Premises at any time without notice to vacate
(any right to which is hereby waived by Tenant), and re-enter the Premises
and Landlord shall have the right to pursue its remedies at law or in
equity to recover from Tenant all amounts of rent then due or thereafter
accruing and such other damages as are caused by Tenant's default.
6
<PAGE> 7
(b) No course of dealing between Landlord and Tenant or any delay on the
part of Landlord in exercising any rights it may have under this Lease
shall operate as a waiver of any of the rights of Landlord hereunder nor
shall any waiver of a prior default operate as a waiver of any subsequent
default or defaults and no express waiver shall affect any condition,
covenant, rule or regulation other than the one specified in such waiver
and that one only for the time and in the manner specifically stated.
24. Indemnification of Landlord. Tenant agrees to indemnify and defend
Landlord and to save harmless Landlord, and the tenants, licensees, invitees,
agents, servants and employees of Landlord against and from claims by or on
behalf of any person, firm or corporation, arising by reason of injury to person
or property occurring on the Premises, occasioned in whole or in part by any
negligence or intentional act or omission on the part of the Tenant. Tenant
agrees to pay Landlord promptly for all damage to the Premises and for all
damage due to neglect of the Premises or of its or their apparatus and
appurtenances of which Tenant is obligated to preserve hereunder.
25. Successors and Assigns. The provisions of this Lease shall bind and
inure to the benefit of Landlord and Tenant, and their respective successors,
heirs, legal representatives and assigns. "Landlord" and "Tenant" shall include
male and female, singular or plural, corporation, partnership or individual, as
may fit the particular party.
26. Mutual Waiver of Subrogation. For the purpose of Waiver of
Subrogation, the parties mutually release and waive unto the other, all rights
to claim damages, cost or expenses for any injuries to persons (including death)
or property caused by casualty of any type whatsoever in or about the Premises,
if the amount of such damages, cost or expense has been paid to such party under
the terms of any policy of insurance. All insurance policies carried with
respect to this Lease, if permitted under applicable law, shall contain a
provision whereby the insurer waives, prior to loss, all rights of subrogation
against either Landlord or Tenant.
27. Entire Agreement. The Lease contains the entire understanding of the
parties and no representations or agreements, oral or otherwise, not embodied
herein shall be of any force or effect. This Lease shall be governed by and
construed pursuant to the laws of the State of North Carolina.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have duly executed this Lease
Agreement and have hereunto set their hands and seals of the day and year first
above written.
TENANT:
ROCHE BIOMEDICAL LABORATORIES, INC.(SEAL)
/s/ Ernest A. Knesel Jr.
-----------------------------------
Sr. Vice President
WITNESS:
/s/ illegible
- -----------------------------
LANDLORD:
CAROLINA HOSIERY MILLS, INC.
T/A ALAMANCE INDUSTRIAL PARK
/s/ illegible
-----------------------------(SEAL)
President
WITNESS;
/s/ Milton E. Petty
- -----------------------------
Secretary
8
<PAGE> 9
STATE OF NORTH CAROLINA
COUNTY OF ALAMANCE
I, Susan B. Stout, a Notary Public of said County, do hereby certify that
Milton E. Petty personally appeared before me this day and acknowledged that he
is the Secretary of Carolina Hosiery, Mills, Inc. and that by authority duly
given and as the act of said corporation, the foregoing instrument was signed in
its name by its President.
Witness my hand and notarial seal, this the tenth day of March, 1993.
/s/ Susan B. Stout
-----------------------------------
Notary Public
My Commission Expires: 7/26/94
STATE OF NORTH CAROLINA
COUNTY OF ALAMANCE
I, Susan B. Stout, a Notary Public of said County, do hereby certify that
Ernest E. Knesel, Jr. personally appeared before me this day and acknowledged
that he is the Sr. Vice President of Roche Biomedical Laboratories, Inc. and
that by authority duly given and as the act of said corporation, the foregoing
instrument was signed in its name by himself.
Witness my hand and notarial seal, this the tenth day of March, 1993.
/s/Susan B. Stout
-----------------------------------
Notary Public
My Commission Expires 7/26/94
9
<PAGE> 10
EXHIBIT A
DESCRIPTION OF THE PREMISES
[GRAPHIC--DIAGRAM OF SPACE LEASED]
A-1
<PAGE> 11
ROCHE IMAGE ANALYSIS
SYSTEMS, INC.
Roche Image Analysis Systems, Inc.
780 Plantation Drive
Burlington, North Carolina 27215
December 27, 1995
Mr. Milton Petty
Vice President
Carolina Hosiery Mills, Inc.
t/a Alamance Industrial Park
Burlington, NC 27215
Dear Milt:
We would like to exercise our option to renew the lease contract on the building
at 780 Plantation Drive for an additional (1) year term. This is in accordance
to Page 1, Item 2, Option to Renew, in our original lease agreement.
Please contact me if you have any questions or concerns.
Sincerely,
/s/ Billy Fox
Billy Fox
Asst. V.P., Dir. of Reagent Mfg.
<PAGE> 12
AUTOCYTE AutoCyte, Inc.
112 Orange Drive/Elon College, NC 27244 USA
Expanding the Vision of Pathology
Tel: 1-910 584-0250, 1-800 426-2176
Fax: 1-910 584-9141
March 24, 1997
Mr. Milton Petty
Carolina Hosiery Mills, Inc.
t/a Alamance Industrial Park
Burlington, NC 27215
Dear Mr. Petty:
As you are aware, we are working together to finalize a new lease document for
the current facility at 780 Plantation Drive, as well as for the planned
expansion. Because the new lease is not finalized, and because our current lease
extension expires March 31, 1997, we need to document a new temporary extension.
Our proposal is as follows:
1. We wish to extend the lease for an additional one (1) year term in accordance
with Section 2 of the original lease dated March 10, 1993. Rent for the option
term effective April 1, 1997 will be $8,610.50 per month.
2. When we reach agreement on a new lease document for the current and expanded
facility, the existing lease and the related lease extension will be terminated
by both parties.
If these terms meet with your acceptance, please so indicate by having an
authorized person sign both copies of this letter where indicated at the bottom
of the page. A duplicate copy is enclosed for your records. Please return one
copy of the original to me.
Thank you for your help. Please call if you have any questions.
Very truly yours,
/s/ William O. Green
William O. Green
Controller
/s
Accepted: /s/ Milton Petty Date: 3/26/97
------------------------------ ------------
Title: Vice President
---------------------------------
Carolina Hosiery Mills, Inc.
t/a Alamance Industrial Park
<PAGE> 1
EXHIBIT 10.4
STATE OF NORTH CAROLINA
LEASE AGREEMENT
COUNTY OF ALAMANCE
THIS LEASE AGREEMENT ("Lease") is made and entered into as of the 25th day of
April, 1995, by and between Roche Biomedical Laboratories, Inc. ("Landlord"),
and Roche Image Analysis Systems, Inc. ("Tenant").
WITNESSETH:
In consideration of the rents hereinafter agreed to be paid and in consideration
of the mutual covenants and agreements hereinafter recited, Landlord does hereby
lease and demise unto Tenant and Tenant does hereby lease and take as Tenant
from Landlord those certain Premises with improvements thereon containing
approximately 13,500 square feet (the "Premises") within the building
("Building") situated on certain land at 112 Orange Drive, in the City of Elon
College, County of Alamance, State of North Carolina, and being more
particularly described on Exhibit "A" attached hereto and made a part hereof.
TO HAVE AND TO HOLD the said Premises unto the Tenant upon the following terms
and conditions:
1. Term. The Term of this Lease shall be for a period of one (1) year,
commencing on the 25th day of April, 1995, at 12:01 a.m., and ending on
the 24th day of April, 1996, unless sooner terminated as herein provided.
2. Option to Renew: So long as Tenant is not in default hereunder, it is
agreed that at the expiration of the initial term (the "Initial Term") of
this Lease, Tenant shall have the option to renew this Lease for one (1)
additional one-year term (the "Initial Renewal Term"). Such Initial
Renewal Term shall commence as of the end of the Initial Term of this
Lease and shall be subject to and in accordance with all terms and
conditions set forth in this Lease. After the Initial Renewal Term, Tenant
shall have three (3) additional one-year renewal terms (the "Additional
Renewal Terms"). If Tenant shall desire to exercise this option for the
Initial Renewal Term or any Additional Renewal Term, it shall give
Landlord written notice not less than ninety (90) days prior to the
expiration of the Initial Term, the prior Initial Renewal Term or
Additional Renewal Term of this Lease. With respect to the Additional
Renewal Terms, after receipt of said notice, Landlord shall have thirty
(30) days to decide whether to renew the Lease and such renewal shall
occur only after Landlord provides Tenant with its written consent
thereto.
3. Rental. Tenant shall pay to Landlord the sum of One Hundred and Eight
Thousand Dollars ($108,000.00) per year, (which is equivalent to a rate of
$8.00 per square foot per year) payable in monthly installments of Nine
Thousand Dollars ($9,000.00), each installment due on the first day of the
month, in advance, during the Initial Term of this Lease, but payable on
or before the tenth day of the month. In the event the Term shall commence
on a day other than first day of a month or terminate on a day other than
the last day of a month, the rent for such partial month shall be
prorated. In the event that Tenant and Landlord agree to renew the Lease
for the Initial Renewal Term or any Additional Renewal Terms, the rental
rate for such terms shall be determined by Landlord based upon obtaining
an independent appraisal (the "Appraisal") of the fair market value rental
rate of the Premises. In any event, Landlord shall provide Tenant with
said Appraisal no later than six (6) months prior to the end of the
current term.
4. Surrender of Premises. At the termination of this Lease, Tenant shall
surrender the Premises and all keys and access cards, if any, to Landlord.
The Premises shall be in the same condition as at the commencement of the
Term, normal wear and tear and loss from casualty excepted, and Tenant
shall remove from the Premises all of its property.
5. Holding Over. If Tenant remains in possession after expiration of the
Initial Term or any Renewal Term(s), the tenancy shall be continued
month-to-month and shall be terminable thereafter by either party
<PAGE> 2
upon a thirty day written notice to the other party.
6. Subletting and Assignment. Tenant may not sublease or assign all or any
part of the Premises without the prior written consent of Landlord, which
shall not be unreasonably withheld or delayed.
7. Use. The Premises shall be used and occupied by Tenant for business
administration, research and development, training, assembly, technical
services and support, distribution and related purposes. Tenant, at
Tenant's expense, shall comply with all applicable rules, regulations,
ordinances and laws of governmental authorities having jurisdiction of the
Premises, but only insofar as compliance shall pertain to the conduct of
Tenant's business. It shall be the responsibility of the Landlord, at
Landlord's expense, to ensure that the Premises, the Building, and any
use, repairs, alterations, changes or additions to the Premises or the
Building comply with all applicable laws, regulations, ordinances and
rules, including but not limited to the Americans with Disabilities Act
and the accessibility guidelines issued thereunder.
8. Change in Law or Regulation. Notwithstanding anything in this Lease to the
contrary, should legal counsel for Landlord or Tenant reasonably conclude
that this Lease or Tenant's use of the Premises is or may be in violation
of any law or regulation, or subsequent changes in any applicable law or
regulation, this Lease shall terminate upon a thirty day notice to the
other party unless within said thirty day period the parties agree to such
modifications in this Lease or use of the Premises that may be necessary
to establish compliance with the law or regulation.
9. Utilities and Other Services. Landlord shall provide the Premises with
reasonable janitorial and general cleaning services (Monday through
Friday, exclusive of holidays). Landlord shall provide the Premises with
sufficient heating and air conditioning to adequately heat and cool the
Premises. Landlord shall cause telephone service (with Tenant being
responsible for usage charges), electric service and water to be furnished
to the Premises, and shall be responsible for all property taxes with
respect to the Building. Landlord shall furnish adequate running water to
the Building, water fountain, lavatories, and toilets in the common area
of the Building and shall furnish elevator service, if applicable, to the
Premises during ordinary business hours and shall make reasonable elevator
service available to such persons who may be permitted to enter the
Building at other times. Landlord shall be responsible for security,
lighting, sanitary waste disposal, parking area maintenance, and
landscaping, in such a manner as is reasonable in Landlord's opinion. So
long as Tenant shares in the maintenance and other related costs, Landlord
will allow Tenant to share in the usage of the photocopier (Xerox Model
No. 1090; Serial No. M08047158) located within the Premises.
10. Maintenance and Repairs
(a) Landlord, at its cost, shall maintain in good condition (i) the
structural portions of the Building and other improvements that are
a part of the Premises, such structural parts include the
foundations, load-bearing and exterior walls, sub-flooring and roof,
(ii) the electrical, plumbing, and sewage systems, (iii) window
frames, gutter, and downspouts on the Building and other
improvements that are a part of the Premises, and (iv) heating,
ventilation and air-conditioning systems servicing the Premises.
(b) Landlord shall repair the Premises if they are damaged by (i) causes
which Tenant has no control, (ii) acts or omissions of Landlord, or
its authorized representatives, or (iii) Landlord's failure to
perform its obligations under this paragraph.
(c) Tenant shall repair the interior of the Premises, partitions, and
glass damaged due to the neglect of Tenant, its agents or employees.
11. Inspections, Access. Landlord, without abatement of rent and without being
deemed guilty of an eviction of the Tenant, may with reasonable notice,
enter the Premises at reasonable hours to exhibit the same to prospective
purchasers or tenants; to make repairs required of Landlord; to make
repairs, alterations or
<PAGE> 3
additions to adjoining space which Landlord shall deem necessary; and to
take upon the Premises all materials that may be required.
12. Condition of Premises; Alterations and Improvements; Signs. It is
understood and agreed by Tenant that the Premises are being leased to
Tenant in its "as-is" condition. Tenant shall not make alterations in or
additions to the Premises without first obtaining the Landlord's written
consent, such consent shall not be unreasonably withheld or delayed. All
erections, additions, fixtures and improvements, except the movable office
furniture and partitions of the Tenant, made in or upon the Premises,
either by the Tenant or the Landlord, shall be the Landlord's property and
shall remain upon the Premises at termination, by lapse of time or
otherwise, without compensation to the Tenant. Any mechanics liens or
other liens placed on the Premises as a result of any Tenant alterations
made pursuant to this paragraph shall be promptly discharged by Tenant
unless Tenant is contesting such lien in good faith and Tenant has made
appropriate reserves therefore. Tenant shall not erect or install any
signs on the Premises without Landlord's consent, which shall not be
unreasonably withheld or delayed, except for such signs as may be required
by law.
13. Tenant's Property. All property placed on the Premises (by, at the
direction of, or with the consent of Tenant, its employees, agents,
licensees or invitees) shall be at the risk of Tenant or the owner
thereof, and Landlord shall not be liable for any loss of or damage to
said property resulting from any cause whatsoever unless such loss or
damage is the result of Landlord's negligent or willful acts or omissions.
14. Insurance. Throughout the Initial Term of this Lease and any exercised
Renewal Term, Landlord shall carry fire and extended coverage insurance
insuring its interest in the Building and the Premises, such insurance to
be written by insurance companies, and in amounts, satisfactory to
Landlord. Tenant shall be responsible for fire and extended coverage
insurance insuring its interest, if any, in improvements to or in the
Premises and its interest in its office furniture, equipment, supplies and
other property. Tenant shall insure or self-insure against any liability
of Tenant and its authorized representatives arising out of and in
connection with Tenant's use or occupancy of the Premises up to one
million dollars ($1,000,000) on account of bodily injuries to or death of
one person, and one million dollars ($1,000,000) on account of bodily
injuries to or death of more than one person as the result of any one
accident or disaster and five hundred thousand dollars ($5,000,000) on
account of damage to property.
15. Fire or Other Casualty. Tenant shall give immediate notice to Landlord of
partial damage to the Premises by fire or other casualty. Landlord shall
cause the damage to be repaired with reasonable speed. Rent shall be
proportionately reduced to the extent that the Premises are rendered
untenantable. If the Premises are destroyed or so damaged that in normal
course the Premises cannot be made tenantable within sixty days, or if the
damage occurs during the last ninety days of the term and the Tenant does
not exercise any option to renew, either Landlord or Tenant may terminate
this Lease by written notice to the other. Rentals shall be adjusted as of
the date of the damage, and Tenant shall vacate the Premises within twenty
days from the notice of termination.
16. Condemnation. If the whole or any part of the Premises shall be taken or
condemned by any competent authority for any public or quasi public use or
purpose such as to render the Premises unsuitable for Tenant's use, in
Tenant's discretion, then the Term shall terminate from the date of
possession, and the rentals shall be apportioned accordingly. The
condemnation award shall be paid to Landlord with the exception of any
portion as may be attributable to Tenant's property, such portion shall be
paid to Tenant.
17. Quiet Enjoyment. Landlord agrees that Tenant, upon paying the rent and
performing all the terms and conditions of this Lease, shall quietly have,
hold and enjoy the Premises for the Term as herein stated.
18. Notices. Any notice or demand which by any provision of this Lease is
required or permitted to be given by either party shall be deemed to have
been sufficiently given for all purposes when made in writing and
hand-delivered or sent in the United States mail as certified or
registered mail, return receipt requested, postage prepaid and addressed
as follows:
<PAGE> 4
if to Landlord: Roche Biomedical Laboratories, Inc.
348 S. Main Street
Burlington, North Carolina 27215
Attention: Facilities Planning
with a copy to: Roche Biomedical Laboratories, Inc.
231 Maple Avenue
Burlington, North Carolina 27215
Attention: Law Department
if to Tenant: Roche Image Analysis Systems, Inc.
112 Orange Drive
Elon College, North Carolina 27244
Attention: Gary J. Vega
with a copy to: Hoffmann-La Roche Inc.
340 Kingsland Street
Nutley, New Jersey 07110
Attention: Law Department
19. Default. The occurrence of one or more of the following events (an "Event
of Default") shall constitute default by the Tenant:
(a) the rental payments are not paid at the time and place due as
provided herein. Landlord shall give Tenant ten days written notice
of Landlord's intent to declare Tenant in default hereunder, and
Tenant shall have the right to cure such default within ten days
from receipt of the notice;
(b) Tenant fails to comply in any material respect with any term,
provision, condition or covenant of this Lease (other than the
payment of rent), and does not cure such failure within thirty days
after written notice by Landlord specifying such default;
(c) Tenant files (or has filed against it) any petition or action for
relief under any creditor's law (including bankruptcy,
reorganization, or similar actions), either in a state or federal
court;
(d) Tenant becomes insolvent or makes an assignment for benefit of
creditors;
(e) a receiver is appointed for Tenant; or
(f) the leasehold interest of Tenant is attached or levied upon.
20. Landlord's Remedies Upon Default by Tenant. Landlord shall have the
following remedies if Tenant commits an Event of Default. These remedies
are not exclusive; they are cumulative in addition to any remedies now or
later allowed by law.
(a) Landlord shall have the right to terminate this Lease and Tenant's
rights to possession of the Premises at any time without notice to
vacate, re-enter the Premises, pursue its remedies at law or in
equity to recover from Tenant all amounts of rent then due or
thereafter accruing, and pursue such other damages as are caused by
Tenant's default.
(b) No course of dealing between Landlord and Tenant or any delay in
exercising any rights that either party may have under this Lease
shall operate as a waiver of any of the rights hereunder, nor shall
any waiver of a prior default operate as a waiver of any subsequent
default or defaults and no express waiver shall affect any
condition, covenant, rule or regulation other than the one specified
in such waiver and that one only for the time and in the manner
specifically stated.
<PAGE> 5
21. Indemnification. Tenant agrees to indemnify and defend Landlord and to
save harmless Landlord, and the licensees, invitees, agents, servants and
employees of Landlord against and from claims by or on behalf of any
person, firm or corporation, arising by reason of injury to person or
property occurring on the Premises or Building, to the extent occasioned
by a negligent or intentional act or omission on the part of Tenant.
Landlord agrees to indemnify and defend Tenant and to save harmless
Tenant, and the licensees, invitees, agents, servants and employees of
Tenant against and from claims by or on behalf of any person, firm or
corporation, arising by reason of injury to person or property occurring
on the Premises or Building, to the extent occasioned by a negligent or
intentional act or omission on the part of Landlord. In no event shall
either party be liable for incidental, consequential, or special damages
(including lost profits or revenue). Tenant agrees to pay Landlord
promptly for damage to the Premises or Building caused by Tenant and for
damage due to neglect of the Premises by Tenant or neglect by Tenant of
its equipment, apparatus and appurtenances of which Tenant is obligated to
preserve hereunder.
22. Successors and Assigns. The provisions of this Lease shall bind and inure
to the benefit of Landlord and Tenant, and their respective successors,
heirs, legal representatives and assigns.
23. Termination for Changes in Control or Ownership. Tenant shall give notice
to Landlord within fifteen (15) business days of any change in control or
ownership of Tenant. After receipt of Tenant's notice of change in
ownership or control, Landlord shall have thirty (30) days to give notice
of its intent to terminate this Lease; said termination to be effective on
the date stated in the notice, provided that said termination date shall
not be less than six (6) months after the date of notice. For purposes of
this section, "change in control or ownership" shall include (i) except
with respect to HLR Holdings, Inc. or any of its affiliates, any
reorganization, merger, consolidation, sale, issuance or repurchase of
securities, acquisition of securities or voting rights, or any other
transaction or arrangement, or series of transactions or arrangements,
resulting directly or indirectly in the acquisition by any person or
entity of the securities of Tenant, or (ii) the liquidation, sale, lease,
conveyance or other disposition of substantially all of the assets of
Tenant.
24. Mutual Waiver of Subrogation. For the purpose of Waiver of Subrogation,
the parties mutually release and waive unto the other, all rights to claim
damages, cost or expenses for any injuries to persons (including death) or
property caused by casualty of any type whatsoever in or about the
Premises, if the amount of such damages, cost or expense has been paid to
such party under the terms of any policy of insurance. All insurance
policies carried with respect to this Lease, if permitted under applicable
law, shall contain a provision whereby the insurer waives, prior to loss,
all rights of subrogation against either Landlord or Tenant.
25. Entire Agreement. This Lease constitutes the entire understanding between
the parties hereto. No changes, amendments, representations or agreements
will be effective unless they are in writing and signed by authorized
representatives of both parties. The terms and conditions of the Lease
shall supersede all previous agreements, oral or otherwise. This Lease
shall be governed by and construed pursuant to the laws of the State of
North Carolina. Any applicable provisions required by federal, state, or
local law are hereby incorporated by reference.
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
executed in their respective names, as their official acts, by their duly
authorized representatives, effective as of the day and year first above
written.
ROCHE IMAGE ANALYSIS SYSTEMS, INC. ("TENANT")
BY:/s/ illegible
-------------------------------
TITLE: VP Finance & Treasurer
-------------------------------
WITNESS
/s/ illegible
-------------------------------
ROCHE BIOMEDICAL LABORATORIES, INC. ("LANDLORD")
BY: /s/ illegible
-------------------------------
TITLE: SVP
-------------------------------
WITNESS
/s/ illegible
-------------------------------
<PAGE> 7
EXHIBIT A
DESCRIPTION OF THE PREMISES
Approximately 13,500 square feet located within the building located at 112
Orange Drive, Elon College, North Carolina 27244.
