<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
() TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------ ------
Commission file number 0-22885
AUTOCYTE, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 56-1995728
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
780 Plantation Drive, Burlington, North Carolina 27215
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(Address of principal executive offices) (Zip Code)
(336) 222-9707
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of each of the issuer's classes of common stock
as of
Class Outstanding at August 7, 1998
----- -----------------------------
Common Stock, $.01 par value 12,680,099
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AUTOCYTE, INC.
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited).........................................2
Condensed consolidated balance sheets
June 30, 1998 and December 31, 1997.............................................................2
Condensed consolidated statements of operations
Three months ended June 30, 1998 and 1997; Six months
ended June 30, 1998 and 1997....................................................................3
Condensed consolidated statements of cash flows
Six months ended June 30, 1998 and 1997.........................................................4
Notes to condensed consolidated financial statements
June 30, 1998...................................................................................5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...........6
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....................................10
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds......................................................10
Item 4. Submission of Matters to a Vote of Security Holders............................................11
Item 6. Exhibits and Reports on Form 8-K...............................................................11
Signatures.............................................................................................12
</TABLE>
1
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
AUTOCYTE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 23,317,229 $ 28,655,082
Accounts receivable, net 1,459,570 906,154
Inventory 2,828,350 2,191,995
Other current assets 368,280 415,248
------------ ------------
Total current assets 27,973,429 32,168,479
Property and equipment, net 2,462,216 2,018,142
Goodwill 2,759,375 2,834,375
------------ ------------
Total assets $ 33,195,020 $ 37,020,996
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,500,264 $ 1,129,016
Accrued expenses 759,113 815,998
------------ ------------
Total current liabilities 2,259,377 1,945,014
Long-term liabilities 44,731 48,768
Stockholders' equity:
Common stock, $0.01 par value; 20,650,000 shares
authorized; 12,678,055 and 12,505,412 shares issued and
outstanding at June 30, 1998 and December 31, 1997,
respectively 126,781 125,054
Additional paid-in capital 49,586,802 49,553,302
Deferred compensation (2,311,898) (2,743,280)
Accumulated deficit (16,510,773) (11,907,862)
------------ ------------
Total stockholders' equity 30,890,912 35,027,214
------------ ------------
Total liabilities and stockholders' equity $ 33,195,020 $ 37,020,996
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 4
AUTOCYTE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 1,202,441 $ 515,298 $ 2,279,518 $ 898,695
Cost of goods sold 804,393 421,099 1,481,306 767,865
------------------------------------------------------------------
Gross Profit 398,048 94,199 798,212 130,830
Operating expenses:
Research and development 1,229,050 1,116,374 2,273,333 2,310,482
Selling, general and administrative 1,839,932 1,823,791 3,841,632 3,112,976
------------------------------------------------------------------
3,068,982 2,940,165 6,114,965 5,423,458
------------------------------------------------------------------
Operating loss (2,670,934) (2,845,966) (5,316,753) (5,292,628)
Interest income 343,540 95,490 721,672 203,659
Interest expense (3,224) (1,475,142) (7,831) (1,475,142)
------------------------------------------------------------------
Net loss $ (2,330,618) $ (4,225,618) $ (4,602,912) $ (6,564,111)
==================================================================
Net loss per common share (basic and
diluted) $ (0.18) $ (0.99) $ (0.36) $ (1.53)
============ ============ ============ ============
Weighted-average common
shares outstanding 12,670,210 4,279,389 12,637,903 4,279,389
============ ============ ============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 5
AUTOCYTE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1998 1997
--------------------------------
<S> <C> <C>
Net cash used in operating activities $ (4,552,864) $ (3,946,046)
Cash flows from investing activities:
Purchases of property and equipment (816,179) (222,109)
--------------------------------
Net cash used in investing activities (816,179) (222,109)
Cash flows from financing activities:
Proceeds from the issuance of stock 35,227 100,000
Reduction in long-term liabilities (4,037) --
--------------------------------
Net cash provided by financing activities 31,190 100,000
Net decrease in cash and cash equivalents (5,337,853) (4,068,155)
Cash and cash equivalents at beginning of period 28,655,082 9,517,274
--------------------------------
Cash and cash equivalents at end of period $ 23,317,229 $ 5,449,119
================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 6
AUTOCYTE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1998
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The balance sheet at December 31, 1997 has been derived
from the audited financial statements at that date, but does not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
The accompanying unaudited condensed consolidated financial statements reflect
all adjustments (consisting of normal, recurring accruals) which, in the opinion
of management, are necessary for a fair presentation of the results for the
interim periods presented. The results of operations for such periods are not
necessarily indicative of the results expected for the full year or for any
future period. The accompanying financial statements should be read in
conjunction with the Company's audited consolidated financial statements for the
period ended December 31, 1997, included in the Company's Annual Report on Form
10-K (File No. 0-22885).
2. INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
--------------------------------
<S> <C> <C>
Raw materials $ 747,775 $ 560,297
Finished goods 2,080,575 1,631,698
--------------------------------
$ 2,828,350 $ 2,191,995
================================
</TABLE>
3. NET LOSS PER SHARE OF COMMON STOCK
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement No.
128, "Earnings Per Share" ("SFAS 128"). SFAS 128 is effective for fiscal years
ending after December 15, 1997 and replaces the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Upon
adoption, all prior period earnings per share amounts (including quarterly
information) are required to be restated. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities, and only reflects actual common shares outstanding. The
Company's calculation of earnings (loss) per share reflects the completion of
its initial public offering (the "Offering") and the simultaneous conversion of
its convertible preferred stock into common stock in September 1997. Prior to
the adoption of SFAS 128, approximately 4.9 million shares of convertible
preferred stock were assumed to be outstanding in calculating previously
reported loss per share amounts. Under SFAS 128, these shares are not included
as shares outstanding until their conversion at the time of the Offering.
Diluted earnings per share is very similar to the previously reported fully
diluted earnings per share. As the Company incurred losses during all periods
presented, the effect of options, warrants and convertible preferred stock is
anti-dilutive and accordingly, there is no difference between basic and diluted
loss per share.
5
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
OVERVIEW
AutoCyte, Inc. ("AutoCyte" or the "Company") develops, manufactures and markets
the only integrated automated sample preparation and image analysis system to
support cytology professionals in cervical cancer screening. The Company is
currently pursuing regulatory approval of its products for sale in the United
States and has begun sales in several foreign countries. The Company's
integrated system is comprised of the AutoCyte PREP ("PREP") sample preparation
system and the AutoCyte SCREEN ("SCREEN") image analysis system. The Company's
Pathology Workstation product line further integrates AutoCyte's product
offerings into tools for data handling of cytology and pathology images, and
tools for determining prognosis of disease from cytology and pathology
specimens.
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 will improve laboratory productivity and significantly
reduce 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 cervical cancer screening
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 and may serve quality control and adjunctive testing purposes. 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 cervical
cancer screening systems.
AutoCyte was formed in October 1996 to acquire the cytology and pathology
automation business then owned by Roche Image Analysis Systems, Inc. ("RIAS"), a
wholly-owned subsidiary of Roche Holding Ltd. ("Roche"). Roche had previously
operated such business as part of Roche Biomedical 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. At the time of the acquisition in November 1996, clinical
trials for PREP were in progress and had recently begun for SCREEN.
Following completion of clinical trials for gynecological applications, the
Company submitted a premarket approval application ("PMA") for PREP to the
United States Food and Drug Administration ("FDA") on May 12, 1997, which was
accepted for substantive review by the FDA on June 11, 1997.
6
<PAGE> 8
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 in a PMA submitted by a different company
relating to an alternative monolayer slide preparation product.
After reviewing the PREP PMA and receiving input on it from members of its
advisory panel, the FDA met with representatives from the Company in December
1997 to address certain of the FDA's questions relating to the PREP PMA. At the
meeting, the Company presented additional analyses of certain of the data from
the PREP PMA. The FDA advised the Company that it would need to amend the PREP
PMA to include this and other information, and indicated that it would notify
the Company in writing as to the scope of the required response to the agency's
questions.
In February 1998 the Company received a letter from the FDA providing detail on
additional information it needed to continue review of the PREP PMA. The FDA did
not request that the Company perform any additional clinical trials. The FDA
requested that the Company's response be in the form of an amendment to the PREP
PMA. After preparing the requested information, the Company submitted the
amendment to the FDA on March 4, 1998.
The FDA typically seeks to complete its review period for a PMA within 180 days
from the date of submission of an amendment requested by the agency. While the
FDA review of the PREP PMA amendment may be shorter than 180 days, there can be
no assurance that the FDA's review will not take 180 days or longer or that the
PREP PMA will be approved within that period or at all.
Following the completion of clinical trials, the Company submitted a PMA for
SCREEN to the FDA on July 3, 1998.
