<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 1, 1999
REGISTRATION NO. 333-69207
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
CARESIDE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3841 23-2863507
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
6100 BRISTOL PARKWAY, CULVER CITY, CA 90230
(310) 338-6767
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
W. VICKERY STOUGHTON
CHAIRMAN OF THE BOARD OF DIRECTORS AND
CHIEF EXECUTIVE OFFICER
CARESIDE, INC.
6100 BRISTOL PARKWAY
CULVER CITY, CA 90230
(310) 338-6767
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
WITH COPIES TO:
BARRY M. ABELSON, ESQ. JONATHAN L. KRAVETZ, ESQ.
JULIA D. CORELLI, ESQ. MINTZ, LEVIN, COHN, FERRIS,
PEPPER HAMILTON LLP GLOVSKY AND POPEO, P.C.
3000 TWO LOGAN SQUARE ONE FINANCIAL CENTER
PHILADELPHIA, PA 19103 BOSTON, MA 02111
(215) 981-4000 (617) 542-6000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE(2)
- -------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value $.01
per share.................... $32,200,000 $9,174
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of determining the amount of the
registration fee in accordance with Rule 457(o) under the Securities Act
of 1933, as amended.
(2) Fees totaling $8,896 were previously paid by the Registrant in connection
with the filing of the Registration Statement on December 18, 1998.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES
AND EXCHANGE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY +
+NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN +
+OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE +
+SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 29, 1999
2,800,000 SHARES
[CARESIDE LOGO]
CARESIDE, INC.
Common Stock
-----------
This is an initial public offering of shares of common stock of Careside,
Inc. We are offering all of these shares and will receive all of the proceeds
of the offering, less the underwriting discount. There is currently no public
market for the shares. We expect that the offering price will be between $8.00
and $10.00 per share. The offering price may not reflect the market price of
the shares after the offering.
We have applied to have the shares listed for quotation on the Nasdaq
National Market under the symbol "CARE."
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 7.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Offering Price.................................................. $ $
Underwriting Discount........................................... $ $
Proceeds to Careside............................................ $ $
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Careside has granted the underwriters a 30-day option to purchase up to
420,000 additional shares of common stock to cover over-allotments.
-----------
FAHNESTOCK & CO. INC.
WEDBUSH MORGAN SECURITIES
SOUTHEAST RESEARCH PARTNERS, INC.
, 1999
<PAGE>
[INSIDE FRONT COVER]
[CARESIDE LOGO] THE CARESIDE SYSTEM IS A PROPRIETARY BLOOD TESTING
SYSTEM. IT INCLUDES THE CARESIDE ANALYZER(TM) AND
DISPOSABLE TEST CARTRIDGES.
CARESIDE ANALYZER(TM) [Photo of CareSide
Analyzer and
Cartridges]
(A) CHEMISTRY
The CareSide (B) ELECTROCHEMISTRY
Analyzer(TM) combines (C) IMMUNOCHEMISTRY
multiple testing (D) COAGULATION
methodologies.
[Photo Close-up of [Photo of Different
Cartridge] Cartridges]
THE CARESIDE CARTRIDGE
The proprietary test cartridges have unique design
features.
COMPREHENSIVE MENU LOW COST EASE OF USE
At launch, Careside The Careside System's A non-technical
expects to offer more approach to testing is individual with
than 50 tests. This designed to produce a simple training can
would be the most rapid test result at a easily operate the
comprehensive menu for a competitive price. CareSide
single point-of-care Analyzer(TM).
system.
----------------
We have not yet commercialized the Careside System. We currently have 23
tests cleared or exempt for licensed laboratory use by the United States Food
and Drug Administration. We plan to complete development and seek to obtain FDA
clearance or exemption for additional tests prior to commercial introduction.
Careside(TM), CareSide Analyzer(TM) and Careside's logo are our trademarks
for which registration applications have been filed with the United States
Patent and Trademark Office. All other tradenames, trademarks or servicemarks
appearing in this prospectus are the property of their respective owners and
are not our property.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary highlights information from this prospectus. Because
this is a summary, it does not contain all of the information that you should
consider before investing in the common stock. You should read the entire
prospectus carefully, including the "Risk Factors" section, the financial
statements and the notes to those financial statements.
Careside
Careside has developed and plans to sell a proprietary blood testing system
called the Careside system. It is designed to decentralize laboratory
operations. The system consists of a testing instrument called the CareSide
Analyzer and disposable test cartridges. It performs blood tests in the same
location as the patient, or what is commonly called point-of-care testing.
Blood testing is a significant part of routine and critical patient care.
Today, almost all blood testing is done by sending the blood samples to
hospital or commercial laboratories. Because of transportation time and several
processing steps, these central laboratories generally take between 4 and 24
hours to provide test results to the doctor. We believe that the Careside
system provides the platform for solving the limitations of central blood
testing laboratories and redefines the market for point-of-care testing. Here
are the reasons why:
. Cost-Effective Results -- Our system is designed to provide test results
that are cost competitive with both hospital and commercial
laboratories.
. Rapid Test Results -- Our system produces test results within 10 to 15
minutes from the time the blood is drawn from the patient.
. Comprehensive Test Menu -- We believe that our planned menu of tests
represents over 80% of all blood tests ordered on an out-patient basis,
including all of the most commonly ordered blood tests.
. Ease of Use -- Our system is designed for use by non-technical
personnel, with only simple training.
. Industry Standard Technology -- Our system uses the same test methods
and technology as large testing devices in hospital and commercial
laboratories.
. Embedded Quality Assurance/Quality Control -- Our system captures all
data required to comply with regulations governing laboratory
operations, including those under the Clinical Laboratory Improvement
Amendments of 1988.
. Ability for Practice Enhancement -- By providing rapid test results for
a broad menu of tests, our system will enable doctors to treat patients
more quickly, see more patients, improve office productivity and improve
patient satisfaction and quality of care. In addition, healthcare
providers can increase their revenue by performing and billing for tests
themselves.
Our goal is to make decentralized testing with the Careside system the
standard for routine and critical care blood testing.