<PAGE> 8
LABCORP
Laboratory Corporation of America
Laboratory Corporation of America(TM)Holdings
348 South Main Street
Burlington, North Carolina 27215
Telephone: 800-222-7566, extension 6582
FAX: 910-229-4847
MICHAEL K. MOORE
AVP - FACILITIES PLANNING
January 10, 1996
Mr. Ernie Knesel
Roche Image Analysis Systems, Inc.
112 Orange Drive
Elon College, NC 27244
Re: Lease between Roche Biomedical Laboratories, Inc. and Roche Image Analysis
Systems, Inc.
Dear Mr. Knesel:
Please let this letter serve as official notice that Laboratory Corporation of
America Holdings ("LabCorp") is successor to Roche Biomedical Laboratories, Inc.
and its interest in the above mentioned Lease.
It is our understanding that you wish to renew your current Lease at 112 Orange
Drive, Elon College, NC. The Renewal Term will begin April 25, 1996 and end
April 30, 1997. Per the terms of the Lease, Paragraph 3, an independent
appraisal was obtained for the subject property in October, 1995. You have seen
a copy of this appraisal, and have agreed to the increased rental rate.
LabCorp will renew your Lease for one year at the rate of $8.25/square foot, for
an annual total of $111,375.00, payable in monthly installments of $9,281.25.
Please indicate your acceptance of this renewal, with the agreed upon rate, by
signing below and returning this letter to me.
Sincerely,
/s/ Michael K. Moore
Michael K. Moore
AVP - Facilities Planning
Accepted: /s/ E.A. Knesel Jr. Date: 1-22-96
----------------------- -------------
<PAGE> 9
LABCORP
Laboratory Corporation of America
Laboratory Corporation of America(TM)Holdings
348 South Main Street
Burlington, North Carolina 27215
Telephone: 800-222-7566, extension 6582
FAX: 910-229-4847
MICHAEL K. MOORE
AVP - FACILITIES PLANNING
March 18, 1997
Mr. Bill Green
AutoCyte
112 Orange Drive
Elon College, NC 27244
Re: Lease between LabCorp (formerly Roche Biomedical Laboratories, Inc.) and
AutoCyte (formerly Roche Image Analysis Systems, Inc.) for 112 Orange Drive,
Elon College, NC
Dear Mr. Green:
It is our understanding that at the expiration of your current lease, April 30,
1997, you wish to remain as a month to month tenant, until approximately
December 31, 1997.
LabCorp will permit this tenancy, at the current rental rate of $9,281.25 per
month, with the understanding that you will provide 30 days written notice of
intent to vacate, as stated in paragraph 5 of the Lease.
Sincerely,
/s/ Michael K. Moore
Michael K. Moore
AVP - Facilities Planning
<PAGE> 1
CONFIDENTIAL TREATMENT
EXHIBIT 10.5
TECAN
REDESIGN AND PRODUCTION TRANSFER
This Agreement, made and entered into this January 12, 1995
between
TECAN AG
Feldbachstrasse 80
CH-8634 Hombrechtikon
SWITZERLAND
(hereinafter referred to as "TECAN")
and
ROCHE IMAGE ANALYSIS SYSTEMS
a Division of Roche Biomedical Laboratories, Inc.
112 Orange Drive
Elon College, NC 27244
USA
(hereinafter referred to as "ROCHE")
Whereas, TECAN will redesign the existing CYTO-RICH(TM) prototype hereafter
called "Product" according to the specifications of ROCHE.
Whereas, TECAN will prepare production of Product according to ISO 9001
standards for subsequent distribution.
<PAGE> 2
CONFIDENTIAL TREATMENT
Now, therefore in consideration of the mutual covenants hereinafter expressed,
the parties agree as follows:
1. DEFINITIONS
1.1 Concept phase, consists of the preparation of a detailed Project
Book. The Project Book describes explicitly the Product according to
the specifications of ROCHE including transfer costs to ROCHE. The
concept phase is finalised with the milestone project release.
1.2 Prototype phase includes the development of one prototype of Product
according to the design, concept and specifications of the Project
Book. The prototype phase is finalised with the design review and
prototype release.
1.3 Pilotseries phase consists of the production of the first lot of
*** ******* of Product. The pilotseries phase will terminate with
the release of the pilot built.
2. PROJECT MANAGEMENT
2.1 TECAN will appoint a project manager responsible for the project
within the timeframe and cost frame quoted hereafter.
2.2 The project manager will coordinate and invite ROCHE for each
milestone, accomplishing one project phase.
2.3 The project manager will inform ROCHE immediately upon any
deviation from the project plan.
3. QUOTES FOR PROJECT PHASES
3.1 CONCEPT PHASE
Price: The concept phase is quoted for ***
******.
Result: The result will be presented with a
Project Book (Ver 1.0, see enclosed
copy).
Timeframe: The Project Book will be available in
week 52.
Milestone for next phase: Project release after approval of the
concept phase's result by ROCHE.
3.2 PROTOTYPE PHASE
<PAGE> 3
CONFIDENTIAL TREATMENT
Price: The Prototype phase is quoted for ***
****.
Result: TECAN will build one prototype with
concentration on the critical parts
only. The prototype belongs to TECAN.
Production documentation for pilot
build will be ready.
Timeframe: The prototype phase is finalised 3
months after project release.
Milestone for next phase: Prototype release after approval of
prototype phase's result by ROCHE.
3.3 PILOTSERIES PHASE
Price: Engineering work for the pilotseries
is quoted for *** ****, not
including the instruments.
Transferprice of Product is quoted as
*** ****. The pilotseries
consists of ****.
Result: Final documentation, QC- procedures
and production plans for Product.
Pilotseries of Product
Timeframe: 4 months after prototype release
Milestone for next phase: Release pilot build
after approval of pilot series
phase's results by ROCHE.
3.4 Project release shall initiate prototype phase and prototype
release shall initiate pilotseries phase unless termination by
ROCHE or TECAN according to section 7.2 and 7.3 of this
Agreement.
4. PAYMENT
4.1 Payments shall be made for each phase in CHF within 30 days
after the milestone meeting. Payment shall be made by ROCHE
irrespective of any approval of the respective phase's result.
5. TRAVELLING/EXPENSES
<PAGE> 4
5.1 Each phase's results shall be presented by TECAN to ROCHE at
the milestone meeting which shall take place at TECAN's
premises in Switzerland.
5.2 All expenses shall be borne by the travelling party.
if to ROCHE: if to TECAN:
ROCHE IMAGE ANALYSIS SYSTEMS TECAN AG
112 Orange Drive Feldbachstrasse 80
Elon College, NC 27244 8634 Hombrechtikon
USA SWITZERLAND
Or to such other address as to which either party may advise
the other in writing that notices should be sent.
9. GOVERNING LAW AND ARBITRATION CLAUSE
9.1 This Agreement shall be governed by, and construed in
accordance with, the laws of Switzerland.
9.2 Any disputes arising out of or in connection with this
Agreement, including disputes on its conclusion, binding
effect, amendment and termination, shall be resolved to the
exclusion of the ordinary courts by a sole arbitrator in
accordance with the International Arbitration Rules of the
Zurich Chamber of Commerce. Arbitration shall be conducted in
the English language.
Hombrechtikon, January 12, 1995 Elon College
TECAN AG ROCHE IMAGE ANALYSIS SYSTEMS
/s/Chris Radloff /s/ Marco Forster /s/ J.Racine
- ----------------------------------- ----------------------------
Chris Radloff Marco Forster Jerome Racine
S&M Manager R&D Manager General Manager
<PAGE> 1
CONFIDENTIAL TREATMENT
EXHIBIT 10.6
TECAN
OEM SUPPLY AGREEMENT
This agreement, made and entered into this January 13, 1995
between
TECAN AG
Feldbachstrasse 80
CH-8634 Hombrechtikon
SWITZERLAND
(hereinafter referred to as "TECAN")
and
ROCHE IMAGE ANALYSIS SYSTEMS
a Division of Roche Biomedical Laboratories, Inc.
231 Maple Avenue
Burlington, North Carolina 77215-5848
USA
(hereinafter referred to as "ROCHE")
Whereas, TECAN has developed a RSP (Robotic Sample Processor) which is
manufactured and sold to ROCHE as CYTO-RICH(TM) PREPARATION SYSTEM, hereafter
called "Product".
Whereas, ROCHE will sell the Product world-wide under its name and its Trademark
with its sales force and through its distributors, but will sell product solely
in combination with disposable reagents.
Whereas ROCHE will subcontract to TECAN or it's distributors on-site warranty
and service of Product.
<PAGE> 2
CONFIDENTIAL TREATMENT
Now, therefore, in consideration of the mutual covenants hereinafter expressed,
the parties agree as follows:
1. DEFINITIONS
1.1 "Contract Year" shall mean a period of twelve (12) successive calendar
months during the term of this agreement or any extension thereof, the
first contract year to commence as of January 1st, 1995.
1.2 "Product" means the CYTO-RICH PREPARATION SYSTEM, as described in
Exhibit A.
1.3 "Affiliates" shall mean distributors owned by ROCHE or TECAN.
1.4 "Application" means the use of the Product, in particular the Quad-Arm
(or direct derivatives), for the preparation of cytology or histology
samples for diagnostic purposes.
2. DEVELOPMENT AND EXCLUSIVITY
2.1 TECAN shall modify the Product for ROCHE as per the specifications in
Exhibit A, to become a OEM instrument of ROCHE. The specifications
comply with the project book Ver. 1.0.
2.2 TECAN agrees not to offer directly on the basis of an OEM, PL-, or
Semi-PL-Agreement to any third party any device similar to the Product
and intended for the Application, provided that ROCHE buys from TECAN
at least the following numbers of units of the Product:
YEAR UNITS
1995 *** See Page 8
1996 ***
1997 ***
1998 ***
1999 ***
*** units over 5 years (80% achievement of the original forecast of
*** units)
*********************************************************************
*****************************************************.
2.3 TECAN will supply ROCHE with the most current Integrator software
releases and furthermore confirms that the Integrator software will be
available and supported over the life cycle of the Product.
2.4 Roche assumes all responsibility for the application software
development, documentation, installation and after sales support.
<PAGE> 3
CONFIDENTIAL TREATMENT
3. PURCHASE OF PRODUCT, QUANTITIES AND PRICING
3.1 Subject to the terms and conditions of this agreement, ROCHE shall
purchase, and TECAN shall sell to ROCHE the Product. ROCHE shall
purchase yearly a minimum quantity of the Product hereunder in
accordance with the price schedule on Exhibit B.
3.2 For the first 12 months period ROCHE is deemed to be in the 50-99 units
price bracket. If ROCHE is over- or underachieving the target of 50-99
units, ROCHE is either reimbursed or invoiced according to the
following scheme (example):
Over achievement: Purchase of 110 units per year TECAN shall
reimburse 110 times (*********************)
Under achievement: Purchase of 30 units per year TECAN shall invoice
30 times (*********************)
The ** units purchased at the end of 1994 from TUS are included in the
purchase quantity defining the price bracket for 1995.
3.3 For each year ROCHE and TECAN agree on the minimum quantity of units to
be purchased by ROCHE in the next 12 months period. This number
determines the valid price bracket for the next 12 months period. The
new minimum quantity has to be negotiated 60 days before the expiration
date of each 12 months period.
3.4 The prices of the Product as stated in Exhibit B are valid for the
first 12 months period, starting from January 1st, 1995 and ending on
December 31, 1995.
Prices for the following 12 months period change pursuant to the
increase in production costs for TECAN. New prices have to be
negotiated 60 days before the expiration date of each 12 months period.
4. PURCHASE AND DELIVERY, PAYMENT AND SHIPMENT
4.1 In the first month of each quarter, ROCHE will order the quantities
which will be delivered during the quarter (the Shipping Schedule) and
will forecast for the following 9 months (the Production Schedule). The
Production Schedule is to be used for planning purposes only, and
summarizes the next 9 months forecast activity. The Shipping Schedule
indicates order numbers, quantities and delivery times. The Shipping
Schedule is a committed delivery for ROCHE by TECAN.
ROCHE may order Products in excess of the Shipping Schedule at any
time. TECAN will commit best efforts to meet this supply requirement.
Each purchase order of the Shipping Schedule shall contain a
description of the Products purchased, quantity purchased, routing
instructions, destination, delivery date and confirmation price. TECAN
agrees to accept telegraphic or telefaxed purchase orders.
<PAGE> 4
ROCHE will send the respective written purchase orders within 2 weeks
after sending the telegraphic or telefaxed purchase orders. TECAN will
meet and supply all Shipping Schedule requirements in accordance with
the delivery date(s) set forth in the applicable purchase order for
each Shipping Schedule, except in those cases where ROCHE fails to
follow the procedure set forth in Section 4.1.
4.2 According to the release point of the Product the payment shall be in
USD (for United States) or in CHF (for non US) deliveries. Payment
shall be net in the respective currency within 60 days from the date of
invoice. Delays in payment will result in the usual and applicable
interest rates.
4.3 The exchange rate for deliveries is set to CHF 1.30/USD. Exchange rate
fluctuations between the CHF and USD will be checked twice annually and
the exchange-risk is split 50:50 by ROCHE and TECAN. TECAN shall
invoice/issue credit note to ROCHE of 50% of the exchange rage
fluctuation influence on the ordered and paid instruments in USD
semi-annually. For the calculation basis we use the average exchange
rate of the previous 6 months.
4.4 Prices are quoted ex works. For deliveries to the U.S. Tecan US will
forward ROCHE the occurring CIF-costs.
4.5 Delivery times: ca. 6-8 weeks after receipt of ROCHE's Shipping
Schedule.
4.6 TECAN will ship the Product FCA Zurich airport or FCA Durham, North
Carolina depending on the release point. Shipment is done via common
carriers solely selected by ROCHE. All freight (and as applicable
world-wide duty) charges shall be paid by ROCHE. Title and risk of loss
or damage of any items delivered hereunder shall pass to ROCHE upon
delivery to the common carrier pursuant to the respective Incoterms
rules (1990).
4.7 Ordering, shipment and further logistics of the Hettich centrifuge is
co-ordinated by ROCHE. TECAN's sole responsibility regarding the
centrifuge is the warranty of the centrifuge.
5. PRODUCT CHANGES
5.1 TECAN may, from time to time, modify or update the Products, spare
parts or accessory material. All changes, having an effect on the
functionality of the Product shall be announced in writing. In these
cases, ROCHE shall have the right to reject the changes within 30 days,
in writing, with the exception of changes which are required by law.
5.2 The accepted changes shall be added as an amendment to the
specification in Exhibit A.
5.3 Enhancements in the Product, spare parts and accessory materials are
subject to TECAN's price policy.
<PAGE> 5
5.4 Any major changes in the application software or the documentation
governing control of the Product shall be forwarded to the responsible
product manager/sales engineer at TECAN to guarantee the compliance of
the Product with the specifications in Exhibit A.
6. LEGAL AND REGULATORY RESPONSIBILITY AND LABELLING
6.1 Any product and spare parts and all documents or other items relating
hereto supplied by TECAN under this agreement shall be manufactured
(or, as applicable, prepared) in accordance with the specifications and
manufacturing practices generally accepted in its business domain.
7. QUALITY CONTROL
Every Product and spare parts shall be subject to a quality control
inspection by TECAN and non-conforming products shall not be shipped by
TECAN.
8. INSTALLATION, TRAINING, WARRANTY AND SERVICE
8.1 ROCHE will install the Product (and the Hettich centrifuge), train
customers of ROCHE with regard to the Product. TECAN will warrant the
Product (and the Hettich centrifuge) in all countries where TECAN has
its own Affiliates (Exhibit C). In countries where TECAN is represented
through an independent distributor, TECAN will do its best effort to
provide ROCHE and its distributors and customers the same after sales
support.
8.2 For service calls within the warranty period which are not related to
the Product (e.g. application software, application in general, PC or
system) TECAN's representative will charge ROCHE the incurred expenses.
8.3 If TECAN's independent distributors do not collaborate in the way
foreseen in Section 8.1 of this Agreement, TECAN offers to train
ROCHE's local distributor at TECAN AG's location free of charge. Travel
and lodging costs have to be borne by ROCHE.
8.4 The following training is provided by TECAN to ROCHE or its
distributors free of charge on a yearly basis at either TECAN CH, TECAN
US or TECAN JAPAN premises:
# Training/Year Duration
Service/Operation 2 2-3 days
8.5 TECAN warrants each Product for a period of twelve (12) months from the
date of shipment in the sense that such Product is free from defects in
workmanship and materials and is manufactured in complete conformity
with the specifications under this agreement. Disposable parts of the
Product, i.e. valves, tips, fittings, tubings and syringes, are
excluded from any warranty.
<PAGE> 6
CONFIDENTIAL TREATMENT
8.6 After the warranty period TECAN or its distributors, respectively,
offer ROCHE or ROCHE's distributors or customers, service according to
the terms specified in Exhibit D. In all other countries conditions
have to be negotiated on a local level.
8.7 ROCHE hereby indemnifies and agrees to hold TECAN harmless from and
against all claims and liabilities resulting from ROCHE's or its
distributors failure to maintain the Product according to the generally
accepted rules in the industry.
8.8 TECAN represents and warrants that Product, spare parts and accessory
materials shall be delivered free of any rights of any third party.
TECAN has good title to and has full power to sell Product, spare parts
and accessory materials to ROCHE hereunder for ROCHE's unrestricted
world-wide marketing, distribution and sale.
8.9 For a period of seven (7) years from the date of delivery of the last
unit Product shipped hereunder, TECAN agrees to maintain the ability to
deliver spare parts. The supply of service and spare parts after the
warranty period will be done on a local level between the customer of
ROCHE, respectively ROCHE and TECAN's local distributor.
8.10 ROCHE shall be responsible for its own insurance coverage against third
party claims and liabilities (including but not limited to product
liability and consequential damages).
9. TERM OF AGREEMENT
**********************************************************************
****************************************************************
*****************************************************************
********************************************************************
******************************************************************
***************************************************************
******************************************
10. TERMINATION
Both parties agree to do their best to settle any dispute arising from
this agreement amicably.
11. CONFIDENTIAL INFORMATION
Each party understands that during the course of its association with
the other, it may acquire or have access to information that is
confidential and of great value to the other ("confidential
information").
Therefore, each party ("receiving party") agrees that during the term
of this Agreement and a period of three (3) years after termination of
this agreement, it shall not use (except for the purposes set forth in
this agreement) or disclose the confidential information of the other
("the disclosing party") without the disclosing party's prior
<PAGE> 7
written consent and each party agrees that it will impose the same
obligations on its employees who have access to such confidential
information to the extent permitted by law.
12. MISCELLANEOUS PROVISIONS
12.1 All written notices and demands required or permitted to be given or
made pursuant to this agreement shall be in English and shall
conclusively be presumed for all purposes of this agreement to be given
or made at the time the notice or demand is personally given or made,
or at the time it is sent by registered mail, or fax or courier
addressed as follows:
If to ROCHE: If to TECAN:
ROCHE IMAGE ANALYSIS SYSTEMS TECAN AG
112 Orange Drive Feldbachstrasse 80
Elon College, North Carolina 27244 8634 Hombrechtikon
USA SWITZERLAND
Or to such other address as to which either party may advise the other
in writing that notices should be sent.
12.2 This agreement shall be binding upon and relate to the benefit of the
parties hereto, their successors and assignees. This agreement shall be
assignable by either party only with the prior written consent of the
other, except that either party may assign this agreement without the
consent of the other to a wholly owned subsidiary or to the purchaser
or all its stock or assets of its business to which this agreement
relates.
This Agreement supersedes earlier contracts between TECAN's Affiliates
and ROCHE regarding the Product.
13. GOVERNING LAW AND ARBITRATION CLAUSE
13.1 This agreement shall be governed by, and construed in accordance with,
the laws of Switzerland.
<PAGE> 8
13.2 Any disputes or controversies arising out of or in connection with this
agreement, including disputes on its conclusion, binding effect,
amendment and termination, shall be resolved to the exclusion of the
ordinary courts by a sole arbitrator in accordance with the
International Arbitration Rules of the Zurich Chamber of Commerce.
Arbitration shall be conducted in the English language.
Hombrechtikon, January 13, 1995 Elon College,
TECAN AG ROCHE IMAGE ANALYSIS
SYSTEMS
/s/Chris Radloff /s/ Felix Hofsetter /s/ J. Racine
- ---------------------------------------------- -----------------------
Chris Radloff Felix Hofstetter Jerome Racine
S&M Manager F&A Manager General Manager
Addendum to Article 2.2
The *** units purchased at the end of 1995 from TUS are included in the purchase
quantity specified for 1995.
<PAGE> 9
EXHIBIT A
(this is an extract from the Project Book, all information in the Project Book
supersedes the information in this exhibit)
ROCHE CYTO-RICH PREPARATION SYSTEM Part. No. _______ includes:
Description: Part Number:
1 Specimen tray
1 RSP 5051 including: 505100
1 1000 (micron symbol)l DiTi C option 520041
1 Additional 465 Dilutor 520022
4 5 ml syringes 300206
1 QUAD ______
1 Alignment rack for QUAD ______
1 Waste station including: ______
1 Tip rack ______
1 Waste / wash station ______
1 Tip loading rack ______
1 Slide rack adapter plate ______
4 Slide rack ______
1 Vacuum pump set including: ______
1 Waste bottle ______
1 Tubing Kit ______
1 Tube evacuator ______
1 Tubing Kit ______
1 Solenoid Valve Kit ______
1 Operating manual ______
1 Misc. hardware set including: ______
1 1 to 4 distribution block (Vacuum) ______
1 Special tubing guide ______
1 Waste bottle ______
The Cyto-Rich system does not include the controlling PC, nor the application
software written in Integrator.
The ROCHE CYTO-RICH PREPARATION SYSTEM is white including the safety guard and
instead of the TECAN-Logo the ROCHE-Label is placed.
<PAGE> 10
CONFIDENTIAL TREATMENT
EXHIBIT B
Price list of Products for 1995
PRODUCT PRICE BRACKET PRICE PER UNIT
CHF
25 - 49 ********
50 - 99 ********
> 100 ********
Prices are valid for purchase quantity within a 12 months period. The exchange
rate for 1995 is set to CHF 1.30/USD for deliveries to the U.S.
Prices include service and support duties as specified in article 9.1.
<PAGE> 11
EXHIBIT C
Countries where TECAN is represented through it's own Affiliates:
United Kingdom
France
Germany
Italy
Japan
Singapore
Switzerland
Austria
U.S.A.
<PAGE> 12
CONFIDENTIAL TREATMENT
EXHIBIT D
Conditions for subcontracting service in countries where TECAN is represented
through its own Affiliates. Service contracts are in the respective language of
the country.