In the United States, the Company cannot market PREP for use in preparing
cervical cytology-related monolayer slides or SCREEN for screening monolayer
slides until the respective PMA approvals are received from the FDA. If such
approvals are obtained, the Company intends to focus its marketing efforts on
such products for cervical cytology applications. 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.
The Company generates PREP revenue from both system sales and rentals. For
system sales, customers purchase the PREP instrument and make separate purchases
of related reagents and other disposables. For system rentals, the Company
places the PREP instrument at the customer's site, and customers make monthly
payments that include rent and the purchase of a minimum monthly quantity of
reagents and other disposables. The term of the PREP rentals ranges from
month-to-month to three years. For SCREEN customers in the United States, 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. In foreign
markets, the Company plans to either sell or license SCREEN. As an important
element of its business strategy, the Company intends to seek third-party
financing to support rentals of PREP and FPU 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.
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 FDA review of the PREP PMA submission and the SCREEN PMA
submission, the extent to which the Company's products gain market
7
<PAGE> 9
acceptance, the timing and volume of sales and rental orders, regulatory and
reimbursement matters, introduction of alternative technologies by competitors,
pricing of competitive products, and the cost and effect of promotional
discounts and marketing programs adopted by the Company.
The Company anticipates that if FDA approval is received to market PREP for
gynecological uses, its marketing and sales expenditures will increase
significantly. The Company also anticipates that research and development
expenses, both in the areas of product enhancement and new product development,
and manufacturing expenses will also increase as product commercialization
increases. The Company additionally expects to incur compensation expense of
$2.3 million as its deferred compensation balance is amortized.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1998 and 1997
Revenues for the second quarter of 1998 were $1.2 million, an increase of 133%
from $515,000 in the second quarter of 1997. The increase was due to an increase
in sales volume of PREP units and related consumables, international SCREEN
revenues, and an increase in the volume of Pathology Workstation related sales.
The Company's gross margin during the three months ended June 30, 1998 was 33%,
an increase from 18% in the corresponding period of 1997. This increase was due
primarily to improved margins on PREP products which was caused by the effect of
higher sales volume on fixed manufacturing costs as well as lower raw material
costs.
Operating expenses for the second quarter of 1998 were $3.1 million, a 7%
increase from $2.9 million in the second quarter of 1997. Research and
development costs for the second quarter of 1998 were $1.2 million, a 10%
increase from $1.1 million in the second quarter of 1997. Selling, general, and
administrative costs remained flat at $1.8 million. Operating expenses for the
second quarter of 1997 included one-time equity-related compensation expense of
$432,000. Exclusive of these one-time charges, operating expenses in the second
quarter of 1998 increased 22% from the corresponding period of 1997, due
primarily to higher personnel costs as the Company increased its staffing levels
to support product commercialization. Additionally, certain of the Company's
other administrative expenses increased as a result of becoming a public
company, primarily insurance premiums and professional fees.
Interest income for the second quarter of 1998 was $344,000, an increase of 260%
from $95,000 in the corresponding quarter of 1997, primarily attributable to the
short-term investment of proceeds from the Company's initial public offering in
September 1997. Interest expense for the second quarter of 1998 was $3,000, a
decrease from $1.5 million in the second quarter of 1997. The significant
interest expense in 1997 was due to the one-time, non-cash expense resulting
from the issuance of warrants as a commitment fee for a credit agreement between
the Company and certain of its principal stockholders.
The net loss for the second quarter of 1998 was $2.3 million, a decrease of $1.9
million from the second quarter of 1997 loss of $4.2 million. Net loss per share
was $0.18, a decrease from a net loss per share of $0.99 in the second quarter
of 1997. (See Footnote 3 of the Condensed Consolidated Financial Statements with
respect to the effect of Financial Accounting Standards Board Statement No. 128,
"Earnings Per Share.")
Six Months Ended June 30, 1998 and 1997
Revenues for the six months ended June 30, 1998 were $2.3 million, an increase
of 154% from $899,000 during the corresponding period of 1997. The increase was
due to an increase in sales volume of PREP units and related consumables,
international SCREEN revenues, and an increase in the volume of
8
<PAGE> 10
Pathology Workstation related sales. The Company's gross margin during the six
months ended June 30, 1998 was 35%, an increase from 15% in the corresponding
period of 1997. This increase was due primarily to improved margins on PREP
products which was caused by the effect of higher sales volume on fixed
manufacturing costs as well as lower raw material costs.
Operating expenses for the six months ended June 30, 1998 were $6.1 million, an
increase of 13% from $5.4 million during the corresponding period of 1997.
Research and development costs remained flat at $2.3 million. Selling, general
and administrative costs increased $729,000 from the corresponding period of
1997, due primarily to higher personnel costs as the Company increased its
staffing levels to support product commercialization. Additionally, certain of
the Company's other administrative expenses increased as a result of becoming a
public company, primarily insurance premiums and professional fees.
The net loss for the six months ended June 30, 1998 was $4.6 million, a decrease
of $2.0 million from $6.6 million in the corresponding period of 1997. Net loss
per share for the period was $0.36, a decrease from a net loss per share of
$1.53 in the corresponding period of 1997. (See Footnote 3 of the Condensed
Consolidated Financial Statements with respect to the effect of Financial
Accounting Standards Board Statement No. 128, "Earnings Per Share.")
LIQUIDITY AND CAPITAL RESOURCES
Since its formation on October 24, 1996, the Company's expenses have
significantly exceeded its revenues, resulting in an accumulated deficit of
$16.5 million as of June 30, 1998. The Company has funded its operations
primarily through the private placement and public sale of equity securities,
resulting in net proceeds of $38.0 million, and limited product sales. As of
June 30, 1998, the Company had cash and cash equivalents of $23.3 million.
Cash used in the Company's operations was $4.6 million during the six months
ended June 30, 1998 and $3.9 million during the corresponding period of 1997.
Negative operating cash flow during both periods was caused primarily by
operating losses. The Company's capital expenditures were $816,000 during the
six months ended June 30, 1998 and $222,000 during the corresponding period of
1997, with the increase primarily attributable to the purchase of PREP units for
rental and demonstration purposes. The Company has no material commitments for
capital expenditures.
The Company believes that existing cash and anticipated additional debt and
lease financing for rental placements of PREP and FPU placements of SCREEN (if
and when FDA approval is received) will be sufficient to enable the Company to
meet its future cash obligations through 1999. The Company's future liquidity
and capital requirements will depend upon numerous factors, including the timing
and outcome of the FDA review of the PREP PMA submission and the SCREEN PMA
submission, 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 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.
9
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CERTAIN FACTORS WHICH MAY AFFECT FUTURE RESULTS
This report contains forward looking statements which are made under the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. The
Company's operating results and financial condition have varied and may in the
future vary significantly depending on a number of factors. The statements
contained in this report which are not strictly historical information,
including, without limitation, statements regarding the receipt of regulatory
approvals, implementation of the Company's full-scale marketing and sales
activities, management's plans and objectives for future operations, product
plans and performance, management's assessment of market factors, as well as
statements regarding the strategy and plans of the Company, constitute forward
looking statements which involve risks and uncertainties. The following factors,
among others, could cause actual results to differ materially from those
contained in forward-looking statements made in this report and presented
elsewhere by management from time to time. These factors include the Company's
early stage of development and limited sales to date, uncertainty of FDA
approval of its principal products, uncertainty of market acceptance of the
Company's principal products, competition and technological change, history of
operating losses and uncertainty of future profitability, dependence on a
limited number of products, the possibility of future capital needs and the
uncertainty of availability of additional financing, dependence on patents,
copyrights, licenses and proprietary rights, risk of third-party claims of
infringement, extensive government regulation, dependence on third-party
reimbursement, international sales and operations risks, limited marketing and
sales resources, risk associated with product liability claims, limited number
of potential customers, limited manufacturing experience, and dependence on
single or limited-source suppliers. Such factors, among others, are described in
greater detail in Exhibit 99.1 to the Company's Annual Report on Form 10-K (File
No. 0-22885) under the heading "Important Factors Regarding Forward-Looking
Statements." These factors may have a material adverse effect upon the Company's
business, results of operations and financial conditions. Because of these and
other factors, past financial performance should not be considered an indication
of future performance.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
Not applicable.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS:
Use of proceeds information is provided herewith in connection with the
Offering. The Company's Registration Statement on Form S-1 (File No. 333-30227)
was declared effective by the Securities and Exchange Commission on September 4,
1997. The first closing for the Offering was held on September 10, 1997 and a
second overallotment closing was held on October 10, 1997. The Offering has
terminated.
In the aggregate the Company sold in its two closings 3,125,000 shares (with an
aggregate offering price to the public of $31,250,000) out of the 3,565,000
shares of Common Stock (with an aggregate offering price of $35,650,000)
registered in the Offering. The managing underwriters of the Offering were SBC
Warburg Dillon Read Inc. and UBS Securities.