The Careside System Status
The FDA has already granted pre-market clearance for the CareSide Analyzer
and clearance or exemption for 23 blood tests. We recently filed for clearance
for five additional blood tests. Our initial product launch is planned for the
third quarter of 1999 through a distribution and supply arrangement with one of
our strategic partners, SmithKline Beecham Clinical Laboratories, Inc. We
expect to have the CareSide Analyzer and over 50 tests cleared or exempt at
that time.
3
<PAGE>
We will conduct pilot site marketing studies prior to initial product launch.
These studies will demonstrate our system's cost-effectiveness and how
potential customers will use it. We have arranged pilot site studies with APRIA
Healthcare in the home care services market, three hospitals affiliated with
Child Health Corporation of America in the hospital market, PSS in the nursing
home market, a small group practice in Arizona for the physician office market
and SmithKline for its own use.
Market Opportunity
The lack of timely test results from central laboratories has given rise to a
growing market for point-of-care tests. However, no company has developed a
point-of-care system designed to decentralize routine and critical care blood
testing. Precise industry data for the market we are targeting is not
available. According to industry data and estimates, the worldwide product
market for testing of blood and other bodily fluids and tissues was $18.3
billion in 1997 and is expected to grow to $20 billion in 2000. The U.S. and
Canadian market is approximately 40% of the worldwide market. Our initial
marketing efforts will be targeted towards converting U.S. and Canadian blood
testing to point-of-care testing.
Early History
SmithKline Beecham Clinical Laboratories, Inc. conducted extensive surveys of
the point-of-care market beginning in 1993. As a result, in 1994, SmithKline
started our predecessor business to develop the technology we use. We acquired
this business in November 1996. Several senior members of SmithKline's
management team, including the President of SmithKline Beecham Clinical
Laboratories, worked on this point-of-care project at SmithKline. They are now
part of the executive management team of Careside.
Careside was incorporated in the State of Delaware in July 1996 under the
name Exigent Diagnostics, Inc. In May 1998, we changed our name to Careside,
Inc. Our principal executive offices are located at 6100 Bristol Parkway,
Culver City, California 90230 and our telephone number is (310) 338-6767.
4
<PAGE>
THE OFFERING
Except as otherwise indicated, all information in this prospectus assumes no
exercise of the underwriters' over-allotment option, and has been adjusted to
give effect to a 1-for-5.2 reverse stock split to be effected immediately prior
to the completion of the offering.
<TABLE>
<C> <S>
Common Stock Offered by the Company.............. 2,800,000 shares
Common Stock Outstanding after the Offering (1).. 7,884,281 shares
Dividend Policy.................................. We do not plan to pay cash
dividends in the foreseeable
future. See "Dividend
Policy" on page 14.
Use of Proceeds.................................. We expect to use the
proceeds to:
. Complete product
development, launch our
product and cover related
expenses.
. Purchase manufacturing
equipment and expand our
facilities.
. Build inventory and
provide working capital.
. Repay the December 1998
bridge financing.
Proposed Nasdaq National Market Symbol........... CARE
</TABLE>
- --------
(1) The common stock outstanding after the offering does not include the
following:
. 411,923 shares issuable upon exercise of outstanding options with a
weighted-average exercise price of $5.80.
. 724,853 shares issuable upon exercise of outstanding warrants with a
weighted average exercise price of $5.93.
. 280,000 shares issuable upon exercise of the warrants to be issued to
representatives of the underwriters upon the closing of the offering.
. Shares issuable upon exercise of a bridge warrant issued in connection
with the December 1998 bridge financing. The bridge warrant is
exercisable for a number of shares equal to $750,000 divided by 85% of
the initial public offering price per share. If the initial public
offering price is $9.00 per share, the bridge warrant would be
exercisable for 98,039 shares.
For more information about potential future exercise of these warrants, see
"Management--Stock Option Plans" on page 47 and "Description of Capital Stock--
Warrants" on page 54.
5
<PAGE>
SUMMARY FINANCIAL DATA
The following table presents summary financial information that has been
derived from the financial statements of Careside and the predecessor business
at SmithKline Beecham Clinical Laboratories, Inc. The operations data presented
for the predecessor business represent the research and development and related
general and administrative costs incurred by SmithKline Beecham Corporation and
its affiliates in connection with certain technology and know-how that Careside
acquired on November 7, 1996. The as adjusted balance sheet data assumes the
sale by Careside of 2,800,000 shares of common stock in the offering at an
assumed initial public offering price of $9.00 per share and the receipt and
application of the estimated net proceeds as set forth in "Use of Proceeds" on
page 14. This data should be read in conjunction with the financial statements
and related notes which appear later in this prospectus. All of the following
information has been audited except where noted as unaudited.
<TABLE>
<CAPTION>
PREDECESSOR BUSINESS CARESIDE, INC.
------------------------------------ ---------------------------------------------------------
PERIOD FROM PERIOD FROM
INCEPTION INCEPTION
YEAR ENDED TEN MONTHS (JULY 10, YEAR ENDED (JULY 10,
DECEMBER 31, ENDED 1996) TO DECEMBER 31, 1996) TO
----------------------- OCTOBER 31, DECEMBER 31, ------------------------ DECEMBER 31,
1994 1995 1996 1996 1997 1998 1998
----------- ----------- ----------- ------------ ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Operating expenses:
Research and
development............ $ 949,346 $ 2,109,802 $ 3,054,503 $ 1,561,847 $ 5,895,465 $ 8,297,974 $ 15,755,286
General and
administration........ 26,069 585,058 224,399 55,515 640,574 850,129 1,546,218
--------- ----------- ----------- ----------- ----------- ----------- ------------
Operating loss......... $(975,415) $(2,694,860) $(3,278,902) (1,617,362) (6,536,039) (9,148,103) (17,301,504)
========= =========== ===========
Net interest income
(expense).............. (20,809) 205,256 211,814 396,261
----------- ----------- ----------- ------------
Net loss................ $(1,638,171) $(6,330,783) $(8,936,289) $(16,905,243)
=========== =========== =========== ============
Net loss per share...... $ (2.25) $ (2.04) $ (1.93)
=========== =========== ===========
Shares used in computing
net loss per share..... 728,465 3,098,980 4,629,916
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
CARESIDE, INC.