****************************************************************************
*******************************************************************************
*************************
SERVICE CONTRACT WILL COVER:
- - Interaction within 1 - 3 days, depending on the country
- - Parts, labour and travelling
- - 2 preventative maintenance visits per year
SERVICE CONTRACT DOES NOT COVER:
- - Disposables (valves, tips and tubings)
- - Faults occurred due to a misuse of equipment
- - ROCHE's application software and ROCHE's confirmed reagent related problems
<PAGE> 1
CONFIDENTIAL TREATMENT
EXHIBIT 10.7
TECAN
AMENDMENT TO THE OEM SUPPLY AGREEMENT
DATED JANUARY 13, 1995
This agreement, made and entered into this October 14, 1996.
between
TECAN AG
Feldbachstrasse 80
CH-8634 Hombrechtikon
SWITZERLAND
(hereinafter referred to as "TECAN")
and
AUTOCYTE INC.
112 Orange Drive
Elon College, North Carolina 27244
USA
formerly
ROCHE IMAGE ANALYSIS SYSTEMS
(a Division of Roche Biomedical Laboratories, Inc.)
231 Maple Avenue
Burlington, North Carolina 77215-5848
USA
(hereinafter referred to as "AUTOCYTE")
In view of the recent changes in Ownership and the name change of RIAS to
AutoCyte Inc. the following articles of the OEM Supply Agreement, dated January
13, 1995, will be amended as follows:
<PAGE> 2
CONFIDENTIAL TREATMENT
2. DEVELOPMENT AND EXCLUSIVITY
In view of the delayed market introduction of CytoRich, TECAN agrees
to modify Article 2.2 as follows:
2.2 TECAN agrees not to offer directly on the basis of an OEM, PL-, or
Semi-PL- Agreement to any third party any device similar to the
Product and intended for the Application, provided that AUTOCYTE buys
from TECAN at least the following numbers of units of the Product:
PERIOD UNITS
mid 1996 - mid 1997 ***
mid 1997 - mid 1998 ***
mid 1998 - mid 1999 ***
mid 1999 - mid 2000 ***
mid 2000 - mid 2001 ***
mid 2001 - mid 2002 ***
mid 2002 - mid 2003 ***
*** units over life cycle (80% achievement of the modified forecast
of May 1996).
**************************************************************
*****************************************************************.
****************************************************************
****************************************************************
*****.
********************************************************************
***************************************************************
*******************************************************************
********************************************************************
**********.
3. PURCHASE OF PRODUCT, QUANTITIES AND PRICING
NO CHANGE
4. DEVELOPMENT AND EXCLUSIVITY
4.1 - 4.2 NO CHANGE
4.3 The exchange rate for deliveries from October 1996 until December 31,
1997 is set to CHF 1.25/USD, (New Exchange rate)
Exchange rate fluctuations between the CHF and USD will be checked
twice annually and the exchange-risk is split 50:50 by AUTOCYTE and
TECAN. TECAN shall invoice/issue credit note to AUTOCYTE of 50% of
the exchange rate fluctuation influence on the ordered and paid
instruments in USD semi-annually. For the calculation basis we use
the average exchange rate of the previous 6 months.
4.4 Prices are quoted FOB Zurich airport.
<PAGE> 3
4.5 Delivery times: ca. 8 - 10 weeks after receipt of AUTOCYTE's Shipping
Schedule.
4.6 TECAN will ship the Product FOB Zurich airport. Shipment is done via
common carriers solely selected by AUTOCYTE. All freight (and as
applicable world-wide duty) charges shall be paid by AUTOCYTE. Title
and risk of loss or damage of any items delivered hereunder shall
pass to AUTOCYTE upon delivery to the common carrier pursuant to the
respective Incoterms rules (1990).
4.7 STRICKEN.
8. INSTALLATION, TRAINING, WARRANTY AND SERVICE
8.1 AUTOCYTE will install the Product and train customers of AUTOCYTE
with regard to the Product.
8.2 For service calls within the warranty period which are not related to
the Product (e.g. application software, application in general, PC or
system) TECAN's representative will charge AUTOCYTE the incurred
expenses.
8.3 STRICKEN.
8.4 STRICKEN.
8.5 TECAN warrants each Product for a period of twelve (12) months from
the date of installation at AutoCyte, trade exhibition or the
customer confirmed by the returned installation report or date of
shipment if an installation report has not been received within 90
days of shipment, in the sense that such Product is free from defects
in workmanship and materials and is manufactured in complete
conformity with the specifications under this agreement. Disposable
parts or parts in contact with liquids of the Product, i.e. valves,
tips, fittings, tubings and syringes, are excluded from any warranty.
8.6 After the warranty period TECAN or its distributors, respectively,
offer AUTOCYTE or AUTOCYTE's distributors or customers, service
contracts, conditions of which have to be negotiated on a local
level.
8.7 NO CHANGE
8.8 NO CHANGE
8.9 For a period of seven (7) years from the date of delivery of the last
unit Product shipped hereunder, TECAN agrees to maintain the ability
to deliver spare parts. The supply of service and spare parts after
the warranty period will be done on a local level according to
negotiated conditions as described in Article 8.6 above.
8.10 NO CHANGE
<PAGE> 4
9 to 11: NO CHANGE
12. MISCELLANEOUS PROVISIONS
12.1 All written notices and demands required or permitted to be given or
made pursuant to this agreement shall be in English and shall
conclusively be presumed for all purposes of this agreement to be
given or made at the time the notice or demand is personally given or
made, or at the time it is sent by registered mail, or fax or courier
addressed as follows:
If to AUTOCYTE: If to TECAN:
AUTOCYTE, INC. TECAN AG
112 Orange Drive Feldbachstrasse 80
Elon College, North Carolina 27244 8634 Hombrechtikon
USA SWITZERLAND
Or to such other address as to which either party may advise the
other in writing that notices should be sent.
12.2 This agreement shall be binding upon and relate to the benefit of the
parties hereto, their successors and assignees. This agreement shall
be assignable by either party only with the prior written consent of
the other, except that either party may assign this agreement without
the consent of the other to a wholly owned subsidiary or to the
purchaser of all its stock or assets of its business to which this
agreement relates.
This Agreement supersedes earlier contracts between TECAN's
Affiliates and ROCHE or AUTOCYTE INC. respectively regarding the
Product.
Hombrechtikon, October 14, 1996 Elon College, Nov 4, 1996
TECAN AG AUTOCYTE INC.
/s/ B. Lindemann /s/ Felix Hofstetter /s/ Ernest A. Knesel
- ---------------------------------------------- ------------------------
B. Lindemann Felix Hofstetter President
S&M Manager F&A Manager
<PAGE> 5
CONFIDENTIAL TREATMENT
EXHIBIT B (AMENDED)
Price list of Products for 1996 - 1997
<TABLE>
<CAPTION>
Product Price Bracket Price per Unit Price per Unit
CHF USD (@ 1.25)
<S> <C> <C>
<25 ** ****** ** ******
26 - 50 ** ****** ** ******
51 - 99 ** ****** ** ******
> 100 ** ****** ** ******
- -
</TABLE>
Prices are valid for purchase quantity within a 12 months period. The bracket
set for 1996 - 1997 is for less than 25 complete instruments.
The exchange rate for 1996 - 1997 is set to CHF 1.25/USD for deliveries to the
U.S.
Prices include no service and no support duties as specified in article 8.1
(amended)
EXHIBIT C: STRICKEN
EXHIBIT D: STRICKEN
<PAGE> 1
CONFIDENTIAL TREATMENT
EXHIBIT 10.8
**********************************
- --------------------------------------------------------------------------------
AGREEMENT
This AGREEMENT is made and shall be effective this 26th day of July ,
1993, by and between ********************************** ****** **************
******* ** **** ******* ***, ******, **, ***** (hereinafter "***") and Roche
Image Analysis Systems (RIAS), a subsidiary of Roche Biomedical Laboratories,
Inc. having offices at 231 Maple Avenue, Burlington, NC, 27215 (hereinafter
"Roche");
WHEREAS, *** possesses certain information relating to plastic
manufacturing ("Plastics") and Roche possesses certain know-how regarding
cytology preparation and automation ("Cytoprep"); and
WHEREAS, *** and Roche desire to develop Roche's Cytoprep technology
applications using plastic disposables.
NOW, THEREFORE, for and in consideration of the mutual covenants
contained herein, *** and Roche do hereby agree as follows:
1. The "Technology" shall mean any and all information, technical or
non-technical, know-how data whether in written or oral form, disclosed by Roche
to ***, which relates to Cytology preparation and automation using Cytoprep
Technology.
2. Roche warrants that it has the full and unconditional right to
disclose the Technology, free of charge, to ***.
3. *** agrees not to use the received Technology for any other purpose
other than its evaluation and determination of its interest in collaborating in
developing "plastic disposables" for use with the Technology for Roche; and ***
will treat the received Technology as if it were its own proprietary information
and will not disclose it to any third party without the written consent of
Roche.
4. All persons receiving the Technology on behalf of *** under the
Agreement must assume in writing the same confidentiality and non-use
obligations as are set forth in this Agreement. *** shall be responsible for
assuring that such persons comply with this paragraph prior to review of the
Technology.
5. *** agrees that it will not directly or indirectly or in any way
market any product using the Technology except under a subsequent and separate
written agreement executed by authorized representatives of Roche.
<PAGE> 2
CONFIDENTIAL TREATMENT
6. *** acknowledges Roche's exclusive ownership of the specific
Cytoprep product designs and the tools and molds purchased by Roche for
manufacturing such product.
7. In recognition of research and development work done by *** for the
design of all plastic components related to the Cytoprep Technology, Roche
agrees to use *****************************************************************
********************************************************************************
******************************************************************************
**************************************************************************
**************************************************************************
************************************. This commitment shall be binding on Roche
provided that *** agrees to supply Roche at a competitive price that would be
available to Roche from a third party manufacturer. If, during the terms of this
agreement, Roche informs *** in writing that Roche has received a bona fide
lower offer from another manufacturer for product of equal quality to the
present product and such offer covers the period of time remaining on the full
term of this agreement, then *** shall have 90 days from written notice to meet
such lower price. In the event *** elects not to meet such lower price, then
this agreement can be kept in effect by *** and Roche mutually agreeing on
higher price than the then competitive offer. But, in absence of such mutual
agreement, this Agreement shall be terminated at the end of 90 days.
This commitment shall be valid as long as *** meets Roche quality and production
requirements. These requirements, which have not yet been defined, will be
mutually agreed upon by both parties and become a part of this Agreement.
Roche agrees to give *** written notice of such failure and 60 days to remedy
the failure. If the problem is not eliminated within 60 days, Roche will be free
to obtain Cytoprep products from another source.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
fully executed by their authorized representatives in duplicate:
ROCHE IMAGE ANALYSIS SYSTEMS
By: /s/ Ernest A. Knesel Jr.
- ----------------------------
Title: Sr. V.P.
- ----------------------------
Date: 7-22-93
- ----------------------------
**********************************
By: *** ***** *. **********
- ----------------------------
Title: President
- ----------------------------
Date: 7-26-93
- ----------------------------
<PAGE> 1
EXHIBIT 10.9
RIGHTS AGREEMENT
This Rights Agreement dated as of November 22, 1996 is entered into by
and among AutoCyte Inc., a Delaware corporation (the "Company"), the individuals
and entities listed on Exhibit A hereto (the "Purchasers").
WHEREAS, the Company and the Purchasers have entered into a Series A
Preferred Stock Purchase Agreement of even date herewith (the "Purchase
Agreement"); and
WHEREAS, the Company and the Purchasers desire to provide for certain
rights to purchase shares of capital stock of the Company which the Company may
from time to time propose to issue and sell;
WHEREAS, the Company and the Purchasers desire to provide for certain
arrangements with respect to the registration of shares of capital stock of the
Company under the Securities Act of 1933;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"Commission" means the Securities and Exchange Commission, or
any other Federal agency at the time administering the Securities Act.
"Common Stock" means the common stock, $.01 par value per share,
of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar Federal statute, and the rules and regulations of the
Commission issued under such Act, as they each may, from time to time, be in
effect.
"New Securities" shall mean any capital stock of the Company
whether or not now authorized, and rights, options or warrants to purchase
capital stock, and securities of any type whatsoever which are, or may become,
convertible into capital stock; provided, however, that the term "New
Securities" shall not include (i) the Shares or the shares of Common Stock
issuable upon the conversion of the Shares; (ii) 3,075,000 shares of the
Company's Common Stock currently reserved for issuance pursuant to the AutoCyte,
Inc. 1996 Equity Incentive Plan or to the issuance of shares of Common Stock
pursuant to such plan or to any option or warrant issued at or prior to the date
of this Agreement; (iii) any shares acquired pursuant to restricted stock
arrangements from employees who have terminated their employment with the
Company which are thereafter reissued to employees and; (iv) securities issued
as a result of any stock split, stock dividend or reclassification of Common
Stock, distributable on a pro rata basis to
<PAGE> 2
all holders of Common Stock; and (v) securities issued pursuant to equipment
lease financings and/or in connection with strategic alliances, joint ventures
or partnerships, each as approved by the Board of Directors.
"Registration Statement" means a registration statement filed by
the Company with the Commission for a public offering and sale of Common Stock
(other than a registration statement on Form S-8 or Form S-4, or their
successors, or any other form for a similar limited purpose, or any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation).
"Registration Expenses" means the expenses described in Section
2.5.
"Registrable Shares" means (i) the shares of Common Stock issued
or issuable upon conversion of the Shares and (ii) any other shares of Common
Stock of the Company issued in respect of the Shares (because of stock splits,
stock dividends, reclassifications, recapitalizations, or similar events).
Wherever reference is made in this Agreement to a request or consent of holders
of a certain percentage of Registrable Shares, or to a number or percentage of
Registrable Shares held by a Stockholder (as defined below), such reference
shall include shares of Common Stock issuable upon conversion of the Shares even
though such conversion has not yet been effected.
"Securities Act" means the Securities Act of 1933, as amended, or
any similar Federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
"Shares" shall have the meaning specified in Section 1.2 of the
Purchase Agreement.
"Stockholders" means the Purchasers and any persons or entities to
whom the rights granted under this Agreement are transferred by any Purchasers,
their successors or assigns pursuant to Section 4 hereof.
2. Registration Rights.
2.1. Sale or Transfer of Shares; Legend.
(a) The Registrable Shares shall not be sold or transferred unless
either (i) they first shall have been registered under the Securities Act, or
(ii) the Company first shall have been furnished with an opinion of legal
counsel, reasonably satisfactory to the Company, to the effect that such sale or
transfer is exempt from the registration requirements of the Securities Act.
(b) Each certificate representing the Registrable Shares shall
bear a legend substantially in the following form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), or applicable state securities laws
- 2 -
<PAGE> 3
and may not be transferred or otherwise disposed of unless and
until such shares are registered under the Act and such laws or
(1) registration under applicable state securities laws is not
required and (2) an opinion of counsel satisfactory to the Company
is furnished to the Company to the effect that registration under
the Act is not required."
The foregoing legend shall be removed from the certificates
representing any Registrable Shares at the request of the holder thereof at such
time as they become registered under the Securities Act or eligible for resale
pursuant to Rule 144(k) under the Securities Act.
2.2. Required Registrations.
(a) At any time following the earlier of: (i) three years from
closing or (ii) six months after the Company's initial public offering, and
within 90 days following written notice from a Stockholder or Stockholders
holding (or intending to convert Shares into) not less than forty percent (40%)
of the then outstanding Registrable Shares, the Company shall use its best
efforts to effect the registration of such Registrable Shares on Form S-1 or
Form S-2 (or any successor forms) or other appropriate Registration Statement
designated by such Stockholder or Stockholders.
(b) At any time after the Company becomes eligible to file a
Registration Statement on Form S-3 (or any successor form relating to secondary
offerings), a Stockholder or Stockholders may request the Company, in writing,
to effect the registration on Form S-3 (or such successor form), of the
Registrable Shares of such Stockholder or Stockholders having an aggregate
offering price of at least $1,000,000 (based on the then current public market
price). Thereupon, the Company shall, as expeditiously as possible, use its best
efforts to effect the registration on Form S-3, or such successor form, of all
Registrable Shares which the Company has been requested to register.
(c) The Stockholders shall have the right to require the Company
to effect two demand registrations on Form S-1 or Form S-2 and an unlimited
number of registrations on Form S-3 (or any successor forms) pursuant to this
Section 2.2; however, a registration on Form S-1 or Form S-2 will not count for
this purpose (i) unless it becomes effective and holders are able to sell at
least 80% of the Registrable Shares sought to be included in such registration,
or (ii) if the Company elects to sell stock of the Company pursuant to a
Registration Statement at the same time. The Company shall not, however,
register any additional shares of stock of the Company at the same time as a
demand registration without the prior written consent of the holders of a
majority of the Registrable Shares to be included in the demand registration.
(d) If at the time of any request to register Registrable Shares
pursuant to this Section 2.2, the Company is engaged or has fixed plans to
engage within 30 days of the time of the request in a registered public offering
as to which the Stockholders may include Registrable Shares pursuant to Section
2.3 or is engaged in any other activity which, in the good faith determination
of the Company's Board of Directors, would be adversely affected by the
requested registration to the material detriment of the Company, then the
Company may at its option direct that such request be delayed for a period not
in excess of six months from the effective date of such offering or the date of
commencement of such other material activity, as
- 3 -
<PAGE> 4
the case may be, such right to delay a request to be exercised by the Company
not more than once in any one-year period.
2.3. Incidental Registration.
(a) Whenever the Company proposes to file a Registration
Statement, prior to such filing it shall give written notice to all Stockholders
of its intention to do so, and upon the written request of a Stockholder or
Stockholders given within 30 days after the Company provides such notice (which
request shall state the intended method of disposition of such Registrable
Shares), the Company shall cause all Registrable Shares which the Company has
been requested to register to be registered under the Securities Act to the
extent necessary to permit their sale or other disposition in accordance with
the intended methods of distribution specified in the request of such
Stockholder(s).
(b) In connection with any offering under this Section 2.3
involving an underwriting, the Company shall not be required to include any
Registrable Shares in such underwriting unless the holders thereof accept the
terms of the underwriting as agreed upon between the Company and the
underwriters selected by it, and then only in such quantity as will not, in the
opinion of the underwriters, jeopardize the success of the offering by the
Company. If in the opinion of the managing underwriter the registration of all,
or part of, the Registrable Shares which the Stockholders have requested to be
included would materially and adversely affect such public offering, then the
Company shall be required to include in the underwriting only that number of
Registrable Shares, if any, which the managing underwriter believes may be sold
without causing such adverse effect. In the event of such a reduction in the
number of shares to be included in the underwriting, all Stockholders of
Registrable Shares who have requested registration shall participate in the
underwriting pro rata based upon their total ownership of Registrable Shares (or
in any other proportion as agreed upon by such Stockholders) and if any such
Stockholders would thus be entitled to include more shares than such
Stockholders requested to be registered, the excess shall be allocated among
such other requesting holders pro rata based on their ownership of Registrable
Shares. No other securities requested to be included in a registration for the
account of anyone other than the Company or the Stockholders shall be included
in a registration unless all Registrable Shares requested to be included in such
registration are also included.
2.4. Registration Procedures. If and whenever the Company is required
by the provisions of this Agreement to use its best efforts to effect the
registration of any of the Registrable Shares under the Securities Act, the
Company shall:
(a) file with the Commission a Registration Statement with respect
to such Registrable Shares and use its best efforts to cause that Registration
Statement to become and remain effective;
(b) as expeditiously as possible prepare and file with the
Commission any amendments and supplements to the Registration Statement and the
prospectus included in the Registration Statement as may be necessary to keep
the Registration Statement effective for a period of not less than 90 days from
the effective date;
- 4 -
<PAGE> 5
(c) as expeditiously as possible furnish to each selling
Stockholder such reasonable numbers of copies of the prospectus, including the
preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents as the selling Stockholder may reasonably request
in order to facilitate the public sale or other disposition of the Registrable
Shares owned by the selling Stockholder; and
(d) as expeditiously as possible use its best efforts to register
or qualify the Registrable Shares covered by the Registration Statement under
the securities or Blue Sky laws of such states as the selling Stockholder shall
reasonably request, and do any and all other acts and things that may be
necessary or desirable to enable the selling Stockholder to consummate the
public sale or other disposition of the Registrable Shares owned by the selling
Stockholder in such jurisdictions; provided, however, that the Company shall not
be required in connection with this paragraph (d) to qualify as a foreign
corporation in any jurisdiction.
If the Company has delivered preliminary or final prospectuses to
selling Stockholders and after having done so the prospectus is amended to
comply with the requirements of the Securities Act, the Company shall promptly
notify the selling Stockholders and, if requested, the selling Stockholders
shall immediately cease making offers of Registrable Shares and shall return all
prospectuses to the Company. The Company shall promptly provide the selling
Stockholders with revised prospectuses and, following receipt of the revised
prospectuses, the selling Stockholder shall be free to resume making offers of
the Registrable Shares.
2.5. Allocation of Expenses. The Company shall pay the Registration
Expenses for (i) the first two demand registrations on Form S-1 or Form S-2 (or
any successor forms) and (ii) the first two demand registrations on Form S-3. If
a registration on a Registration Statement other than Form S-3 (or any successor
form) requested by the Stockholders pursuant to paragraph (a) of Section 2.2 is
withdrawn at the request of the Stockholders requesting it (other than as a
result of information concerning the business or financial condition of the
Company that is made known to the Stockholders after the date on which such
registration was requested) and if the requesting Stockholders holding a
majority of the Registrable Shares requested to be included in such registration
elect not to have such registration counted as a registration requested under
paragraph (a) of Section 2.2, the requesting Stockholders shall pay the
Registration Expenses of such registration pro rata in accordance with the
number of their Registrable Shares included in such registration. For purposes
of this Section, the term "Registration Expenses" shall mean all expenses
incurred by the Company in complying with this Section 2, including, without
limitation, all registration and filing fees, exchange listing fees, printing
expenses, fees and disbursements of counsel for the Company and one counsel for
the selling Stockholders, out-of-pocket expenses of the Company and the
underwriters, state Blue Sky fees and expenses, and the expense of any special
audits incident to or required by any such registration, but excluding
underwriting discounts and selling commissions and fees of more than one counsel
for the selling Stockholders. Such underwriting discounts and selling
commissions shall be borne pro rata by the selling Stockholders in accordance
with the number of their Registrable Shares included in such registration.
2.6. Indemnification. In the event of any registration of any of the
Registrable Shares under the Securities Act pursuant to this Agreement, then to
the extent permitted by law the Company shall indemnify and hold harmless the
seller of such Registrable Shares, each
- 5 -
<PAGE> 6
underwriter of such Registrable Shares and each other person, if any, who
controls such seller or underwriter within the meaning of the Securities Act or
the Exchange Act against any losses, claims, damages or liabilities, joint or
several, to which such seller, underwriter or controlling person may become
subject under the Securities Act, the Exchange Act, state securities laws or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement
under which such Registrable Shares were registered under the Securities Act,
any preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to such Registration Statement, or
arise out of or are based upon the omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading; and the Company shall reimburse each such seller,
underwriter and controlling person for reasonable legal or any other expenses
incurred by such seller, underwriter or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon any untrue statement or omission made in such Registration Statement,
preliminary prospectus or final prospectus, or any such amendment or supplement,
in reliance upon and in conformity with information furnished to the Company, in
writing, by or on behalf of such seller, underwriter or controlling person
specifically for use in the preparation thereof.