In connection with the Offering, the Company incurred the following expenses
through June 30, 1998: underwriting discounts and commissions of $2,187,000 and
other expenses of $1,169,339. After expenses incurred through June 30, 1998, the
Company's net proceeds from the Offering were $27,893,661 as of June 30, 1998.
From September 5, 1997 (the effective date of the Company's Registration
Statement on Form S-1) through June 30, 1998, the amount of net offering
proceeds used by the Company was as follows: $1,471,244 for purchases of
machinery and equipment, $6,134,216 to fund current operations (of which
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<PAGE> 12
$1,205,771 was paid to officers of the Company), $970,365 for working capital
purposes, and the remaining $19,317,836 was invested in short-term securities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Annual Meeting of Stockholders held on May 28, 1998, the Company's
stockholders voted as follows:
(a) To reelect James B. Powell, M.D., to the Board of Directors, for a
three-year term.
<TABLE>
<CAPTION>
Nominee Vote "FOR" Vote Withheld
<S> <C> <C>
James B. Powell, M.D. 12,314,589 8,565
</TABLE>
There were no broker non-votes or abstentions with respect to this matter.
The terms in office of Richard A. Charpie, Robert E. Curry, Thomas P. Mac Mahon
and Susan E. Whitehead continued after the meeting.
(b) To ratify the selection by the Board of Directors of Ernst & Young LLP as
the Company's independent auditors for the fiscal year ending December 31, 1998.
<TABLE>
<S> <C>
Total Vote For the Proposal: 12,311,774
Total Vote Against the Proposal: 3,550
Abstentions: 7,830
Broker Non-Votes: 148,188
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits. See exhibit index on page 12
(b) Reports on Form 8-K. None
11
<PAGE> 13
AUTOCYTE, INC.
FORM 10-Q
JUNE 30, 1998
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AUTOCYTE, INC.
DATE: August 12, 1998 BY: /s/ William O. Green
-------------------------------
William O. Green
Duly Authorized Officer and
Principal Financial Officer
12
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
- ------ -----------
<S> <C>
10.1 Lease Agreement dated June 12, 1998 by and between Carolina Hosiery
Mills, Inc. and AutoCyte, Inc. Filed herewith.
10.2+ Supply Agreement dated June 1, 1998 between Technical Precision
Plastics, Inc. and AutoCyte, Inc. Filed herewith.
10.3+ Supply Agreement dated March 5, 1998 between Tecan AG and AutoCyte,
Inc. Filed herewith.
27 Financial Data Schedule (for EDGAR filing purposes only). Filed
herewith.
</TABLE>
- --------------------------------------------------------------------------------
+ Certain confidential material contained in the document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended. Omitted information
is identified with asterisks in the appropriate places in the agreement.
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EXHIBIT 10.1
STATE OF NORTH CAROLINA
LEASE AGREEMENT
COUNTY OF ALAMANCE
THIS LEASE AGREEMENT is made and entered into as of the 12th day of
June, 1998, by and between Carolina Hosiery Mills, Inc., a North Carolina
corporation, t/a Alamance Industrial Park ("Landlord") and AutoCyte, Inc., a
Delaware corporation, ("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 5,000 square feet of the building situated on
certain land at 1111 Huffman Mill Road, in the City of Burlington, County of
Alamance, State of North Carolina, and being more particularly described on
Exhibit "A" attached hereto (the "Premises").
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 commence on July 1, 1998 and
continue for a period of three (3) years, ending June 30, 2001, unless sooner
terminated or extended as provided herein (the "Initial Term").
2. Option to Renew. So long as Tenant is not in default hereunder it is
agreed that, at the expiration of the Initial Term, Tenant shall have the right
and option to renew this Lease for one (1) additional three-year term (the
"Renewal Term"). Such Renewal Term shall commence as of the end of the Initial
Term 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.
3. Rental. Tenant shall pay to Landlord the sum of Sixty-Six Thousand
and 00/100 Dollars ($66,000.00) per annum, payable in monthly installments of
Five Thousand Five Hundred and 00/100 Dollars ($5,500.00) each, due on the first
day of each month, in advance, but payable on or before the tenth day of the
month for the Initial Term of this Lease ("Base Rent"). If Tenant exercises its
option to renew the Lease, the Base Rent for the Renewal Term shall be adjusted
by the amount, if any, calculated as set forth below. For purposes of this
calculation the following definitions shall apply:
<PAGE> 2
(i) "Index" with respect to any month shall mean the "Consumer
Price Index for Urban Wage Earners and Clerical Workers
(1982-84 = 100) (Revised Series)" specified for "All Items"
issued by the Bureau of Labor Statistics of the United States
Department of Labor. In the event the foregoing Index shall
hereafter be converted or otherwise revised, Landlord shall
have the right to select, from such available Indices, the
Index or combination of Indices to be used for purposes of
this subparagraph. If the said Bureau shall cease publication
of indices relating to the foregoing statistical information,
Landlord shall have the right to select any index or
combination of indices of similar statistical information.
(ii) "Base Index" shall mean the Index for the month of July, 1998.
(iii) "Anniversary Month" shall mean the thirty-sixth (36th) month
of the Initial Term as described above.
(iv) "Cost of Living Adjustment" shall mean the fraction, the
numerator of which shall be the Index in the Anniversary Month
less the Base Index, and the denominator of which shall be the
Base Index.
Landlord shall furnish to Tenant on or before the end of the second
month following the Anniversary Month (or at such later time as the Index for
the Anniversary Month is published) a statement setting forth the Base Index,
the Index for the Anniversary Month and the Cost of Living Increase. If the
Index for the Anniversary Month shall exceed the Base Index, there shall accrue
as Additional Rent, for and with respect to the Renewal Term commencing on the
first day of the first month following the Anniversary Month, an amount
determined by multiplying the Base Rent by the Cost of Living Adjustment. On or
before the tenth day following submission of said statement to Tenant, Tenant
shall pay to Landlord one-twelfth (1/12th) of said annual Additional Rent
multiplied by the number of full or partial calendar months lapsed from the
beginning of said lease year to the date of payment. On the first day of each
succeeding calendar month during the Renewal Term, Tenant shall pay to Landlord
one-twelfth (1/12th) of said annual Additional Rent. If the Index for the
Anniversary Month shall be less than the Base Index, the Base Rent for the
Renewal Term commencing on the first day of the first month following the
Anniversary Month shall be reduced by an amount determined by multiplying the
Base Rent by the Cost of Living Adjustment.
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.
4. Right to Expand. So long as Tenant is not in default hereunder, it
is agreed that Tenant shall have the option to expand the Premises by leasing
the remaining portion of the
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building containing approximately 4,500 square feet (the "Expansion Space")
effective either June 1, 1999, or June 1, 2000. If Tenant shall desire to
exercise this right and option to expand, it shall give Landlord written notice
not less than ninety (90) days prior to the effective commencement date. In the
event Tenant exercises its option to expand on the effective commencement date,
the Base Rent shall be adjusted by an amount equal to $10.00 multiplied by the
actual number of square feet in the Expansion Space. If Tenant exercises its
right to expand the Premises under this Section 4 and exercises its option to
renew the lease under Section 2, then the Base Rent for the Expansion Space
shall be adjusted by the Cost of Living Adjustment on a pro rata basis based on
the length of time Tenant has been in possession of the Expansion space (e.g.,
if Tenant takes possession of the Expansion Space on June 1, 2000, the Cost of
Living Adjustment shall be one-third (1/3) of the amount it would have been if
Tenant had been in possession of the Expansion space from the commencement date
of this Lease).
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 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.
6. Holding Over. If Tenant remains in possession after expiration of
the Initial Term or the Renewal Term, 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. The Premises shall be used and occupied by Tenant for a
customer training center and general office and other associated 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 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.
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 members shall receive or
share directly or indirectly in the proceeds of this Lease.
10. 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. Landlord shall pay promptly, when due, all charges
for the water, electricity and fuel consumed on the Premises. Tenant shall
reimburse Landlord or Landlord's agent without notice or demand therefor a fixed
monthly amount of Six Hundred Fifty and 00/100 Dollars ($650.00) payable in
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<PAGE> 4
advance on the first day of each month. If Tenant exercises its right to expand
the Premises as set forth in Paragraph 4 above, effective with Tenant's
occupancy of the expansion space, Tenant shall pay the costs of all utility
services directly to the providers thereof and the reimbursement provision set
forth above shall be null and void.
11. 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 the calendar year 1998, Tenant
shall pay promptly to Landlord or Landlord's agent, upon receipt of written
notice and supporting documentation reasonably satisfactory to Tenant, Tenant's
pro-rata share of such additional taxes.
12. 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, and
(iii) window frames, gutters, and downspouts to the Premises and other
improvements that are a part of the Premises. Landlord further agrees to repair
and/or replace during the first year only of the Initial Term any defective
parts or components of the heating and air-conditioning systems provided such
defective condition was not caused by negligence of Tenant or its failure to
provide routine and proper maintenance of the equipment. Tenant must purchase a
maintenance contract to provide for routine and proper maintenance of the
heating and air-conditioning systems or provide detailed logs of maintenance and
repairs it performs to adequately maintain 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
five (5) 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 expense,
shall maintain and replace, when necessary, all other parts of the Premises
including elevator, 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. Except as set forth above,
Tenant shall be responsible for maintenance and repair of the HVAC system.
