<PAGE> 1
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 March 31, 1999
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
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(336) 222-9707
- -------------------------------------------------------------------------------
(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 the latest practical date.
Class Outstanding May 11, 1999
----- ------------------------
Common Stock, $.01 par value 12,880,724
<PAGE> 2
AUTOCYTE, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Condensed Consolidated Financial Statements (Unaudited)................................................2
Condensed consolidated balance sheets
March 31, 1999 and December 31, 1998..................................................................2
Condensed consolidated statements of operations
Three months ended March 31, 1999 and 1998............................................................3
Condensed consolidated statements of cash flows
Three months ended March 31, 1999 and 1998............................................................4
Notes to condensed consolidated financial statements
March 31, 1999........................................................................................5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................6
Item 3. Quantitative and Qualitative Disclosure About Market Risk.............................................9
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds............................................................10
Item 6. Exhibits and Reports on Form 8-K.....................................................................10
Signatures....................................................................................................11
</TABLE>
1
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
AUTOCYTE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 17,876,552 $ 19,986,107
Accounts receivable, net 1,024,525 919,211
Inventory 2,962,140 3,240,869
Other current assets 685,726 432,578
------------ ------------
Total current assets 22,548,943 24,578,765
Property and equipment, net 2,754,619 2,762,995
Goodwill 2,646,875 2,684,375
------------ ------------
Total assets $ 27,950,437 $ 30,026,135
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 875,023 $ 1,028,788
Accrued expenses 547,673 534,197
Deferred revenue 525,883 630,185
Current portion of long-term debt 284,560 191,795
------------ ------------
Total current liabilities 2,233,139 2,384,965
Long-term debt, less current portion 923,023 689,782
Other long-term liabilities 93,793 104,514
Stockholders' equity:
Common stock, $0.01 par value; 20,650,000 shares
authorized; 12,790,800 and 12,729,925 shares issued and
outstanding at March 31, 1999 and December 31, 1998,
respectively
127,908 127,299
Additional paid-in capital 49,610,577 49,598,025
Deferred compensation (1,664,825) (1,880,516)
Accumulated deficit (23,373,178) (20,997,934)
------------ ------------
Total stockholders' equity 24,700,482 26,846,874
------------ ------------
Total liabilities and stockholders' equity $ 27,950,437 $ 30,026,135
============ ============
</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
MARCH 31,
1999 1998
------------ ------------
<S> <C> <C>
Net sales $ 1,162,803 $ 1,077,078
Cost of goods sold 821,062 676,913
------------ ------------
Gross Profit 341,741 400,165
Operating expenses:
Research and development 1,168,521 1,044,283
Selling, general and administrative 1,750,030 2,001,700
------------ ------------
2,918,551 3,045,983
------------ ------------
Operating loss (2,576,810) (2,645,818)
Interest income 228,209 378,132
Interest expense (26,643) (4,607)
------------ ------------
Net loss $ (2,375,244) $ (2,272,293)
============ ============
Net loss per common share (basic and diluted) $ (0.19) $ (0.18)
============ ============
Weighted-average common shares outstanding 12,772,969 12,603,993
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 5
AUTOCYTE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
------------ ------------
<S> <C> <C>
Net cash used in operating activities $ (2,175,485) $ (2,062,671)
Cash flows from investing activities:
Purchases of property and equipment (262,516) (389,720)
------------ ------------
Net cash used in investing activities (262,516) (389,720)
Cash flows from financing activities:
Proceeds from the exercise of stock options 13,160 33,819
Decrease in other long-term liabilities (10,720) (2,404)
Proceeds from long-term debt 388,505 --
Payments on long-term debt (62,499) --
------------ ------------
Net cash provided by financing activities 328,446 31,415
Net decrease in cash and cash equivalents (2,109,555) (2,420,976)
Cash and cash equivalents at beginning of period 19,986,107 28,655,082
------------ ------------
Cash and cash equivalents at end of period $ 17,876,552 $ 26,234,106
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 6
AUTOCYTE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1999
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, 1998 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, 1998, included in the Company's Annual Report on Form
10-K (File No. 0-22885).
2. INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
---------- ------------
<S> <C> <C>
Raw materials $1,740,636 $ 1,685,495
Finished goods 1,221,504 1,555,374
---------- ------------
$2,962,140 $ 3,240,869
========== ============
</TABLE>
3. NET LOSS PER SHARE OF COMMON STOCK
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 System ("PREP") for sample
preparation and the AutoCyte SCREEN System ("SCREEN") for image analysis. 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 cytology sample preparation system
that produces slides with a homogeneous layer, or "thin-layer," of cervical
cells. The Company believes PREP will improve laboratory productivity and 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 diagnostic system.
SCREEN is an automated image analysis system which combines proprietary imaging
technology and classification software with off-the-shelf computer hardware to
screen thin-layer 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.
The Company cannot market its PREP or SCREEN systems in the United States for
use in preparing or screening thin-layer slides for cervical cancer until 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.
6
<PAGE> 8
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 amendment and the SCREEN PMA
amendment, the extent to which the Company's products gain market 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
$1.9 million as its deferred compensation balance is amortized.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1999 and 1998
Net sales increased by 8% from $1.1 million in the first quarter of 1998 to $1.2
million in the first quarter of 1999. The increase was due primarily to higher
sales volume of PREP reagents and related consumables as the Company continues
to expand its installed base of PREP units, both domestically and
internationally. The Company's gross margin during the three months ended March
31, 1999 was 29%, a decrease from 37% in the corresponding period of 1998. This
decrease was due primarily to a change in product mix, as a greater percentage
of revenues in the first quarter of 1999 were from the lower margin
non-gynecological applications of PREP. The Company expects that when and if FDA
approval for PREP is received, its margins will improve as sales volume
increases and the product mix moves to a greater concentration of the higher
margin gynecological applications of PREP.
Operating expenses remained relatively flat during the quarter, decreasing by 4%
from $3.0 million in the first quarter of 1998 to $2.9 million in the first
quarter of 1999 as the Company continued to control costs while working to
complete FDA approval for PREP. Net loss increased 5% from $2.3 million in the
first quarter of 1998 to $2.4 million in the first quarter of 1999. Net loss per
share was $0.19, an increase from a net loss per share of $0.18 in the first
quarter of 1998.
Interest income decreased by 40% from $378,000 in the first quarter of 1998 to
$228,000 in the first quarter of 1999, due primarily to the lower average cash
balance during 1999.
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
$23.4 million as of March 31, 1999. 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, debt facilities and limited product
sales. As of March 31, 1999, the Company had cash and cash equivalents of $17.9
million.
Cash used in the Company's operations was $2.2 million during the three months
ended March 31, 1999 and $2.1 million during the corresponding period of 1998.
Negative operating cash flow during both periods was caused primarily by
operating losses. The Company's capital expenditures were $276,000 during the
three months ended March 31,1999. The Company has no material commitments for
capital expenditures.
7
<PAGE> 9
On March 25, 1999, AutoCyte entered into a purchase and sale agreement to
acquire the intellectual property estate of Neuromedical Systems, Inc. ("NSI"),
a developer of interactive, neural net technology for the computer screening of
conventional Pap smears. Under the terms of the agreement, AutoCyte will acquire
the entire patent estate, trademarks, regulatory applications, clinical data and
all other intellectual and intangible property rights relating to the business
of NSI, as well as the right to pursue any claims relating to the patent estate,
including a currently pending patent infringement claim against NeoPath, Inc.
("NeoPath"). Concurrent with the execution of the agreement, NSI filed a
voluntary Chapter 11 petition in the U.S. Bankruptcy Court for the District of
Delaware. If the agreement is approved by the bankruptcy court after a hearing
that allows for competitive bids, AutoCyte will acquire these NSI assets for
$4.0 million in cash and the issuance of 1.4 million shares of AutoCyte's common
stock.
On April 24, 1999, AutoCyte entered into a purchase and sale agreement with
NeoPath. The agreement between AutoCyte and NeoPath provides that, subject to
completion of the agreement between AutoCyte and NSI and other conditions,
NeoPath will acquire an undivided interest in the NSI intellectual
property acquired by AutoCyte from NSI. The agreement further provides for
termination of pending patent infringement litigation between NeoPath and NSI
over the NSI patents included in the NSI intellectual property acquired by
AutoCyte from NSI. NeoPath will pay AutoCyte $2.2 million in cash and issue
AutoCyte 1,230,000 shares of NeoPath common stock at the later of the
transaction closing date or September 1, 1999.
The Company believes that its existing cash and anticipated additional debt and
lease financing for internal-use assets, rental placements of PREP and
fee-per-use 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 of the Company's receipt of FDA approval
of its PMA for PREP, the availability of financing for the Company's anticipated
equipment lease and rental programs, the level of placements of rental PREP
systems and fee-per-use 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.
YEAR 2000 READINESS
AutoCyte has established a task force comprised of experienced personnel from
all functional areas to determine the impact the Year 2000 problem will have on
our operations. The task force's activities are designed to ensure that there is
no adverse effect on our core business operations and that transactions with
customers and suppliers are fully supported before, during and after January 1,
2000. The status of AutoCyte's Year 2000 readiness is reported on a regular
basis to executive management and the Board of Directors. AutoCyte anticipates
achieving complete Year 2000 readiness, including the development of a
contingency plan, if necessary, by September 30, 1999. The task force is
focusing its efforts on four key areas: products, information technology ("IT")
systems, facilities, including non-IT systems, and vendors and service
providers.
8
<PAGE> 10
All shipments of PREP units made subsequent to September 1, 1998 are Year 2000
compliant, and the Company is upgrading non-compliant units in the field in
conjunction with routine preventative maintenance visits. Most of the Company's
Pathology Workstation products are currently Year 2000 compliant, and the
Company is determining an appropriate course of action to deal with
non-compliant products. The Company expects to complete its assessment of SCREEN
by June 30, 1999. The Company has conducted a review of its internal IT systems
and facilities and believes that all of its internal IT systems and facilities
are Year 2000 compliant. The Company also has initiated correspondence with
significant suppliers, large customers and financial institutions to ensure that
those parties have appropriate plans to remediate Year 2000 issues where their
systems could effect the Company's operations. While AutoCyte believes its
planning efforts are adequate to address its Year 2000 concerns, there can be no
guarantee that systems of other entities on which it relies, including financial
institutions, customers, service providers, public utilities and governments,
will be converted on a timely basis and will not have a material effect on our
operations. AutoCyte is dependent on certain sole-source suppliers. Failure on
the part of those suppliers to become Year 2000 compliant could affect our
ability to obtain product from those suppliers and could adversely affect
operations and financial results. To-date, AutoCyte has not incurred material
costs in addressing the Year 2000, and the remaining costs of the Year 2000
initiatives are not expected to be material to our results of operation or
financial position.