In the event of any registration of any of the Registrable Shares under
the Securities Act pursuant to this Agreement, then to the extent permitted by
law, each seller of Registrable Shares, severally and not jointly, shall
indemnify and hold harmless the Company, each of its directors and officers and
each underwriter (if any) and each person, if any, who controls the Company or
any such underwriter within the meaning of the Securities Act or the Exchange
Act, against any losses, claims, damages or liabilities, joint or several, to
which the Company, such directors and officers, underwriter or controlling
person may become subject under the Securities Act, Exchange Act, state
securities laws or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement under which such Registrable Shares were registered under
the Securities Act, any preliminary prospectus or final prospectus contained in
the Registration Statement, or any amendment or supplement to the Registration
Statement, or arise out of or are based upon any omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, if the statement or omission was made solely
in reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of such seller, specifically for use in connection with
the preparation of such Registration Statement, prospectus, amendment or
supplement; and such seller shall reimburse the Company for reasonable legal or
other expenses incurred by the Company in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the obligations of any seller of Registrable Shares hereunder shall not
exceed an amount equal to the proceeds to such seller of the Registrable Shares
sold pursuant to the Registration Statement.
An underwriter shall not be entitled to indemnification pursuant to
this subsection in the event that it fails to deliver to any selling Stockholder
any preliminary or final or revised prospectus, as required by the rules and
regulations of the Commission. Finally, no
- 6 -
<PAGE> 7
indemnification shall be provided pursuant to this subsection in the event that
any error in a preliminary prospectus of the Company is subsequently corrected
in the final prospectus of the Company for a particular offering, and such final
prospectus is delivered to all purchasers in the offering prior to the date of
purchase of the securities.
Each party entitled to indemnification under this Section 2.6 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided, that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld); and, provided, further, that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 2.6. The Indemnified Party may participate in
such defense at such party's expense; provided, however, that the Indemnifying
Party shall pay such expense if representation of such Indemnified Party by the
counsel retained by the Indemnifying Party would be inappropriate due to actual
or potential differing interests between the Indemnified Party and any other
party represented by such counsel in such proceeding. No Indemnifying Party, in
the defense of any such claim or litigation shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect of such claim or litigation, and no Indemnified Party shall
consent to entry of any judgment or settle such claim or litigation without the
prior written consent of the Indemnifying Party.
2.7. Indemnification with Respect to Underwritten Offerings. In the
event that Registrable Shares are sold pursuant to a Registration Statement in
an underwritten offering, the Company agrees to enter into an underwriting
agreement containing customary representations and warranties with respect to
the business and operations of an issuer of the securities being registered and
customary covenants and agreements to be performed by such issuer, including
without limitation customary provisions with respect to indemnification by the
Company of the underwriters of such offering.
2.8. Information by Holder. Each holder of Registrable Shares included
in any registration shall furnish to the Company such information regarding such
holder and the distribution proposed by such holder as the Company may request
in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Section 2.
2.9. Rule 144 Requirements. With a view to making available to the
Stockholders the benefits of Rule 144 promulgated under the Securities Act and
any other rule or regulation of the Commission that may at any time permit a
Stockholder to sell securities of the Company to the public without
registration, the Company agrees to use its best efforts to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act (at any time after
it has become subject to the reporting requirements of the Exchange Act);
- 7 -
<PAGE> 8
(b) file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements); and
(c) furnish to any holder of Registrable Shares upon request a
written statement by the Company as to its compliance with the reporting
requirements of said Rule 144 (at any time after 90 days after the closing of
the first sale of securities by the Company pursuant to a Registration
Statement), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
of the Company as such holder may reasonably request to avail itself of any
similar rule or regulation of the Commission allowing it to sell any such
securities without registration.
2.10. Selection of Underwriter. In the case of any registration
effected pursuant to Section 2.2, the Company shall have the right to designate
the managing underwriter, subject to the approval of the requesting
Stockholders, which approval shall not be unreasonably withheld or delayed.
2.11. Restrictions on Other Agreements. The Company will not enter into
any agreement with any party which by its terms grants any right superior to
those of the Purchasers, relating to the registration of the Company's Common
Stock without the consent of the holders of not less than fifty-one percent
(51%) of the Registrable Shares then outstanding.
2.12. Termination. The provisions of this Section 2 shall terminate on
the earlier to occur of (i) such time as a Purchaser remains an "affiliate" of
the Company pursuant to Rule 144 and can sell all of his remaining Registrable
Securities under Rule 144 within any three (3) month period; or (ii) such time
as a Purchaser ceases to be an affiliate of the Company pursuant to Rule 144 and
all of the Purchaser's Registrable Securities may be sold pursuant to Rule
144(k).
3. Transfers of Certain Rights.
3.1. The rights granted to the Purchasers may be transferred or
succeeded to only by (i) any general or limited partner, officer or other
affiliate of such Purchaser, (ii) another Purchaser or (iii) any other person or
entity that acquires Shares; provided, however, that the Company is given
written notice by the transferee at the time of such transfer stating the name
and address of the transferee and identifying the securities with respect to
which such rights are being assigned; and, provided, further, as a condition
precedent to any such transfer, the transferee agrees in writing to be bound by
and subject to all of the terms and conditions of this Agreement.
3.2. A transferee to whom rights are transferred pursuant to this
Section 3 may not again transfer such rights to any other person or entity,
other than as provided in paragraph (a) above.
- 8 -
<PAGE> 9
4. General.
4.1. Notices. All notices, requests, consents and other communications
under this Agreement shall be in writing and shall be delivered by hand, by
telecopier, by overnight mail or mailed by first class certified or registered
mail, return receipt requested, postage prepaid:
If to the Company:
AutoCyte, Inc.
112 Orange Drive
Elon College, North Carolina 27244
Attn: President
(or at such other address as may have been furnished in writing to the
Purchasers by the Company)
with a copy to:
William T. Whelan, Esq.
Palmer & Dodge LLP
One Beacon Street
Boston, Massachusetts 02108
If to a Purchaser, at its address set forth on Exhibit A to this
Agreement (or at such other address as may have been furnished in writing to the
Company by such Purchaser)
Notices provided in accordance with this Section 4 shall be deemed
delivered upon personal delivery, receipt by telecopy or overnight mail, or 48
hours after deposit in the mail in accordance with the above.
4.2. Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
subject matter.
4.3. Amendments and Waivers. Except as otherwise expressly set forth in
this Agreement, any term of this Agreement may be amended and the observance of
any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), with the written consent of
the Company and the holders of not less than fifty-one percent (51%) of the
Registrable Shares. No waivers of or exceptions to any term, condition or
provision of this Agreement, in any one or more instances, shall be deemed to
be, or construed as, a further or continuing waiver of any such term, condition
or provision.
4.4. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
- 9 -
<PAGE> 10
4.5. Captions. The captions of the sections, subsections and paragraphs
of this Agreement have been added for convenience only and shall not be deemed
to be a part of this Agreement.
4.6. Severability. Each provision of this Agreement shall be
interpreted in such manner as to validate and give effect thereto to the fullest
lawful extent, but if any provision of this Agreement is determined by a court
of competent jurisdiction to be invalid or unenforceable under applicable law,
such provision shall be ineffective only to the extent so determined and such
invalidity or unenforceability shall not affect the remainder of such provision
or the remaining provisions of this Agreement.
4.7. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware.
[The remainder of this page intentionally left blank.]
- 10 -
<PAGE> 11
IN WITNESS WHEREOF, the Company and the Purchasers have executed and
delivered this Agreement as an instrument under seal as of the date first above
written.
AUTOCYTE, INC.
By: /s/ Ernest A. Knesel
------------------------------------------
Name: Ernest A. Knesel
Title: President
PURCHASERS:
AMPERSAND SPECIALTY MATERIALS AND
CHEMICALS III LIMITED PARTNERSHIP
By: ASMC-III Management Company Limited
Partnership
By: /s/ Richard A. Charpie
------------------------------------------
Name: Richard A. Charpie
Title: Managing General Partner
LABORATORY PARTNERS I LIMITED
PARTNERSHIP
By: Ampersand Lab Partner Management
Company Limited Partnership
By: /s/ Richard A. Charpie
------------------------------------------
Name: Richard A. Charpie
Title: Managing General Partner
- 11 -
<PAGE> 12
DLJ CAPITAL CORPORATION
By: /s/ Robert E. Curry
------------------------------------------
Name: Robert E. Curry
Title: Attorney-In-Fact
SPROUT CAPITAL VII, L.P.
By: DLJ Capital Corporation
Managing Corporation
By: /s/ Robert E. Curry
------------------------------------------
Name: Robert E. Curry
Title: Attorney-In-Fact
DLJ FIRST ESC L.L.C.
By: DLJ LBO Plans Management Corporation
Manager
By: /s/ Robert E. Curry
------------------------------------------
Name: Robert E. Curry
Title: Attorney-In-Fact
THE SPROUT CEO FUND, L.P.
By: DLJ Capital Corporation
General Partner
By: /s/ Robert E. Curry
------------------------------------------
Name: Robert E. Curry
Title: Attorney-In-Fact
- 12 -
<PAGE> 13
/s/ James B. Powell
---------------------------------------------
Allemanni, LLC
By: James B. Powell
Title: Manager
/s/ Jean-Luc Belingard
---------------------------------------------
Jean-Luc Belingard
/s/ Gerald Bohm
---------------------------------------------
Gerald Bohm
/s/ Thomas Gahm
---------------------------------------------
Thomas Gahm
---------------------------------------------
Fritz Gerber
/s/ James Geyer
---------------------------------------------
James Geyer
/s/ Frederick C. Kentz
-----------------------
Frederick C Kentz III
/s/ Ernest A. Knesel
---------------------------------------------
Ernest A. Knessel, Jr.
/s/ Thomas P. MacMahon
---------------------------------------------
Thomas P. MacMahon
/s/ Thanh Nguyen
---------------------------------------------
Thanh Nguyen
/s/ James B. Powell
---------------------------------------------
James B. Powell
/s/ Gary Vega
---------------------------------------------
Gary J. Vega
- 13 -
<PAGE> 14
Exhibit A
Ampersand Specialty Materials and Chemicals III Limited Partnership
55 William Street, Suite 240, Wellesley, MA 02181
Laboratory Partners I Limited Partnership
55 William Street, Suite 240, Wellesley, MA 02181
DLJ Capital Corporation
3000 Sand Hill Road, Bldg 4, Suite 270, Menlo Park, CA 94025-7114
Sprout Capital VII, L.P.
3000 Sand Hill Road, Bldg 4, Suite 270, Menlo Park, CA 94025-7114
DLJ First ESC L.L.C.
3000 Sand Hill Road, Bldg 4, Suite 270, Menlo Park, CA 94025-7114
The Sprout CEO Fund, L.P.
3000 Sand Hill Road, Bldg 4, Suite 270, Menlo Park, CA 94025-7114
Allemanni, LLC
c/o James B. Powell, Manager
Jean-Luc Belingard
Gerald Bohm
Thomas Gahm
James W. Geyer
Frederick C. Kentz III
Ernest A. Knesel, Jr.
Thomas P. MacMahon
- 14 -
<PAGE> 15
Thanh Nguyen
James B. Powell
Gary J. Vega
- 15 -
<PAGE> 16
Amendment to Rights Agreement
This Amendment to Rights Agreement ("Amendment") dated as of June 26,
1997 is entered into by and among AutoCyte, Inc., a Delaware corporation (the
"Company"), the individuals and entities listed on Exhibit A hereto (the
"Purchasers").
WHEREAS, the parties hereto have previously entered in a Rights
Agreement dated November 22, 1996 (the "Agreement"); and
WHEREAS, the parties desire to modify the Agreement as hereinafter set
forth and add Roche Image Analysis Systems, Inc. ("RIAS") as a party to the
Agreement.
NOW THEREFORE, in consideration of the mutual promises and covenants
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. The parties agree that RIAS is added a party to the Agreement.
2. A new paragraph 2.13 shall be added as follows:
"2.13 PIGGYBACK RIGHTS. Notwithstanding anything contained herein to
the contrary, the parties hereto agree that RIAS and Allemanni, LLC each shall
have the right to have any of their respective shares of Common Stock in the
Company registered on a prorata basis and join in any offering each time that
the Company or any holder of the Shares proposes for any reason to register
any Shares or Registrable Shares pursuant to the terms of this Agreement. The
parties agree that these rights shall survive any proposed public offering of
stock by the Company in accordance with the terms of the Agreement.
Notwithstanding anything contained herein to the contrary, this section 2.13
may not be modified except with the written agreement of RIAS and Allemanni,
LLC."
3. The definition of "Shares" and "Registrable Shares" shall include any
of the Common Stock owned by RIAS or Allemanni, LLC.
4. Except as modified herein, the terms and provision of the Agreement are
ratified and confirmed.
<PAGE> 17
IN WITNESS WHEREOF, the Company and the Purchasers have executed and
delivered this Agreement as an instrument under seal as of the date first
above written.
AUTOCYTE, INC.
By: /s/ James B. Powell
------------------------------------
Name: James B. Powell
Title: Pres.
PURCHASERS:
AMPERSAND SPECIALTY MATERIALS AND CHEMICALS III
LIMITED PARTNERSHIP
By: ASMC-III Management Company
Limited Partnership
By: ASMC-III MCLP LLP, its general partner
By: /s/ Richard A. Charpie
------------------------------------
Richard A. Charpie
Managing General Partner
AMPERSAND SPECIALTY MATERIALS AND CHEMICALS III
COMPANION FUND LIMITED PARTNERSHIP
By: ASMC-III Management Company
Limited Partnership
By: ASMC-III MCLP LLP, its general partner
By: /s/ Richard A. Charpie
------------------------------------
Richard A. Charpie
Managing General Partner
<PAGE> 18
LABORATORY PARTNERS I LIMITED PARTNERSHIP
By: Ampersand Lab Partners Management Company
Limited Partnership
By: Ampersand Lab Partners MCLP LLP, its general partner
By: /s/ Richard A. Charpie
--------------------------------
Richard A. Charpie
Managing General Partner
LABORATORY PARTNERS COMPANION FUND LIMITED PARTNERSHIP
By: Ampersand Lab Partners Management Company
Limited Partnership
By: Ampersand Lab Partners MCLP LLP, its general partner
By: /s/ Richard A. Charpie
--------------------------------
Richard A. Charpie
Managing General Partner
DLJ CAPITAL CORPORATION
By: /s/ Robert E. Curry
--------------------------------
Robert E. Curry
Attorney-In-Fact
SPROUT CAPITAL VII, L.P.
By: DLJ Capital Corporation
Managing Corporation
By: /s/ Robert E. Curry
--------------------------------
Robert E. Curry
Attorney-In-Fact
<PAGE> 19
DLJ FIRST ESC, L.L.C.
By: DLJ LBO Plans Management Corporation
Manager
By: /s/ Robert E. Curry
---------------------------
Robert E. Curry
Attorney-In-Fact
THE SPROUT CBO FUND, L.P.
By: DLJ Capital Corporation
General Partner
By: /s/ Robert E. Curry
---------------------------
Robert E. Curry
Attorney-In-Fact
ALLEMANNI, LLC
By: /s/ James B. Powell
---------------------------
James B. Powell
Manager
ROCHE IMAGE ANALYSIS SYSTEMS, INC.
By: /s/ Frederick C. Kentz III
----------------------------
Name: Frederik C. Kentz III
Title: Secretary
<PAGE> 20
-----------------------------------
Jean-Luc Belingard
/s/ Gerald Bohm
-----------------------------------
Gerald Bohm
-----------------------------------
Thomas Gahm
/s/ James Geyer
-----------------------------------
James Geyer
/s/ Frederick C. Kentz III
-----------------------------------
Frederick C. Kentz III
/s/ Ernest A. Knessel, Jr.
-----------------------------------
Ernest A. Knessel, Jr.
/s/ Thomas P. McMahon
-----------------------------------
Thomas P. McMahon
-----------------------------------
Thanh Nguyen
/s/ James B. Powell
-----------------------------------
James B. Powell
/s/ Gary J. Vega
-----------------------------------
Gary J. Vega
<PAGE> 1
EXHIBIT 10.10
CONTRIBUTION AGREEMENT
----------------------
Contribution Agreement dated as of November 22, 1996 (the "AGREEMENT") by
and among HLR Holdings Inc., a Delaware corporation ("HLR"), Roche Image
Analysis Systems, Inc., a Delaware corporation and wholly owned subsidiary of
HLR ("RIAS"), and AutoCyte, Inc., a Delaware corporation ("AUTOCYTE").
RECITALS
--------
A. RIAS is presently engaged in the business of designing, testing,
manufacturing, marketing and distributing cellular preparation, image processing
and image analysis systems for use in clinical laboratory testing, especially as
related to cancer diagnostics and prognostics (the "TRANSFERRED BUSINESS").
B. In order to increase operational flexibility, maximize its ability to
raise capital and otherwise better position itself to carry out its business
objectives, RIAS proposes to restructure its operations by forming and initially
capitalizing AutoCyte. RIAS and HLR wish to implement the proposed
restructuring, which will become effective upon the Closing Date (as defined in
Section 5), in part by entering into this Agreement with AutoCyte.
C. In connection with the proposed restructuring, the parties hereto desire
to exchange the Transferred Business and Contributed Assets (as defined in
Section 1.1) for 7,500,000 shares of AutoCyte Common Stock, par value $.01 per
share (the "COMMON STOCK").
D. It is intended by the parties that the exchange qualify for tax-free
treatment under [section]351 of the Internal Revenue Code of 1986, as amended.
AGREEMENT
---------
In consideration of the mutual representations, warranties and covenants
herein contained, the parties hereto agree as follows:
1. Contribution of Assets.
----------------------
1.1 CONTRIBUTED ASSETS. RIAS hereby contributes, conveys, transfers,
assigns and delivers to AutoCyte, and AutoCyte accepts from RIAS, on the terms
and subject to the conditions set forth in this Agreement, all of the
properties, business and assets of the Transferred Business of every kind and
description, real, personal or mixed, tangible and intangible, wherever located,
whether or not appearing in the Balance Sheet (as defined in Section 6.6),
including but not limited to the assets set forth or described on SCHEDULE 1.1
attached hereto, but excluding those assets of RIAS relating to the Transferred
Business which are specifically identified on SCHEDULE 1.2 hereto (collectively,
the "CONTRIBUTED
<PAGE> 2
ASSETS"). Without limiting the generality of the foregoing, the Contributed
Assets shall include the following:
(a) All of RIAS's interest in and rights under all leases of real
property and all improvements to and buildings thereon used in connection with
the Transferred Business;
(b) All machinery, equipment, tools, supplies, leasehold improvements,
construction in progress, furniture and fixtures, and other fixed assets used in
connection with the Transferred Business;
(c) All inventories of the Transferred Business, including without
limitation, finished goods, work-in-progress and raw materials of the
Transferred Business;
(d) All receivables of the Transferred Business, including without
limitation all trade accounts receivable arising from sales on inventory in the
ordinary course of business, notes receivable and insurance proceeds receivable;
(e) All of RIAS's interest in and rights under all service agreements,
supply contracts, purchase orders, purchase commitments and leases of personal
property made by RIAS in the ordinary course of business of the Transferred
Business, all agreements to which RIAS is a party or by which it is bound
relating to the Transferred Business and all other choses in action, causes of
action and other rights of every kind of RIAS relating to the Transferred
Business;
(f) All operating data and records of RIAS relating to the Transferred
Business, including without limitation financial, accounting and credit records,
correspondence, budgets and other similar documents and records;
(g) All of the proprietary rights of RIAS relating to the Transferred
Business and the Contributed Assets, including without limitation all
trademarks, trade names, patents, licenses thereof, patents applications, trade
secrets, technology, know-how, formulae, designs and drawings, computer
software, slogans, copyrights, processes operating rights, other licenses and
permits, and other similar intangible property and rights;
(h) All prepaid and deferred items of RIAS relating to the Transferred
Business, including without limitation prepaid rentals, taxes and unbilled
charges and deposits relating to the operations of the Transferred Business; and
(i) All of the intangibles of RIAS relating to the Transferred
Business.
1.2 EXCLUDED ASSETS. Anything to the contrary in Section 1.1
notwithstanding, the Contributed Assets shall be exclusive of the assets (the
"EXCLUDED ASSETS") of RIAS described on SCHEDULE 1.2 attached hereto.
2
<PAGE> 3
2. Assumption of Liabilities.
-------------------------
2.1 ASSUMED LIABILITIES. AutoCyte hereby assumes and agrees to pay,
discharge and perform when lawfully due, only those liabilities, contracts,
commitments and other obligations of the Transferred Business (i) reflected on
the AutoCyte Opening Balance Sheet, as defined in Section 6.6 hereof (provided,
however, that AutoCyte shall not assume any net increase in liabilities between
those reflected under the column entitled "AUTOCYTE INC." on the Balance Sheet
and those reflected on the AutoCyte Opening Balance Sheet in an aggregate amount
in excess of $250,000, excluding for this purpose liabilities set forth on
SCHEDULE 2.1), or (ii) set forth in SCHEDULE 2.1, in each case as the same shall
exist on the date hereof (collectively, the "ASSUMED LIABILITIES").
2.2 NO EXPANSION OF THIRD PARTY RIGHTS. The (i) assumption by AutoCyte of
the Assumed Liabilities as provided herein, and (ii) transfer thereof by RIAS
shall in no way expand the rights or remedies of any third party against
AutoCyte, RIAS or HLR as compared to the rights and remedies which such third
party would have had against RIAS or HLR had AutoCyte not assumed such
liabilities. Without limiting the generality of the preceding sentence, the
assumption by AutoCyte of the Assumed Liabilities shall not create any third
party beneficiary rights.
3. Delivery of AutoCyte Shares.
---------------------------
3.1 AUTHORIZATION OF THE AUTOCYTE SHARES. AutoCyte has authorized the sale
and issuance of Seven Million Five Hundred Thousand (7,500,000) shares of
AutoCyte's Common Stock (the "SHARES") to RIAS.
3.2 EXCHANGE PRICE. As consideration for the Contributed Assets, AutoCyte
hereby delivers to RIAS the AutoCyte Shares, on the terms and subject to the
conditions set forth in this Agreement.