---------------------------------------------
DECEMBER 31, 1998
DECEMBER 31, --------------------------
1997 ACTUAL AS ADJUSTED
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....... $ 1,237,149 $ 3,926,603 $24,762,603
Total assets.................... 3,140,223 7,911,403 28,747,403
Long-term debt.................. -- 2,044,932 854,086
Deficit accumulated during
development stage.............. (7,968,954) (16,905,243) (17,214,397)
Total stockholders' equity...... 2,437,607 4,149,145 26,175,991
</TABLE>
6
<PAGE>
RISK FACTORS
An investment in the common stock involves many risks. These risks may be
substantial and are inherent in the business of Careside. You should carefully
consider the following information about these risks, together with the other
information in this prospectus, before buying shares of common stock.
If any of the following risks actually occur, our business and prospects
could be materially adversely affected, the trading price of our common stock
could decline, and you might lose all or part of your investment.
WE HAVE A LIMITED OPERATING HISTORY AND HAVE NOT GENERATED ANY REVENUE
Careside was formed in 1996 and has not generated any revenue. We have
incurred net losses of approximately $17 million from inception through
December 31, 1998. We will not generate any revenue from product sales and will
continue to incur significant additional operating losses until we complete the
development of our test menu, receive necessary FDA clearances, expand our
manufacturing and marketing efforts, manufacture our products according to
regulations prescribed by the FDA, and begin selling the Careside system.
WE MAY NEED TO RAISE SUBSTANTIAL ADDITIONAL FUNDS
We anticipate that the net proceeds from the offering, together with revenue
expected after 1999, will be sufficient to fund our operating expenses and
capital requirements for approximately 18 months. However, these expenses and
requirements may change. As a result, our funding may not be sufficient to meet
our obligations to our suppliers and strategic partners during this period. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" on page 19.
ADDITIONAL FUNDING MAY NOT BE AVAILABLE
If our funding is not sufficient, we will seek additional equity, debt, lease
financing and/or third-party collaboration opportunities. We can give no
assurance that any financing will be available on acceptable terms, if at all.
If adequate funds are not available, we may be required to delay, reduce or
eliminate product development programs or to license to third parties rights to
commercialize our products or technologies. To the extent that additional
capital is raised, you will experience dilution of your proportionate
ownership.
WE MAY NEVER BE PROFITABLE
Even if we are able to generate revenue from sales of the Careside system, we
may never be profitable. There are several reasons why this might happen:
.We could build up our overhead in anticipation of sales goals that are not
met.
.We may not be able to reduce our manufacturing costs to acceptable levels.
.We may have to lower our prices to remain competitive.
.We may experience delays in developing additional tests or product
upgrades.
.We may experience problems in production, distribution or marketing.
MEDICAL COMMUNITY MAY NOT ACCEPT THE CARESIDE SYSTEM
The CareSide Analyzer and related test cartridges are our only products. We
will not be able to operate profitably unless these products achieve a
significant level of market acceptance. The following factors are the greatest
risks to our market acceptance:
7
<PAGE>
Failure to Develop Comprehensive Test Menu
One of our major selling points to potential customers will be our
comprehensive test menu. If we are not able to develop fully our proposed menu,
customers may not buy our products.
Failure to Change Current Methods
Physicians and hospitals typically order blood tests from central
laboratories. We may not be able to demonstrate the economic or clinical
benefits of the Careside system sufficiently to convince members of the medical
community to change the way they have ordered tests in the past. In addition,
many health maintenance and managed care organizations have exclusive contracts
with laboratories that require participating or employed physicians to send
patient specimens to contracted laboratories. This may limit our ability to
sell to healthcare providers associated with these organizations.
Changing Technology
Blood testing technology is evolving. Other companies may develop products in
response to technological changes that make our products noncompetitive,
particularly if the development, introduction or marketing of our products is
delayed.
DEVELOPMENT OF OUR PRODUCTS MAY NOT BE SUCCESSFUL
We may not be able to complete our product development on time. To be able to
expand our menu, we must complete the development of two of the four types of
disposable cartridges. In addition, we need the results from our pilot site
program to complete the validation studies for point-of-care use. A variety of
factors outside our control may delay our proposed development schedules by one
year or more. These factors include:
.delays in regulatory clearance,
.technological difficulties,
.restrictions on access to proprietary technology of strategic partners,
and
.changes in the healthcare, regulatory or reimbursement environment.
UNCERTAIN THIRD-PARTY REIMBURSEMENT MAY IMPACT OUR BUSINESS
Government authorities, private health insurers and other third-party payers,
such as health maintenance organizations may not reimburse providers for our
products' tests. Current reimbursement amounts for diagnostic tests may not be
maintained. Any decrease in test reimbursement amounts may reduce the demand
for our products or force us to lower our sales prices. In addition,
legislative proposals to reform healthcare and the trend toward managed
healthcare in the United States may require lower prices for our products. See
"Business--Third Party Reimbursement" on page 37.
WE HAVE NO SALES, MARKETING AND DISTRIBUTION EXPERIENCE
We have no sales, marketing or distribution experience. We intend to
distribute our products in the United States primarily through our own sales
force, and internationally primarily through a limited number of distributors.
Establishing a sales and marketing capability will require substantial efforts
and significant resources. We may not be able to recruit or retain direct sales
and marketing personnel, and our marketing efforts may not be successful.
8
<PAGE>
WE WILL DEPEND ON THIRD-PARTY DISTRIBUTORS
We have a distribution arrangement with SmithKline Beecham Clinical
Laboratories, Inc. for the United States and certain foreign countries. We have
also granted Fuji a right of first refusal to distribute the Careside system
exclusively in Japan and non-exclusively in certain other Asian countries. We
will need additional arrangements to distribute our products worldwide. We will
depend upon these distributors to assist us in promoting market acceptance and
creating demand for our products. We may not be able to maintain these
arrangements or enter into additional distribution arrangements. In addition,
we have little control over the resources that the distributors will devote to
the marketing of the Careside system. See "Business--Sales and Marketing" on
page 32 and "Certain Transactions--SmithKline Beecham" on page 51.