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 DISCLOSURE ABOUT MARKET RISK:
The Company's financial results and cash flows are subject to fluctuation due
to changes in interest rates, primarily from its investment of available cash
balances in highly rated institutions. Under its current policies, the Company
does not use interest rate derivative instruments to manage exposure to
interest rate changes.
9
<PAGE> 11
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS:
Use of proceeds information is provided herewith in connection with the
Company's initial public offering (the "Offering") of shares of its common
stock. 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 March 31, 1999: underwriting discounts and commissions of $2,187,000 and
other expenses of $1,169,339. After expenses, the Company's net proceeds from
the Offering were $27,893,661. From September 4, 1997 (the effective date of the
Company's Registration Statement on Form S-1) through March 31, 1999, the amount
of net offering proceeds used by the Company was as follows: $2,519,761 for
purchases of machinery and equipment including customer rental assets,
$11,465,927 to fund current operations (of which $2,018,815 was paid to officers
of the Company), $1,312,354 for working capital purposes, and the remaining
$12,595,619 was invested in short-term securities.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits. See exhibit index on page 12.
(b) Reports on Form 8-K. None
10
<PAGE> 12
AUTOCYTE, INC.
FORM 10-Q
MARCH 31, 1999
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: May 14, 1999 BY: /s/ William O. Green
---------------------
William O. Green
Duly Authorized Officer and
Principal Financial Officer
11
<PAGE> 13
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
- ------ -----------
<S> <C>
10.1 Amendment dated March 2, 1999 to Lease Agreement dated July 28, 1997
between Carolina Hosiery Mills, Inc. and AutoCyte, Inc. Filed
herewith.
10.2 Asset Purchase Agreement by and between AutoCyte, Inc. and
Neuromedical Systems, Inc. dated as of March 25, 1999. Filed herewith.
27 Financial Data Schedule (for EDGAR filing purposes only). Filed
herewith.
</TABLE>
- -------------------------------------------------------------------------------
12
<PAGE> 1
EXHIBIT 10.1
ALAMANCE INDUSTRIAL PARK
A DIVISION OF CAROLINA HOSIERY MILLS, INC.
- --------------------------------------------------------------------------------
Post Office Drawer 850 / Burlington, North Carolina 27216-0850
Telephone (910) 226-5581 / Fax (910) 226-9721
March 2, 1999
Mr. William O. Green, CFO
AutoCyte, Inc.
780 Plantation Drive
Burlington, NC 27215
Dear Bill:
Thank you for your, Billy and Danny taking the time to meet today to resolve
the additional costs involved with the construction of your new building. As we
agreed, the additional costs in the amount of $93,050 will be amortized over
the remaining 78 months of your lease term beginning March 1, 1999 in the
amount of $1,443.60 per month. The adjusted monthly rental will be $27,238.43.
For your records the additional costs are as follows:
Foy-Workman Construction, Inc. - per attached invoice $51,725.67
Alley Williams Carmen & King, Inc. - per attached detail 16,024.75
Additional paving and concrete cost per AutoCyte request 25,300.00
----------
93,050.42
----------
Bill, if you need any additional information for your records please advise.
Thank you for your attention to this matter.
Very truly yours,
Alamance Industrial Park
/s/ Miltom E. Petty
Miltom E. Petty
Vice President
Enclosures
<PAGE> 1
EXHIBIT 10.2
ASSET PURCHASE AGREEMENT
By and Between
AUTOCYTE, INC.
And
NEUROMEDICAL SYSTEMS, INC.
DATED AS OF MARCH 25, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Article 1 DEFINITIONS................................................................................1
1.1 Person.........................................................................................1
1.2 Purchased Assets...............................................................................1
1.3 Transferred Claims.............................................................................1
1.4 Transferred Intellectual Property..............................................................1
1.5 Transferred Patent Rights......................................................................2
1.6 Transferred Trademark Rights...................................................................2
Article 2 ASSET SALE AND PURCHASE....................................................................2
2.1 Sale and Purchase..............................................................................2
2.2 Transfer of Purchased Assets...................................................................3
2.3 Purchase Price.................................................................................3
2.4 Closing........................................................................................3
Article 3 REPRESENTATIONS AND WARRANTIES.............................................................3
3.1 Representations, Warranties and Covenants of Seller............................................3
3.2 Representations, Warranties and Covenants of Buyer.............................................6
Article 4 ADDITIONAL AGREEMENTS......................................................................7
4.1 Conduct of Seller Pending the Closing..........................................................7
4.2 Conduct of Buyer Pending the Closing...........................................................8
4.3 Continued Effectiveness of Representations and Warranties......................................8
4.4 Authorization from Others......................................................................8
4.5 Consummation of Agreement......................................................................8
4.6 Bankruptcy; Cessation of Operations............................................................8
4.7 Protection of Buyer............................................................................9
4.8 Restrictions on Further Solicitation..........................................................11
4.9 Registration..................................................................................12
4.10 Litigation....................................................................................16
4.11 Substitution of Parties.......................................................................16
Article 5 CONDITIONS TO CLOSING.....................................................................16
5.1 Conditions to Obligations of Seller...........................................................16
5.2 Conditions to Obligations of Buyer............................................................17
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
Article 6 TERMINATION...............................................................................18
6.1 Term..........................................................................................18
6.2 Effect of Termination.........................................................................19
Article 7 INDEMNIFICATION...........................................................................19
7.1 Survival......................................................................................19
7.2 Obligation of Seller to Indemnify.............................................................19
7.3 Obligation of Buyer to Indemnify..............................................................20
7.4 Limitations on Indemnification................................................................20
7.5 Notice and Defense of Claims..................................................................20
Article 8 MISCELLANEOUS.............................................................................21
8.1 Notices.......................................................................................21
8.2 Publicity; Confidentiality....................................................................21
8.3 Entire Agreement..............................................................................22
8.4 No Implied Waivers; Rights Cumulative.........................................................22
8.5 Amendments....................................................................................22
8.6 Successors and Assigns........................................................................22
8.7 Governing Law.................................................................................22
8.8 Further Assurances............................................................................22
8.9 Severability..................................................................................23
8.10 Time is of the Essence........................................................................23
8.11 Headings......................................................................................23
8.12 Execution in Counterparts.....................................................................23
8.13 Investment Advisor Fee........................................................................23
</TABLE>
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<PAGE> 4
INDEX OF SCHEDULES AND EXHIBITS
Schedule 1.5 Transferred Patent Rights
Schedule 1.6 Transferred Trademark Rights
Schedule 3.1(c) FDA Filing Exceptions
Schedule 3.1(d) Seller's Consents and Permits
Schedule 3.1(e) Actions and Proceedings
Schedule 3.1(f) Liens
Schedule 3.1(g) Intellectual Property
Section 3.2(c) Buyer's Consents and Permits
Schedule 4.1(a) Conduct of Seller Pending the Closing
Schedule 4.1(b) Other Rights to Transferred Intellectual Property
Schedule 4.2 Conduct of Buyer Pending the Closing
Exhibit A Form of Bill of Sale
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<PAGE> 5
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is dated as of March 25, 1999 and is
made between AutoCyte, Inc. ("Buyer"), a Delaware corporation, and Neuromedical
Systems, Inc. ("Seller"), a Delaware corporation.
RECITALS:
A. Seller has developed apparatuses and methods for cytological
specimen inspection and classification; and
B. Seller intends and is authorized to file a voluntary petition for
reorganization under Chapter 11 of the Bankruptcy Code (as defined in Section
below 4.5 below) to protect against continuing losses from the conduct of its
business and then intends to sell Buyer the Purchased Assets (as defined in
Section 1.2 below).
C. Buyer is willing to purchase, and Seller desires to sell Buyer, the
Purchased Assets.
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Seller and Buyer agree as
follows:
ARTICLE 1 DEFINITIONS
All capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth below.
1.1 "PERSON" shall mean any individual, partnership, corporation,
firm, association, unincorporated organization, joint venture, trust or other
entity.
1.2 "PURCHASED ASSETS" shall mean the Transferred Claims and the
Transferred Intellectual Property.
1.3 "TRANSFERRED CLAIMS" shall mean all pending claims, suits, actions
or causes of actions based upon or related to the Transferred Intellectual
Property asserted or assertable by Seller, including, but not limited to, Civil
Action No. 96 CV 5245 pending in the United States District Court for the
Southern District of New York between Seller and NeoPath, Inc.
1.4 "TRANSFERRED INTELLECTUAL PROPERTY" shall mean (a) all public and
non-public technical or other information owned or licensed by Seller,
including, but not limited to, all computer software programs or applications
(in both source code and object code form), copyrights, trade secrets,
know-how, processes, formulas relating to compounds and reagents (including,
but not limited to, natural or man-made biological materials), formulations,
concepts, ideas, preclinical, clinical, pharmacological or other data and
testing results, experimental methods or results, assays, premarket approvals
("PMAs"), PMA supplements and PMA amendments (collectively, "marketing
applications") approved by the Food and Drug
<PAGE> 6
Administration ("FDA"), as well as all PMAs, PMA supplements, PMA amendments,
and supporting documents (including, but not limited to, labeling, standard
operating procedures and manufacturing information) submitted to the FDA in
support of marketing applications, descriptions, business or scientific plans,
depictions, detailed system design specifications, electrical drawings and
system hardware diagrams, device master records, design history and bill of
materials for all products, customer lists and any other written, printed or
electronically stored materials and (b) any and all other tangible or
intangible proprietary information owned or licensed by Seller, including, but
not limited to, the Transferred Patent Rights and the Transferred Trademark
Rights.