4. DELIVERY OF RECORDS AND CONTRACTS. At the Closing, RIAS shall deliver or
cause to be delivered to AutoCyte good and sufficient instruments of transfer
transferring to AutoCyte title to all the Contributed Assets together with
copies of all written leases, contracts, commitments and rights evidencing
Contributed Assets and Assumed Liabilities, with those consents to assignment in
accordance with Section 6.10 and SCHEDULE 6.10 hereof. The instruments of
transfer referred to herein (a) shall be in the form and will contain the
warranties, covenants and other provisions (not inconsistent with the provisions
hereof) which are usual and customary for transferring the type of property
involved under the laws of the jurisdictions applicable to such transfers, (b)
shall be in form and substance satisfactory to AutoCyte and its counsel and RIAS
and its counsel, and (c) shall effectively vest in AutoCyte good title to all of
the Contributed Assets free and clear of all liens, restrictions and
encumbrances, except as provided in Section 6.18(ii). RIAS shall also deliver to
AutoCyte at the Closing all of RIAS's business records, books and other data
relating to the Contributed Assets and the Transferred Business (except
corporate records and
3
<PAGE> 4
other property of RIAS excluded under Section 1.2) and RIAS shall take all
requisite steps to put AutoCyte in actual possession and operating control of
the Contributed Assets and the Transferred Business.
5. CLOSING. The closing of the transactions contemplated hereby (the "CLOSING"),
shall take place at the offices of Palmer & Dodge LLP at 10:00 a.m., local time,
on November 22, 1996 or at such other place or such other time or date as the
parties shall agree (the date of such Closing shall hereinafter be referred to
as the "CLOSING DATE").
6. Representations and Warranties of RIAS and HLR.
----------------------------------------------
Except as disclosed in the DISCLOSURE SCHEDULE attached hereto, the section
numbers of which correspond to the section numbers of this Agreement to which
they refer, RIAS and HLR, jointly and severally, represent and warrant to
AutoCyte as follows:
6.1 ORGANIZATION AND QUALIFICATION. Each of RIAS and HLR is a corporation
duly organized, validly existing and in good standing under the laws of Delaware
and has full corporate power and lawful authority to own, lease and operate its
assets, properties and business and to carry on its business as now being and as
heretofore conducted. RIAS has qualified or is otherwise authorized to transact
business as a foreign corporation in all jurisdictions (in the United States and
outside of the United States) in which such qualification or authorization is
required by law and in which the failure to so qualify or be authorized could
have a material adverse effect on RIAS or its assets, properties, business,
operations or condition (financial or otherwise). RIAS does not file and is not
required to file any franchise, income or other tax returns in any other
jurisdiction (in the United States or outside of the United States), other than
its jurisdiction of incorporation and North Carolina, based upon the ownership
or use of property therein or the derivation of income therefrom. RIAS does not
own or lease real property in any jurisdiction (in the United States or outside
the United States) other than in Europe and North Carolina.
6.2 OUTSTANDING CAPITAL STOCK. RIAS is authorized to issue 1,000 shares of
capital stock, $1.00 par value per share, of which 100 shares are issued and
outstanding, none is held in its treasury and all are owned beneficially and of
record by the HLR. No other class of capital stock of RIAS is authorized or
outstanding. All of the issued and outstanding shares of RIAS's capital stock
are duly authorized and are validly issued, fully paid, nonassessable and free
of pre-emptive rights. None of the issued and outstanding shares have been
issued in violation of any federal or state law.
6.3 AUTHORITY TO EXECUTE AND PERFORM AGREEMENTS. Each of RIAS and HLR has
the full legal right and power and all authority and approvals required to enter
into, execute and deliver this Agreement and the agreements contemplated hereby
and to perform fully its respective obligations hereunder and thereunder, and
this Agreement and the agreements contemplated hereby have been duly executed
and delivered and constitute the valid and binding obligations of each of RIAS
and HLR enforceable against them in accordance with
4
<PAGE> 5
their respective terms. RIAS has obtained the necessary approval of the holders
of the outstanding capital stock of RIAS to the transactions contemplated
hereby.
6.4 SUBSIDIARIES AND OTHER AFFILIATES. RIAS does not have any subsidiary or
directly or indirectly own or have any investment in any of the capital stock
of, or any other proprietary interest in, or is a party to a partnership or
joint venture with, any other person.
6.5 CHARTER AND BY-LAWS. RIAS has heretofore delivered to AutoCyte true and
complete copies of its Certificate of Incorporation (certified by the Secretary
of State of Delaware) and By-laws as in effect on the date hereof.
6.6 FINANCIAL STATEMENTS. The unaudited balance sheet of RIAS as at October
25, 1996, and the related statement of operations for the month then ended,
previously delivered to AutoCyte, fairly present in all material respects the
financial condition of RIAS and the Transferred Business as at the most recent
month and for the month then ended, in accordance with GAAP (except for the
absence of footnotes thereto) consistently applied throughout the period covered
thereby except to the extent otherwise disclosed in said financial statements
and subject to normal year-end adjustments, none of which year-end adjustments
will be material to the Transferred Business or the Contributed Assets except as
described on SCHEDULE 6.6(a). The foregoing financial statements of RIAS as at
October 25, 1996, and for the month then ended, are sometimes herein called the
"FINANCIALS," the balance sheet included in the Financials is sometimes herein
called the "BALANCE SHEET" and October 25, 1996 is sometimes herein called the
"BALANCE SHEET DATE." The Balance Sheet also reflects certain adjustments and
pro forma financial information in a form agreed upon by RIAS and AutoCyte.
These adjustments include, but are not limited to, adjustments for certain
assets and liabilities which are to be retained by RIAS, as more fully described
in the "Accounting Adjustment Principles Summary" set forth on SCHEDULE 6.6(b).
AutoCyte intends to cause information included in the Balance Sheet under the
column entitled "AUTOCYTE INC." to be audited as of the Closing Date (the
"AUTOCYTE OPENING BALANCE SHEET") by an accounting firm of AutoCyte's choice and
RIAS and HLR agree to provide AutoCyte with such reasonable assistance as may be
requested by AutoCyte in this regard. In the event that a comparison between the
audited AutoCyte Opening Balance Sheet and the information included under the
column "AUTOCYTE INC." of the Balance Sheet shows an increase in AutoCyte's net
liabilities in excess of $250,000, excluding for this purpose those liabilities
set forth on SCHEDULE 2.1 hereof, then RIAS shall reimburse AutoCyte in cash for
such amount. In the event that there is a dispute among the parties and their
respective accounting firms with respect to this balance sheet reconciliation
and the parties are unable to resolve such dispute after good faith
negotiations, then the parties agree that they shall cause their respective
accounting firms to select a third independent accounting firm of national
standing to review the AutoCyte Opening Balance Sheet and the matters in dispute
and to report its conclusion with respect to such disputed matter. Such report
shall be final and binding upon the parties hereto. The cost of such review and
report shall be borne equally by RIAS and AutoCyte.
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6.7 NO MATERIAL ADVERSE CHANGE. Since the Balance Sheet Date (and with
specific reference to information included in the Balance Sheet under the column
"AUTOCYTE INC."),
(a) there have been no changes in the assets, properties, business,
operations or condition (financial or otherwise) of RIAS which either
individually or in the aggregate materially and adversely affect the Contributed
Assets or the Transferred Business, nor does RIAS or HLR know of any such change
that is threatened, nor has there been any damage, destruction or loss
materially and adversely affecting the Contributed Assets or the Transferred
Business, whether or not covered by insurance; and
(b) RIAS has not, insofar as it relates to the Contributed Assets or
the Transferred Business:
(i) incurred any indebtedness for borrowed money, other than in
the ordinary course of business in an amount not in excess of $25,000;
(ii) declared or paid any dividend or declared or made any other
distribution of any kind to its shareholders, or made any direct or
indirect redemption, retirement, purchase or other acquisition of any
shares of its capital stock;
(iii) made any loan or advance to any of its shareholders,
officers, directors, employees, consultants, agents or other
representatives (other than travel advances made in the ordinary
course of business), or made any other loan or advance otherwise than
in the ordinary course of business;
(iv) made any payment or commitment to pay any severance or
termination pay to any of its officers, directors, employees,
consultants, agents or other representatives, other than payments to,
or commitments to pay, persons made in the ordinary course of
business, other than Jerome Racine, Keith Phillips and Gary Vega;
(v) except in the ordinary course of business: entered into any
lease (as lessor or lessee); sold, abandoned or made any other
disposition of any of its assets or properties, granted or suffered
any lien or other encumbrance on any of the Contributed Assets;
entered into or amended any contract or other agreement to which it is
a party, or by or to which it or the Contributed Assets or Transferred
Business are bound or subject, or pursuant to which it agrees to
indemnify any party or to refrain from competing with any party;
(vi) except for inventory or equipment acquired in the ordinary
course of business, made any acquisition of all or any part of the
assets, properties, capital stock or business of any other person;
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(vii) incurred any contingent liability as a guarantor or
otherwise with respect to the obligations of others or cancelled any
material debt or claim owing to, or waived any material right of, the
Transferred Business;
(viii) incurred any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the
Contributed Assets or Transferred Business; or
(ix) made any change in accounting methods or practices, credit
practices or collection policies used by the Transferred Business; and
(c) RIAS has conducted the Transferred Business only in the ordinary
course and consistently with its prior practices.
6.8 Tax Matters. Except as described on Schedule 6.8:
----------- --------
(a) RIAS has paid or caused to be paid all federal, state, county,
local, foreign and other taxes, including, without limitation, income taxes,
estimated taxes, alternative minimum taxes, excise taxes, sales taxes, use
taxes, import duties, value-added taxes, gross receipts taxes, franchise taxes,
capital stock taxes, employment and payroll-related taxes, withholding taxes,
stamp taxes, transfer taxes, windfall profit taxes, environmental taxes and
property taxes, whether or not measured in whole or in part by net income and
all deficiencies, or other additions to such taxes and interest, fines and
penalties thereon (hereinafter, "TAXES" or, individually, a "TAX") required to
be paid by RIAS through the date hereof whether disputed or not. The provisions
for Taxes reflected in the Financials are adequate to cover any and all Tax
liabilities of RIAS in respect of its assets, properties, business and
operations during the periods covered by said Financials and all prior periods.
Neither RIAS nor HLR knows of any Tax deficiency or claim for additional Taxes
or interest thereon or penalties in connection therewith, asserted or threatened
to be asserted against RIAS by any taxing authority.
(b) RIAS has in accordance with applicable law timely filed all Tax
reports or returns required to be filed by it through the date hereof. Each of
the Tax reports and returns filed by RIAS correctly and accurately reflects the
amount of its Tax liability for such period and other required information.
There has not been any audit of any Tax return filed by RIAS and no audit of any
Tax return of RIAS is in progress and RIAS has not been notified by any Tax
authority that any such audit is contemplated or pending. No extension of time
with respect to any date on which a Tax return was or is to be filed by RIAS is
in force, and no waiver or agreement by RIAS is in force for the extension of
time for the assessment or payment of any Tax. No claim has ever been made by an
authority in a jurisdiction where RIAS does not file reports or returns that
RIAS is or may be subject to taxation by that jurisdiction. There are no
security interests on any of the assets of RIAS that arose in connection with
any failure (or alleged failure) to pay any Taxes. RIAS has never entered into a
closing agreement pursuant to Section 7121 of the Code.
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(c) RIAS has not agreed to, nor is RIAS required to, make any
adjustments under Section 481(a) of the Code by reason of a change in accounting
method or otherwise. RIAS is not required to make any adjustments to its taxable
income under Section 805(d) of the Tax Reform Act of 1986, Section 806(e) of the
Tax Reform Act of 1986 or other similar provision of any tax act, including the
Tax Reform Act of 1986, except for any changes required as a result of Section
803(d) of the Tax Reform Act of 1986 dealing with changes required as a result
of the enactment of Section 263A of the Code.
(d) RIAS is not and has not been a member of an affiliated group of
corporations (as defined in Section 1504(a) of the Code) filing a consolidated
federal income tax return other than a group the common parent of which is Roche
Holdings, Inc. (the "ROCHE GROUP"). RIAS has no liability for the taxes of any
other member of the Roche Group by contract, including any tax sharing
agreement, or as a result of joint and several liability arising out of
consolidated tax filings. RIAS does not own, and has never owned, a direct or
indirect interest in any trust, partnership, corporation or other entity and
therefore AutoCyte is not acquiring from RIAS an interest in any entity.
(e) For purposes of this Agreement, all references to Sections of the
Code shall include any predecessor provisions to such Sections and any similar
provisions of federal, state, local or foreign law.
6.9 Compliance with Laws.
--------------------
(a) Subject in each instance to exceptions which would not, either
singly or in the aggregate, interfere in any material respect with the
Contributed Assets or the Transferred Business: (i) RIAS is not in violation of
any order, judgment, injunction, award or decree binding upon it or, to the best
knowledge of RIAS and HLR, RIAS is not in violation of any federal, state, local
or foreign law, ordinance or regulation or any other requirement of any
governmental or regulatory body, court or arbitrator applicable to its business
or assets, including, without limitation, regulations and requirements of the
Occupational Safety and Health Administration ("OSHA"), and laws, ordinances,
regulations and other requirements respecting labor, employment and employment
practices, terms and conditions of employment and wages and hours, or relating
to the uses of its assets, zoning, pollution or protection of the environment,
including, without limitation, laws relating to emissions, discharges, releases
or threatened releases of pollutants, contaminants, chemicals, or industrial,
toxic or hazardous substances or wastes into the environment (including, without
limitation, ambient air, surface water, ground water or land), or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants, chemicals or
industrial, toxic or hazardous substances or wastes and (ii) RIAS has never
received notice of, and there has never been, any citation, fine or penalty
imposed or asserted against RIAS for, any such violation or alleged violation.
(b) Set forth on SCHEDULE 6.9 are all of the licenses, permits,
franchises, orders or approvals of any federal, state, local or foreign
governmental or regulatory body,
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including, but not limited to, licenses issued by OSHA or otherwise relating to
employment and environmental matters (collectively, "PERMITS") that are material
to the conduct of RIAS's business and the uses of its assets. RIAS holds all
Permits necessary to operate its business as presently conducted. Such Permits
are in full force and effect and, except as set forth on SCHEDULE 6.9, such
Permits will be transferred to AutoCyte (with any expenses related to such
transfer being borne by AutoCyte) as part of the Contributed Assets. No
violations are or have been recorded with any governmental or regulatory body in
respect of any Permit; and no proceeding is pending or, to the best knowledge of
RIAS and HLR, threatened to revoke or limit any Permit.
6.10 Consents; No Breach. All consents, permits, authorizations and
approvals from any person pursuant to applicable law or contracts or other
agreements with RIAS, that are required in connection with the performance of
RIAS's and HLR's obligations under this Agreement, or the assignment of the
Contributed Assets or the assumption of the Assumed Liabilities are set forth on
SCHEDULE 6.10 hereto. The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby and thereby will
not (i) violate any provision of the Certificate of Incorporation or By-laws of
RIAS; (ii) except as set forth on SCHEDULE 6.10, violate, conflict with or
result in the breach of any of the terms or conditions of, result in
modification of the effect of, or otherwise give any other contracting party the
right to terminate, or constitute (or with notice or lapse of time or both
constitute) a default under, any instrument, contract or other agreement to
which RIAS or HLR is a party or to which either of them or any of their assets
or properties may be bound and which are identified on SCHEDULE 6.12; (iii)
violate any order, judgment, injunction, award or decree of any court,
arbitrator or governmental or regulatory body against, or binding upon, either
RIAS or HLR or upon the securities, properties, assets or business of RIAS; (iv)
violate any statute, law or regulation of any jurisdiction as such statute, law
or regulation relates to either RIAS or HLR or to the securities, properties,
assets or business of RIAS which either singly or in the aggregate could have a
material adverse effect on the business, prospects, condition (financial or
otherwise) of the Contributed Assets or the Transferred Business; (v) except as
set forth on SCHEDULE 6.10, violate any Permit; (vi) except as set forth in
SCHEDULE 6.10, require the approval or consent of any foreign, federal, state,
local or other governmental or regulatory body or the approval or consent of any
other person; or (vii) result in the creation of any lien or other encumbrance
on the assets or properties of RIAS.
6.11 Actions And Proceedings. Subject in each instance to exceptions which
would not, either singly or in the aggregate, interfere in any material respect
with the Contributed Assets or the Transferred Business, there are no
outstanding orders, judgments, injunctions, awards or decrees of any court,
governmental or regulatory body or arbitration tribunal against or involving
RIAS relating to or affecting the Transferred Business or the Contributed
Assets. There are no actions, suits or claims or legal, administrative or
arbitral proceedings or, to the best knowledge of RIAS and HLR, investigations
(whether or not the defense thereof or liabilities in respect thereof are
covered by insurance) pending or, to the best knowledge of RIAS and HLR,
threatened against or involving RIAS relating to or affecting
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the Transferred Business or the Contributed Assets. To the best knowledge of
RIAS and HLR, there is no fact, event or circumstance that may give rise to any
suit, action, claim, investigation or proceeding that individually or in the
aggregate could have a material adverse effect upon the Transferred Business or
the Contributed Assets.
6.12 CONTRACTS AND OTHER AGREEMENTS. SCHEDULE 6.12 sets forth all of the
following contracts and other agreements to which RIAS is a party and which
relate to the Transferred Business or the Contributed Assets may be bound or
subject:
(i) contracts and other agreements with any current or former
officer, director, shareholder, employee, consultant, agent or other
representative of RIAS and contracts and other agreements for the
payment of fees or other consideration to any entity in which any
officer or director of RIAS has an interest (all such agreements
signed by employees are substantially the same and, therefore, only
one form of each type of agreement is listed and the names of all
individuals who have not signed such agreements are set forth in the
schedule);
(ii) contracts and other agreements with any labor union or
association representing any employee of RIAS or otherwise providing
for any form of collective bargaining;
(iii) contracts and other agreements for the purchase or sale of
materials, supplies, equipment, merchandise or services other than in
the ordinary course of business;
(iv) contracts and other agreements for the sale of any of the
Contributed Assets other than in the ordinary course of business or
for the grant to any person of any options, rights of first refusal,
or preferential or similar rights to purchase any of such assets;
(v) partnership or joint venture agreements;
(vi) contracts or other agreements under which RIAS agrees to
indemnify any party, other than indemnities and warranties made for
its products or services in the ordinary course of business, or of any
party;
(vii) contracts, options and other agreements for the purchase of
any asset other than for materials, supplies or other similar
merchandise, tangible or intangible, calling for an aggregate purchase
price or payments in any one year of more than $10,000.00 in any one
case;
(viii) contracts and other agreements, other than those made in
the ordinary course of business, that cannot by their terms be
canceled by RIAS and any
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successor or assignee of RIAS without liability, premium or penalty on
no less than thirty days notice;
(ix) contracts and other agreements with customers or suppliers
for the sharing of fees, payment of royalties, the rebating of charges
or other similar arrangements;
(x) contracts and other agreements containing obligations or
liabilities of any kind to holders of the securities of RIAS as such
(including, without limitation, an obligation to register any of such
securities under any federal or state securities laws);
(xi) contracts and other agreements containing covenants of RIAS
not to compete in any line of business or with any person or covenants
of any other person not to compete with RIAS in any line of business;
(xii) contracts and other agreements relating to the acquisition
by RIAS of any operating business or the capital stock of any other
person;
(xiii) contracts and other agreements requiring the payment to
any person of a commission or fee, including contracts or other
agreements with consultants which provide for aggregate payments in
excess of $10,000.00;
(xiv) contracts, indentures, mortgages, promissory notes, loan
agreements, guaranties, security agreements, pledge agreements, and
other agreements relating to the borrowing of money or securing any
such liability;
(xv) distributorship or licensing agreements;
(xvi) contracts under which RIAS will acquire or has acquired
ownership of, or license to, intangible property, including software
(other than software licensed by RIAS as an end user for less than
$10,000.00 and not distributed by it);
(xvii) leases, subleases or other agreements under which RIAS is
lessor or lessee of any real property; or
(xviii) any other material contract or other agreement whether or
not made in the ordinary course of business that has or may have a
material adverse effect on the Contributed Assets or the Transferred
Business.
There have been delivered or made available to AutoCyte true and complete
copies of all of the contracts and other agreements (and all amendments, waivers
or other modifications thereto) set forth on SCHEDULE 6.12. All of such
contracts and other
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agreements are valid, subsisting, in full force and effect, binding upon RIAS,
and to the best knowledge of RIAS and HLR, binding upon the other parties
thereto in accordance with their terms, and RIAS has paid in full or accrued all
amounts now due thereunder and has satisfied in full or provided for all of its
liabilities and obligations thereunder which are presently required to be
satisfied or provided for, and is not in material default under any of them,
nor, to the best knowledge of RIAS and HLR, is any other party to any such
contract or other agreement in material default thereunder, nor does any
condition exist that with notice or lapse of time or both would constitute a
material default thereunder.
6.13 REAL ESTATE. RIAS does not own any real property or any buildings or
other structures and does not have any options or any contractual obligations to
purchase or acquire any interest in real property. The leasehold interests of
RIAS set forth in SCHEDULE 6.12 are subject to no lien or other encumbrance.
6.14 ACCOUNTS AND NOTES RECEIVABLE. All accounts and notes receivable
constituting part of the Contributed Assets arising subsequent to the Balance
Sheet Date have arisen in the ordinary course of business of RIAS, and all such
accounts and notes receivable as well as accounts and notes receivable reflected
on the Balance Sheet, represent valid and enforceable obligations due to RIAS,
have been and are subject to no agreed upon set-off or counter-claim, and have
been collected or are fully collectible in the ordinary course of business of
RIAS in the aggregate recorded amounts thereof in accordance with their terms.
RIAS has no accounts or notes receivable from any person, firm or corporation
which is affiliated with RIAS or from any director, officer or employee of RIAS
which constitute part of the Contributed Assets.
6.15 INVENTORY. The inventory of RIAS included within the Contributed
Assets (including that reflected on the Balance Sheet and any inventory
thereafter acquired by RIAS) is and will be in good and merchantable condition
and suitable and saleable or usable in the manufacture of saleable finished
goods in the ordinary course of business. The value of the inventory stated in
the Balance Sheet reflect the normal inventory valuation policies of RIAS and
were determined in accordance with generally accepted accounting principles,
consistently applied. Purchase commitments for raw materials and parts are not
in excess of normal requirements and none are at prices materially in excess of
then-current market prices. Since the Balance Sheet Date, no such inventory
items have been sold or disposed of except through sales in the ordinary course
of business at profit margins consistent with RIAS's experience in prior years,
and all sales commitments made for RIAS's products are at prices not less than
inventory values plus selling expenses and said profit margins.
6.16 TANGIBLE PROPERTY. The plant, machinery, equipment, furniture,
leasehold improvements, fixtures, vehicles, structures, any related capitalized
items and other tangible property material to the Transferred Business or
included in the Contributed Assets ("TANGIBLE PROPERTY") are in good operating
condition and repair, ordinary wear and tear excepted, and RIAS has not received
notice that any of its Tangible Property is in violation
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of any existing law or any building, zoning, health, safety or other ordinance,
code or regulation.