13. 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
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<PAGE> 5
the same to prospective purchasers or tenants, to make repairs required of
Landlord, to make repairs, alterations or additions which Landlord shall deem
necessary, and to take upon the Premises all materials that may be required.
14. Alterations and Improvements, Signs. Tenant shall have the right
and privilege to make, at its own expense, ordinary repairs and alterations to
the Premises; provided, however, that no alterations or changes of a structural
nature shall be made without the prior written consent of Landlord. Upon
termination of the Lease, Tenant, upon demand by Landlord, shall remove all
alterations made by it and restore the building to its condition at the
commencement date of the term of this Lease, ordinary wear and tear excepted.
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 therefor. 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.
15. 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.
16. 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 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
shall maintain public liability insurance 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.
17. 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 untenable.
If the Premises are destroyed or so damaged that in normal course the Premises
cannot be made tenable within ninety (90) 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
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<PAGE> 6
the date of the damage and Tenant shall vacate the Premises within twenty (20)
days from the notice of termination.
18. 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.
19. 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.
20. 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:
To Landlord: Carolina Hosiery Mills, Inc.
t/a Alamance Industrial Park
P. O. Box 850
Burlington, NC 27215
To Tenant: AutoCyte, Inc.
780 Plantation Drive
Burlington, NC 27215
Attn: William O. Green
21. 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.
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(d) Tenant becomes insolvent or makes an assignment for
benefit of creditors;
(e) A receiver is appointed for Tenant;
(f) The leasehold interest of Tenant is attached or levied
upon.
22. 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.
(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.
23. Indemnification.
(a) 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 negligent or intentional
act or omission on the part of Tenant.
(b) Landlord agrees to indemnify and defend Tenant and to save
harmless Tenant, and the tenants, 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, occasioned in whole or in part by any negligent or intentional act
or omission on the part of Landlord.
24. 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.
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25. 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.
26. 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.
IN WITNESS WHEREOF, the parties hereto have duly executed this Lease
Agreement and have hereunto set their hands and seals as of the day and year
first above written.
TENANT:
AUTOCYTE, INC.
BY: /s/ James B. Powell (SEAL)
--------------------------
President
ATTEST:
/s/ William O. Green
- ------------------------------
Asst. Secretary
(CORPORATE SEAL)
LANDLORD:
CAROLINA HOSIERY MILLS, INC.
T/A ALAMANCE INDUSTRIAL PARK
BY: /s/ Maurice Khoury (SEAL)
--------------------------
President
ATTEST:
/s/ Milton E. Petty
- -----------------------------
Secretary
(CORPORATE SEAL)
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STATE OF NORTH CAROLINA
COUNTY OF ALAMANCE
I, DeLynda Lee Kleeberg Stockwell, a Notary Public, do hereby certify
that William O. Green personally appeared before me this day and acknowledged
that he/she is the Asst. Secretary of AUTOCYTE, INC., a corporation, and that by
authority duly given, and as the act of the corporation, the foregoing
instrument was signed in its name by its President, sealed with its corporate
seal, and attested by him/her as its Asst. Secretary.
WITNESS my hand and official seal this the 12th day of June, 1998.
/s/ DeLynda Lee Kleeberg Stockwell
-------------------------------------
Notary Public
My commission expires:
January 24, 2000
STATE OF NORTH CAROLINA
COUNTY OF ALAMANCE
I, Susan B. Stout, a Notary Public, do hereby certify that Milton E.
Petty personally appeared before me this day and acknowledged that he/she is the
_________________ Secretary of CAROLINA HOSIERY MILLS, INC., T/A ALAMANCE
INDUSTRIAL PARK, a corporation, and that by authority duly given, and as the act
of the corporation, the foregoing instrument was signed in its name by its
_______ President, sealed with its corporate seal, and attested by him/her as
its __________ Secretary.
WITNESS my hand and official seal this the 17th day of June, 1998.
/s/ Susan B. Stout
------------------------
Notary Public
My commission expires:
08-10-99
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EXHIBIT "A"
Attached to and made a part of that certain Lease Agreement between Carolina
Hosiery Mills, Inc., t/a Alamance Industrial Park ("Landlord") and AutoCyte,
Inc. ("Tenant"), dated as of the 12th day of June, 1998.
1. Legal Description of Leased Property:
1111 Huffman Mill Road, in the City of Burlington, County of Alamance, State of
North Carolina
2. Description of Premises:
Approximately 5,000 square feet of space located at 1111 Huffman Mill Road,
Burlington, North Carolina, 27215, as registered in Alamance count Deed Book
380, page 152, Tax Map 3, Block 22, Lot 170.
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"Portions of this agreement have been deleted pursuant to a request for
confidential treatment. Such portions are indicated by asterisks."
EXHIBIT 10.2
SUPPLY AGREEMENT
This Supply Agreement is made and entered into this 1st day of June,
1998 (the "Effective Date") by and between AutoCyte, Inc. ("AutoCyte"), a
Delaware corporation having its principal place of business at 112 Orange Drive,
Elon College, NC 27244, and Technical Precision Plastics, Inc. ("Supplier"), a
North Carolina corporation having its principal place of business at 1405
Dogwood Way, Mebane, NC 27302.
R E C I T A L S
WHEREAS, Supplier desires to sell to AutoCyte, and AutoCyte desires to
purchase from Supplier, certain quantities of Product (as defined below) for
commercial sale by AutoCyte;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
expressed, the parties agree as follows:
ARTICLE 1. DEFINITIONS
1.1. "Agreement" shall mean this Supply Agreement, including all
attachments and exhibits hereto.
1.2. "FDA" shall mean the United States Food, and Drug Administration
or any successor entity thereto.
1.3. "Product" shall mean the products listed on Exhibit A hereto.
1.4. "Purchase Order" shall mean the order form to be completed and
issued by AutoCyte to Supplier for the purpose of ordering Product on the terms
and conditions of this Agreement.
1.5. "Specifications" shall mean the specifications provided to
Supplier by AutoCyte regarding the characteristics and performance of the
Product and the packaging and labelling information and designs, including
without limitation all art work and pharmacological information, usage
instructions and warnings to be applied to the Product. The Specifications may
be amended from time to time by the written agreement of both parties. Both
parties shall maintain copies of the Specifications and the Specifications shall
be attached as Exhibit A hereto and become part of this Agreement as if
incorporated herein.
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ARTICLE 2. PURCHASE AND SALE OF PRODUCTS; PRICES AND ADJUSTMENTS
2.1. Purchase and Sale of Product. Supplier agrees to manufacture and
provide to AutoCyte all of AutoCyte's requirements for the Product. Supplier
shall provide product in packaged form as reasonably requested by AutoCyte.
Except as otherwise provided in Sections 2.4 and 2.5, AutoCyte agrees to
purchase from Supplier all of its requirements for Product.
2.2. Prices. Attached to this Agreement as Exhibit B is Supplier's
price list and discount schedule for the Product (the "Prices"). The Prices
shall be exclusive of all applicable taxes and shipping costs. Supplier shall
have the right and the obligation to adjust the Prices in response to changes in
the prices of material inputs as specified in Exhibit B hereto.
2.3. Taxes. AutoCyte shall pay to Supplier as a separate item appearing
on each invoice an amount equal to any taxes levied on Prices payable or on the
Product sold hereunder with respect to which AutoCyte does not furnish to
Supplier evidence of lawful exemption. Any such taxes shall be exclusive of any
taxes based on Supplier's income or revenues.
2.4. Right to Alternate Source of Supply. In the event that AutoCyte
can obtain the Product elsewhere at a bona fide price which is less than or
equal to ninety percent (90%) of Supplier's price for such Product then in
effect for a comparable quantity of such Product and on comparable terms and
such lesser price shall be available to AutoCyte for a period of not less than
three (3) months, AutoCyte shall so notify Supplier in writing and submit
documentation to Supplier reasonably demonstrating that AutoCyte can actually
purchase such Product at such lower price during such period and on such terms,
and Supplier will then have an option to match such price and terms. If Supplier
fails to notify AutoCyte within fifteen (15) days after receipt of such notice
that it will match such price and terms, AutoCyte shall have the right to obtain
such Product elsewhere on such price and terms. Nothing in this Section 2.4
shall relieve AutoCyte of any outstanding obligations of AutoCyte with respect
to Products actually ordered from Supplier pursuant to Section 3.1.