1.5 "TRANSFERRED PATENT RIGHTS" shall mean all patents, patent
applications and preparations for patent applications owned by or licensed to
Seller, including, but not limited to, the patents and patent applications
listed in Schedule 1.5 attached hereto, and the inventions represented thereby,
and any and all continuations, continuations-in-part or divisions thereof, and
any and all Letters Patent or reissues, reexaminations or extensions thereof
that may be granted therefor or thereon, for the full end of the term for which
said Letters Patent may be granted, together with the right to claim priority
in all foreign countries in accordance with the International Convention; all
rights corresponding to such patents in foreign countries throughout the world;
and all of Seller's rights to sue for past infringement of such patents
worldwide, together with all rights of action against third parties for past
infringement thereof, with the right to sue for, and collect the same for
Buyer's own use and enjoyment, all to be held and enjoyed by Buyer, its
successors and assigns, assuming consummation of the transactions contemplated
by this Agreement, as fully and entirely as the same would have been held and
enjoyed by Seller if the assignment and sale contemplated by this Agreement had
not been made.
1.6 "TRANSFERRED TRADEMARK RIGHTS" shall mean all trademarks, trade
names, internet domain names and service marks owned by or licensed to Seller,
including, but not limited to, the trademarks, trade names, internet domain
names and service marks listed in Schedule 1.6 attached hereto, whether
registered or not, and the corresponding federal or state registrations
thereof, together with the goodwill of the business appurtenant to and
symbolized by said trademarks, trade names, domain names and service marks, and
all rights of action against third parties for past infringement thereof, with
the right to sue for, and collect the same for Buyer's own use and enjoyment,
all to be held and enjoyed by Buyer, its successors and assigns, assuming
consummation of the transactions contemplated by this Agreement, as fully and
entirely as the same would have been held by Seller if the assignment and sale
contemplated by this Agreement had not been made.
ARTICLE 2 ASSET SALE AND PURCHASE
2.1 SALE AND PURCHASE. Subject to the provisions of this Agreement, at
the Closing (as defined in Section 2.4 hereof), Seller agrees to sell,
transfer, assign, convey and deliver to Buyer, and Buyer agrees to purchase,
all of Seller's right, title and interest in the Purchased Assets. Seller
hereby agrees that Buyer may, in its discretion, purchase the Purchased Assets
through any affiliate of Buyer, whether now existing or hereafter formed;
provided, however, that Buyer's designation of an affiliate to purchase the
Purchased Assets shall not affect the form of consideration included in the
Purchase Price (as defined in Section 2.3 below) or Buyer's obligations under
Sections 4.9(d) and 7; and provided further, however, that Buyer shall
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purchase the Purchased Assets directly unless Buyer shall have provided Seller
at least three (3) days' prior written notice that Buyer is designating an
affiliate to purchase the Purchased Assets, which notice shall include the
identity of such affiliate.
2.2 TRANSFER OF PURCHASED ASSETS. At the Closing, Seller shall deliver
or cause to be delivered to Buyer good and sufficient instruments of transfer
transferring to Buyer title to all the Purchased Assets free and clear of all
liens, restrictions, encumbrances and interests of any other Person except as
set forth on Schedule 3.1(f) hereof, such instruments to be in the form
attached as Exhibit A hereto.
2.3 PURCHASE PRICE. In full consideration of the sale, transfer,
assignment, conveyance and delivery of the Purchased Assets to Buyer, at the
Closing, Buyer shall:
(a) deliver to Seller or its designee the sum of four million
dollars ($4,000,000) in cash by wire transfer of immediately available funds to
an account designated in writing by Seller; and
(b) deliver to Seller or its designee a certificate for an
aggregate of one million four hundred thousand (1,400,000) shares (the
"Shares," and together with the funds payable under Section 2.3(a), the
"Purchase Price") of Buyer's authorized and previously unissued common stock,
$0.01 par value, registered in the name of Seller or its designee.
2.4 CLOSING. The closing of the sale and purchase of the transactions
contemplated hereby (the "Closing"), shall take place at the offices of Palmer
& Dodge LLP, One Beacon Street, Boston, MA 02108 at 10:00 a.m., local time, on
or before May 31, 1999, and in any event no later than two (2) business days
after the satisfaction of the conditions set forth in Article 5, or at such
other place or such other time or date as Buyer and Seller agree in writing
(the date of such Closing shall hereinafter be referred to as the "Closing
Date").
ARTICLE 3 REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER. Seller
represents, warrants and covenants to Buyer as follows:
(a) Organization and Qualification. Seller is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has full corporate power and lawful authority to own,
lease and operate its assets, properties and business and to carry on its
business as now being and as heretofore conducted.
(b) Authority. The execution, delivery and performance by
Seller of this Agreement have been duly authorized and approved by all
necessary corporate action on the part of Seller, and this Agreement
constitutes the valid and binding obligation of Seller enforceable against it
in accordance with its terms.
(c) Compliance with Laws. Seller is not in material violation
of any material order, judgment, injunction, award or decree binding upon it.
To the best knowledge of Seller, Seller is not in material violation of any
material federal, state, local or foreign law, ordinance or regulation or any
other material requirement of any governmental or regulatory body, court or
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<PAGE> 8
arbitrator applicable to its business or the Purchased Assets. Seller has not
received notice of any current material citation, fine or penalty imposed or
asserted against Seller for, any such material violation or alleged material
violation. Seller has complied with any and all recording requirements in
respect of prior licenses to third parties of rights in the Transferred
Intellectual Property, except to the extent that any non-compliance would not
have a material adverse effect on the Purchased Assets. Except as set forth on
Schedule 3.1(c), Seller is in material compliance with all material
requirements established by the FDA, its products are not subject to any recall
or corrective action, are labeled in compliance with FDA requirements, conform
to the terms of applicable FDA approvals, and are manufactured in compliance
with FDA requirements.
(d) Consents; No Breach. All consents, permits,
authorizations and approvals from any person pursuant to applicable law or
contracts or other agreements with Seller that are required in connection with
the performance of Seller's obligations under this Agreement, or the assignment
of the Purchased Assets are set forth on Schedule 3.1(d) hereto except for
those the absence of which would not have a material adverse effect on the
Purchased Assets. The execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby will not (A) violate
any provision of the Certificate of Incorporation or By-laws of Seller; (B)
except as set forth on Schedule 3.1(d) hereto, violate, conflict with or result
in the breach of any of the terms or conditions of, result in modification of
the effect of, or otherwise give any other contracting party the right to
terminate, or constitute (or with notice or lapse of time or both constitute) a
default under, any instrument, contract or other agreement to which Seller is a
party or to which any of the Purchased Assets may be bound or subject except
for those the absence of which would not, individually or in the aggregate,
have a material adverse effect on the Purchased Assets; (C) materially violate
any material order, judgment, injunction, award or decree of any court,
arbitrator or governmental or regulatory body against, or binding upon, Seller
or upon any of the Purchased Assets; (D) materially violate any material
statute, law or regulation of any jurisdiction as such statute, law or
regulation relates to Seller or to any of the Purchased Assets; (E) except as
set forth in Schedule 3.1(d) hereto, require the approval or consent of any
foreign, federal, state, local or other governmental or regulatory body or the
approval or consent of any other person; or (F) result in the creation of any
lien or other encumbrance on any of the Purchased Assets.
(e) Actions and Proceedings. Except as set forth in Schedule
3.1(e) hereto, to the best knowledge of Seller there is no fact, event or
circumstance that may give rise to any suit, action, claim, investigation or
proceeding that individually or in the aggregate could have a material adverse
effect upon the transactions contemplated hereby or upon any of the Purchased
Assets.
(f) Title to Purchased Assets; Absence of Liens. Except as
disclosed on Schedule 3.1(f) hereto, Seller has good and marketable title to
the Purchased Assets, owns the Purchased Assets free and clear of all claims,
liens, security interests, restrictions or other encumbrances, and has the
right to transfer such Purchased Assets to Buyer.
(g) Intellectual Property.
(i) Except as set forth in Schedule 3.1(g) hereto,
Seller owns exclusively all Transferred Intellectual Property. The Transferred
Intellectual Property represents all intellectual property owned by Seller.
Seller does not use any other intellectual
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<PAGE> 9
property in the conduct of its business, as presently or as proposed to be
conducted, other than the Transferred Intellectual Property.
(ii) Schedule 3.1(g) sets forth a list of all
Seller's federal, state and foreign patents, registered copyrights, registered
trademarks, and any applications therefor, and specifies, where applicable, the
jurisdictions in which each such Transferred Intellectual Property has been
issued or registered or in which an application for such issuance and
registration has been filed, including the respective registration or
application numbers and the names of all registered owners. Schedule 3.1(g)
sets forth a list of all material licenses, sublicenses and other agreements to
which Seller is a party and pursuant to which Seller, or any other Person is
authorized to use or license the use of any (A) Transferred Intellectual
Property of Seller and (B) third party patents, copyrights, trademarks, and
applications for registration thereof, schematics, technology, know-how,
computer software programs or applications (in both source code and object code
form), and tangible or intangible proprietary information or materials that
are, are incorporated in, or form a part of any Transferred Intellectual
Property. Except as set forth in Schedule 3.1(g) hereto, the execution and
delivery of this Agreement by Seller, and the consummation of the transactions
contemplated hereby, will not cause Seller to be in material violation or
default under any such license, sublicense or agreement, nor entitle any other
party to any such license, sublicense or agreement to terminate or modify such
license, sublicense or agreement. Except as set forth in the Schedule 3.1(g)
hereto, Seller (A) is the sole and exclusive owner of, with all right, title
and interest in and to (free and clear of any claims, liens, security
interests, restrictions or other encumbrances), the Transferred Intellectual
Property or (ii) is a licensee of the Transferred Intellectual Property under
valid and binding license agreements listed in Schedule 3.1(g).
(iii) Except as set forth on Schedule 3.1(g), no
claims with respect to the Transferred Intellectual Property have been asserted
in writing or are, to the best of Seller's knowledge, threatened by any Person,
(i) to the effect that the manufacture, sale, licensing or use of any of the
products of Seller infringes on any copyright, patent, trademark, service mark,
trade secret or other proprietary right of any third party, (ii) against the
use by Seller of any of the Transferred Intellectual Property or (iii)
challenging the ownership by Seller, or the validity or effectiveness, of any
of the Transferred Intellectual Property. All registered Transferred
Intellectual Property are valid, enforceable and subsisting. Except as set
forth in Schedule 3.1(g) hereto, to the best of Seller's knowledge, Seller has
not infringed, and the business of Seller does not infringe, any copyright,
patent, trade secret or other proprietary right of any third party. Except as
set forth on Schedule 3.1(g), to the best of Seller's knowledge, there is no
material unauthorized use, infringement or misappropriation of any of the
Transferred Intellectual Property by any third party, including any employee or
former employee of Seller. None of the Transferred Intellectual Property or
products of Seller is subject to any outstanding decree, order, judgment or
stipulation restricting in any manner the licensing thereof by Seller.