6.17 Intangible Property.
-------------------
(a) RIAS owns the patents, trademarks and service marks set forth in
SCHEDULE 6.17. All of the patents, trademarks and service marks set forth in
SCHEDULE 6.17 have been properly maintained and/or renewed in accordance with
all applicable provisions of law and administrative regulations. These patents,
trademarks and service marks, together with trade secrets, customer lists,
manufacturing and other processes, designs, computer software, data
compilations, research results and other confidential information (collectively,
"PROPRIETARY RIGHTS") which are material to the Transferred Business, whether
owned or licensed by RIAS, are to be contributed by RIAS to AutoCyte. To the
best knowledge of RIAS, the RIAS Proprietary Rights are free and clear of
legally sustainable claims of third parties.
(b) Neither RIAS nor HLR has received any notices of infringement by
RIAS of any Proprietary Rights of others.
(c) RIAS has established policies and procedures to protect its
Proprietary Rights. In particular, RIAS (i) limits dissemination of confidential
information and trade secrets relating to the Transferred Business or the
Contributed Assets to employees who require such disclosure for the business
purposes of RIAS and consultants who have executed written confidentiality
agreements governing their use of such confidential information and trade
secrets and (ii) requires all professional and technical employees of RIAS to
execute agreements in which such employees are required to convey to RIAS rights
to all inventions made by them during the course of their employment.
(d) To the best knowledge of RIAS, no activity of any RIAS employee on
behalf of RIAS violates any agreement or arrangement currently in effect which
such employee has with a former employer.
6.18 TITLE TO ASSETS; LIENS. RIAS owns outright and has good title to all
of its assets and properties included within the Contributed Assets, including,
without limitation, all of the assets and properties reflected on the Balance
Sheet, free and clear of any claim, lien or other encumbrance, except for (i)
assets and properties disposed of, or subject to purchase or sales orders, in
the ordinary course of business since the Balance Sheet Date; or (ii) liens or
other encumbrances securing the claims of materialmen, carriers, landlords and
like persons, all of which are not yet due and payable. Upon delivery of and
payment for the Contributed Assets as herein provided, AutoCyte will acquire all
of RIAS's right, title and interest thereto, free and clear of any claim, lien
or other encumbrance, except as stated in this Section 6.18. The Contributed
Assets, which are being transferred by RIAS to AutoCyte pursuant to this
Agreement, constitute all of the assets which are necessary or currently used by
RIAS in the conduct of the Transferred Business as presently conducted by RIAS.
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6.19 ABSENCE OF UNDISCLOSED LIABILITIES. As at the Balance Sheet Date, RIAS
had no liabilities of any nature, whether accrued, absolute, contingent or
otherwise (including, without limitation, liabilities as guarantor or otherwise
with respect to obligations of others or liabilities for Taxes due or then
accrued or to become due), required to be shown on the Balance Sheet that were
not fully and adequately reflected or reserved against on the Balance Sheet.
RIAS has no such liabilities, other than liabilities (i) fully and adequately
reflected or reserved against on the Balance Sheet, (ii) incurred since the
Balance Sheet Date in the ordinary course of business, or (iii) described in
Section 2.1 of this Agreement. Other than as described in Section 2.1, AutoCyte
is not assuming and shall not be responsible for any liabilities of RIAS,
including, but not limited to, any liabilities relating to or arising out of the
Contributed Assets or the conduct of the Transferred Business, and RIAS shall
have sole responsibility for any and all liabilities which do not constitute
Assumed Liabilities.
6.20 CUSTOMERS AND DISTRIBUTORS. The relationships of RIAS with its
customers and distributors are generally good commercial working relationships.
6.21 EMPLOYER RELATIONS. RIAS has an aggregate of approximately 65
employees who are employed in connection with the Transferred Business,
excluding Jerome Racine, Keith Phillips and Gary Vega, and, to the best of its
knowledge, generally enjoys a good employer-employee relationship. RIAS is not
delinquent in any material respect in payments to any of its employees or
consultants for any wages, salaries, commissions, bonuses or other direct
compensation for any services performed by them to the date hereof or amounts
required to be reimbursed to such employees. Upon termination of the employment
of any said employees, AutoCyte will not by reason of any act or omission of
RIAS prior to the Closing be liable to any of said employees or consultants for
any payments, other than such as may be included in the Assumed Liabilities.
SCHEDULE 6.21 contains a list of all employees and consultants of RIAS who,
individually, have received or are scheduled to receive compensation from RIAS
for the current fiscal year in excess of $35,000. In each case such SCHEDULE
includes the aggregate annual compensation of each such individual. RIAS does
not employ 100 or more employees (excluding employees who work less than 20
hours per week or who have worked for RIAS less than six of the last twelve
months) and will not have employed 100 or more employees at any point during the
90 days prior to and including the Closing Date.
6.22 HAZARDOUS MATERIALS. To the extent that RIAS has treated, stored and
disposed of all Hazardous Materials (as defined below) at any site owned or
leased by RIAS, it has done so in compliance with all applicable laws, and has
shipped any Hazardous Materials for treatment, storage or disposal at any other
site or facility in compliance with all applicable laws. No other person has
ever generated, used, handled, stored or disposed of any Hazardous Materials at
any site owned or premises leased by RIAS during the period of RIAS's ownership
or lease, nor has there been or is there threatened any release of any Hazardous
Materials on or at any such site or premises during such period. RIAS does not
presently own, operate, lease or use, nor has it previously owned, operated,
leased, or used any site on which underground storage tanks are or were located.
No lien has ever been
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imposed by any governmental agency on any property, facility, machinery, or
equipment owned, operated, leased or used by RIAS in connection with the
presence of any Hazardous Materials. For purposes of this Section 6.22,
"HAZARDOUS MATERIALS" shall mean and include any "hazardous waste" as defined in
either the United States Resource Conservation and Recovery Act or regulations
adopted pursuant to said Act, and also any "hazardous substances" or "hazardous
materials" as defined in the United States Comprehensive Environmental Response,
Compensation and Liability Act. RIAS has provided or made available to AutoCyte
copies of all documents, records and information available to RIAS concerning
any environmental or health and safety matter relevant to RIAS, whether
generated by RIAS or others, including, without limitation, environmental
audits, environmental risk assessments, site assessments, documentation
regarding off-site disposal of Hazardous Materials, spill control plans, and
reports (if any), permits, licenses, approvals, consents and other
authorizations related to environmental or health and safety matters issued by
any governmental agency.
6.23 FULL DISCLOSURE. No representation or warranty of RIAS or HLR
contained in this Agreement, and, to the best knowledge of RIAS and HLR, no
document or other paper furnished by or on behalf of RIAS or HLR to AutoCyte (or
any of its agents) pursuant to this Agreement or in connection with the
transactions contemplated hereby, taken as a whole, contains an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements made, in the context in which made,
not false or misleading. No representation or warranty is being made or shall be
deemed to be made herein by HLR or RIAS as to (i) the merchantability or fitness
for a particular purpose of any of the Contributed Assets, or (ii) the future
profitability of the Contributed Assets or the Transferred Business.
7. Representations and Warranties of RIAS.
--------------------------------------
RIAS hereby represents and warrants to AutoCyte as follows:
7.1 EXPERIENCE. RIAS is capable of evaluating the merits and risks of its
investment in AutoCyte and has the capacity to protects its own interests.
7.2 INVESTMENT. RIAS is acquiring the AutoCyte Shares for investment for
its own account, not as a nominee or agent, and not with the view to, or for
resale in connection with, any distribution thereof. RIAS understands that the
AutoCyte Shares to be purchased have not been and will not be, registered under
the Securities Act of 1933, as amended (the "SECURITIES ACT"), by reason of a
specific exemption from the registration provisions of the Securities Act, the
availability of which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of RIAS's representations as expressed
herein.
7.3 RULE 144. RIAS acknowledges that the AutoCyte Shares must be held until
subsequently registered under the Securities Act or unless an exemption from
such
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registration is available. RIAS is aware of the provisions of Rule 144
promulgated under the Securities Act that permit limited resale of shares
purchased in a private placement subject to the satisfaction of certain
conditions, including, among other things, the existence of a public market for
the shares, the availability of certain current public information about
AutoCyte, the resale occurring not less than two years after a party has
purchased and paid for the security to be sold, the sale being effected through
a "broker's transaction" or in transactions directly with a "market maker" and
the number of shares being sold during any three-month period not exceeding
specified limitations.
7.4 NO PUBLIC MARKET. RIAS understands that no public market now exists for
any of the securities issued by AutoCyte and that AutoCyte has made no
assurances that a public market will ever exist for AutoCyte's securities.
8. Representations and Warranties of AutoCyte
------------------------------------------
AutoCyte represents and warrants to HLR and RIAS as follows:
8.1 ORGANIZATION. AutoCyte is duly organized, validly existing and in good
standing under the laws of Delaware, and has the corporate power and lawful
authority to own, lease and operate its assets, properties and business and to
carry on its business as now being and as heretofore conducted.
8.2 CAPITALIZATION. The authorized capital stock of AutoCyte (immediately
prior to the Closing) consists of 20,500,000 shares of Common Stock, none of
which shares are issued and outstanding, and 9,925,000 shares of preferred
stock, $.01 par value per share, all of which have been designated Series A
Convertible Preferred Stock and none of which are issued and outstanding.
8.3 AUTHORITY TO EXECUTE AND PERFORM AGREEMENTS. AutoCyte has the corporate
power and all authority and approvals required to enter into, execute and
deliver this Agreement and to perform fully its obligations hereunder, and this
Agreement has been duly executed and delivered and is the valid and binding
obligation of AutoCyte enforceable in accordance with its terms. The issuance,
sale and delivery of the AutoCyte Shares in accordance with this Agreement has
been duly authorized by all necessary corporate action on the part of AutoCyte.
The AutoCyte Shares, when so issued, sold and delivered in accordance with the
provisions of this Agreement will be duly and validly issued, fully paid and
non-assessable.
8.4 BROKERAGE. No broker, finder, agent or similar intermediary has acted
on behalf of AutoCyte in connection with this Agreement or the transactions
contemplated hereby, and there are no brokerage commissions, finders' fees or
similar fees or commissions payable in connection therewith based on any
agreement, arrangement or understanding with AutoCyte or any action taken by
AutoCyte.
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8.5 ACTIONS AND PROCEEDINGS. There are no actions, suits or claims, legal,
administrative or arbitral proceedings pending or, to the best knowledge of
AutoCyte, threatened against or involving AutoCyte that individually or in the
aggregate could have a material adverse effect upon the transactions
contemplated hereby. To the best knowledge of AutoCyte, there is no fact, event
or circumstance that may give rise to any suit, action, claim, investigation or
proceeding that individually or in the aggregate could have a material adverse
effect upon the transactions contemplated hereby.
8.6 NO BREACH. The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i)
violate any provision of the Certificate of Incorporation or By-laws of
AutoCyte; (ii) violate, conflict with or result in the breach of any of the
terms or conditions of, result in modification of the effect of, or otherwise
give any other contracting party the right to terminate, or constitute (or with
notice or lapse of time or both constitute) a default under, any material
instrument, contract or other agreement to which AutoCyte is a party or to which
it or any of its assets or properties may be bound or subject; (iii) violate any
order, judgment, injunction, award or decree of any court, arbitrator or
governmental or regulatory body against, or binding upon, AutoCyte or upon the
securities, properties, assets or business of AutoCyte; (iv) violate any
statute, law or regulation of any jurisdiction as such statute, law or
regulation relates to AutoCyte or to the securities, properties, assets or
business of AutoCyte; (v) require the approval or consent of any foreign,
federal, state, local or other governmental or regulatory body; or (vi) result
in the creation of any lien or other encumbrance on the assets or properties of
AutoCyte.
8.7 FDA APPROVALS. AutoCyte acknowledges that certain products being
transferred under this Agreement, including without limitation, a cervical
cytology slide preparation system (referred to as "CytoRich" or "Autocyte Prep")
and a computer automated cervical cytology screening system (referred to as
"Autocyte" or "AutoCyte Screen"), are still in the research and development
stage and will require regulatory approval from the U.S. Food and Drug
Administration and other similar foreign regulatory authorities, if deemed
appropriate by such authorities, before such products can be legally marketed in
such jurisdictions.
9. Conditions Precedent to the Obligation of AutoCyte to Close.
-----------------------------------------------------------
The obligation of AutoCyte to enter into and complete the Closing is
subject, at the option of AutoCyte, to the fulfillment of the following
conditions, any one or more of which may be waived by it:
9.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and
warranties of RIAS and HLR contained in this Agreement shall be true in all
material respects on and as of the Closing Date. Each of RIAS and HLR shall have
performed and complied in all material respects with all covenants and
agreements required by this Agreement to be performed or complied with by such
parties on or prior to the Closing
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Date. Each of RIAS and HLR shall have delivered to AutoCyte a certificate, dated
the Closing Date and signed by an officer of RIAS and HLR, as the case may be,
to the foregoing effect and stating that all conditions to AutoCyte's
obligations hereunder have been satisfied.
9.2 THIRD PARTY CONSENTS. AutoCyte shall have received evidence of the
receipt of all authorizations, consents and permits of others required to permit
the consummation by AutoCyte, RIAS and HLR of the transactions contemplated by
this Agreement, including but not limited to, all consents set forth on SCHEDULE
6.10, except to the extent waived by AutoCyte in writing.
9.3 OPINION OF COUNSEL TO RIAS AND HLR. AutoCyte shall have received the
opinion of Crummy, Del Deo, Dolan, Griffinger & Vecchione, counsel to RIAS and
HLR, dated the Closing Date, addressed to AutoCyte, and substantially in the
form of EXHIBIT A hereto.
9.4 LITIGATION. No action, suit or proceeding shall have been instituted
before any court or governmental or regulatory body, or instituted or threatened
by any governmental or regulatory body, to restrain, modify or prevent the
carrying out of the transactions contemplated hereby, or to seek damages or a
discovery order in connection with such transactions, or that has or may have,
in the reasonable opinion of AutoCyte, a materially adverse effect on the
assets, properties, business, operations or condition (financial or otherwise)
of RIAS.
9.5 DELIVERY OF INSTRUMENTS OF TRANSFER. RIAS shall have delivered or
caused to be delivered to AutoCyte instruments of transfer in conformity with
Section 4 above.
9.6 ASSIGNMENT OF PROPRIETARY RIGHTS BY AFFILIATES. All affiliates of RIAS
who have been assigned Proprietary Rights relating to the Contributed Assets by
employees of RIAS or otherwise shall have assigned such rights to AutoCyte.
9.7 SUPPORT AGREEMENT. The parties shall have entered into a Support
Agreement, in the form attached hereto as EXHIBIT B, providing for, among other
things, the removal of the Excluded Assets from the facilities of AutoCyte.
10. Conditions Precedent to the Obligation of RIAS and HLR to Close.
---------------------------------------------------------------
The obligation of RIAS and HLR to enter into and complete the Closing is
subject, at the option of RIAS, to the fulfillment of the following conditions,
any one or more of which may be waived:
10.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and
warranties of AutoCyte contained in this Agreement shall be true in all material
respects on and as of the Closing Date. AutoCyte shall have performed and
complied in all material
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respects with all covenants and agreements required by this Agreement to be
performed or complied with by it on or prior to the Closing Date. AutoCyte shall
have delivered to RIAS and HLR a certificate, dated the Closing Date and signed
by an officer of AutoCyte, to the foregoing effect and stating that all
conditions to the obligations of RIAS and HLR hereunder have been satisfied.
10.2 DELIVERY OF ASSUMPTION AGREEMENT. AutoCyte shall have delivered or
caused to be delivered to RIAS an agreement for assumption of the Assumed
Liabilities by AutoCyte, in the form attached hereto as EXHIBIT C.
10.3 OPINION OF COUNSEL TO AUTOCYTE. RIAS and HLR shall have received the
opinion of Palmer & Dodge LLP, counsel to AutoCyte, dated the Closing Date and
substantially in the form of EXHIBIT D hereto.
10.4 LITIGATION. No action, suit or proceeding shall have been instituted
before any court or governmental or regulatory body, or instituted or threatened
by any governmental or regulatory body, to restrain, modify or prevent the
carrying out of the transactions contemplated hereby, and such action, suit or
proceeding shall not have been stayed.
10.5 FINANCING TRANSACTIONS. The transactions contemplated by that certain
Series A Convertible Preferred Stock Purchase Agreement of even date herewith by
and among AutoCyte and the Purchasers named therein shall be completed
immediately following the transactions contemplated hereby.
11. Indemnification.
---------------
11.1 SURVIVAL. Notwithstanding any right of any party to fully investigate
the affairs of the other party and notwithstanding any knowledge of facts
determined or determinable by such party pursuant to such investigation or right
of investigation, each party has the right to rely fully upon the
representations, warranties, covenants and agreements of each other party in
this Agreement or in any Schedule, certificate or financial statement delivered
by any party pursuant hereto. All such representations, warranties, covenants
and agreements shall survive the execution and delivery hereof and the Closing
hereunder and be subject to indemnification in accordance with this Section 11,
and, except as otherwise specifically provided in this Agreement, shall
thereafter:
(a) survive for 10 years following the Closing with respect to any
Environmental Claim (as defined below);
(b) survive for five years following the Closing with respect to any
claim based upon, arising out of or otherwise in respect of any inaccuracy in,
or breach of, any representation or warranty of RIAS or HLR contained in
Sections 6.3, 6.6, 6.17 and 6.18 (a "Clause (b) Claim");
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(c) survive until the expiration of the applicable statute of
limitations with respect to any Tax Claim (as defined below); and
(d) terminate and expire on the second anniversary of the Closing Date
with respect to any General Claim or RIAS Claim (as such terms are hereinafter
defined);
provided, however, that once a Claims Notice of any of the foregoing claims has
been given hereunder, additional claims based upon, arising out of or otherwise
in respect of any fact, circumstance, action or proceeding upon which the
original claim arose may be made at any time prior to the final resolution of
such claim (by means of a final, non-appealable judgment of a court of competent
jurisdiction, a binding arbitration decision or a settlement approved by the
parties involved) even if such resolution occurs after the applicable
termination date for such claim, such date being deemed to have been extended to
the date of such final resolution.
As used in this Section 11, the following terms have the following meanings:
(i) "GENERAL CLAIM" means any claim (other than an Environmental
Claim, a Clause (b) Claim or a Tax Claim) based upon, arising out of
or otherwise in respect of any inaccuracy in or any breach of any
representation, warranty, covenant or agreement of RIAS or HLR
contained in this Agreement.
(ii) "ENVIRONMENTAL CLAIM" means any claim based upon, arising
out of or otherwise in respect of any inaccuracy in or any breach of
any representation, warranty, covenant or agreement of RIAS or HLR
contained in this Agreement relating to environmental matters;
(iii) "TAX CLAIM" means any claim based upon, arising out of or
otherwise in respect of (A) issues raised on audit by Tax authorities
with respect to RIAS's business on or before the Closing Date, (B) any
inaccuracy in or any breach of any representation, warranty, covenant
or agreement of RIAS or HLR contained in this Agreement related to
Taxes or (C) any other Tax liabilities of RIAS other than Taxes which
are Assumed Liabilities.
(iv) "RIAS CLAIM" means any claim based upon, arising out of or
otherwise in respect of any inaccuracy in or any breach of any
representation, warranty, covenant or agreement of AutoCyte contained
in this Agreement.
(v) "AUTOCYTE CLAIM" means any Environmental Claim, Clause (b)
Claim, Tax Claim or General Claim.
11.2 OBLIGATION OF RIAS AND HLR TO INDEMNIFY. Subject to the limitations
set forth below and in Section 11.5 hereof and to the termination provisions set
forth in Section 11.1, RIAS and HLR, jointly and severally, agree to indemnify,
defend and hold harmless
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AutoCyte (and its directors, officers, employees, affiliates and assigns) from
and against all losses, liabilities, damages, deficiencies, costs or expenses
(including interest and penalties imposed or assessed by any judicial or
administrative body and reasonable attorneys fees) ("LOSSES") based upon,
arising out of or otherwise in respect of any AutoCyte Claim.
11.3 OBLIGATION OF AUTOCYTE TO INDEMNIFY. Subject to the limitations set
forth below and in Section 11.5 hereof and to the termination provisions set
forth in Section 11.1, AutoCyte agrees to indemnify, defend and hold harmless
RIAS and HLR from and against any Losses based upon, arising out of or otherwise
in respect of any RIAS Claim.
11.4 Notice and Opportunity to Defend.
--------------------------------
(a) NOTICE OF ASSERTED LIABILITY. Promptly after receipt by any party
hereto (the "INDEMNITEE") of notice of any demand, claim or circumstances which,
with the lapse of time, would give rise to a claim or the commencement (or
threatened commencement) of any action, proceeding or investigation (an
"ASSERTED LIABILITY") that may result in a Loss, the Indemnitee shall give
notice thereof (the "CLAIMS NOTICE") to all other party or parties obligated to
provide indemnification pursuant to Sections 11.2 or 11.3 hereof (the
"INDEMNIFYING PARTY"). The Claims Notice shall describe the Asserted Liability
in reasonable detail, and shall indicate the amount (estimated, if necessary) of
the Loss that has been or may be suffered by the Indemnitee.
(b) OPPORTUNITY TO DEFEND. The Indemnifying Party may elect to
compromise or defend, and control the defense of, at its own expense and by
counsel reasonably satisfactory to the Indemnitee, any Asserted Liability,
provided that the Indemnitee shall have no liability under any compromise or
settlement agreed to by the Indemnifying Party which it has not approved in
writing. If the Indemnifying Party elects to compromise or defend such Asserted
Liability, it shall within 30 days (or sooner, if the nature of the Asserted
Liability so requires) notify the Indemnitee of its intent to do so, and the
Indemnitee shall cooperate upon the request and at the expense of the
Indemnifying Party, in the compromise of, or defense against, such Asserted
Liability. If the Indemnifying Party elects not to compromise or defend the
Asserted Liability, or fails to notify the Indemnitee of its election as herein
provided, the Indemnitee may pay, compromise or defend such Asserted Liability
and receive full indemnification for its Losses as provided in Sections 11.2 and
11.3 hereof, subject to the limitations included in Section 11.5 below. In any
event, the Indemnitee and the Indemnifying Party may participate, at their own
expense, in the defense of such Asserted Liability by the Indemnifying Party or
the Indemnitee, respectively. If the Indemnifying Party chooses to defend any
claim, the Indemnitee shall make available to the Indemnifying Party any books,
records or other documents within its control that are reasonably requested for
such defense and shall otherwise cooperate with the Indemnifying Party, in which
event the Indemnitee shall be reimbursed for its out-of-pocket expense.
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11.5 LIMITATIONS ON INDEMNIFICATION. The indemnification provided for in
Sections 11.2 and 11.3 hereof shall be subject to the following limitations:
(a) DEDUCTIBLE ON CLAIMS. AutoCyte shall not be entitled to receive
any indemnification payments based upon, arising out of or otherwise in respect
of any AutoCyte Claim until the aggregate indemnification payments equal
$150,000, whereupon AutoCyte shall receive indemnification payments only for
sums in excess of such amount. RIAS and HLR shall not be entitled to receive any
indemnification payments based upon, arising out of or otherwise in respect of
any RIAS Claim until the aggregate indemnification payments equal $150,000
whereupon RIAS and HLR shall receive indemnification payments only for sums in
excess of such amount.