2.5. Inability to Supply. In the event that, at any time during the
term of this Agreement, Supplier is unable in any one (1) month to supply the
amount of Product ordered by AutoCyte pursuant to Section 3.1, then AutoCyte may
notify Supplier thereof and Supplier shall have fifteen (15) days to address
such deficiency; provided, however, that AutoCyte and Supplier previously shall
have agreed on tooling and assembly capacity not less than six (6) months prior
to such notification. If such deficiency is not cured within such fifteen (15)
day period, then AutoCyte shall have the right to terminate this Agreement
pursuant to Section 8.3 hereof.
ARTICLE 3. ORDERS, FORECASTS AND PERFORMANCE
3.1. Purchase Orders. From time to time during the term of this
Agreement, AutoCyte shall issue Purchase Orders to Supplier requesting delivery
of specified amounts of the Product. The terms and conditions of this Agreement
will apply to each Purchase Order placed by AutoCyte hereunder.
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<PAGE> 3
3.2. Shipment Schedule. All Product ordered by AutoCyte shall be
delivered to AutoCyte within forty-five (45) days after receipt of the Purchase
Order by Supplier; all Purchase Orders shall be deemed received in accordance
with the provisions of Section 9.1 hereof regarding effectiveness of notice. If
any Purchase Order exceeds by more than twenty percent (20%) the estimate set
forth in the latest sales forecast provided pursuant to Section 3.3, Supplier
shall have an additional fifteen (15) days to deliver to AutoCyte the amount of
Product that exceeds the forecasted amount by more than twenty percent (20%)
(the "Excess Amount"); provided, however, that Supplier shall not be obligated
to deliver any Excess Amount unless AutoCyte and Supplier have agreed to tooling
and assembly capacity as set forth in Section 2.5.
3.3. Sales Forecasts. AutoCyte agrees to provide Supplier, on a monthly
basis, a written forecast of orders expected by it to be placed during the
twelve (12) month period following the date of each forecast with the first
three (3) months of each forecast constituting a firm order. Such forecasts
shall be based on AutoCyte's good faith estimate as of the date thereof; such
forecasts, however, shall not constitute firm orders for Product and shall not
bind AutoCyte in any way, except as provided in this Article 3.
ARTICLE 4. TITLE, DELIVERY AND ACCEPTANCE OF PRODUCTS
4.1. Packing. Supplier will, at its expense, prepare and pack all
Products for shipment. Unless AutoCyte otherwise specifies in writing, all
Products are to be suitably prepared and packed for shipment according to good
commercial practices suitable for the mode of transportation selected in
accordance with the terms of Section 4.2. If AutoCyte requests that Products be
packaged in a manner more stringent and expensive than such standards, AutoCyte
shall bear the additional expense.
4.2. Shipping. AutoCyte shall provide Supplier with written
instructions as to the method of delivery of the Product and Supplier will make
arrangements for shipment of the Product as it is ready for shipment and ship
collect. All Product will be shipped to AutoCyte's facility in Burlington, North
Carolina or to such other location as AutoCyte may specify in writing. In the
event of an unexcused late shipment or delay due to the fault of Supplier,
without limiting any other remedy AutoCyte may have, Supplier shall be
responsible for any increased transportation and handling charges attributable
to AutoCyte's selection of an express means of shipment.
4.3. Risk of Loss. Title and risk of loss for all Product shall pass
from Supplier to AutoCyte upon delivery of the Product to the location
designated by AutoCyte.
4.4. Invoices. Supplier shall invoice AutoCyte for all Product upon
delivery of the Product to the location designated by AutoCyte. Supplier shall
send such invoices to AutoCyte by first class mail, postage prepaid, at an
address specified by AutoCyte. Invoices for all Product shall be due and payable
within thirty (30) days after the mailing date.
4.5. Inspection & Acceptance. AutoCyte shall inspect each shipment upon
its arrival at the specified destination for shortage, loss or damage apparent
under reasonable visual inspection and shall have the right to test such
shipment for functional compliance with the Specifications. In the event that
any such inspection reveals that any shipment of Product does
3
<PAGE> 4
not conform with the terms of the applicable Purchase Order or this Agreement,
AutoCyte may reject it by giving written notice to Supplier within three (3)
days of AutoCyte's receipt of the same, which notice shall specify the manner in
which the shipment fails to conform with the applicable Purchase Order or this
Agreement. In the event that any such test reveals that any shipment of Product
does not conform with the Specifications, AutoCyte may reject it by giving
written notice to Supplier within fourteen (14) days of AutoCyte's receipt of
the same, which notice shall specify the manner in which the shipment fails to
conform with the Specifications. Failure by AutoCyte to forward such
notification to Supplier within three (3) days or fourteen (14) days of receipt
shall constitute a waiver of claims for shortage, loss or damage and of claims
for failure to meet the Specifications, respectively. Such rejected Product
shall be returned to Supplier at Supplier's expense.
ARTICLE 5. SUPPLIER'S OBLIGATIONS
5.1. Back-Up Inventory. Supplier shall maintain an adequate back-up
inventory of Product to meet AutoCyte's purchase orders, to replace rejected
Product and other similar situations. Such inventory level shall be mutually
agreed by the parties. Supplier will notify AutoCyte promptly if such back-up
inventory falls below such agreed upon level and include the reason for the
lower level. The parties will discuss and agree upon a course of action to solve
the problem; provided, however, that such agreement shall act in no way as a
waiver of AutoCyte's rights or remedies herein if Supplier fails to deliver
Product under the provisions of this Agreement.
5.2. Changes. Supplier shall not change the specified raw materials or
processes used in the manufacture of Product without the prior written consent
of AutoCyte, which consent shall not be unreasonably withheld.
5.3. Certificates of Manufacturing Compliance. Supplier shall provide
for each lot of Product purchased a certificate of manufacturing compliance
containing the types of information that shall have been approved by AutoCyte
and certifying that the lot of Product was manufactured in accordance with the
Specifications and with the Quality System regulations of the FDA or other
applicable governmental regulatory agency ("QS"), as the same may be amended
from time to time. Supplier shall advise AutoCyte immediately if an authorized
agent of the FDA, of any other governmental regulatory agency or of any
nongovernmental, independent standards entity (including the International
Standards Organization) visits any of Supplier's manufacturing facilities, or
the facilities where the Product is being manufactured, concerning the Product.
Supplier shall furnish to AutoCyte the complete report by such agency or entity
of such visit, and any amendments or supplements thereto, to the extent that
such report, or any amendment or supplement thereto, relates to the Product, and
the application of such report, or any amendments or supplements thereto, to the
Product, if any, within ten (10) business days of Supplier's receipt of such
report, or any amendment or supplement thereto. Supplier also shall furnish to
AutoCyte its response to such report, or any amendment or supplement thereto, at
the same time it delivers such report, or any amendment or supplement thereto,
to such agency or entity.
4
<PAGE> 5
5.4. Access to Facilities. Notwithstanding the limitations of remedies
in Article 6 hereof, AutoCyte shall have the right to inspect those portions of
the manufacturing facilities of Supplier where the Product is being manufactured
once annually to ascertain compliance with the Specifications and with QS and up
to three additional times in any calendar year in which Supplier significantly
changes its manufacturing process for the Product. If the FDA, any other
applicable governmental regulatory agency or any nongovernmental, independent
standards entity (including the International Standards Organization) issues any
notice to the effect that Supplier has failed to comply with any law or
regulation in connection with the manufacture of the Product, or if Supplier
delivers nonconforming Product, then AutoCyte shall have the right to inspect
such portions of the manufacturing facilities of Supplier that relate to the
manufacture of Product upon reasonable notice and during normal business hours
as often as is reasonably necessary to ascertain that Supplier is correcting
such failure in an expedient manner.
ARTICLE 6. WARRANTIES
6.1. Warranty. Supplier warrants that the Product shall conform to the
Specifications. In the event that any Product is determined, pursuant to Section
4.5 or otherwise, not to conform to the Specifications, Supplier agrees, at
AutoCyte's option, to replace or issue a credit and/or a full refund for such
nonconforming Product. Should AutoCyte choose to have the nonconforming Product
replaced, Supplier agrees (i) to use its best efforts to effect such replacement
within one (1) week of receipt of written notice from AutoCyte of such defect or
nonconformity and (ii) to replace such nonconforming Product with Product from a
different production lot. Supplier shall pay for the return shipment of Product
for which Supplier has warranty liability hereunder and for the shipment of
replacements.
6.2. Compliance with the Federal Food, Drug and Cosmetic Act. Supplier
warrants that all Product delivered to AutoCyte pursuant to this Agreement will
at the time of such delivery, not be adulterated within the meaning of the
Federal Food, Drug and Cosmetic Act, as amended (the "Act"), as applicable, or
within the meaning of any applicable state or municipal law in which the
definition of adulteration is substantially the same as that contained in the
Act, as such Act and such laws are constituted and effective at the time of
delivery, and will not be an article which may not, under the provisions of such
Act, be introduced into interstate commerce. In the event that AutoCyte
determines, pursuant to Section 4.5 or otherwise, that Supplier has breached the
warranty in this Section 6.2, then AutoCyte shall have the remedy provided in
Section 6.1 hereof. Notwithstanding anything to the contrary in this Section,
Supplier's warranty hereunder does not extend to any packaging or labelling
provided by, or at the direction of, AutoCyte.