(h) Transferred Claims. Each of the Transferred Claims is a
currently pending claim properly brought in each jurisdiction and court in
which each Transferred Claim currently is pending. To the best of Seller's
knowledge, there is no material fact, event or circumstance that could form the
basis of a defense, draw into question the ability to sustain, or limit the
remedy sought with respect to the Transferred Claims that has not already been
asserted.
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<PAGE> 10
3.2 REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER. Buyer
represents, warrants and covenants to Seller as follows:
(a) Organization. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has the corporate power and authority to own, lease and operate its assets,
properties and business and to carry on its business as now being and as
heretofore conducted.
(b) Authority. The execution, delivery and performance by
Buyer of this Agreement have been duly authorized and approved by all necessary
corporate action on the part of Buyer, and this Agreement constitutes the valid
and binding obligation of Buyer enforceable against it in accordance with its
terms.
(c) Consents; No Breach. All consents, permits,
authorizations and approvals from any person pursuant to applicable law or
contracts or other agreements with Buyer that are required in connection with
the performance of Buyer's obligations under this Agreement are set forth in
Schedule 3.2(c) hereto, except for those the absence of which would not have a
material adverse effect on the financial condition, business assets, operations
or prospects of Buyer or the ability of Buyer to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i)
violate any provision of the Certificate of Incorporation or By-laws of Buyer;
(ii) upon waiver by the holders of not less than fifty-one percent (51%) of the
shares of Buyer's common stock, $0.01 par value, entitled to registration
rights as set forth in that certain Rights Agreement dated November 22, 1996
(as amended to date, the "Rights Agreement") by and among Buyer and certain of
its Stockholders, which waiver Buyer shall obtain before the Closing Date,
violate, conflict with or result in the breach of any of the terms or
conditions of, result in modification of the effect of, or otherwise give any
other contracting party the right to terminate, or constitute (or with notice
or lapse of time or both constitute) a default under, any material instrument,
contract or other agreement to which Buyer is a party or to which it or any of
its assets or properties may be bound or subject; (iii) violate any order,
judgment, injunction, award or decree of any court, arbitrator or governmental
or regulatory body against, or binding upon, Buyer or upon the securities,
properties, assets or business of Buyer; (iv) violate any statute, law or
regulation of any jurisdiction as such statute, law or regulation relates to
Buyer or to the securities, properties, assets or business of Buyer; (v)
require the approval or consent of any foreign, federal, state, local or other
governmental or regulatory body; or (vi) result in the creation of any lien or
other encumbrance on the assets or properties of Buyer.
(d) Actions and Proceedings. To the best knowledge of Buyer,
there is no fact, event or circumstance that may give rise to any suit, action,
claim, investigation or proceeding that individually or in the aggregate could
have a material adverse effect upon the transactions contemplated hereby or
upon the financial condition, business, assets, operations or prospects of
Buyer.
(e) Buyer Capital Structure. The authorized capital stock of
Buyer consists of 20,650,000 shares of common stock, par value $.01 per share,
of which there were 12,785,044 shares issued and outstanding as of March 22,
1999, and 1,000,000 shares of preferred stock, par value $.01 per share, of
which no shares are issued or outstanding. All of the Shares will be, when
issued in accordance with this Agreement, duly authorized, validly issued,
fully paid and
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<PAGE> 11
nonassessable and not subject to preemptive or similar rights created by
statute, the Restated Certificate of Incorporation or Bylaws of Buyer or any
agreement or document to which Buyer is a party or by which it is bound. All of
the Shares will be, when issued in accordance with this Agreement, free of any
liens, claims and encumbrances created by the Buyer. The offer, issuance, sale
and delivery of the Shares to the Holder (as defined herein) pursuant to this
Agreement are exempt from registration under the Securities Act of 1933, as
amended.
(f) SEC Filings. Buyer has filed all forms, reports and
documents required to be filed with the Securities and Exchange Commission
since December 31, 1997 (the "Buyer SEC Reports"). As of their respective
dates, the Buyer SEC Reports (i) were prepared in accordance with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
the rules and regulations of the SEC thereunder applicable to such Buyer SEC
Reports and (ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
ARTICLE 4 ADDITIONAL AGREEMENTS
4.1 CONDUCT OF SELLER PENDING THE CLOSING. During the period from the
date hereof to the Closing Date, Seller shall observe the following covenants:
(a) Affirmative Covenants Pending Closing. Seller will use
its best efforts to preserve and protect the Purchased Assets, including, but
not limited to, paying the dues and other maintenance fees in respect of the
patents or patent applications included in the Transferred Intellectual
Property as or before they become due. Schedule 4.1(a) hereto sets forth the
name of each subsidiary of Seller, the current activities conducted by each
such subsidiary and the anticipated status of each such subsidiary as of the
Closing Date.
(b) Negative Covenants Pending Closing. Except as set forth
below, Seller will not, without Buyer's written consent:
(i) grant any license in any of the Transferred
Intellectual Property;
(ii) sell or transfer, or mortgage, pledge or create
or permit to be created any security interest on, any of the Purchased Assets;
(iii) incur any obligation or liability or incur any
indebtedness for borrowed money in a manner that would affect Seller's ability
to consummate the transactions contemplated hereby or have a material adverse
effect on the Purchased Assets; provided, however, that following the filing of
the bankruptcy petition, Seller may obtain so-called "debtor-in-possession"
financing secured by the Purchased Assets in an amount not to exceed Two
Million Dollars ($2,000,000), subject to the condition that the lender shall
agree to the release of the Purchased Assets from the lien of such financing
upon the consummation of the sale of the Purchased Assets contemplated by this
Agreement; provided further, however, that Seller shall not suffer or incur any
default or event of default under any such "debtor-in-possession" financing; or
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(iv) amend the Certificate of Incorporation or
By-Laws of Seller in a manner that would affect Seller's ability to consummate
the transactions contemplated hereby or have a material adverse effect on the
Purchased Assets.
Notwithstanding the foregoing provisions of this Section 4.1(b), Seller may
grant a non-transferable (except as described on Schedule 4.1(b)),
non-exclusive license on the terms and conditions set forth on Schedule 4.1(b).
4.2 CONDUCT OF BUYER PENDING THE CLOSING. During the period from the
date hereof to the Closing Date, Buyer shall, except as provided in Schedule
4.2 attached hereto or to the extent that Seller otherwise consents in writing,
carry on its business in the usual, regular and ordinary course, in
substantially the same manner as heretofore conducted and consistent with past
practices and policies.
4.3 CONTINUED EFFECTIVENESS OF REPRESENTATIONS AND WARRANTIES. From
the date hereof through the Closing Date, Seller and Buyer shall use reasonable
efforts to conduct their respective businesses and affairs in such a manner so
that the representations and warranties contained in Articles 2 and 3,
respectively, hereof shall continue to be true and correct in all material
respects on and as of the Closing Date as if made on and as of the Closing
Date, and each shall promptly give notice to the other party of any event,
condition or circumstance occurring from the date hereof through the Closing
Date that would constitute a violation or breach of this Agreement. In the
event such violation or breach of this Agreement shall occur on or prior to the
Closing Date, the party in breach shall promptly use its best efforts to remedy
the same.
4.4 AUTHORIZATION FROM OTHERS. Prior to the Closing Date, Seller and
Buyer, respectively, shall use their best efforts to obtain all authorizations,
consents and permits of others required to permit the consummation by them of
the transactions contemplated by this Agreement, including, but not limited to,
all consents set forth on Schedule 3.1(d) and Schedule 3.2(c), respectively,
except to the extent waived by the other in writing.
4.5 CONSUMMATION OF AGREEMENT. Each of Buyer and Seller shall use such
party's respective best efforts to perform and fulfill all conditions and
obligations to be performed and fulfilled by them under this Agreement and
further to ensure that, to the extent in their collective control or capable of
influence by them, no breach of any of their respective representations,
warranties and agreements hereunder or contemplated hereby occurs or exists on
or prior to the Closing Date to the end that the transactions contemplated by
this Agreement shall be fully carried out.
4.6 BANKRUPTCY; CESSATION OF OPERATIONS.
(a) Within two(2) business days after the date hereof, Seller
will file a voluntary petition for reorganization under Chapter 11 of the
United States Bankruptcy Code, 11 U.S.C. ss.ss.101-1330 (the "Bankruptcy Code")
(the date of such filing referred to herein as the "Petition Date"). On and
after the Petition Date, except as otherwise agreed to in writing by Buyer,
Seller will cease all business activity worldwide related to the Transferred
Intellectual Property, including, but not limited to, manufacturing, research
and development, marketing, and sales.
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(b) Seller will file a motion to approve and assume this
Agreement and/or sell, transfer, assign, convey, and deliver to Buyer the
Purchased Assets in accordance with the terms of this Agreement within twenty
(20) days after the Petition Date and thereafter use its best efforts to obtain
a final, non-appealable order approving and authorizing this Agreement and
approving, authorizing and directing assumption of this Agreement by Seller and
consummation of the transactions contemplated hereby on or before May 31, 1999.
(c) Seller acknowledges that the Purchase Price for the
Purchased Assets is both fair and reasonable, and fairly represents the fair
market value obtainable for the Purchased Assets between a willing buyer and
willing seller. The Purchase Price is in excess of the amount Seller could
reasonably expect to receive upon a forced liquidation of such assets and will
leave a balance, after payment of any secured claims against the Purchased
Assets, for distribution to creditors holding claims that are not secured by a
lien encumbering any asset of Seller.
4.7 PROTECTION OF BUYER.
(a) Seller and Buyer acknowledge that Buyer would be
reluctant to pursue a purchase of the Purchased Assets without certain
protections in light of the risks and costs, including the time devoted to and
expense arising from investigating the Purchased Assets, associated with the
purchase of assets of this nature from an entity such as Seller, which has
contemplated filing a petition under Chapter 11 of the Bankruptcy Code
generally, and the complexity of any transaction involving the Purchased
Assets. Seller also has determined that it is in the best interest of Seller
and its creditors to provide Buyer with certain protections against such risks
in order to facilitate the consummation of a sale of the Purchased Assets. In
consideration of the foregoing, Seller agrees to move the bankruptcy court or
other court of competent jurisdiction to approve the protections set forth in
Sections 4.6(b) through 4.6(e) hereof.