WE DO NOT HAVE MANUFACTURING EXPERIENCE
We have never operated a manufacturing/assembly business. We will need to
assemble significant and increasing quantities of test cartridges on a timely
basis, while maintaining strict quality standards. We are converting from
manual production of cartridge components and assembly to an automated system.
We may not be able to achieve and maintain product accuracy and reliability
when producing the cartridges in the quantities required, on a timely basis or
at an acceptable cost.
WE DEPEND ON CONTRACT MANUFACTURERS
We will use outside vendors to manufacture most of the Careside system,
including the CareSide Analyzer and components of the disposable testing
cartridges. We cannot be certain that outside manufacturers will be able to
provide us with a sufficient number of instruments and cartridge components on
a timely basis. We will have only limited control over third-party
manufacturers as to quality control, timeliness of production and delivery and
various other factors.
WE DEPEND ON THIRD-PARTY SUPPLIERS
We will purchase the materials used in the test cartridges from outside
suppliers, such as Fuji Photo Film Co., Ltd. Each of our supply agreements has
termination rights. Any interruption in supply would adversely affect our
schedule. See "Business--Manufacturing and Supply" on page 35.
WE WILL RELY ON A THIRD PARTY TO SUPPLY HEMATOLOGY TESTING CAPABILITIES
The CareSide Analyzer does not perform hematology tests, which are an
important part of point-of-care testing. We are negotiating an arrangement with
a third party to supply hematology testing capabilities in an additional
device. We may not be able to agree upon pricing that will enable us to offer
cost-effective hematology testing. In addition, we have not yet developed an
interface between the hematology device and the CareSide Analyzer. See
"Business--The Careside System--Test Menu" on page 30.
WE DEPEND ON OUR CEO AND OTHER KEY PERSONNEL
The loss of key employees or unsuccessful recruiting efforts will harm us.
Competition for qualified and talented individuals with experience in point-of-
care testing is intense. Our success depends on our ability to retain the
services of Mr. Stoughton, our Chairman of the Board of Directors and Chief
Executive Officer, and Dr. Grove, Executive Vice President--Research and
Development. Mr. Stoughton has over 20 years experience as a senior executive
of several large hospitals and over four years experience as President of
SmithKline Beecham Clinical Laboratories, Inc. Dr. Grove managed research and
development activities at SmithKline Beecham Clinical Laboratories, Inc. for 12
years and has extensive experience in the development of diagnostic tests. We
also need to attract additional sales and marketing, research and development,
and experienced manufacturing personnel. See "Management--Employment
Agreements" on page 37.
9
<PAGE>
WE MAY NOT BE ABLE TO MANAGE OUR EXPANDING OPERATIONS
We will need to expand our operations if we are successful in achieving
market acceptance for the Careside system. This expansion will result in
additional responsibilities for management and place significant demand upon
our management, our operating and financial systems and our resources. To
accommodate this growth and to compete effectively, we will need to implement
and improve our internal operating systems and controls, and to hire and train
additional personnel.
POINT-OF-CARE DEVICE MARKET IS HIGHLY COMPETITIVE
Our business may fail because our market is highly competitive. Our primary
competitors are large diagnostic device manufacturers, commercial and hospital
laboratories and other point-of-care device manufacturers. Most of our
competitors have significant marketing, manufacturing, financial and managerial
resources, and have substantially greater research and development capabilities
than we do. We expect that manufacturers of conventional blood testing products
used in centralized laboratories will compete intensely with us to maintain
their market share. We anticipate competition from other point-of-care device
manufacturers in discrete tests using areas such as critical care testing. Many
of these companies offer tests that will cost less than the Careside system and
so may be attractive to some of our customers. Commercial and hospital
laboratories may try to influence providers against the Careside system to
protect their revenues. See "Business--Competition" on page 36.
OUR PROPRIETARY TECHNOLOGY IS A CRUCIAL PART OF OUR BUSINESS
The success of our business will depend on our ability to protect out
proprietary position. Our business may fail if we are not able to protect our
proprietary technology.
We Do Not Have Any Patents on Our Proprietary Technology
Currently, no patents have been issued to us. We have submitted three patent
applications with the United States Patent and Trademark Office. We have filed
an international application corresponding to one of the United States
applications and intend to file two additional international applications for
the other two United States applications. No patents have been issued to us. We
cannot be certain that any patent application will result in the issuance of a
patent or that our patents will withstand any challenges by third parties.
Our Technology May Infringe on the Proprietary Rights of Third Parties
Universities and government laboratories, physicians and other corporations
are conducting substantial research in point-of-care diagnostic blood testing
technology. Numerous patent applications have been filed by others, and patents
have been issued, relating to specific diagnostic products and processes. If we
use technologies, products or processes covered by patents issued to others, we
may have to obtain licenses. We may not be able to obtain such licenses on
reasonable terms, or at all.
Our Trademarks and Trade Names May Not Be Protected
Our registered or unregistered trademarks or trade names may be challenged,
canceled, infringed, circumvented or declared generic or determined to be
infringing on other marks. We may not be able to protect our rights to these
trademarks and trade names, which we need to build brand loyalty. See
"Business--Patents and Proprietary Rights" on page 36.
Our Trade Secrets May Be Dislcosed
We also rely on unpatented trade secrets to protect our proprietary
technology. We attempt to protect our proprietary technology through an
employee handbook and agreements with our executive officers. These
confidentiality provisions may not be enforceable under applicable law. Other
companies may independently develop or otherwise acquire equivalent technology
or gain access to our proprietary technology.
10
<PAGE>
Our Proprietary Rights May Fail to Protect Our Business
We may be a party to future litigation to protect our rights or to defend
against claims of infringement by others. This potential litigation could
result in substantial costs and the diversion of management's attention. If we
lost any such litigation, we could be required to obtain licenses from third
parties and be prevented from manufacturing, selling or using certain of our
products.