6.3. Limitations of Warranties. The warranties provided in this
Agreement shall not extend to any Product that has been physically damaged or
misused or improperly stored or altered by personnel other than those employed
by Supplier, or persons acting at Supplier's direction or with its consent.
6.4. DISCLAIMER OF OTHER WARRANTIES. EXCEPT FOR THE WARRANTIES
EXPRESSLY SET FORTH IN THIS AGREEMENT, SUPPLIER DISCLAIMS, AND AUTOCYTE
ACKNOWLEDGES THAT SUPPLIER HAS NOT MADE,
5
<PAGE> 6
ANY WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, THE IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. Supplier
neither assumes nor authorizes AutoCyte or any other person to assume on its
behalf any other product warranty in connection with Products sold under this
Agreement.
6.5. Limitation of Remedies. EXCEPT AS EXPRESSLY PROVIDED HEREIN, THE
PROVISIONS OF THIS ARTICLE 6 SET FORTH AUTOCYTE'S EXCLUSIVE REMEDY, AND
SUPPLIER'S SOLE LIABILITY, ON ANY CLAIM, WHETHER TORT, CONTRACT, OR OTHERWISE
ARISING OUT OF THIS AGREEMENT AND IN NO EVENT SHALL SUPPLIER BE LIABLE FOR
INDEMNIFICATION OF AUTOCYTE ON ACCOUNT OF ANY CLAIM ASSERTED AGAINST AUTOCYTE OR
FOR ANY OTHER FURTHER DAMAGE, COST, EXPENSE OR LIABILITY OF ANY KIND WHATSOEVER
WHETHER DIRECT OR INDIRECT, INCLUDING WITHOUT LIMITATION INCIDENTAL OR
CONSEQUENTIAL DAMAGES TO AUTOCYTE OR ITS CUSTOMERS ARISING FROM OR RELATED TO
ANY DEFECT IN MATERIALS OR WORKMANSHIP.
ARTICLE 7. FORCE MAJEURE
7.1. Force Majeure. If performance of any part of this Agreement by
AutoCyte or Supplier is prevented or delayed by reason of any cause beyond the
control of, and without the fault of, the party affected, (including, without
limitation, acts of God, acts of civil or military authority, failure of
subcontractors to perform, inability to obtain component parts, work stoppages,
fires, floods, epidemics, wars and riots) the party affected shall be excused
from such performance to the extent that it is necessarily prevented or delayed
by any such cause during the continuance thereof. Notwithstanding the foregoing,
in the event that any delay or failure to perform by Supplier by reason of force
majeure shall extend beyond three (3) months, AutoCyte shall have the right to
terminate this Agreement pursuant to Section 8.3.
ARTICLE 8. TERM, DEFAULT AND TERMINATION
8.1. Term. Performance under this Agreement will commence on the
Effective Date and continue for a term of four (4) year from the Effective Date,
unless terminated earlier in accordance with Section 8.3. Thereafter,
performance under this Agreement shall continue and this Agreement shall govern
the relationship of the parties for additional two (2) year terms unless either
party notifies the other no later than two years before the expiration of the
original four (4) years term or any additional two (2) years term that this
Agreement will terminate upon the expiration of such term.
8.2. Default. Either party shall be in default under this Agreement if
it fails to perform any of its covenants, warranties, undertakings,
representations or obligations contained in this Agreement which has not been
waived in writing by the non-defaulting party and which the defaulting party
fails to remedy to the satisfaction of the non-defaulting party within thirty
(30) days after written notice thereof has been given by the non-defaulting
party to the defaulting party. Either party shall also be in default under this
Agreement if it makes an assignment for the benefit of its creditors; files an
action or petition for relief under applicable bankruptcy or
6
<PAGE> 7
insolvency laws; has filed against it an involuntary petition to have it
declared bankrupt in which it acquiesces or which is not dismissed within sixty
(60) days from the date of such filing or the appointment of a receiver for its
business.
8.3. Termination upon Default. Upon default by either party under
Section 8.2, the non-defaulting party may give notice of its intention to
terminate this Agreement, and the defaulting party shall have thirty (30) days
from the date of such notice to cure the default. If the default is not cured
within such thirty (30) day period, the non-defaulting party shall have the
right to terminate this Agreement. The failure of the non-defaulting party to so
terminate this Agreement shall not constitute a waiver of any of its other
rights with respect such default and shall not preclude it from giving a notice
under this Section 8.3 to the defaulting party with regard to the same or
similar defaults at any time in the future.
8.4. Termination Upon Change in Control. Without regard to default by
Supplier, AutoCyte may terminate this Agreement, effective immediately, upon
written notice to Supplier in the event of a change in voting control of the
Supplier, a merger of the Supplier with or into, or the sale or lease by the
Supplier of all or substantially all of its business to a third party that is
competitive in any way to AutoCyte, as reasonably determined by AutoCyte.
8.5. Termination for Convenience. Without regard to default by
Supplier, AutoCyte may terminate this Agreement for its own convenience at any
time prior to the termination date by giving ten (10) days prior written notice
to Supplier and paying to Supplier the total of all monies due and accruing to
Supplier under this Agreement up to the date of termination, if for any
consecutive twelve (12) month period AutoCyte has purchased all of its
requirements for the Products from alternate suppliers in accordance with the
terms of Sections 2.4 hereof.
8.6. Effect of Termination and Survival. Expiration or termination of
this Agreement for any reason shall not relieve the parties of any obligation
accruing prior to such expiration or termination. The provisions of Article 7
("Warranties") shall survive the expiration or termination of this Agreement.
8.7. Return of Molds and Manufacturing Goods. Upon termination of this
Agreement for any reason, Supplier immediately shall return to AutoCyte any
molds or manufacturing goods specifically ordered and paid for by AutoCyte for
the production of the Product in accordance with the packing and shipping
instructions included with AutoCyte's notice of termination, or otherwise
provided to Supplier by AutoCyte. Notwithstanding the foregoing, Supplier shall
have no obligation to return any molds or manufacturing goods specifically
ordered and paid for by AutoCyte until all outstanding invoices have been paid
by AutoCyte.
ARTICLE 9. MISCELLANEOUS
9.1. Notices. Any notices permitted or required by this Agreement shall
be in writing and shall be sent by facsimile, registered mail or a recognized
private mail carrier service to the addresses set forth below, or to such other
address as may be designated by a party in writing. Such notice shall, (i) if
given by facsimile, be effective upon receipt thereof by the recipient's
7
<PAGE> 8
facsimile machine as indicated either in the sender's identification line
produced by recipient's fax machine or in the sender's transmission confirmation
report as produced electronically by sender's telecopy machine, (ii) if sent by
registered mail, on the tenth day after it has been deposited in the mails, or
(iii) if sent by recognized private mail carrier service, on the second business
day in the jurisdiction of the recipient after delivery to the carrier.
If to
AutoCyte: AutoCyte, Inc.
112 Orange Drive
Elon College, North Carolina 27244
Attention: President
Telephone: (910) 584-0250
Telecopy: (910) 584-9141
with a copy to: Palmer & Dodge LLP
One Beacon Street
Boston, Massachusetts 02108
Attention: Steven N. Farber, Esq.
Telephone: (617) 573-0100
Telecopy: (617) 227-4420
If to
Supplier: Technical Precision Plastics, Inc.
1405 Dogwood Way
Mebane, North Carolina 27302
Attention: President
Telephone: (919) 563-9292
Telecopy: (919) 563-9686
with a copy to: Latham & Wood, LLP
10 NW Court Square
P.O. Box 997
Graham, North Carolina 27253
Attention:
Telephone: (336) 227-2460
Telecopy: (336) 226-5517
9.2. Severability. If any provision of this Agreement or the application of
any such provision to any party or circumstances shall be determined by any
court of competent jurisdiction to be invalid and unenforceable to any extent,
the remainder of this Agreement or the application of such provision to such
person or circumstances other than those to which it is so determined to be
invalid and unenforceable, shall not be affected thereby, and each provision
hereof shall be validated and shall be enforced to the fullest extent permitted
by law.
9.3. Independent Parties. This Agreement shall not be deemed to create any
partnership, joint venture, or agency relationship between the parties. Each
party shall act hereunder as an independent contractor.
8
<PAGE> 9
9.4. Applicable Law. This Agreement shall be governed and construed and
interpreted in accordance with the laws of the State of North Carolina,
excluding its conflict of laws principles.
9.5. Waiver. Any failure by any party to this Agreement to comply with any
of its obligations, agreements or covenants hereunder may be waived by Supplier
in the case of a default by AutoCyte and by AutoCyte in the case of a default by
Supplier.