(b) Breakup Fee. Seller shall pay to Buyer a fee in cash
equal to $475,000 (the "Breakup Fee") if this Agreement is not consummated
because of:
(i) entry of an order approving a sale of any
portion of the Purchased Assets to another Person;
(ii) Seller, or any other Person other than Buyer,
confirms a plan of reorganization under Chapter 11 of the Bankruptcy Code that
does not provide for the sale to Buyer of the Purchased Assets on terms and
conditions substantially the same as the terms and conditions of this
Agreement; or
(iii) this Agreement and the sale to Buyer of the
Purchased Assets is not approved by a final, non-appealable order of the
bankruptcy court or other court of competent jurisdiction, in the absence of a
bankruptcy case involving Seller, is determined by a court of competent
jurisdiction not to be consummated;
provided, however, that Buyer shall not, at the time the Breakup Fee becomes
due and payable in accordance with the foregoing clauses (i)-(iii), then be in
material beach of any of the provisions of this Agreement.
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(c) Expense Reimbursement. If this Agreement is terminated or
otherwise not consummated for any reason other than a material default or
breach by Buyer under this Agreement or an event entitling Buyer to the Breakup
Fee in accordance with Section 4.7(b), then Seller shall reimburse Buyer for
its actual out-of-pocket expenses in cash in an amount not to exceed $250,000.
If this Agreement is terminated or otherwise not consummated as a result of a
material default or breach by Buyer under this Agreement, then Buyer shall
reimburse Seller for its actual out-of-pocket expenses in cash in an amount not
to exceed $250,000. The out-of-pocket expenses shall include costs and fees
(including, but not limited to, attorneys', accountants', consultants', and
other third-party fees and expenses incurred by the party entitled to payment
hereunder) in connection with the negotiation, preparation, execution,
delivery, and attempted performance of this Agreement and the attempt to
consummate the transactions contemplated by this Agreement, including the
attempted satisfaction of the conditions set forth in Sections 5.1 or 5.2, as
applicable (with respect to Buyer, such expenses are referred to herein as the
"Buyer's Expenses").
(d) Payment of Breakup Fee and Buyer's Expenses. The Breakup
Fee and Buyer's Expenses shall be administrative expenses in any pending
bankruptcy proceeding involving Seller, payable pari passu with administrative
expenses other than those paid in the ordinary course of business. Payments in
respect of the Breakup Fee and Buyer's Expenses shall be made upon the failure
of consummation of the transactions contemplated by this Agreement in
accordance with Section 4.7(b). Notwithstanding anything to the contrary in
this Agreement, but subject to Section 4.7(e)(vii), Buyer shall not be entitled
to any fees payable under this Section 4.7 if Buyer or any of its Affiliates
actually acquires the Purchased Assets.
(e) Sale and Bidding Procedures. Seller shall, within twenty
(20) days after the Petition Date, file a motion with the bankruptcy court or
other court of competent jurisdiction seeking both an order of such court
approving the sale and purchase of the Purchased Assets in accordance with the
terms of this Agreement, including, but not limited to, the Breakup Fee and
reimbursement of Buyer's Expenses and a process (including public notice
thereof) for the submission of any competing bids for the sale of the Purchased
Assets. Seller shall seek bankruptcy court approval of a bid process that
provides that:
(i) sale of the Purchased Assets or any portion
thereof to a Person other than Buyer is subject to such higher and better bids
(not judged solely on monetary grounds), by an open auction (and not a sealed
bid auction) conducted by the bankruptcy court or other court of competent
jurisdiction;
(ii) the only Persons that may participate in the
said open auction are those that submit an initial competing bid that (A)
complies with the provisions of this Section 4.7(e) in regard to, among other
things, amount of initial competing bid, (B) is in writing and (C) is filed
with the court to preside over the auction, received by Seller, and received by
Buyer at least three (3) business days prior to the date scheduled for the open
auction to occur;
(iii) all competing bids must be for cash or cash
and publicly traded securities (which securities shall include restrictions no
more restrictive than those on the Shares to be delivered by Buyer to Seller
hereunder) only, payable in full upon consummation of the sale, and not subject
to any conditions, including, but not limited to, any condition based upon
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the competing bidder's ability to obtain financing; provided, however, that any
competing bid must include at least $4,000,000 in cash;
(iv) all initial competing bids must be in amount
that would result in consideration to be realized by Seller in an amount that
(A) is at least $475,000 greater than the Purchase Price and (B) includes, in
addition, any increment required under clause (v) of this Section 4.7(e);
(v) all subsequent bids shall be in increments of
$50,000;
(vi) all competing bids must be accompanied by a
good faith deposit in the amount of $500,000 by certified or cashier's check
payable to Seller, by wire transfer of immediately available funds to an
account designated in writing by Seller or by irrevocable letter of credit for
the benefit of Seller, which such deposit shall be forfeited if such bidder is
the successful bidder and fails to purchase the Purchased Assets;
(vii) in determining the highest and best bid in any
bidding process, Buyer shall be deemed to have bid the sum of (A) the Purchase
Price, (B) the Breakup Fee and (C) any increment made by Buyer in its bid
(which such increase shall be subject to the minimum bidding increments
requirements of clause (v) of this Section 4.7(e)); if Buyer is the successful
bidder, then Buyer shall only be obligated to pay for purchase of the Purchased
Assets the sum of the Purchase Price plus any increment made by Buyer in its
successful bid, but not the portion of its bid, equal to the Breakup Fee, that
had been deemed to be a part of the bid.;
(viii) neither Seller nor the court are required to
accept the highest monetary bid, but Seller may propose and recommend
acceptance of any offer that it determines to be in the best interest of
Seller's bankruptcy estate and Seller's creditors; and
(ix) if no initial competing bids are received that
comply with this Section 4.7(e), then (A) the open auction shall be cancelled,
(B) Buyer shall be deemed and decreed the successful bidder and (C) Seller
shall be authorized and ordered by the presiding court to consummate the sale
contemplated in this Agreement at the Purchase Price.
(f) Should a court of competent jurisdiction require the
Purchased Assets to be sold in parcels and not in their totality, Buyer is
under no obligation to bid on such parcels and may, at its discretion,
terminate this Agreement.
4.8 RESTRICTIONS ON FURTHER SOLICITATION.
(a) From the date hereof to the date the motion contemplated
by Section 4.6(b) hereof is filed, and except as may be required by Section
4.7(e) and order of the court for any period after the Petition Date, Seller
shall not directly, or indirectly through any of its officers, directors,
employees, representatives, agents, attorneys, trustees, or otherwise
(collectively, "Representatives"), initiate or solicit any proposals or offers
from any Person (other than Buyer) relating to the acquisition of all or a
substantial portion of the Purchased Assets or the capital stock of Seller or
assist any person or entity (other than Buyer) in preparing, structuring, or
soliciting an offer or proposal relating to the acquisition of all or a
substantial portion of the Purchased Assets or the capital stock of Seller.
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(b) Notwithstanding Section 4.8(a) above, prior to the entry
of an order of a court of competent jurisdiction confirming Seller's sale of
the Purchased Assets pursuant to the terms of the Agreement (the "Sale Order"),
Seller or its Representatives may respond to inquiries for information
concerning the business of Seller or the Purchased Assets.
(c) In the event that Seller receives any written offer or
proposal ("Proposal") regarding the acquisition of the Purchased Assets or any
portion thereof, Seller shall, within two (2) business days and irrespective of
the date such Proposal was received, notify Buyer of the Proposal, including
the identity of the Person making the Proposal and the principal economic terms
thereof.
4.9 REGISTRATION.
(a) Certain Definitions. As used in this Section 4.9, the
following terms shall have the following respective meanings.
(i) "Commission" means the Securities and Exchange
Commission, or any other Federal agency at the time administering the
Securities Act.
(ii) "Exchange Act" means the Securities Exchange
Act of 1934, as amended, or any similar Federal statute, and the rules and
regulations of the Commission issued under such Act, as they each may, from
time to time, be in effect.
(iii) "Holder" means the Person in whose name the
Shares are initially registered as payment for the Purchased Assets.
(iv) "Registration Statement" means a registration
statement filed by Buyer with the Commission covering the resale or
distribution of the Shares by the Holder or bankruptcy trustee.
(v) "Securities Act" means the Securities Act of
1933, as amended, or any similar Federal statute, and the rules and regulations
of the Commission issued under such Act, as they each may, from time to time,
be in effect.
(b) Sale or Transfer of Shares; Legend.
(i) The Shares shall not be sold or transferred by
the Holder unless either (A) they first shall have been registered under the
Securities Act or (B) Buyer first shall have been furnished with an opinion of
legal counsel, reasonably satisfactory to Buyer, to the effect that such sale
or transfer is exempt from the registration requirements of the Securities Act.
(ii) Each certificate representing the Shares shall
bear a legend substantially in the following form:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), or
applicable state securities laws and may not be transferred or
otherwise disposed of unless and until such shares are registered
under the
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Act and such laws or (1) registration under applicable state
securities laws is not required and (2) an opinion of counsel
satisfactory to the Company is furnished to the Company to the effect
that registration under the Act is not required."
(iii) The foregoing legend shall be removed from the
certificates representing any Shares at the request of the holder thereof at
such time as they become registered under the Securities Act or eligible for
resale pursuant to Rule 144(k) under the Securities Act (or any successor
provision).
(iv) Buyer shall be entitled to place a stop order
on the Shares to ensure that transfers are made in accordance with the terms of
this Agreement.