Careside System is Subject to Extensive Government Regulation
Our products are medical devices subject to extensive regulation by the FDA,
similar agencies in other countries, and to a lesser extent, by state
regulatory authorities.See "Business -- Government Regulation" page 37. The
following are the greatest regulatory risks we face:
Need to Obtain FDA Pre-Market Clearance
FDA regulations require rigorous laboratory and clinical testing to establish
product performance before commercial marketing. Medical devices such as the
CareSide Analyzer are subject to pre-market clearance. Clearance is subject to
further review in certain instances, such as when products are modified. We
cannot be certain that we will be able to obtain all necessary approvals on a
timely basis, or at all. Moreover, it is possible that one or more of our
products will be subjected to more extensive pre-market clinical testing and
FDA pre-market approval.
Need to Obtain Point-of-Care Use Designation
The Federal Food, Drug and Cosmetic Act strictly prohibits the promotion of
approved medical devices for unapproved uses. The CareSide Analyzer received
pre-market clearance for use in professional laboratory testing in March 1998.
Following clinical testing of the testing instrument at the pilot sites, we
expect that the CareSide Analyzer will receive pre-market clearance for point-
of-care use. The point-of-care designation depends upon a sampling of tests
determined by the FDA to have accuracy and reliability equivalent to or better
than test results obtained from tests performed in a commercial laboratory.
Without the point-of-care use designation, the CareSide Analyzer could be used
only at sites with laboratory licenses. The point-of-care designation is
necessary to expand our potential market.
Need to Comply With GMP and Other Manufacturing Regulations
Our manufacturing facilities and processes will be required to comply with
strict federal regulations, including Good Manufacturing Practices, or GMP, and
quality system requirements, regarding validation and quality of manufacturing.
We have limited experience in complying with regulations governing our products
and manufacturing facilities. We must devote substantial resources and
management attention to monitoring and maintaining compliance with governmental
regulations. If we, or our manufacturing partners, violate applicable
regulations, we may be sanctioned and our production or distribution may be
suspended. In addition, the FDA may withdraw the approval or clearance to
market any of our products.
CLIA May Discourage Healthcare Providers from Using Point-of-Care Testing
The Clinical Laboratory Improvement Amendments of 1988 may discourage
healthcare providers from expanding point-of-care testing to physician office
laboratories and small volume test sites. In addition, healthcare providers may
be reluctant to initiate, continue or expand patient testing. Our products will
be subject to CLIA is intended to ensure the quality and reliability of all
medical testing in the United States. CLIA regulations require laboratories
performing tests such as ours to obtain either a registration certificate or
certification of accreditation from the United States Health Care Financing
Administration.
11
<PAGE>
YEAR 2000 PROBLEMS COULD INTERRUPT OUR SUPPLY
Our receipt of key component products used in the Careside system may be
delayed if our suppliers' software systems are not able to read and apply
proper dates. We expect to have contingency plans in place in the event any of
our key suppliers are not Year 2000 compliant by the second half of 1999.
However, our contingency plans may not provide equivalent product and timing as
our current suppliers.
SIGNIFICANT NUMBER OF SHARES ELIGIBLE FOR FUTURE SALE COULD LOWER MARKET PRICE
Sales of large numbers of common stock after the offering, or even the
potential for those sales, are likely to lower the market price of common
stock. In addition, these sales may negatively affect our ability to raise
needed capital through the sale of our common stock. After the offering, we
will have 7,884,281 shares of common stock outstanding. In addition to the
2,800,000 shares that will be freely tradeable after the offering, 7,371,383
currently outstanding or reserved shares may be sold in the future subject to
compliance with the Securities Act.
<TABLE>
<CAPTION>
NUMBER OF SHARES DESCRIPTION
<S> <C>
5,084,281 Common stock currently outstanding
411,923 Issuable upon exercise of currently outstanding options
772,287 Issuable upon exercise of options that may be granted in the future
150,000 Issuable pursuant to employee stock purchase plan
822,892 Issuable upon exercise of currently outstanding warrants
280,000 Issuable upon exercise of representatives' warrants beginning one year after
the closing of the offering
-------
7,521,383
=========
</TABLE>
In addition to the Securities Act restrictions, all of our directors, officers
and principal stockholders are subject to lock-up agreements. Without the prior
written consent of Fahnestock & Co. Inc., the parties to the lock-up
agreements, including our officers and directors, are not permitted to sell
their shares until after , 2000. See "Shares Eligible for Future Sale" on
page 59.
OUR MANAGEMENT AND PRINCIPAL STOCKHOLDERS WILL CONTROL CARESIDE AFTER THE
OFFERING
Following completion of the offering, our directors and executive officers,
together with the principal stockholders of Careside, will own or control
approximately 25.1% of our outstanding common stock. Accordingly, these
stockholders may be able to influence the outcome of stockholder votes,
including votes concerning the election of directors, certain amendments to our
charter and bylaws, and the approval of significant corporate transactions such
as a merger or a sale of our assets. Such influence could have the effect of
delaying, deferring or preventing a change in control of our stock. In
addition, the interests of these stockholders could conflict with the interests
of other Careside stockholders, including the purchasers in the offering. See
"Principal Stockholders" on page 50.
FUTURE ISSUANCES OF PREFERRED STOCK MAY DILUTE RIGHTS OF COMMON STOCKHOLDERS
Our Board of Directors will have the authority to issue up to 5,000,000
shares of preferred stock and to determine the price, privileges and other
terms of such shares. The Board may exercise this authority without the
approval of the stockholders. The rights of the holders of common stock may be
adversely affected by the rights of the holders of any preferred stock that may
be issued in the future. The issuance of preferred stock may make it more
difficult for a third party to acquire control of Careside. See "Description of
Capital Stock--Preferred Stock" on page 54.
12
<PAGE>
STATUTE, CHARTER AND BYLAWS MAY DELAY OR PREVENT AN ACQUISITION OF CARESIDE
We will be subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law. Section 203 could delay or prevent a third
party or a significant stockholder from acquiring control of Careside. In
addition, our charter and bylaws may have the effect of discouraging, delaying
or preventing a merger, tender offer or proxy contest involving Careside. Any
of these anti-takeover provisions could lower the market price of the common
stock. See "Description of Capital Stock--Takeover Protection and Certain
Charter and By-Law Provisions" on page 56.