(b) CEILING ON CLAIMS. Anything in this Agreement to the contrary
notwithstanding, (I) the liability of RIAS and HLR to AutoCyte under this
Section 11 shall in no event (i) exceed, in the aggregate, $8,000,000.00 with
respect to Tax Claims, Environmental Claims and General Claims based on Section
6.9, (ii) exceed, in the aggregate, $4,000,000 with respect to all AutoCyte
Claims other than those set forth in the preceding clause (i), and (iii) exceed,
in the aggregate, $8,000,000 with respect to all AutoCyte Claims, and (II) the
liability of AutoCyte to RIAS and HLR under this Section 11 shall in no event
exceed $1,000,000.00.
(c) OTHER BENEFITS. In determining the amount of any Loss, there shall
be taken into account any tax benefit, insurance proceeds or other similar
recovery or offset realized, directly or indirectly, by the Indemnitee.
12. Further Assurances.
------------------
12.1 Each of HLR, RIAS and AutoCyte will execute and deliver such further
instruments of conveyance, transfer and assignment and will take such other
actions as each of them may reasonably request of the other in order to
effectuate the purposes of this Agreement and to carry out the terms hereof. At
the request of AutoCyte and without further consideration, HLR and/or RIAS will
execute and deliver to AutoCyte such other instruments of transfer, conveyance,
assignment and confirmation and take such action as AutoCyte may reasonably deem
necessary or desirable in order to more effectively transfer, convey and assign
to AutoCyte and to confirm AutoCyte's title or rights to all of the Contributed
Assets, to put AutoCyte in actual possession and operating control thereof and
to permit AutoCyte to exercise all rights with respect thereto (including,
without limitation, rights under contracts and other arrangements as to which
the consent of any third party to the transfer thereof shall not have previously
been obtained). At the request of RIAS and without further consideration,
AutoCyte will execute and deliver to RIAS all instruments, undertakings or other
documents and take such action as RIAS may reasonably deem necessary or
desirable in order to have AutoCyte fully assume and discharge the Assumed
Liabilities and relieve RIAS of any liability or obligations with respect
thereto and evidence the same to third parties. Notwithstanding the provisions
of this Section 12.1, HLR, RIAS
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and AutoCyte shall not be obligated, in connection with the foregoing, to expend
monies other than reasonable out-of-pocket expenses and attorneys' fees.
12.2 If any consent, approval or amendment required to be obtained by RIAS
or HLR in order to effect the transactions contemplated hereby is not obtained
on or prior to the Closing Date, then HLR, RIAS and AutoCyte will use their best
efforts following the Closing to obtain any such consent, approval or amendment
required to novate and/or assign all agreements, licenses and other rights of
any nature whatsoever to the Contributed Assets and the Transferred Business to
AutoCyte. In the event and to the extent that HLR and/or RIAS are unable to
obtain any such required consent, approval or amendment (i) HLR and/or RIAS
shall continue to be bound thereby and (ii) unless not permitted by law or the
terms thereof, AutoCyte shall pay, perform and discharge fully all the
obligations of HLR or RIAS thereunder from and after the Closing Date. HLR and
RIAS shall, without further consideration therefor, pay and remit to AutoCyte
promptly all monies, rights and other considerations received in respect of such
performance. HLR and RIAS shall exercise or exploit their rights and options
under all such agreements, licenses and other rights and commitments referred to
in this Section 12.2 only as reasonably directed by AutoCyte and at AutoCyte's
expense. If and when any such consent shall be obtained or such agreement, lease
or other right shall otherwise become assignable or able to be novated, HLR or
RIAS, as the case may be, shall promptly assign and novate all their rights and
obligations thereunder to AutoCyte without payment of further consideration and
AutoCyte shall, without the payment of any further consideration therefor,
assume such rights and obligations. To the extent that the assignment of any
contract or agreement (or their proceeds) pursuant to this Section 12.2 is
prohibited by law, the assignment provisions of this Section shall operate to
create a subcontract with AutoCyte to perform each relevant unassignable HLR or
RIAS contract or agreement at a subcontract price equal to the monies, rights
and other considerations received by HLR or RIAS with respect to the performance
by HLR or RIAS under such contract.
12.3 HLR, RIAS and AutoCyte agree to cooperate to determine the amount of
sales, transfer or other similar taxes or fees (including, without limitation,
all real estate, copyright and trademark transfer taxes and recording fees)
payable in connection with the transactions contemplated by this Agreement (the
"Transaction Taxes"). HLR, RIAS and/or AutoCyte, as the case may be, agree to
file promptly and timely the returns for such Transaction Taxes with the
appropriate taxing authorities and remit payment of the Transaction Taxes in
compliance with all applicable federal, state and local laws.
12.4 All real property, personal property and similar taxes and
installments of general and special assessments, if any, with respect to the
Contributed Assets shall be prorated on the basis of actual days elapsed between
the commencement of the relevant fiscal tax year and the Closing Date, based on
a 365-day year and the most recent tax statements or bills applicable thereto,
without later adjustment. RIAS shall be responsible for all such taxes, payments
and charges allocable to all times prior to and including the Closing Date and
AutoCyte shall be responsible for all such taxes, payments and charges allocable
to all
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times after the Closing Date. Following the Closing Date, each party shall, upon
request of the other party, immediately reimburse the other party for any such
taxes, payments and charges or other expenses for which said party is
responsible but have been paid by or are owed by the other party and for
collections made by one party on behalf of the other party.
12.5 AutoCyte acknowledges that, from and after the Closing Date, it will
be solely responsible for establishing its own employee benefit plans and that
no benefit plan of RIAS will be transferred from RIAS to AutoCyte as part of the
transactions contemplated hereby. AutoCyte also agrees to make offers of
employment to all employees of RIAS formerly associated with the Transferred
Business, with the exception of, Jerome Racine, Keith Phillips and Gary Vega.
13. Provision of Corporate Records; Access to Information.
-----------------------------------------------------
13.1 As soon as practicable after the Closing Date, RIAS shall deliver to
AutoCyte all corporate books and records relating exclusively to the Transferred
Business and the Transferred Employees not then in possession of the Transferred
Business (the "Books and Records"). Such Books and Records shall be property of
AutoCyte, but shall be retained and made available readily to RIAS for review
and duplication until the earlier of (i) notice from RIAS that such records are
no longer needed by RIAS or (ii) the fourth anniversary of the Closing Date.
13.2 From and after the Closing Date, RIAS and AutoCyte shall afford to
each other and to each other's authorized accountants, counsel and other
designated representatives reasonable access and duplicating rights (with
copying costs to be borne by the requesting party) during normal business hours
to all Books and Records and documents, communications, items and matters
(collectively, "Information") within each other's knowledge, possession or
control existing on the Closing Date and relating to the Contributed Assets and
the Transferred Business, insofar as such access is reasonably requested by RIAS
or AutoCyte, as the case may be and shall use reasonable efforts to cause
persons or firms possessing relevant Information to give similar access).
Information may be requested under this Section 13.2 for, without limitation,
audit, accounting, claims, actions, litigation and tax purposes, as well as for
purposes of fulfilling disclosure and reporting obligations, but not for
competitive purposes.
13.3 RIAS and AutoCyte shall hold, and shall cause its officers, employees,
agents, consultants and advisors to hold, in strict confidence, unless compelled
to disclose by judicial or administrative process or, in the opinion of its
independent legal counsel, by other requirements of law (in which case the
non-disclosing party shall receive reasonable prior notice from the disclosing
party and shall be given the opportunity to seek a protective order eliminating
or restricting any such disclosure obligation), all confidential Information
concerning the other party furnished it by such other party or its
representatives pursuant to this Agreement (except after the Closing Date to the
extent that such Information can be shown to have been (i) available to such
party on a non-confidential basis prior to its
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disclosure by the other party, (ii) in public domain through no fault of such
party or (iii) later lawfully acquired from other sources by the party to which
it was furnished), and each party shall not release or disclose such Information
to any other person, except its auditors, attorneys, financial advisors, bankers
and other consultants and advisors who shall be bound by the provisions of this
Section 13.3. Each party shall be deemed to have satisfied its obligation to
hold confidential Information concerning or supplied by the other party if it
exercises the same care as it takes to preserve confidentiality for its own
similar Information.
14. TAX TREATMENT. The parties intend that, and this agreement should be
interpreted and implemented in such a way that, the transactions described above
shall be tax free to the entities involved and to their shareholders, and, more
specifically, that the transfer described in Section 1 intended to qualify as a
tax-free transaction within the meaning of Section 351 of the Internal Revenue
Code of 1986, as amended (the "Code") or alternatively, as nontaxable capital
contributions.
15. NON-COMPETITION. For the period of time extending for five (5) years after
the Closing Date, HLR and RIAS shall not compete, directly or indirectly, with
AutoCyte in the fields of (i) computer-assisted, cytological image analysis and
(ii) preparation of cellular monolayers for cytological image analysis, as these
fields relate to the Transferred Business. Nothing in this Section 15 shall
limit in any way HLR, RIAS, and their respective affiliates from engaging (i) in
the laboratory screening activities presently being conducted by Laboratory
Corporation of America or (ii) other forms of diagnosis and clinical analysis
which do not utilize computer-assisted, cytological image analysis, such as via
polymerase chain reaction, or PCR, or other chemical analyses.
16. Miscellaneous.
-------------
16.1 STOCK CERTIFICATE LEGENDS. Each certificate representing the AutoCyte
Shares shall bear a legend substantially in the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS AND UNTIL SUCH
SHARES ARE REGISTERED UNDER THE ACT AND SUCH LAWS OR (1)
REGISTRATION UNDER APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED AND (2) AN OPINION OF COUNSEL TO THE COMPANY IS
FURNISHED TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER
THE ACT IS NOT REQUIRED."
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The foregoing legend shall be removed from the certificates representing
the AutoCyte Shares at the request of the holder thereof at such time as they
become registered under the Securities Act or eligible for resale pursuant to
Rule 144(k) under the Securities Act.
16.2 ENTIRE AGREEMENT. This Agreement, including the schedules, annexes and
exhibits hereto and the agreements and other documents referred to herein or
contemplated hereby, shall constitute the entire agreement between HLR, RIAS and
AutoCyte with respect to the subject matter hereof and shall supersede all
previous negotiations, commitments and writings with respect to such subject
matter.
16.3 AMENDMENT. This Agreement may be amended, modified or supplemented
only by written agreement of the parties.
16.4 SUCCESSORS AND ASSIGNS. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any party
without the prior written consent of the other party.
16.5 NO THIRD PARTY BENEFICIARIES. This Agreement is solely for the benefit
of the parties and is not intended to confer upon any other person except the
parties any rights or remedies hereunder. There are no third party beneficiaries
to this Agreement.
16.6 GOVERNING LAW. This Agreement shall be governed by and construed under
the laws of the State of Delaware.
16.7 NOTICES. Any notice or other communication by either party to the
other parties shall be in writing and shall be deemed effectively given upon the
date of receipt if personally delivered, telecopied or telexed to the party to
whom the same is directed, or upon the third day after mailing if mailed to such
party, by registered or certified mail, postage prepaid, addressed to the
following addresses:
(a) if to AutoCyte:
AutoCyte, Inc.
112 Orange Drive
Elon College, North Carolina 27244
with a copy to:
William T. Whelan, Esq.
Palmer & Dodge LLP
One Beacon Street
Boston, Massachusetts 02108
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(b) if to RIAS or HLR:
Thomas Mac Mahon
President
Roche Diagnostics
1080 Highway 202
Somerville, NJ 08876-3771
with a copy to:
General Counsel
c/o Hoffmann-La Roche Inc.
340 Kingsland Street
Nutley, NJ 07110
or to such other address and to the attention of such other person or officer,
as such party may designate in writing.
16.8 BROKERS. HLR and RIAS hereby agree to indemnify AutoCyte, and hold it
harmless from and against any claims for finders' fees or brokerage commission
in relation to or in connection with the consummation of the transactions
contemplated hereby as a result of any agreement or understanding between HLR or
RIAS and any third party. The obligation of HLR and RIAS hereunder shall be
subject to the procedural terms of Section 11 hereof, and any claim by AutoCyte
hereunder shall be considered a Clause (b) Claim for purposes thereof; provided,
however, that the limitations of liability set forth in Section 11.5 shall not
apply to claims for indemnification asserted by AutoCyte under this Section
16.8.
16.9 PUBLIC ANNOUNCEMENTS. Unless required by law, no party to this
Agreement shall issue any press release unless the other parties have approved
such press release in advance.
16.10 EXPENSES. None of the parties hereto shall have any obligation to pay
any of the fees and expenses of any other party incident to the negotiation,
preparation and execution of this Agreement, including the fees and expenses of
counsel, accountants, investment bankers and other experts.
16.11 PARTIAL INVALIDITY. In the event that any term or provision of this
Agreement shall to any extent be held by a court of proper jurisdiction to be
invalid or unenforceable for any reason, the remainder of this Agreement shall
not be affected thereby, and the remaining terms and provisions hereof shall
remain in full force and effect. The invalid or unenforceable provisions shall,
to the extent permitted by law, be deemed amended and given such interpretation
as will achieve the intent of this Agreement.
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16.12 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have entered into this Agreement as of the
22nd day of November, 1996.
AUTOCYTE, INC.
By: /s/ Ernest A. Knesel
------------------------------------
Name: Ernest A. Knesel
Title: President
ROCHE IMAGE ANALYSIS SYSTEMS, INC.
By: /s/ Thomas P. Mac Mahon
------------------------------------
Name: Thomas P. Mac Mahon
Title: Vice President
HLR HOLDINGS INC.
By: /s/ Frederick C. Kentz
------------------------------------
Name: Frederick C. Kentz
Title: Secretary
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<PAGE> 29
EXHIBIT A
[LETTERHEAD OF CRUMMY, DEL DEO, DOLAN, GRIFFINGER & VECCHIONE]
November 22, 1996
AutoCyte, Inc.
112 Orange Drive
Elon College, North Carolina 27244
Re: Roche Image Analysis Systems, Inc.
HLR Holdings, Inc.
----------------------------------
Ladies and Gentlemen:
We have acted as counsel to Roche Image Analysis Systems, Inc., a
Delaware corporation ("Seller") and its sole stockholder HLR Holdings, Inc., a
Delaware corporation (the "Stockholder") in connection with the contribution
of substantially all of the assets of the Seller to AutoCyte, Inc., a Delaware
corporation (the "Buyer"), pursuant to the terms and conditions of the
Contribution Agreement dated as of November 22, 1996, among the Seller, the
Stockholder and Buyer (the "Contribution Agreement"). This opinion is
delivered to you pursuant to Section 9.3 of the Contribution Agreement. All
capitalized terms used herein shall have the respective defined meanings set
forth in the Contribution Agreement.
For purposes of this opinion, we have reviewed the provisions of the
Contribution Agreement, the Certificate of Incorporation and the By-laws of
Seller and Stockholder, and the corporate proceedings of Seller and
Stockholder, with respect to the Contribution Agreement. We have not reviewed
other documents or participated in negotiations or documentation of the
Contribution Agreement or related transactions and are not otherwise familiar
with the affairs of Seller or Stockholder. We have examined or relied upon
originals or copies, certified or otherwise identified to our satisfaction, of
such corporate records, documents, certificates and other instruments,
including certificates of corporate secretaries (which we have relied upon in
rendering the opinions expressed below with respect to the valid existence and
good standing of Seller and the Stockholder), as we have deemed necessary or
appropriate for the purposes of
<PAGE> 30
CRUMMY, DEL DEO, DOLAN, GRIFFINGER & VECCHIONE
AutoCyte, Inc.
November 22, 1996
Page 2
rendering this opinion. As to questions of fact material to the opinion
rendered therein, we have, when relevant facts were not independently
established by us, relied upon statements by Seller and Stockholder in the
Contribution Agreement and certificates of the Stockholder and Seller or their
respective officers, or other evidence satisfactory to us.
In our examination, we have assumed the genuineness of all signatures
other than those of Seller and the Stockholder, the capacity, power and
authority of all parties other than the Seller and the Stockholder to execute
and deliver all applicable documents, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such latter documents. We have also assumed
that the Contribution Agreement is your legal, valid and binding obligation
enforceable against you in accordance with its terms, and that any
representations, covenants and warranties made by you therein were and are
true and correct, that you have complied with all conditions precedent
required to be performed or complied with by you thereunder and that all
applicable antitrust and securities laws have been complied with by all
parties.
To the extent that any opinion expressed herein is based upon "our
knowledge", or words of similar import, these words imply that in the course
of our said representation, no information has come to the attention of any
attorney currently associated with this firm who has generally been involved
in said representation that would give us actual knowledge or actual notice of
the existence or absence of facts which would change the opinions stated
herein.
This opinion is limited to the laws of the State of New Jersey, the
corporate law of the State of Delaware and the Federal laws of the United
States.
Based upon and subject to the foregoing, it is our opinion that:
1. Seller and the Stockholder are corporations duly organized, validly
existing and in good standing with the Secretary of State of Delaware under
the laws of the State of Delaware with full corporate power and authority to
own or lease their properties and to conduct their business, and to enter into
and complete the transactions contemplated by the Contribution Agreement.
2. Each of the Seller and the Stockholder has full power and authority
to execute and deliver the Contribution Agreement, and the Contribution
Agreement has been duly and validly executed and delivered by the Seller and
the Stockholder and constitutes the legal, valid and binding obligation of the
Seller and the Stockholder, enforceable in accordance with its terms,
<PAGE> 31
CRUMMY, DEL DEO, DOLAN, GRIFFINGER & VECCHIONE
AutoCyte, Inc.
November 22, 1996
Page 3
except as such enforceability may be limited by bankruptcy, reorganization,
insolvency, moratorium or other similar laws from time to time in effect
affecting creditors' rights generally and by principles governing the
availability of equitable remedies.
3. Neither the execution, delivery or performance by Seller or the
Stockholder of the Contribution Agreement will (i) contravene any provisions
of the Certificate of Incorporation or By-laws of Seller or the Stockholder or
(ii) violate any judgment, decree, order, statute, rule or regulation to our
knowledge applicable to Seller or the Stockholder.
4. The instruments of transfer delivered by the Seller pursuant to
Section 4 of the Contribution Agreement have been duly authorized by all
necessary corporate action by the Seller and the Stockholder and each of said
instruments has been duly executed and delivered by the Seller.
The opinions hereinabove set forth are qualified as follows:
A. We express no opinion herein as to whether a court would (1) enforce
payment of the Contribution Agreement upon acceleration thereof if such
acceleration was declared as a consequence of the failure by you to perform or
observe or cause another person to perform or observe a provision or
provisions thereof which was not material, or (2) limit enforcement of any of
your rights or remedies thereunder, if the enforcement thereof under the
circumstances would violate an implied covenant of good faith and fair
dealing.
B. We express no opinion as to (1) the (a) enforceability of
non-judicial foreclosures or sales or other self-help remedies provided for
therein; (b) enforceability of provisions which purport to restrict access to
legal or equitable remedies or waive any rights or which purport to establish
evidentiary standards, (c) enforceability of provisions relating to
subrogation rights, suretyship, delay or omission of enforcement of rights or
remedies, waivers of rights, agreements to agree on future acts, prohibitions
against the transfer, alienation, or hypothecation of property, severance,
consent judgments or marshaling of assets; and (d) venue selection provisions;
(2) your rights and remedies thereunder which are limited by any requirements
of law that a secured party act in good faith and in a commercially reasonable
manner, or (3) title to, or ownership of any real or personal property covered
by the Contribution Agreement or such instruments of transfer.
C. Regardless of whether or not you exercise remedies under the
Contribution Agreement, you may be required to file a notice of business
activities report with the Director of the Division of Taxation of the State
of New Jersey pursuant to N.J.S.A. 14A:13-14, et, seq. if
<PAGE> 32
CRUMMY, DEL DEO, DOLAN, GRIFFINGER & VECCHIONE
AutoCyte, Inc.
November 22, 1996
Page 4
you receive payments form businesses or persons in the State of New Jersey
aggregating in excess of $25,000 in any year or otherwise derive income from
sources within New Jersey.
D. As to any related agreement, document or instrument not governed by
New Jersey or Delaware corporate law, we have assumed that the governing law
is the same as that of New Jersey. We undertake no obligation to correct or
supplement this opinion if any such law should change or if we become aware of
facts that might change this opinion. No opinions should be implied beyond
these expressed herein.
E. As to any agreement which is the subject of this opinion and which
has a choice of law provision designating the law of a particular state, our
opinion as to the enforceability of such choice of law provision is subject to
the condition that it does not contravene a fundamental policy of that state;
and further provided that the choice of law designated bears a reasonable
relationship to the transaction contemplated by such agreement.
This opinion is being furnished only to you and is solely for your
benefit. This opinion may not be used, circulated, quoted or relied upon or
otherwise referred to for any purpose without our prior written consent.
We undertake no obligation to cause any filing, refiling, recording,
registration or registration by virtue of relating to any of the matters set
forth in this opinion letter. We further undertake no obligation to inform you
of any matters which may subsequently occur which affect in any way the
opinions given herein.
Very truly yours,
/s/ Crummy, Del Deo, Dolan,
Griffinger & Vecchione, P.C.
CRUMMY, DEL DEO, DOLAN,
GRIFFINGER & VECCHIONE
A Professional Corporation
<PAGE> 33
EXHIBIT B
SUPPORT AGREEMENT
-----------------
AGREEMENT ("Agreement") made this 22nd day of November, 1996 by and between
AutoCyte, Inc., ("AutoCyte") and Hoffmann-La Roche Inc. and Roche Image Analysis
Systems, Inc. (collectively "Roche").
WITNESSETH
WHEREAS, subject to the terms and conditions contained herein, AutoCyte desires
to have certain support services provided by Roche and the parties hereto wish
to enter into this Agreement pursuant to which Roche shall provide certain
support services to AutoCyte (the "Support Services"); and
WHEREAS, subject to the terms and conditions contained herein, AutoCyte may
provide certain services for Roche Image Analysis Systems, Inc. ("RIAS").
NOW THEREFORE, in consideration of the mutual representations, warranties,
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereby agree as follows:
1. GENERAL OBLIGATIONS
A. AutoCyte agrees that Roche is not in the business of providing
any of the services to be provided hereunder to third parties
and that Roche's only obligation hereunder shall be to use
reasonable efforts to meet AutoCyte's needs consistent with
the manner in which Roche has previously used to provide the
services. In no event shall Roche be obligated to provide any
Support Services after December 31, 1996 unless the parties
shall mutually agree to a further extension. Notwithstanding
anything contained herein to the contrary, AutoCyte agrees
that in the event that any person who is employed or is under
contract to provide consulting services to Roche shall quit,
be discharged or terminated for any reason, or in the event
that Roche shall determine that it shall be unable to supply
such services for any reason, the services which would be
provided by such individual or Roche shall immediately cease
and Roche shall have no further obligation to provide such
services to AutoCyte.