(c) Registration Procedures. On or before the later of (i)
the date that is ninety (90) days after the Petition Date and (ii) the date
that is forty-five (45) days after the Closing Date, Buyer shall, at its sole
expense:
(i) file with the Commission a Registration
Statement with respect to resales and distributions of the Shares and use its
best efforts to cause that Registration Statement to become and remain
effective; provided, however, that at least one (1) day before any such filing,
Buyer shall furnish to the Holder a draft copy of the Registration Statement as
proposed to be filed;
(ii) as expeditiously as possible prepare and file
with the Commission any amendments and supplements to the Registration
Statement and the prospectus included in the Registration Statement as may be
necessary to keep the Registration Statement effective until the earlier of (A)
such time as the Holder no longer holds any Shares or (B) such time as all
Shares held by the Holder may be sold without registration pursuant to Rule
144(k) (or any successor provision) during any three (3) month period;
(iii) as expeditiously as possible furnish to the
Holder such reasonable numbers of copies of the prospectus, including the
preliminary prospectus, and any amendment or supplement to the prospectus, in
conformity with the requirements of the Securities Act, and such other
documents as the Holder may reasonably request in order to facilitate the
public sale or other disposition of the Shares;
(iv) as expeditiously as possible use its best
efforts to register or qualify the Shares covered by the Registration Statement
under the securities or blue sky laws of such states as the Holder shall
reasonably request, and do any and all other acts and things that may be
necessary or desirable to enable the Holder to consummate the public sale or
other disposition of the Shares in such jurisdictions; provided, however, that
Buyer shall not be required in connection with this clause (iv) to qualify as a
foreign corporation in any jurisdiction or consent to service of process in any
jurisdiction; and
(v) Buyer will promptly give notice to the Holder
(A) when the prospectus or any prospectus supplement or post-effective
amendment has been filed and, with respect to the Registration Statement or any
post-effective amendment, when the same has become effective, (B) of any
request by the Commission or any state securities authority with jurisdiction
for amendments and supplements to the Registration Statement and prospectus for
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additional information after the Registration Statement has become effective,
(C) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement, (D) of the issuance by any state
securities commission or other regulatory authority with jurisdiction of any
order suspending the qualification or exemption from qualification of any of
the Shares under any applicable state securities or "blue sky" laws and (E) of
the happening of any event which makes any statement made in the Registration
Statement or related prospectus untrue or which requires the making of any
changes in the Registration Statement or prospectus so that they will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. As
soon as practicable following any of such events, Buyer will prepare and file
with the Commission and furnish such supplement or amendment to such prospectus
as may be necessary so that, as thereafter deliverable to the purchasers of the
Shares, such prospectus will not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statement therein,
in light of the circumstances under which they were made, not misleading.
If Buyer has delivered preliminary or final prospectuses to the Holder and
after having done so the prospectus is amended to comply with the requirements
of the Securities Act, Buyer shall promptly notify the Holder and, if
requested, the Holder shall immediately cease making offers of Shares and shall
return all prospectuses to Buyer. Buyer shall promptly provide the Holder with
revised prospectuses and, following receipt of the revised prospectuses, the
Holder shall be free to resume making offers of the Shares.
(d) Indemnification.
(i) In the event of any registration of any of the
Shares under the Securities Act pursuant to this Agreement, then to the extent
permitted by law Buyer shall indemnify and hold harmless the Holder, each
underwriter of such Shares and any officer, director, agent, representative,
employee or affiliate of any of them against any losses, claims, damages or
liabilities, joint or several, to which the Holder or such underwriter or
controlling person may become subject under the Securities Act, the Exchange
Act, state securities laws or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained in any Registration Statement under which the Shares were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained in the Registration Statement, or any amendment or
supplement to such Registration Statement, or arise out of or are based upon
the omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and Buyer
shall reimburse each of the Holder and such underwriter and controlling person
for reasonable legal or any other expenses incurred by the Holder or such
underwriter or controlling person in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that
Buyer shall not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any untrue statement
or omission made in such Registration Statement, preliminary prospectus or
final prospectus, or any such amendment or supplement, in reliance upon and in
conformity with information furnished to Buyer, in writing, by or on behalf of
the Holder or such underwriter or controlling person specifically for use in
the preparation thereof.
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(ii) In the event of any registration of any of the
Shares under the Securities Act pursuant to this Agreement, then to the extent
permitted by law, the Holder shall indemnify and hold harmless Buyer, each of
its directors and officers and each underwriter (if any) and each person, if
any, who controls Buyer or any such underwriter within the meaning of the
Securities Act or the Exchange Act, against any losses, claims, damages or
liabilities, joint or several, to which Buyer, such directors and officers,
underwriter or controlling person may become subject under the Securities Act,
Exchange Act, state securities laws or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of a material
fact contained in any Registration Statement under which the Shares were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained in the Registration Statement, or any amendment or
supplement to the Registration Statement, or arise out of or are based upon any
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, if the
statement or omission was made solely in reliance upon and in conformity with
information furnished in writing to Buyer by or on behalf of the Holder,
specifically for use in connection with the preparation of such Registration
Statement, prospectus, amendment or supplement; and the Holder shall reimburse
Buyer for reasonable legal or other expenses incurred by Buyer in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the obligations of any the Holder hereunder
shall not exceed an amount equal to the proceeds to the Holder of the Shares
sold pursuant to the Registration Statement.
(iii) Each party entitled to indemnification under
this Section 7.6(d) (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party") promptly after
such Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom; provided, however, that
counsel for the Indemnifying Party, who shall conduct the defense of such claim
or litigation, shall be approved by the Indemnified Party (whose approval shall
not be unreasonably withheld); and, provided further, however, that the failure
of any Indemnified Party to give notice as provided herein shall not relieve
the Indemnifying Party of its obligations under this Section 5.8(d). The
Indemnified Party may participate in such defense at such party's expense;
provided, however, that the Indemnifying Party shall pay such expense if
representation of such Indemnified Party by the counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential differing
interests between the Indemnified Party and any other party represented by such
counsel in such proceeding. No Indemnifying Party, in the defense of any such
claim or litigation shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
of such claim or litigation, and no Indemnified Party shall consent to entry of
any judgment or settle such claim or litigation without the prior written
consent of the Indemnifying Party.
(e) Information by the Holder. The Holder shall furnish to
Buyer such information regarding the Holder and the distribution proposed by
the Holder as Buyer may request in writing and as shall be required in
connection with any registration, qualification or compliance referred to in
this Section 4.9.
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(f) Rule 144 Requirements. With a view to making available to
the Holder the benefits of Rule 144 promulgated under the Securities Act and
any other rule or regulation of the Commission that may at any time permit the
Holder to sell securities of Buyer to the public without registration, Buyer
agrees to use its best efforts to:
(i) make and keep public information available, as
those terms are understood and defined in Rule 144 under the Securities Act (at
any time after it has become subject to the reporting requirements of the
Exchange Act);
(ii) file with the Commission in a timely manner all
reports and other documents required of the Company under the Securities Act
and the Exchange Act (at any time after it has become subject to such reporting
requirements); and
(iii) furnish to the Holder upon request a written
statement by Buyer as to its compliance with the reporting requirements of said
Rule 144, the Securities Act and the Exchange Act, a copy of the most recent
annual or quarterly report of Buyer, and such other reports and documents of
Buyer as the Holder may reasonably request to avail itself of any similar rule
or regulation of the Commission allowing it to sell any such securities without
registration.
4.10 LITIGATION. Each of Seller and Buyer shall use their respective
best efforts to have all documents, motions and pleadings relating to the
Transferred Claims delivered to Buyer as soon as practicable after the date
hereof. From and after the date hereof until the Closing Date, to the extent
not restricted from doing so by court order, Seller agrees to keep Buyer
informed of any an all developments and occurrences related to the Transferred
Claims and further agrees not to take any action in respect of the Transferred
Claims without the advice and prior consent of Buyer; provided, however, that
in the absence of timely advice and consent from Buyer, Seller shall
nonetheless take any and all action necessary to preserve its rights to
continue to sustain the Transferred Claims.
4.11 SUBSTITUTION OF PARTIES. Seller shall, as promptly as practicable
following the Closing Date take all necessary actions to have Buyer substituted
as a party in Seller's place in all Transferred Claims. Prior to the
effectiveness of the substitution referred to in the preceding sentence, Seller
shall promptly notify Buyer of any activity with respect to the Transferred
Claims requested by Buyer.
ARTICLE 5 CONDITIONS TO CLOSING
5.1 CONDITIONS TO OBLIGATIONS OF SELLER. The obligation of Seller to
enter into and complete the Closing is subject to, at the option of Seller
acting in accordance with the provisions of this Agreement with respect to
termination hereof, the fulfillment of the following conditions, any one or
more of which may be waived by it:
(a) Representations, Warranties and Covenants. The
representations and warranties of Buyer contained in this Agreement shall be
true in all material respects on and as of the Closing Date with the same force
and effect as though made on and as of the Closing Date. Buyer shall have
performed and complied with all covenants and agreements required by this
Agreement to be performed or complied with by it on or prior to the Closing
Date. Buyer shall
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have delivered to Seller a certificate, dated the Closing Date and signed by an
officer of Seller, to the foregoing effect and stating that all conditions to
the obligations of Seller hereunder have been satisfied.
(b) Litigation. No action, suit or proceeding shall have been
instituted before any court or governmental or regulatory body, or instituted
or threatened by any governmental or regulatory body, to restrain, modify or
prevent the carrying out of the transactions contemplated hereby, and such
action, suit or proceeding shall not have been stayed.
(c) Third Party Consents. Seller shall have received evidence
of the receipt of all authorizations, consents and permits of others required
to permit the consummation by Seller and Buyer of the transactions contemplated
by this Agreement, including, but not limited to, all consents set forth on
Schedule 3.2(c), if any, except to the extent waived by Seller in writing.
(d) No Material Change. There shall have been no material
adverse change in Buyer's financial condition, business, assets, operations or
prospects, including, but not limited to, a merger of Buyer with another Person
in which Buyer is not the surviving entity.
(e) Nasdaq Listing. The Shares issuable to Seller pursuant to
this Agreement shall have been authorized for quotation on the Nasdaq National
Market and shall continue to be so authorized on the Closing Date.
5.2 CONDITIONS TO OBLIGATIONS OF BUYER. The obligation of Buyer to
enter into and complete the Closing is subject to, at the option of Buyer
acting in accordance with the provisions of this Agreement with respect to
termination hereof, the fulfillment of the following conditions, any one or
more of which may be waived by it:
(a) Representations, Warranties and Covenants. The
representations and warranties of Seller contained in this Agreement shall be
true in all material respects on and as of the Closing Date with the same force
and effect as though made on and as of the Closing Date. Seller shall have
performed and complied with all covenants and agreements required by this
Agreement to be performed or complied with by it on or prior to the Closing
Date. Seller shall have delivered to Buyer a certificate, dated the Closing
Date and signed by an officer of Seller to the foregoing effect and stating
that all conditions to Buyer's obligations hereunder have been satisfied.