9.6. Entire Agreement. This Agreement and the exhibits hereto embody the
entire Agreement and understanding of the parties hereto and supersede any prior
agreement or understanding between the parties. This Agreement cannot be amended
or terminated orally, but only by a writing duly executed by the parties. No
course of dealing or usage of trade shall be used to modify the terms and
conditions herein. Any preprinted terms or conditions on any purchase order or
order acknowledgement used hereunder shall be null and void and shall have no
effect.
9.7. Headings. Headings of the Sections in this Agreement are for
reference purposes only and shall not be deemed to have any substantive effect.
9.8. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original and all of which together shall be
deemed to be one and the same instrument.
9.9. Assignment. This Agreement may not be assigned by either party without
the prior written consent of the other; provided, however, that AutoCyte may,
without such consent, assign its rights and obligations under this Agreement in
connection with a merger, consolidation or sale of all or substantially all of
its assets; provided further, however, that AutoCyte's rights and obligations
under this Agreement shall be assumed by its successor in interest in any such
transaction and shall not be transferred separate from all or substantially all
of its other business assets. Any purported assignment in violation of the
preceding sentence shall be void. Any permitted assignee shall assume all
obligations of its assignor under this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their duly authorized representatives.
AUTOCYTE, INC.
By: /s/ William O. Green
------------------------------
Name: William O. Green
Title: Vice President, Finance and
Chief Financial Officer
TECHNICAL PRECISION PLASTICS, INC.
By: /s/ James M. Piermarini
------------------------------
Name: James M. Piermarini
Title: President
9
<PAGE> 10
"Portions of this agreement have been deleted pursuant to a request for
confidential treatment. Such portions are indicated by asterisks."
Exhibit A
Product Specifications & Packaging/Labelling Requirements
Product: Preservative Vial:
*****************************************************
*****************************************************
*****************************************************
*****************************************************
****************************************************.
Cyringe Assembly:
*****************************************************
*****************************************************
*****************************************************
*****************************************************
*****************************************************
*****************************************************
*****************************************************
*****************************************************
****************************************************.
Settling Column Assembly:
*****************************************************
*****************************************************
*****************************************************
****************************************************.
Specifications: The attached drawings #1, #2 and #3 are Supplier's
drawing/specifications and are based on
*****************************.
*********************************************
*****************************************************
*****************************************************
****************************************************.
*********************************************
*****************************************************
*****************************************************
****************************************************.
*********************************************
****************************************************.
1
<PAGE> 11
"Portions of this agreement have been deleted pursuant to a request for
confidential treatment. Such portions are indicated by asterisks."
[Drawings #1, #2 and #3 to Exhibit A Omitted]
2
<PAGE> 12
"Portions of this agreement have been deleted pursuant to a request for
confidential treatment. Such portions are indicated by asterisks."
Exhibit B
Prices and Adjustment Mechanism
Unit Prices (Current Molds)
(Includes packaging as agreed)
Preservative Vial
Release Quantity *** per year
Price per Thousand $*****
Cyringe Assembly
Release Quantity *** per year
Price per Thousand $*****
Settling Chamber Assembly
Release Quantity *** per year
Price per Thousand $*****
Unit Prices (New Molds)
(Includes packaging as agreed)
Preservative Vial
Release Quantity *** per year
Price per Thousand $*****
Cyringe Assembly
Release Quantity *****
Price per Thousand *****
Settling Chamber Assembly
Release Quantity *** per year
Price per Thousand $*****
Price Adjustments: Supplier shall revise the above prices, upon ************
prior written notice to AutoCyte, to reflect any increase or decrease of $****
or more in the **************** used by Supplier in the manufacture of the
Products. Supplier also may adjust the prices on a direct pass-through basis for
any changes in the costs for ***************************.
Supplier shall not adjust the price more frequently than once every
**********. Supplier shall provide AutoCyte with documentation of its cost of
********, ******, *****, *****, etc. and disclose prevailing material price
increases or decreases to AutoCyte during all price negotiations.
1
<PAGE> 1
"Portions of this agreement have been deleted pursuant to a request for
confidential treatment. Such portions are indicated by asterisks."
EXHIBIT 10.3
OEM SUPPLY AGREEMENT
This agreement, made and entered into this March 5, 1998
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
(hereinafter referred to as "AUTOCYTE")
Whereas, TECAN has developed a RSP (Robotic Sample Processor) which is
manufactured and sold to AUTOCYTE as 'AUTOCYTE PREP'TM PREPARATION SYSTEM,
hereinafter called "Product".
Whereas, AUTOCYTE 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 reagents.
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, 1998.
1.2 "Product" means the 'AUTOCYTE PREP'TM PREPARATION SYSTEM, as described in
Exhibit A and the Project Book V. 3.0.
1.3 "Affiliates" shall mean distributors owned by AUTOCYTE 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.
<PAGE> 2
"Portions of this agreement have been deleted pursuant to a request for
confidential treatment. Such portions are indicated by asterisks."
2. DEVELOPMENT AND EXCLUSIVITY
2.1 TECAN shall modify the Product for AUTOCYTE as per the specifications in
Exhibit A and the Project Book V. 3.0, to become a OEM instrument of AUTOCYTE.
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
YEAR UNITS
1998 ****
1999 ****
2000 ****
2001 ****
2002 ****
AUTOCYTE understands that TECAN might sell individual units to end-users that
may be used for purpose similar to the Application. TECAN acknowledges that it
has no authority to and will not sell slide racks nor any other AUTOCYTE
specific components to any other party.
2.3 In case of the termination of this contract by AUTOCYTE TECAN retains the
right to sell to AUTOCYTE all AUTOCYTE specific parts in stock at cost plus 10%
handling fee, but at a maximum of CHF 250000.
2.4 TECAN will supply AUTOCYTE 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. Any changes in Integrator will
be treated like product changes (see chapter 5: PRODUCT CHANGES).
2.5 AUTOCYTE assumes all responsibility for the application software
development, documentation including operating manual, installation and after
sales support.
3. PURCHASE OF PRODUCT, QUANTITIES AND PRICING
3.1 Subject to the terms and conditions of this agreement, AUTOCYTE shall
purchase, and TECAN shall sell to AUTOCYTE the Product. AUTOCYTE shall purchase
the Product hereunder in accordance with the price schedule In Exhibit B.
3.2 For the 12 months period starting on January 1, 1998 and ending on December
31, 1998, AUTOCYTE is deemed to be in the ***** units price bracket. If AUTOCYTE
is overachieving the target of ***** units, AUTOCYTE is reimbursed according to
the following scheme (example):
Over achievement: e.g. Purchase of **** units per year: TECAN shall credit
AutoCyte **** x (CHF *******.-- - ******.-)
3.3 For each year AUTOCYTE and TECAN agree on the minimum quantity of units to
be purchased by AUTOCYTE 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.
<PAGE> 3
"Portions of this agreement have been deleted pursuant to a request for
confidential treatment. Such portions are indicated by asterisks."
3.4 The prices of the Product as stated in Exhibit B are valid for the first 12
months period, starting from January 1st, 1998 and ending on December 31, 1998.
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.
3.5 For Spare Parts TECAN will grant AUTOCYTE a discount of **% on International
List Prices if the Spare Parts are not AUTOCYTE specific parts or OEM prices
with no additional discount for AUTOCYTE specific parts (see page 10 of this
Agreement). On single orders for Spare Parts exceeding CHF ***** TECAN will
grant to AUTOCYTE an additional discount of **%.
4. PURCHASE AND DELIVERY, PAYMENT AND SHIPMENT
4.1 In the first month of each quarter, AUTOCYTE 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 AUTOCYTE by TECAN.
AUTOCYTE 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
telexed purchase orders. AUTOCYTE will send the respective written purchase
orders within 2 weeks after sending the telegraphic or telexed 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 AUTOCYTE fails to follow the
procedure set forth in section 4.1.
4.2 The payment shall be in CHF. Payment shall be set in Swiss Franks (CHF)
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 1.45/USD for 1998. 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 semi-annually. For the calculation basis we use the
average exchange rate of the previous 6 months.
4.4 Prices are quoted ex works.
4.5 Delivery times: ca. 6-8 weeks after receipt of AUTOCYTE's Shipping Schedule.
<PAGE> 4
4.6 TECAN will ship the Product FCA 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 INCOTERM rules (1990).
5. PRODUCT CHANGES
5.1 TECAN may, from time to time, modify or update the Product, spare parts or
accessory material. All changes, having an effect on the functionality of the
Product shall be announced in writing to the Operation Manager at AUTOCYTE. In
these cases, AUTOCYTE 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 Only changes accepted in writing by the Operation Manager shall be added as
an amendment to the specification in Exhibit A.
5.3 Enhancements in the Product, spare parts and accessory materials requested
by AUTOCYTE are subject to TECAN's price policy.
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 and the Project Book V. 3.0.
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.
6.2 TECAN is a ISO 9001 certified Company. Certifying body Is Bureau Veritas
BVQI, Swiss office.