<PAGE> 34
B. AutoCyte agrees to pay Roche any and all amounts, in addition
to the specific amounts set forth below, which Roche shall
reasonably incur in connection with providing the various
Support Services provided under this Agreement. These amounts
shall include any reasonable compensation, including benefits,
which may be paid to any individual. AutoCyte agrees that is
shall be solely responsible for its operations and that by
Roche providing support assistance, Roche shall not assume any
responsibility to AutoCyte or any third party for any claims
or damages arising, or alleged to arise, in connection with
such operations or Roche's performance hereunder except if
such claims or damages are caused by Roche's intentional or
willful failure to fulfill its obligations hereunder; provided
however, that in no event shall Roche be responsible for
consequential or special damages. Roche's total liability to
AutoCyte in connection with this Agreement shall be limited to
the amounts paid under this Agreement to Roche by AutoCyte.
2. INTERIM PAYROLL SERVICES
A. Roche agrees to provide interim payroll accounting services to
AutoCyte until December 31, 1996 unless previously terminated
by Roche upon reasonable notice or extended by mutual
agreement between the parties hereto. These services shall
include, but not be limited to (i) recording the payrolls to
the AutoCyte general ledger, (ii) performing any account
reconciliation that may be required, (iii) maintaining and
updating employee records to reflect any changes, and (iv)
other such services currently being provided. AutoCyte shall
wire funds to Roche at least one day prior to any pay date
which are sufficient to pay any and all compensation and/or
withholdings pertaining to any payroll period for all
employees of AutoCyte. AutoCyte agrees that existing payroll
stock must be used to pay its employees and agrees to defend,
indemnify and hold harmless Roche from any claims from any
employee of AutoCyte which may arise.
B. The charges for the services set forth in this Section shall
be any and all reasonable costs incurred by Roche, but in no
event less than twenty-five Dollars ($25.00) per hour, per
person, for time incurred.
2
<PAGE> 35
3. AUTOCYTE SERVICES
A. AutoCyte may, at the request of RIAS and with RIAS's prior
consent, provide certain services to RIAS. The charges for any
such services shall be twenty-five ($25.00) per hour, per
person, for time incurred.
B. AutoCyte agrees that there are certain inventory, furniture,
fixtures and equipment pertaining to the HLA business of RIAS
located on AutoCyte's premises which are owned by RIAS ("HLA
assets"). AutoCyte agrees that the HLA assets may remain on
AutoCyte's premises until February 1, 1997 at no cost or
expense to RIAS. AutoCyte agrees that AutoCyte will not do any
act which would damage the HLA assets and will properly
monitor and maintain the HLA assets in order that the HLA
assets are properly stored. In the event that the HLA assets
are not removed on or before February 1, 1997, RIAS agrees to
pay AutoCyte a one time payment of Five Thousand ($5,000.00)
and allow AutoCyte the right to remove the HLA assets. If RIAS
does not remove the HLA assets by February 1, 1997, RIAS
agrees to reimburse AutoCyte for its reasonable disposal costs
net of any proceeds that might be realized from liquidating
these assets.
4. ADDITIONAL SUPPORT SERVICES
In addition to those Support Services set forth above, Roche agrees to
provide such additional support, financial and consultation services to
AutoCyte as the parties shall mutually agree.
The charges for the services set forth in this Section shall be any and
all reasonable costs incurred by Roche, but in no event less than
twenty-five Dollars ($25.00) per hour, per person, for time incurred.
5. GENERAL CONDITIONS
A. Additional Costs/Fees/Payment. It is the intent of the parties
that additional third party costs incurred in connection with
providing the Support Services provided hereunder by Roche
shall be borne by AutoCyte. In the event a cost or fee of any
third party is required to support AutoCyte's needs, it shall
be AutoCyte's obligation to pay such costs or fees after
notice from Roche and an opportunity to approve such costs or
fees, unless Roche has expressly agreed in writing herein to
bear such costs. AutoCyte agrees to wire to Roche any and all
amounts incurred for any
3
<PAGE> 36
services provided under this Agreement by the ten (10th) day
of the following month.
B. WARRANTY/LIMITATION OF LIABILITY. THE PARTIES UNDERSTAND AND
AGREE THAT ALL SUPPORT SERVICES PROVIDED HEREUNDER ARE "AS IS"
AND ROCHE MAKES NO WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT
TO SUCH SERVICES, THE RESULTS OF SUCH SERVICES, OR THAT ANY
ERRORS OR PROGRAM PROBLEMS WILL BE CORRECTED. ROCHE IS NOT IN
THE BUSINESS OF PROVIDING THE SUPPORT SERVICES TO BE PROVIDED
HEREUNDER OR ON A COMMERCIAL BASIS AND THE FEES CHARGED ARE
INTENDED TO REIMBURSE ROCHE FOR ITS ACTUAL COST AND DO NOT
INCORPORATE A CHARGE TO COVER WARRANTIES, GUARANTEES OR CLAIMS
OF AUTOCYTE OR THIRD PARTY CLAIMS. IN THE EVENT OF A THIRD
PARTY ACTION RELATING TO WORK PERFORMED, IF ROCHE IS ADDED AS
A THIRD PARTY, PROVIDED SUCH ACTION IS NOT CAUSED BY OR
RELATED OR INCIDENT TO, OR THE RESULT OF ROCHE'S INTENTIONAL
OR WILLFUL FAILURE TO MEET ITS OBLIGATIONS HEREUNDER, AUTOCYTE
AGREES TO INDEMNIFY AND HOLD ROCHE AND ITS AGENTS AND
EMPLOYEES HARMLESS FROM AND AGAINST ALL SUCH LIABILITY,
INCLUDING THE COST OF DEFENSE.
C. Travel and Living Expenses. AutoCyte agrees to pay all
reasonable travel, lodging, meals, automobile, living and
other expenses incurred in accordance with Roche's current
policy in connection with providing the Support Services.
D. Protection of Proprietary and Confidential Information. While
this Agreement is in effect and thereafter, each party shall
keep in confidence all confidential or proprietary information
disclosed to it by the other party ("Information") and shall
protect the same from: (1) any use except as authorized; or
(2) disclosure to third parties except as required by law,
judicial or governmental authority. Each party shall inform
any affected employees of the confidential nature of the
Information and of the obligations of such party and such
employees under this Agreement. Upon the discontinuance,
termination or cancellation of this Agreement, the Information
shall be returned to the disclosing party at such party's
prior written request or shall be destroyed and such party
shall certify as to such destruction.
4
<PAGE> 37
E. Indemnification. In addition to the indemnification provisions
contained herein, AutoCyte agrees to defend, indemnify and
hold Roche, its parent, subsidiaries, affiliated and related
companies, directors, officers, employees, and agents wholly
harmless from and against all third party claims, losses,
lawsuits, settlements, demands, causes, judgments, expenses
and costs (including reasonable attorneys fees) arising under
or in connection with this Agreement to the extent that such
costs and liabilities are caused by AutoCyte.
Subject to the limitations set forth within this Support
Agreement, Roche agrees to defend, indemnify and hold
AutoCyte, its parent, subsidiaries, affiliated and related
companies, directors, officers, employees, and agents wholly
harmless from and against all third party claims, losses,
lawsuits, settlements, demands, causes, judgments, expenses,
and costs (including reasonable attorney fees) arising under
or in connection with this Agreement to the extent that such
costs and liabilities are caused by the intentional or willful
misconduct of Roche.
IN NO EVENT SHALL EITHER PARTY BE HELD RESPONSIBLE FOR
PUNITIVE DAMAGES, OR CONSEQUENTIAL, INCIDENTAL, OR SPECIAL
DAMAGES (INCLUDING LOST PROFITS OR REVENUE).
F. Force Majeure. Roche's performance hereunder shall be excused
to the extent it is hindered or prevented due to Acts of God,
including earthquakes, fire or flood; acts of any governmental
authority; acts of war, rebellion, sabotage, riot, civil
disorders or explosions; strikes or labor disputes; and causes
beyond its control.
G. Choice of law. This Agreement shall be construed in accordance
with the laws of the State of New Jersey applicable to
contracts made and to be performed wholly within such State.
H. Assignment. Neither party may assign, delegate, or transfer
its rights or obligations hereunder without the written
consent of the other party, except Roche may assign its
obligations to any of its affiliates.
5
<PAGE> 38
I. Merger. The terms and conditions herein constitute the entire
agreement between the parties with respect to the matters
herein and supersede all previous communications, whether
written or oral, between the parties with respect to the
subject matter hereof. No waiver, modification or addition to
this Agreement shall be valid unless in writing and signed by
an authorized representative of the party to be charged.
J. Change in Law or Regulation. The terms of this Agreement are
intended to be in compliance with all federal, state and local
statutes, regulations or ordinances applicable on the date the
Agreement takes effect. Should counsel for either party
reasonably conclude that any portion of this Agreement is or
may be in violation of such requirements, or subsequent
enactment by federal, state or local authorities, or if any
such interpretation, change or proposed change materially
alters the amount or method of compensating Roche for
performing the Support Services for AutoCyte or materially
increases the cost of Roche's performance hereunder, this
Agreement shall terminate upon thirty (30) day's notice
thereof to the other party, unless within said thirty (30) day
period the parties agree to such modifications of the
Agreement as may be necessary to establish compliance with
such authorities or to reflect such change in compensation or
cost, if possible. The parties shall in good faith attempt to
reach an agreement to modify this Agreement to establish
compliance with such authorities or to reflect such change in
compensation or cost.
K. Notices. Any notice required to be given pursuant to the terms
and provisions hereof shall be in writing and shall be sent by
certified or registered mail or overnight delivery to Roche
at:
Hoffmann-La Roche Inc. or Roche Image Analysis Systems, Inc.
c/o Roche Diagnostic Systems, Inc.
1080 U.S. Highway 202
Branchburg, NJ 08876-1760
Attn: David Ellis
with a copy to:
Hoffmann-La Roche Inc. or Roche Image Analysis Systems, Inc.
340 Kingsland Street
Nutley, NJ 07110
Attn: General Counsel
6
<PAGE> 39
and to AutoCyte at
AutoCyte, Inc.
112 Orange Drive
Elon College, NC 27244
Attn: President
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed in
their names as their official acts by their respective executive officers, each
of whom is duly authorized to execute the same, all as of the date first written
above.
HOFFMANN-LA ROCHE INC.
By: /s/ Frederick C. Kentz
--------------------------------
Vice President
ROCHE IMAGE ANALYSIS
SYSTEMS, INC.
By: /s/ Thomas Mac Mahon
--------------------------------
Vice President
AUTOCYTE, INC.
By: /s/ Ernest A. Knesel
--------------------------------
President
7
<PAGE> 40
EXHIBIT C
INSTRUMENT OF ASSUMPTION OF LIABILITIES
This Instrument of Assumption of Liabilities dated November 22, 1996, is
made by AutoCyte, Inc., a Delaware corporation ("AutoCyte"), in favor of Roche
Image Analysis Systems, Inc., a Delaware corporation ("RIAS"). All capitalized
words and terms used in this Instrument of Assumption of Liabilities and not
defined herein shall have the respective meanings ascribed to them in the
Contribution Agreement dated as of November 22, 1996 between AutoCyte, RIAS and
HLR Holdings Inc. (the "Contribution Agreement").
WHEREAS, pursuant to the Contribution Agreement, RIAS has agreed to convey,
transfer, assign and deliver to AutoCyte and AutoCyte has agreed to accept the
Contributed Assets;
WHEREAS, in partial consideration therefor, AutoCyte has agreed to assume
certain of the liabilities of RIAS;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, AutoCyte hereby agrees as follows:
1. AutoCyte hereby assumes and agrees to perform, pay and discharge the
liabilities, obligations and commitments of RIAS which are described in Section
2.1 of the Contribution Agreement.
2. Notwithstanding the foregoing, AutoCyte does not hereby assume or agree
to perform, pay or discharge, and RIAS shall remain unconditionally liable for,
from and after the date hereof, all other liabilities, obligations and
commitments, fixed or contingent, of RIAS.
3. Nothing contained herein shall require AutoCyte to perform, pay or
discharge any liability, obligation or commitment expressly assumed by AutoCyte
herein so long as AutoCyte in good faith contests or causes to be contested the
amount or validity thereof.
4. It is expressly understood and agreed that all liabilities, obligations
and commitments not assumed hereunder by AutoCyte pursuant to Section 1 above
shall remain, as between AutoCyte and RIAS, the sole obligation of RIAS and its
respective successors and assigns.
5. AutoCyte, by its execution of this Instrument of Assumption of
Liabilities, and RIAS, by its acceptance of this Instrument of Assumption of
Liabilities, each hereby acknowledges and agrees that neither the
representations and warranties nor the rights and remedies of either party under
the Contribution Agreement shall be deemed to be enlarged, modified or altered
in any way by such execution and acceptance of this instrument.
<PAGE> 41
IN WITNESS WHEREOF, AutoCyte and RIAS have caused this instrument to be
duly executed as of and on the date first above written.
AUTOCYTE, INC.
By: /s/ Ernest A. Knesel
------------------------------------
Name: Ernest A. Knesel
Title: President
ROCHE IMAGE ANALYSIS SYSTEMS, INC.
By: /s/ Thomas P. Mac Mahon
------------------------------------
Name: Thomas P. Mac Mahon
Title: Vice President
- 2 -
<PAGE> 42
EXHIBIT D
PALMER AND DODGE LLP
ONE BEACON STREET, BOSTON, MA 02108-3190
Telephone: (617) 573-0100 Facsimile: (617) 227-4420
November 22, 1996
Roche Image Analysis Systems, Inc. and
HLR Holdings Inc.
Gentlemen:
This opinion is furnished to you pursuant to Section 10.2 of the
Contribution Agreement dated as of the date hereof (the "Contribution
Agreement") among AutoCyte, Inc., a Delaware corporation (the "Company"), Roche
Image Analysis Systems, Inc. ("RIAS") and HLR Holdings Inc. ("HLR"). Terms used
but not otherwise defined in this opinion shall have the meanings ascribed to
them in the Contribution Agreement.
We have acted as counsel for the Company in connection with the
preparation, execution and delivery of the Contribution Agreement. For purposes
of the opinions expressed below, we have examined the originals or copies of
such records, agreements and instruments of the Company, certificates of public
officials and of officers of the Company and such other documents and records,
and such matters of law, as we have deemed appropriate as a basis for the
opinions hereinafter expressed. In making such examination, we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity of all documents submitted to us as originals and the conformity to
the originals of all documents submitted to us as copies, and the accuracy and
completeness of all corporate records made available to us for review. As to
various facts material to the opinions set forth herein, we have relied without
independent verification upon factual representations made by the Company in the
Contribution Agreement, upon certificates of public officials and upon facts
certified to us by officers of the Company. Our opinion in paragraph 1 below,
insofar as it relates to the legal existence and good standing of the Company,
is based solely upon a certificate of legal existence issued by the Secretary of
State of Delaware on November 19, 1996.
Statements herein qualified by the phrase "to our knowledge" or similar
phrase refer to the actual knowledge of the individual lawyers in our firm who
participated in the negotiation and drafting of the Contribution Agreement,
without independent investigation.
For purposes of the opinions expressed herein, we have assumed that at all
relevant times RIAS and HLR had all requisite power and authority and had taken
all necessary action to enter into and perform all of their obligations under
the Contribution Agreement or such other
<PAGE> 43
November 22, 1996
Page 2
documents, agreements and instruments to which they are a party, and that the
Contribution Agreement and each such other document, agreement and instrument
was and will continue to be the valid, binding and enforceable obligation of
each party thereto, other than the Company.
This opinion is limited to the laws of the Commonwealth of Massachusetts,
the federal laws of the United States of America, and the General Corporation
Law statute of the State of Delaware and we express no opinions with respect to
the law of any other jurisdiction.
Based upon and subject to the foregoing, we hereby advise you that, in our
opinion, as of the date hereof:
1. The Company is a corporation duly organized, validly existing and in
good corporate standing under the laws of the State of Delaware. The Company has
requisite corporate power and authority to own and operate its properties and
assets, and to carry on its business as presently conducted.
2. The Company has all requisite corporate power and authority to enter
into the Contribution Agreement and to carry out and perform its obligations
under the terms of the Contribution Agreement.
3. Based solely upon our examination of the Company's Certificate of
Amendment of the Company's Certificate of Incorporation as filed with the
Secretary of State of Delaware on November 22, 1996 (the "Amended Charter") and
stock records, and except for changes contemplated by the Contribution
Agreement, the Company is duly authorized to issue 20,500,000 shares of Common
Stock, none of which are issued and outstanding, and 9,925,000 shares of
Preferred Stock, all of which have been designated as Series A Convertible
Preferred Stock, none of which are issued and outstanding. To our knowledge,
there are no outstanding rights, options, warrants, conversion rights or
agreements for the purchase or acquisition from the Company of any shares of its
capital stock other than rights created by the Contribution Agreement, the
Series A Preferred Stock Purchase Agreement, the Rights Agreement, the
Stockholders' Agreement, the Amended Charter, and other than as set forth on the
Disclosure Schedule attached to the Contribution Agreement. To our knowledge,
the Company has no obligation (contingent or otherwise) 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, other than as
provided for in the Amended Charter.
4. The execution and delivery of the Contribution Agreement by the Company
and the performance by the Company of its obligations thereunder have been duly
authorized by all necessary corporate action on the part of the Company.
<PAGE> 44
November 22, 1996
Page 3
5. The Contribution Agreement has been duly executed and delivered by the
Company and constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms.
6. The issuance, sale and delivery of the Shares by the Company in
accordance with the Contribution Agreement have been duly authorized by all
necessary corporate action on the part of the Company.
7. The execution, delivery and performance of the Contribution Agreement by
the Company, and the issuance of the Shares will not result in any violation of,
or be in conflict with, or constitute a default under, any term of the Company's
Amended Charter or By-laws, as the same exist on the date hereof.
8. To our knowledge, the Company is not in default with respect to any
order, writ, injunction or decree specifically naming the Company and known to
us of any court or any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign.
Our opinions set forth above are subject to the following general
qualifications:
(a) The validity and enforceability of any obligation and the exercise
of rights and remedies may be limited by (i) bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar laws
affecting the enforcement generally of the rights and remedies of creditors
and secured parties or the obligations of debtors, and (ii) general
principles of equity (regardless of whether such enforcement is considered
in a proceeding at law or in equity), including, without limitation, the
discretion of any court of competent jurisdiction in granting specific
performance, injunctive or other equitable relief.
(b) The enforcement of any rights or remedies is or may be subject to
an implied duty on the part of the party seeking to enforce such rights to
take action and make determinations on a reasonable basis and in good
faith.
(c) We express no opinion as to prospective waivers of rights to
notice or a hearing, or other rights granted by constitution or statute,
powers of attorney, provisions purporting to relieve parties of the
consequences of their own negligence or misconduct, or provisions
purporting to establish evidentiary standards.
(d) The enforceability of the Contribution Agreement may be limited by
general principles of contract law which include (i) the unenforceability
of provisions to
<PAGE> 45
November 22, 1996
Page 4
the effect that provisions therein may only be amended or waived in writing
to the extent that an oral agreement modifying such provisions has been
entered into, and (ii) the general rule that, where less than all of an
agreement is enforceable, the balance is enforceable only when the
unenforceable portion is not an essential part of the agreed exchange.
(e) The validity or enforceability of the indemnification or
contribution provisions of the Contribution Agreement may be limited by
federal or state securities laws or public policy relating thereto. We
express no opinion as to the enforceability of the specific performance
provisions included in the Contribution Agreement.
This opinion is furnished to you solely for your benefit in connection with
the Contribution Agreement and may not be relied upon by any other person or
entity or for any other purpose without our express, prior written consent.
Very truly yours,
/s/ Palmer & Dodge LLP
PALMER & DODGE LLP
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Data" and to (i) the use of our report dated June 13, 1997,
with respect to the financial statements of AutoCyte, Inc. as of December 31,
1996 and for the period from November 22, 1996 through December 31, 1996, and
(ii) the use of our report dated June 13, 1997, with respect to the financial
statements of the Cytology and Pathology Automation Business of Roche Imaging
Analysis Systems, Inc., as of December 31, 1995 and November 21, 1996 and for
the years ended December 31, 1994 and 1995 and for the period from January 1,
1996 through November 21, 1996 included in the Registration Statement (Form S-1)
and related Prospectus of AutoCyte, Inc. for the registration of 3,565,000
shares of its common stock.
/s/ ERNST & YOUNG LLP
Raleigh, North Carolina
June 27, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT
OF
BELL, SELTZER, PARK & GIBSON
We consent to the reference to our firm under the heading "Experts" in the
prospectus that forms a part of the registration statement (the "Registration
Statement") to which this consent is filed as an exhibit. We also consent to the
incorporation by reference of this consent into any subsequent registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933 in
connection with the offering to which the Registration Statement relates.
BELL, SELTZER, PARK & GIBSON
Raleigh, North Carolina
June 27, 1997
<PAGE> 1
Exhibit 24.2
AUTOCYTE, INC.
Certificate of Secretary
------------------------
I, William T. Whelan, being the duly elected and acting Secretary of
AutoCyte, Inc. (the "Corporation"), a Delaware corporation, hereby certify that
the following is a true, correct and complete copy of resolutions duly adopted
by the Board of Directors of the Corporation at a meeting of the Board of
Directors convened and held on June 24, 1997, at which meeting a quorum for the
transaction of business was present and acting throughout; and that said
resolutions have not been amended or rescinded and are now in full force and
effect:
VOTED: That James B. Powell, William O. Green and William T. Whelan,
----- and each of them acting singly, be and hereby are designated
as attorneys-in-fact of the Corporation and of any officer or
director executing the Registration Statement and any related
Rule 462(b) registration statement on behalf of the
Corporation, or otherwise, with full power of substitution and
resubstitution, for each of them in any and all capacities, to
execute and file the Registration Statement and any amendments
(including pre- and post-effective amendments), any related
Rule 462(b) registration statement, and any and all
supplements schedules or exhibits thereto or requests for
acceleration thereof, and that any such officer or director of
the Corporation be and hereby is authorized to execute and
deliver an appropriate power of attorney reflecting such
authorization and to do and perform any and all acts and
things whatsoever necessary, appropriate or desirable to be
done in the premises, all in the name, place and stead of the
Corporation, as fully and to all intents and purposes as such
officer or director might or could do in person, and such acts
of such attorneys or any of them and any such substitute are
hereby ratified and approved.
VOTED: That any officer or director of the Corporation executing, on
----- behalf of the Corporation or in any other capacity, the
Registration Statement, any related Rule 462(b) registration
statement, and any and all amendments and supplements thereto
and other documents to be filed with the Commission in
connection therewith is hereby authorized to execute the same
through or by his or her duly authorized attorneys-in-fact
pursuant to
<PAGE> 2
an appropriate power of attorney signed by such officer or
director appointing each of such individuals so to act.
WITNESS my signature and the seal of the Corporation affixed this 27th
day of June, 1997.
/s/ William T. Whelan
---------------------
William T. Whelan
Secretary
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<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
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<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (885,760) (2,230,219)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (885,760) (2,230,219)
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