THERE HAS BEEN NO PRIOR MARKET FOR COMMON STOCK
There has been no public market for our common stock before the offering. We
have applied to have our common stock approved for quotation on the Nasdaq
National Market. This does not, however, guarantee that an active trading
market for our common stock will develop since approximately % of our
outstanding common stock after the offering will not be freely tradeable during
the lock-up period. If a trading market does develop, there is a risk that the
trading market will not be sustained if we do not achieve profitability or are
unable to maintain our listing on the Nasdaq National Market or any other
market or exchange.
OUR STOCK PRICE MAY BE HIGHLY VOLATILE
The initial public offering price may bear no relationship to the future
market price for our common stock. The shares may trade at prices significantly
below the initial public offering price. The market price for shares of our
common stock may be highly volatile depending on many factors, including:
. the success of our new products or new products introduced by our
competitors,
. developments with respect to our patents and other proprietary rights,
. our ability to meet sales and earnings expectations of securities
analysts, and
. changes in general market conditions.
PURCHASERS IN THE OFFERING WILL FACE IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price is substantially higher than the net
tangible book value per share of common stock. Accordingly, purchasers of
common stock sold in the offering will incur immediate and substantial dilution
in net tangible book value of $5.68 per share. This per share dilution amount
represents an immediate increase in net tangible book value of $2.50 per share
to existing stockholders. These per share dilution amounts assume that the
initial public offering price will be $9.00 per share. In addition, purchasers
of shares sold in the offering may experience further dilution in net tangible
book value per share if we sell additional common stock in the future. See
"Dilution" on page 16.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus discuss future events and
developments, including our ability to generate revenues, income and cash
flows, or state other "forward-looking" information. We generally identify
these forward-looking statements by using the words "anticipate," "believe,"
"estimate," "expect," and similar expressions. Those statements are subject to
known and unknown risks, uncertainties and other factors that could cause the
actual results to differ materially from those contemplated by the statements.
Important factors that may cause actual results to differ include those set
forth under "Risk Factors" beginning on page 7.
We do not promise to update forward-looking information to reflect actual
results or changes in assumptions or other factors that could affect those
statements.
13
<PAGE>
USE OF PROCEEDS
We estimate that we will receive net proceeds from the sale of shares of
common stock in the offering of approximately $22,336,000 after deduction of
underwriting discounts and commissions and expenses payable by us. This assumes
an initial public offering price of $9.00 per share. We estimate net proceeds
of $25,851,000 if the underwriters' over-allotment option is exercised in full.
We expect to use the proceeds as follows:
<TABLE>
<CAPTION>
APPROXIMATE
AMOUNT OF
NET APPROXIMATE
PROCEEDS PERCENTAGE
(IN OF NET
MILLIONS) PROCEEDS
----------- -----------
<S> <C> <C>
Complete product development and launch and related
expenses ............................................ $14.0 62.7%
Purchase manufacturing equipment and expand our
facilities........................................... $ 3.3 14.8%
Build inventory and provide working capital........... $ 2.0 9.0%
Repay December 1998 bridge financing.................. $ 3.0 13.5%
----- -----
Total............................................... $22.3 100.0%
</TABLE>
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources" on page 19 and "Risk Factors--
We May Need to Raise Substantial Additional Funds" on page 7.
Pending use of the net proceeds, we intend to invest such funds in short-term
bank deposits and investment grade securities, United States government
securities, and other short-term, income-producing securities.
The foregoing discussion is merely an estimate based on our current business
plans. Our actual expenditures may vary depending upon circumstances not yet
known, such as the time actually required to reach a positive cash flow, or to
successfully develop our products.
DIVIDEND POLICY
We have never paid any cash dividends on our shares of common stock and do
not anticipate paying any cash dividends on our shares of common stock in the
foreseeable future. Currently, we intend to retain any future earnings for
reinvestment in our business. Any future determination to pay cash dividends
will be at the discretion of our Board of Directors and will be dependent upon
our financial condition, results of operations, capital requirements and such
other factors as the Board of Directors deems relevant.
14
<PAGE>
CAPITALIZATION
The following table sets forth as of December 31, 1998, the actual
capitalization of Careside, the pro forma capitalization of Careside which
reflects the additional $1,500,000 borrowed under the bridge financing in
January 1999, and the pro forma as adjusted capitalization of Careside which
shows the effect of the sale of 2,800,000 shares of common stock in the
offering at an assumed initial public offering price of $9.00 per share and the
application of the estimated net proceeds of the offering. This table should be
read in conjunction with our Financial Statements included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ ------------
<S> <C> <C> <C>
Long-term debt:
Equipment loan due finance
company........................... $ 854,086 $ 854,086 $ 854,086
Note payable under bridge financing
(1)............................... 1,190,846 2,690,846 --
------------ ------------ ------------
Total long-term debt............. 2,044,932 3,544,932 854,086
------------ ------------ ------------
Stockholders' equity (2):
Preferred Stock, $.01 par value --
5,000,000 shares authorized; none
issued and outstanding........... -- -- --
Common Stock, $.01 par value --
50,000,000 shares authorized;
5,084,281 shares issued and
outstanding (actual and pro forma)
and 7,884,281 shares issued and
outstanding (pro forma as
adjusted) (3)..................... 50,843 50,843 78,843
Additional paid-in capital......... 21,003,545 21,003,545 43,311,545
Deficit accumulated during
development stage (1)............. (16,905,243) (16,905,243) (17,214,397)
------------ ------------ ------------
Total stockholders' equity....... 4,149,145 4,149,145 26,175,991
------------ ------------ ------------
Total capitalization............. $ 6,194,077 $ 7,694,077 $ 27,030,077
============ ============ ============
</TABLE>
- --------
(1) In December 1998, Careside borrowed $1,500,000 under the bridge financing.