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 AUTOCYTE will Install the Product and train customers of AUTOCYTE with
regard to the Product.
8.2 TECAN will provide upon request training for AUTOCYTE and/or its
distributors against payment of CHF 1200 per trainee and week, covering the
following subjects:
- -- Installation
- -- Service
- -- Preventive Maintenance
- -- Trouble Shooting
<PAGE> 5
for the Product. This training will not cover the application software nor any
aspects of the application. Solely AUTOCYTE can offer such trainings. The
duration of the training is one week, location of this training is at TECAN's
Headquarters in Switzerland, travel and accommodation cost to be borne by the
trainees.
8.3 TECAN warrants each Product for a period of fifteen (15) months from the
date of shipment or twelve (12) months from the date of installation at a
customer site. TECAN shall warrant that each 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, tubing's and syringes, and all parts in contact with
liquids are excluded from any warranty.
8.4 AUTOCYTE hereby indemnifies and agrees to hold TECAN harmless from and
against all claims and liabilities resulting from AUTOCYTE's or its distributors
failure to maintain the Product according to the generally accepted rules in the
industry.
8.5 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 AUTOCYTE hereunder for AUTOCYTE's unrestricted world-wide
marketing, distribution and sale.
8.6 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.
8.9 AUTOCYTE 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 AND TERMINATION
This agreement shall commence on January 1, 1998, and shall be effective until
December 31, 1998. This agreement shall automatically be renewed for additional
one-year terms subject to either party's right to terminate this agreement by
giving the other party at least hundred-twenty (120) days written notice subject
to article 12 prior to the expiration date of the current term and thereafter to
the anniversary date. (12.1)
10. SETTLEMENTS OF DISPUTES
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").
<PAGE> 6
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 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 mall, or fax or courier addressed as follows:
If to AUTOCYTE:
AUTOCYTE Inc.
112 Orange Drive
Elon College, North Carolina 27244
USA
if to TECAN.
TECAN AG
Feldbachstrasse 80
8634 Hombrechtikon
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.
12.3 Within reasonable limits TECAN will assist AUTOCYTE Inc. in approval and
certification matters. Such assistance might be.
- -- Copies of drawings and QC procedures for the 'AUTOCYTE PREP'TM System
- -- Allowing announced audits on TECAN premises once a year (2 days max.)
12.4 This Agreement supersedes earlier contracts between TECAN or its Affiliates
and AUTOCYTE or any of its predecessors 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> 7
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, March 12, 1998 Elon College, March 10, 1998
-------------- --------------
TECAN AG AUTOCYTE Inc.
/s/ Bernhard Lindermann /s/ Felix Hofstetter /s/ William O. Green
- -------------------------------------------- -----------------------
Bernhard Lindemann Felix Hofstetter William O. Green
S&M Manager F&A Manager Chief Financial Officer
<PAGE> 8
EXHIBIT A
(this is an extract from the Project Book, all information in the Project Book
supersedes the information in this exhibit)
'AUTOCYTE PREP'TM PREPARATION SYSTEM Part. No.505 107 includes:
Description: Part Number:
1 Specimen tray 505250
1 RSP 5051 including: 505100
1 1000 ul DiTi C option 505215
1 Additional 465 Dilutor 445003
4 5 ml syringes 300206
1 QUAD Arm complete 505225
1 Waste station including: 505220
1 Tip rack ------
1 Waste/wash station 505222
1 Tip loading rack 505221
1 Base Plate 0552.575.450C
4 Slide racks 505235
1 Vacuum set including: ------
1 Waste bottle 505255
1 Tubing Kit 505246
1 Tube evacuator 505248
1 Tubing kit 505251
1 Solenoid Valve Kit 520100
1 Operating manual 390350
1 Misc. hardware set including: ------
1 1 to 4 distribution block (Vacuum) 505254
1 Special tubing guide 505249
1 Waste bottle 505255
The 'AUTOCYTE PREP'TM system does not include the controlling PC, nor the
application software written in Integrator.
The 'AUTOCYTE PREP'TM PREPARATION SYSTEM is white including the safety guard and
instead of the TECAN-Logo the AUTOCYTE-Label is placed.
<PAGE> 9
"Portions of this agreement have been deleted pursuant to a request for
confidential treatment. Such portions are indicated by asterisks."
EXHIBIT B
Price list of Products for 1998
'AUTOCYTE PREP'TM System, TECAN P/N 505107
Product Price Bracket Price per Unit in CHF
< *** units/year *******
- -
***-*** units/year *******
> *** units/year *******
Prices are valid for purchase quantity within a 12 months period starting
January 1, 1998 and lasting until December 31, 1998. According to the forecast
received from AUTOCYTE Inc. AUTOCYTE plans to purchase ** Instruments In 1998
(with a confidence level of **%). Accordingly the price bracket set for 1998 is
for **** complete instruments.
The exchange rate for 1998 is set to CHF 1.45/USD.
'AUTOCYTE PREP'TM System: Upgrades TECAN P/N 505 210
Product Price Bracket Price per Unit in CHF
< *** units/year *******
- -
'AUTOCYTE PREP'TM System: Preventive Maintenance Kit TECAN P/N 505 260
Price per Unit in CHF: *******
<PAGE> 10
"Portions of this agreement have been deleted pursuant to a request for
confidential treatment. Such portions are indicated by asterisks."
Order No. Description Qty. Transfer Price CHF
505107 * RSP5051'AUTOCYTEPREP' complete 1 *********
100-230 VAC, 50/60Hz
505210 'AUTOCYTE PREP'(TM)UPGRADE KIT 1 *********
complete
505260 'AUTOCYTE PREP'(TM)PM Kit 1 *********
505250 Specimen Tray 1 *********
505225 QUAD-Arm complete 1 *********
505220 Waste Station (complete) 1 *********
552483 DiTi spring loaded Z-Rack 1 *********
505215 DiTi C 1000 ul RIAS complete 1 *********
505221 Tip Loading Tool 1 *********
0552.542.000P Base plate 1 *********
505235 Slide Rack 4 *********
505255 Waste Bottles for Vacuum System 1 *********
505248 Tube Vac 1 *********
505251 Tubing Kit complete 1 *********
505227 1-4 Manifold on QUAD 1 *********
505222 QUAD waste trough incl. elbow 1 *********
505226 QUAD Tubing complete 1 *********
240000 Aspirating Tubing 1.5x2.5x900 4 *********
118566 Pipetting Tubing DiTi 1.5x2.5x1200 S *********
520520 Connect. Tubing Valve - IIII-Block 4 *********
520885 Connect Tubing Valve - Diluter 2 *********
800331 Tubing Distribution Block-IIII-Block 4 *********
505247 Vacuum Tubing Pump - Bottle 2 *********
505246 Vacuum Tubing Bottle - IIII Block 1 *********
505246 Vacuum Tubing Bottle - Evacuator 1 *********
520100 Option 3.1:Solenoid Valve Kit Complete 1 *********
505249 Tubing Guide 1 *********
390350 1) Operating Manual RSP 5051 1 *********
505230 Tip Bundles 4 *********
100726 Boar Slide 1 *********
100740 BioHazard Disposal Bag (100 Pieces) 1 *********
Labels(BioHazard, Contaminated, Waste) 1 *********
320002 1) Diluter 465/87 1 *********
445003 1) Diluter 465/87 EMV CE 1 *********
520350 1) CPU 87 1 *********
520353 1) PONI/ALID left 1 *********
503308 1) PONI/ALID left EMV CE 1 *********
530360 1) FLEX-Cable left 1 *********
530304 1) FLEX-Cable left EMV CE 1 *********
520450 1) ARM left 1 *********
520453 1) ARM left EMV CE 1 *********
520355 1) Motherboard 1 *********
520310 1) Motherboard EMV CE 1 *********
1): List Prices: **% discount applicable
*: Price Brackets as follows:
up to & including *** units *********
from unit *** to unit *** *********
from unit *** *********
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 23,317,229
<SECURITIES> 0
<RECEIVABLES> 1,646,570
<ALLOWANCES> 187,000
<INVENTORY> 2,828,350
<CURRENT-ASSETS> 27,973,429
<PP&E> 3,296,971
<DEPRECIATION> 834,755
<TOTAL-ASSETS> 33,195,020
<CURRENT-LIABILITIES> 2,259,377
<BONDS> 0
0
0
<COMMON> 126,781
<OTHER-SE> 30,764,131
<TOTAL-LIABILITY-AND-EQUITY> 33,195,020
<SALES> 2,279,518
<TOTAL-REVENUES> 2,279,518
<CGS> 1,481,306
<TOTAL-COSTS> 1,418,306
<OTHER-EXPENSES> 6,012,965
<LOSS-PROVISION> 102,000
<INTEREST-EXPENSE> 7,831
<INCOME-PRETAX> (4,602,912)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,602,912)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,602,912)
<EPS-PRIMARY> (0.36)
<EPS-DILUTED> (0.36)
</TABLE>