(b) Third Party Consents. Buyer shall have received evidence
of the receipt of all authorizations, consents and permits of others required
to permit the consummation by Buyer and Seller of the transactions contemplated
by this Agreement, including, but not limited to, all consents set forth on
Schedule 3.1(d), except to the extent waived by Buyer in writing or rendered
unnecessary by bankruptcy court order.
(c) Litigation. No action, suit or proceeding shall have been
instituted before any court or governmental or regulatory body, or instituted
or threatened by any governmental or regulatory body, to restrain, modify or
prevent the carrying out of the transactions contemplated hereby, or to seek
damages or a discovery order in connection with such transactions, or that has
or may have, in the reasonable opinion of Buyer, a materially adverse effect on
the Purchased Assets.
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(d) Delivery of Instruments of Transfer. Seller shall have
delivered or caused to be delivered to Buyer instruments of transfer in
conformity with Section 2.2 above.
(e) No Material Change. There shall have been no material
adverse change in the Transferred Intellectual Property or Transferred Claims,
nor shall any event have occurred which so far as can reasonably be foreseen on
the Closing Date appears reasonably likely materially and adversely to affect
the Transferred Intellectual Property or Transferred Claims.
(f) Records of Purchased Assets. Seller shall have delivered
to Buyer all material records and documents relating to the Purchased Assets,
that either are in its possession or the possession of its counsel.
(g) Transferred Claims. Buyer shall have conducted a review
in good faith of the documents relating to the Transferred Claims and be
reasonably satisfied with the results of its review; provided, however, that
this condition shall terminate on the date that is twenty (20) days after the
Petition Date, unless Buyer shall have delivered the notice described in
Section 6.1(a) below, in which case this condition shall terminate on the date
that is thirty (30) days after the Petition Date.
(h) FDA Filings. To the extent required by the FDA, Seller
shall have filed with the FDA the report identified on Schedule 3.1(c).
(i) Bankruptcy. Seller shall have obtained a final,
non-appealable order approving this Agreement, assumption of this Agreement by
Seller and consummation of the transactions contemplated hereby on or before
May 31, 1999.
ARTICLE 6 TERMINATION
6.1 TERM. This Agreement shall terminate on or prior to the Closing as
follows:
(a) on the date that is twenty (20) days after the Petition
Date, unless on or before such date, Buyer shall have notified Seller in
writing that Buyer has conducted the review described in Section 5.2(g) and is
reasonably satisfied with the results of such review; provided, however, Buyer,
in its discretion and by written notice to Seller, may extend the twenty (20)
day period set forth above to a period ending on the date that is thirty (30)
days after the Petition Date;
(b) on May 31, 1999, if all of the conditions set forth in
Section 5.1 have been satisfied but any of the conditions set forth in Section
5.2 have not been satisfied, unless extended in writing by Buyer;
(c) on May 31, 1999, if all of the conditions set forth in
Section 5.2 have been satisfied but any of the conditions set forth in Section
5.1 have not been satisfied, unless extended in writing by Seller;
(d) on June 30, 1999, if any of the conditions set forth in
either of Sections 5.1 or 5.2 have not been satisfied, unless extended in
writing by Buyer and Seller;
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(e) at the election of Buyer or Seller, respectively, upon
written notice to the other party if such other party has materially breached
any representation, warranty, covenant or agreement contained in this Agreement
and has not, within fifteen (15) business days of receipt by the breaching
party of written notice from the nonbreaching party of such breach of
representation, warranty, covenant or agreement, cured such breach; or
(f) by mutual written agreement of Seller and Buyer.
6.2 EFFECT OF TERMINATION. Subject to Sections 4.5 and 4.6 hereof, if
this Agreement is terminated and the transactions contemplated hereby are not
consummated as provided above, each and every representation and warranty
contained in this Agreement or any Schedule hereto, or any certificate,
document or other instrument delivered by the parties in connection herewith,
shall expire and none of the parties hereto shall be under any liability
whatsoever with respect to any such representation or warranty; provided,
however, that notwithstanding the foregoing, each party shall be and remain
liable to the other in the event that the failure so to close hereunder shall
occur as a consequence of the failure of a party to fully perform its covenants
and agreements hereunder or the material breach by a party of its
representations or warranties contained herein.
ARTICLE 7 INDEMNIFICATION
7.1 SURVIVAL. Notwithstanding any right of any party to fully
investigate the affairs of the other party and notwithstanding any knowledge of
facts determined or determinable by such party pursuant to such investigation
or right of investigation, each party has the right to rely fully upon the
representations, warranties, covenants and agreements of each other party in
this Agreement or in any certificate, financial statement or other document
delivered by any party pursuant hereto. All such representations, warranties,
covenants and agreements shall survive the execution and delivery hereof and
the Closing hereunder, subject to the limitations set forth in Section 7.4. No
person shall have a right to recovery against any party (or any officer,
director, employee or agent of a party) other than through the exercise of the
indemnification rights set forth in Sections 7.2 and 7.3, which shall
constitute the sole and exclusive remedy after the Closing Date for any breach
by a party of any representation, warranty or covenant contained herein or in
any certificate or other instrument delivered pursuant hereto, other than a
fraudulent or intentional breach. Notwithstanding the foregoing, Section 4.9(d)
hereof shall provide a right of recovery in respect of securities law matters
arising under Section 4.9 hereof and shall constitute the sole and exclusive
remedy after the Closing Date for any breach by a party of any representation,
warranty or covenant contained in Section 4.9 hereof or in any certificate or
other instrument delivered pursuant thereto.
7.2 OBLIGATION OF SELLER TO INDEMNIFY. After the Closing Date, Seller
shall indemnify and hold harmless Buyer (and its directors, officers,
employees, agents, affiliates and assigns) from and against all losses,
liabilities, damages, deficiencies, costs or expenses, including interest and
penalties imposed or assessed by any judicial or administrative body and
reasonable attorneys' fees, whether or not arising out of third-party claims
and including all amounts paid in investigation, defense or settlement of the
foregoing pursuant to this Article 7 ("Losses") based upon, arising out of or
otherwise in respect of any material inaccuracy in or material breach of any
representation, warranty or covenant of Seller contained herein or in any
certificate delivered pursuant hereto.
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7.3 OBLIGATION OF BUYER TO INDEMNIFY. After the Closing Date, Buyer
shall indemnify and hold harmless Seller (and its directors, officers,
employees, agents, affiliates and assigns) from and against any Losses based
upon, arising out of or otherwise in respect of any inaccuracy in or breach of
any representation, warranty covenant of Buyer contained herein or in any
certificate delivered pursuant hereto.
7.4 LIMITATIONS ON INDEMNIFICATION. Notwithstanding the foregoing, the
right to indemnification under this Article 7 shall be subject to the following
terms:
(a) No indemnification shall be payable pursuant to Section
7.2 or 7.3 after twenty-four (24) months after the Closing Date (the
"Expiration Date"), except with respect to claims made prior to the Expiration
Date but not then resolved; provided, however, that the foregoing limitation
shall not apply in the case of a fraudulent or intentional misrepresentation or
breach by any party.
(b) In determining the amount of any indemnity, there shall
be taken into account any tax benefit, insurance proceeds or other similar
recovery or offset realized, directly or indirectly, by the party to be
indemnified.
(c) Neither Party shall be liable hereunder, in the
aggregate, for an amount in excess of $475,000.
7.5 NOTICE AND DEFENSE OF CLAIMS. Promptly after receipt of notice of
any claim, liability or expense for which a party seeks indemnification
hereunder, such party shall give written notice thereof to the indemnifying
party, but such notification shall not be a condition to indemnification
hereunder except to the extent of actual prejudice to the indemnifying party.
The notice shall state the information then available regarding the amount and
nature of such claim, liability or expense and shall specify the provision or
provisions of this Agreement under which the liability or obligation is
asserted. If within thirty (30) days after receiving such notice the
indemnifying party gives written notice to the indemnified party stating that
it intends to defend against such claim, liability or expense at its own cost
and expense, then defense of such matter, including selection of counsel
(subject to the consent of the indemnified party which consent shall not be
unreasonably withheld), shall be by the indemnifying party and the indemnified
party shall make no payment on such claim, liability or expense as long as the
indemnifying party is conducting a good faith and diligent defense.
Notwithstanding the foregoing, the indemnified party shall at all times have
the right to fully participate in such defense at its own expense directly or
through counsel; provided, however, if the named parties to the action or
proceeding include both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would be inappropriate under
applicable standards of professional conduct, the expense of separate counsel
for the indemnified party shall be paid by the indemnifying party. If no such
notice of intent to dispute and defend is given by the indemnifying party, or
if such diligent good faith defense is not being or ceases to be conducted, the
indemnified party shall, at the expense of the indemnifying party, undertake
the defense of such claim, liability or expense with counsel selected by the
indemnified party, and shall have the right to compromise or settle the same
exercising reasonable business judgment. The indemnified party shall make
available all information and assistance that the indemnifying party may
reasonably request and shall cooperate with the indemnifying party in such
defense.
-20-
<PAGE> 25
ARTICLE 8 MISCELLANEOUS
8.1 NOTICES. All notices, requests and other communications to Seller
or Buyer hereunder shall be in writing (including telecopy or similar
electronic transmissions), shall refer specifically to this Agreement and shall
be personally delivered or sent by telecopy or other electronic facsimile
transmission or by registered mail or certified mail, return receipt requested,
postage prepaid, in each case to the respective address specified below (or to
such address as may be specified in writing to the other party hereto):
(a) if to Buyer, at
AutoCyte, Inc.
780 Plantation Drive
Burlington, North Carolina 27215
Attention: President and Chief Executive Officer
Facsimile: (336) 513-0411
with a copy to
Palmer & Dodge LLP
One Beacon Street
Boston, Massachusetts 02108
Attention: Steven N. Farber
Facsimile: (617) 227-4420
(b) if to Seller, at
Neuromedical Systems, Inc.
10 Mountainview Road, Suite C-100
Upper Saddle River, New Jersey 07458
Attention: President
Facsimile: (201) 760-2096
with a copy to
Latham & Watkins
5800 Sears Tower
Chicago, Illinois 60606
Attention: Josef S. Athanas
Facsimile: (312) 993-9767
Any notice or communication given in conformity with this Section 9.1 shall be
deemed to be effective when received by the addressee, if delivered by hand,
and seven (7) days after mailing, if mailed.