At December 31, 1998, the carrying amount of the outstanding principal
under the bridge financing was net of the unamortized value of the bridge
warrant of $309,154, which is being amortized as additional interest
expense over the estimated term of the bridge note. The pro forma
capitalization reflects the additional $1,500,000 borrowed under the bridge
financing in January 1999. The pro forma as adjusted capitalization
reflects the repayment of the $3,000,000 bridge financing and the charge to
interest expense for the unamortized value of the bridge warrant.
(2) Assumes the amendment of Careside's certificate of incorporation to
increase the number of shares of preferred stock immediately prior to
completion of the offering. See "Description of Capital Stock" on page 54.
(3) Outstanding amounts exclude (a) 411,923 shares of common stock issuable
upon exercise of outstanding options; (b) 724,853 shares of common stock
issuable upon exercise of warrants issued prior to the offering; (c)
280,000 shares of common stock issuable upon exercise of the warrants
issued to the representatives of the underwriters; and (d) 98,039 shares
issuable upon exercise of the bridge warrant in connection with the bridge
financing based on the assumed initial public offering price of $9.00 per
share. See "Management--Stock Option Plans" on page 47, "Certain
Transactions--Financing Activities" on page 52, "Description of Capital
Stock--Warrants" on page 54 and "Underwriting" on page 61.
15
<PAGE>
DILUTION
As of December 31, 1998, our net tangible book value was $4,149,000, or
$0.82 per share of common stock. Net tangible book value per share represents
our total tangible assets less total liabilities, divided by the total number
of shares of common stock outstanding. Without taking into effect any changes
in the net tangible book value after December 31, 1998, other than to give
effect to the sale of 2,800,000 shares of common stock in the offering at an
assumed initial public offering price of $9.00 per share and the application of
the estimated net proceeds of the offering, the net tangible book value of
Careside as of December 31, 1998 would have been $26,176,000 or $3.32 per
share. This represents an immediate increase of $2.50 per share of common stock
to existing stockholders and an immediate dilution of $5.68 per share of common
stock to the new stockholders who purchase common stock in the offering. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price.......................... $9.00
Net tangible book value per share before the offering.......... $0.82
Increase in net tangible book value per share attributable to
new stockholders.............................................. 2.50
-----
As adjusted net tangible book value per share after the
offering...................................................... 3.32
-----
Dilution in tangible book value per share to new stockholders
(1)........................................................... $5.68
=====
</TABLE>
- --------
(1) If the underwriters' over-allotment option is exercised in full, dilution
per share to new stockholders would be $5.42 per share of common stock.
The following table summarizes as of December 31, 1998 the differences
between the existing stockholders and the new stockholders with respect to the
number of shares of common stock purchased, the total consideration paid, and
the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE
NUMBER PERCENT AMOUNT PERCENT PRICE PER SHARE
--------- ------- ----------- ------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 5,084,281 64.5% $23,318,075 48.1% $4.59
New stockholders.......... 2,800,000 35.5 25,200,000 51.9 $9.00
--------- ----- ----------- -----
Total................... 7,884,281 100.0% $48,518,075 100.0%
========= ===== =========== =====
</TABLE>
The above computations assume no exercise of outstanding options or warrants
to purchase common stock or of the underwriters' over-allotment option. See
"Description of Capital Stock" on page 54.
16
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data as of December 31, 1997 and 1998 and for the
period from inception through December 31, 1996 and for the years ended
December 31, 1997 and 1998, and the period from inception through December 31,
1998 are derived from the audited financial statements of Careside included
elsewhere in this prospectus. The selected financial data as of December 31,
1996 is derived from the audited financial statements of Careside not included
herein. The selected financial data for the predecessor business at SmithKline
Beecham Clinical Laboratories, Inc. for the ten months ended October 31, 1996
is derived from the audited statement of operations which is included elsewhere
in this prospectus. The selected financial data for the predecessor business as
of December 31, 1995 and for the year then ended are derived from the audited
financial statements not included in this prospectus. The selected financial
data for the predecessor business as of December 31, 1994 and for the year then
ended are unaudited, but, in our opinion, include all adjustments necessary for
a fair presentation thereof. The following selected financial data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on page 18, the Financial Statements and
notes thereto and the "Statement of Operations" on page F-15, and notes thereto
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
PREDECESSOR BUSINESS(1) CARESIDE, INC.
----------------------------------- ------------------------------------------------------------------
YEAR ENDED TEN MONTHS PERIOD FROM YEAR ENDED PERIOD FROM
DECEMBER 31, ENDED INCEPTION DECEMBER 31, INCEPTION
---------------------- OCTOBER 30, (JULY 10, 1996) TO ------------------------ (JULY 10, 1996)
1994 1995 1996 DECEMBER 31, 1996 1997 1998 TO DECEMBER 31, 1998
--------- ----------- ----------- ------------------- ----------- ----------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Operating expenses
Research and
development..... $ 949,346 $ 2,109,802 $ 3,054,503 $ 1,561,847 $ 5,895,465 $ 8,297,974 $ 15,755,286
General and
administration.. 26,069 585,058 224,399 55,515 640,574 850,129 1,546,218
--------- ----------- ----------- ----------- ----------- ----------- ------------
Operating loss.. $(975,415) $(2,694,860) $(3,278,902) (1,617,362) (6,536,039) (9,148,103) (17,301,504)
========= =========== ===========
Net interest in-
come
(expense)........ (20,809) 205,256 211,814 396,261
----------- ----------- ----------- ------------
Net loss.......... $(1,638,171) $(6,330,783) $(8,936,289) $(16,905,243)
=========== =========== =========== ============
Net loss per
share(2)......... $ (2.25) $ (2.04) $ (1.93)
=========== =========== ===========
Shares used in
computing net
loss per
share(2)......... 728,465 3,098,980 4,629,916
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR
BUSINESS(1) CARESIDE, INC.