8.2 PUBLICITY; CONFIDENTIALITY. Except for a mutually acceptable press
release to be filed by Seller on or about the Petition Date and disclosure to
the bankruptcy court in connection with filing with such court as set forth in
Sections 4.6 and 4.7 hereof, unless required by law, the
-21-
<PAGE> 26
rules of any national stock exchange or automated interdealer quotation system
or order or decree of any federal, state, local or foreign court of competent
jurisdiction or governmental authority, (i) neither Buyer nor Seller shall
issue any press release or other public announcement unless the other party has
approved such press release in advance, which approval shall not be
unreasonably withheld and (ii) Buyer and Seller will keep confidential any
information not otherwise publicly available that is derived from access,
investigation or information furnished by Buyer and Seller in connection with
this Agreement and the transactions contemplated hereby, including the
negotiations conducted in connection herewith and all drafts and executed
copies of this Agreement and the contents thereof.
8.3 ENTIRE AGREEMENT. This Agreement, together with any agreements
referenced herein, constitutes, on and as of the date hereof, the entire
agreement of Seller and Buyer with respect to the subject matter hereof, and
all prior or contemporaneous understandings or agreements, whether written or
oral, between Seller and Buyer with respect to such subject matter are hereby
superseded in their entirety.
8.4 NO IMPLIED WAIVERS; RIGHTS CUMULATIVE. No failure on the part of
Seller or Buyer to exercise and no delay in exercising any right, power, remedy
or privilege under this Agreement, or provided by statute or at law or in
equity or otherwise, including, but not limited to, the right or power to
terminate this Agreement, shall impair, prejudice or constitute a waiver of any
such right, power, remedy or privilege or be construed as a waiver of any
breach of this Agreement or as an acquiescence therein, nor shall any single or
partial exercise of any such right, power, remedy or privilege preclude any
other or further exercise thereof or the exercise of any other right, power,
remedy or privilege.
8.5 AMENDMENTS. No amendment, modification, waiver, termination or
discharge of any provision of this Agreement, nor consent to any departure by
Seller or Buyer therefrom, shall in any event be effective unless the same
shall be in writing specifically identifying this Agreement and the provision
intended to be amended, modified, waived, terminated or discharged and signed
by the party against whom enforcement of such amendment is sought, and each
such amendment, modification, waiver, termination or discharge shall be
effective only in the specific instance and for the specific purpose for which
given. No provision of this Agreement shall be varied, contradicted or
explained by any oral agreement, course of dealing or performance or any other
matter not set forth in an agreement in writing and signed by the party against
whom enforcement of such variation, contradiction or explanation is sought.
8.6 SUCCESSORS AND ASSIGNS. The terms and provisions of this Agreement
shall inure to the benefit of, and be binding upon, Seller, Buyer, and their
respective successors and assigns.
8.7 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware.
8.8 FURTHER ASSURANCES. Each of Seller and Buyer agrees to duly
execute and deliver, or cause to be duly executed and delivered, such further
instruments and do and cause to be done such further acts and things,
including, but not limited to, the execution of such additional assignments,
agreements, documents and instruments, that may be necessary or as the other
party hereto may at any time and from time to time reasonably request in
connection with this Agreement or to carry out more effectually the provisions
and purposes of, or to better assure
-22-
<PAGE> 27
and confirm unto such other party its rights and remedies under, this
Agreement. Each of Seller and Buyer acknowledges that if the Seller shall fail
to provide such additional assignments, agreements, documents and instruments
as reasonably requested by Buyer, Buyer may move the bankruptcy court for an
order directing the provision of such items on an emergency basis with no less
than three (3) days' notice by telecopy or other electronic facsimile
transmission to Seller. Seller agrees not to oppose such a motion or the
scheduling of a hearing relating to such a motion on the basis of shortened
notice or method of notice. Seller and Buyer further agree that the bankruptcy
court shall retain jurisdiction to adjudicate Buyer's motion.
8.9 SEVERABILITY. If any provision hereof should be held invalid,
illegal or unenforceable in any respect in any jurisdiction, then, to the
fullest extent permitted by law, (a) all other provisions hereof shall remain
in full force and effect in such jurisdiction and shall be liberally construed
in order to carry out the intentions of the parties hereto as nearly as may be
possible and (b) such invalidity, illegality or unenforceability shall not
affect the validity, legality or enforceability of such provision in any other
jurisdiction. To the extent permitted by applicable law, Seller and Buyer
hereby waive any provision of law that would render any provision hereof
prohibited or unenforceable in any respect.
8.10 TIME IS OF THE ESSENCE. Seller and Buyer, respectively,
acknowledge that time is of the essence for this Agreement, and that delays in
the consummation of the transactions contemplated hereby will cause the other
party significant harm.
8.11 HEADINGS. Headings used herein are for convenience only and shall
not in any way affect the construction of, or be taken into consideration in
interpreting, this Agreement.
8.12 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which counterparts, when so executed and
delivered, shall be deemed to be an original, and all of which counterparts,
taken together, shall constitute one and the same instrument.
8.13 INVESTMENT ADVISOR FEE. The parties agree that the fee of
Seller's investment advisor, Houlihan, Lokey Howard & Zukin, payable pursuant
to, and the terms of which are more fully described in, that certain Letter
dated December 23, 1998 shall be paid from the Purchase Price at Closing.
-23-
<PAGE> 28
IN WITNESS WHEREOF, the parties hereto have caused this Asset Purchase
Agreement to be executed in their respective corporate names by their
respective authorized representatives as of the date first set forth above.
NEUROMEDICAL SYSTEMS, INC. AUTOCYTE, INC.
By: /s/ Paul R. Sohmer By: /s/ James B. Powell
---------------------------- ----------------------------------
Name: Paul R. Sohmer, M.D. Name: James B. Powell
--------------------------- --------------------------------
Title: President & CEO Title: President & CEO
-------------------------- ------------------------------
-24-
<PAGE> 29
EXHIBIT A
BILL OF SALE AND ASSIGNMENT
This Bill of Sale and Assignment dated ____________ ___, 1999 is
executed and delivered by Neuromedical Systems, Inc., ("Seller"), a Delaware
corporation, to AutoCyte, Inc. ("AutoCyte"), a Delaware corporation. All
capitalized words and terms used in this Bill of Sale and not defined herein
shall have the respective meanings ascribed to them in the Asset Purchase
Agreement dated as of March 25, 1999 between Seller and AutoCyte (the "Purchase
Agreement").
WHEREAS, subject to the terms and conditions set forth in the Purchase
Agreement, Seller has agreed to sell, convey, transfer, assign and deliver to
AutoCyte the Purchased Assets, and AutoCyte has agreed to purchase and acquire
the Purchased Assets;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Seller and AutoCyte hereby agree
as follows:
1. Seller hereby sells, conveys, transfers, assigns and delivers to
AutoCyte, its successors and assigns, to have and to hold forever, all of
Seller's right, title and interest in and to the Purchased Assets free and
clear of all liens, restrictions, encumbrances and interests of any other
Person, except as specifically permitted by the Purchase Agreement.
2. Seller hereby covenants and agrees that it will, at the reasonable
request of AutoCyte and without further consideration, execute and deliver such
other instruments of sale, transfer, conveyance and assignment (including, but
no limited to executing the form of letter transferring PMAs attached hereto as
Appendix A), and take such other action as may reasonably be necessary to more
effectively convey, transfer, assign and deliver to, and vest in, AutoCyte, its
successors and assigns title to the Purchased Assets being sold, transferred,
conveyed, assigned and delivered by Seller pursuant to the Purchase Agreement
and to put AutoCyte in actual possession and operating control thereof.
3. Each of Seller and Buyer acknowledges that if Seller shall fail to
provide such other instruments of sale, transfer, conveyance and assignment as
reasonably requested by Buyer, Buyer may move the bankruptcy court for an order
directing the provision of such items on an emergency basis with no less than
three (3) days' notice by telecopy or other electronic facsimile transmission
to Seller. Seller agrees not to oppose such a motion or the scheduling of a
hearing relating to such a motion on the basis of shortened notice or method of
notice. Seller and Buyer further agree that the bankruptcy court shall retain
jurisdiction to adjudicate Buyer's motion.
4. Seller, by its execution of this Bill of Sale and Assignment, and
AutoCyte, by its acceptance of this Bill of Sale and Assignment, each hereby
acknowledges and agrees that neither the representations and warranties nor the
rights and remedies of any party under the Purchase Agreement shall be deemed
to be enlarged, negated, modified or altered in any way by this instrument.
<PAGE> 30
IN WITNESS WHEREOF, NSI and AutoCyte have caused this instrument to be
duly executed under seal as of and on the date first above written.
NEUROMEDICAL SYSTEMS, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
ACCEPTED:
AUTOCYTE, INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
-2-
<PAGE> 31
Appendix A
Form of Letter Transferring PMA
Office of Device Evaluation
Center for Devices and Radiological Health
Food and Drug Administration
9200 Corporate Boulevard
Rockville, Maryland 20850
Dear Sir or Madam:
We hereby advise you that effective as of the date of this letter, all
ownership interests in the following premarket approval applications,
supplements, and amendments have been transferred from Neuromedical Systems,
Inc. to AutoCyte, Inc.: _________________. AutoCyte, Inc. is now the owner of
these product approvals. If you have any questions regarding this transfer,
please contact ____________________.
Sincerely,
cc: Dr. James Powell, AutoCyte, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 17,876,552
<SECURITIES> 0
<RECEIVABLES> 1,209,400
<ALLOWANCES> 184,875
<INVENTORY> 2,962,140
<CURRENT-ASSETS> 22,548,943
<PP&E> 4,118,518
<DEPRECIATION> 1,363,899
<TOTAL-ASSETS> 27,950,437
<CURRENT-LIABILITIES> 2,233,139
<BONDS> 0
0
0
<COMMON> 127,908
<OTHER-SE> 24,572,574
<TOTAL-LIABILITY-AND-EQUITY> 27,950,437
<SALES> 1,162,803
<TOTAL-REVENUES> 1,162,803
<CGS> 821,062
<TOTAL-COSTS> 821,062
<OTHER-EXPENSES> 2,918,551
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,643
<INCOME-PRETAX> (2,375,244)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,375,244)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,375,244)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