---------------------- ------------------------------------
DECEMBER 31, DECEMBER 31,
---------------------- ------------------------------------
1994 1995 1996 1997 1998
--------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents ........... $ -- $ -- $ 31,041 $1,237,149 $ 3,926,603
Total assets............ 43,780 306,589 1,192,562 3,140,223 7,911,403
Long-term debt.......... -- -- -- -- 2,044,932
Deficit accumulated
during the development
stage.................. (975,415) (3,670,275) (1,638,171) (7,968,954) (16,905,243)
Total stockholders'
equity (deficit)(3).... -- -- (1,066,818) 2,437,607 4,149,145
</TABLE>
- --------
(1) The operations data presented for the predecessor business at SmithKline
Beecham Clinical Laboratories, Inc. represents the research and development
and related general and administrative costs incurred by SmithKline Beecham
Corporation in connection with certain technology and know-how acquired by
Careside on November 7, 1996. See "Statement of Operations" for the
predecessor business and notes thereto on Pages F-15 and F-16
(2) See Note 2 of "Notes to Financial Statements" on Page F-7 concerning the
computation of net loss per share.
(3) See Note 2 of "Notes to Statement of Operations" of the predecessor
business on Page F-16 concerning the capitalization of the predecessor.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Development of the point-of-care technology used in the Careside system began
in 1994 at SmithKline Beecham Clinical Laboratories, Inc., a subsidiary of
SmithKline Beecham Corporation. In November 1996, we acquired the predecessor
business, including intellectual property, equipment and other assets, from
SmithKline, to continue the development of point-of-care diagnostic technology
and to create a commercial product. As part of the consideration paid for the
acquisition, SmithKline Beecham Corporation became an equity owner in Careside.
The initial development of our point-of-care technology at SmithKline has been
reflected in the accompanying financial statements as a predecessor business.
Since November 1996, we have devoted substantially all of our resources to
research and development activities. We have incurred losses since inception.
As of December 31, 1998, the aggregate loss incurred was approximately $16.9
million. We expect to incur significant additional losses over at least the
next 18 months as we continue product development activities, complete a pilot
marketing program and initiate marketing efforts.
Although the CareSide Analyzer and 23 tests are cleared or exempt by the FDA
for use in laboratory testing, the rollout of our system is not expected to
take place until the third quarter of 1999. To date, we have generated no
revenues. We expect that our revenues will derive primarily from the sale of
disposable test cartridges rather than of the CareSide Analyzer itself.
RESULTS OF OPERATIONS
Years Ended December 31, 1998 and 1997
Research and Development Expenses. Research and development expenses
increased to approximately $8.3 million for the year ended December 31, 1998
compared to approximately $5.9 million in the same period in 1997, an increase
of 41%. This increase reflects increased payments to third parties for the
development of the CareSide Analyzer and increased staffing for additional test
development and submissions to the FDA.
General and Administrative Expenses. General and administrative expenses
increased to $850,000 for the year ended December 31, 1998 compared to $641,000
in the same period in 1997, an increase of 33%. This increase reflects the
increase in the preliminary sales and marketing efforts associated with planned
pilot market testing in the second quarter of 1999.
Net Interest Income (Expense). Interest income was approximately the same
for the year ended December 31, 1998 as compared to the same period in 1997 at
$212,000 and $205,000, respectively. This reflects comparable levels of cash
and cash equivalents available for investment.
Net Loss. The net loss was approximately $8.9 million for the year ended
December 31, 1998 compared to approximately $6.3 million in the same period in
1997, an increase of 41%. This increase reflects the increase in research and
development expenses and preliminary sales and marketing efforts.
Years Ended December 31, 1997 and 1996
Research and Development Expenses. Research and development expenses
increased to approximately $5.9 million for the year ended December 31, 1997
compared to approximately $1.6 million for the period from inception through
December 31, 1996. This increase reflects a full year of spending as well as
the expanded efforts devoted to completing additional test development and
submissions of these tests to the FDA. Combined research and development
expenses for the year ended December 31, 1996 for both Careside and the
predecessor business were approximately $4.6 million.
18
<PAGE>
General and Administrative Expenses. General and administrative expenses
increased to $641,000 for the year ended December 31, 1997 compared to $56,000
for the period from inception through December 31, 1996. This increase reflects
the full year impact of general and administrative expenses and the costs
associated with raising additional capital. Combined general and administrative
expenses for the year ended December 31, 1996 for both Careside and the
predecessor business were $280,000.
Net Interest Income (Expense). Net interest income was $205,000 for the year
ended December 31, 1997 compared to net interest expense of $21,000 for the
period from inception through December 31, 1996. This increase reflects the
impact of the resulting cash and cash equivalents available for investment
after an equity financing in 1997.
Net Loss. The net loss was approximately $6.3 million for the year ended
December 31, 1997 compared to approximately $1.6 million for the period from
inception through December 31, 1996. This increase reflects the increase in
research and development expenses, a full year of activity and preliminary
sales and marketing efforts.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations since inception primarily through the net
proceeds generated from the issuance of common stock, long-term debt and
certain short-term borrowings that were subsequently converted into equity
securities. As of December 31, 1998, we have received net proceeds aggregating
approximately $22.7 million from these transactions.
Net cash used in operating activities was approximately $7.7 million for the
year ended December 31, 1998, $6.5 million for the year ended December 31, 1997
and $0.9 million for the period from inception through December 31, 1996. Cash
used for operations was primarily related to funding expansion of research and
development activities as well as the establishment of an administrative
infrastructure.
At December 31, 1998, our principal source of liquidity was approximately
$3.9 million in cash and cash equivalents.
In December 1998, we entered into an agreement with an equipment lease
financing company regarding a $2.5 million facility secured by specific
equipment. Each draw will be a separate loan under the facility. Approximately
$1.0 million of this facility was drawn in December 1998 and was secured by our
existing equipment. We anticipate drawing the remaining amount by the end of
1999 which will be secured by manufacturing equipment for cartridge assembly
which we purchase with the loan proceeds. Each equipment loan will have a 48-
month term and bears an interest rate of approximately 14% per annum adjusted
for an index rate based on four-year U.S. Treasury Notes at the time of
borrowing.
In addition, we entered into an agreement for the bridge financing with S.R.
One, Limited of which $1.5 million was funded in December 1998. The remaining
$1.5 million was funded in January 1999. The bridge financing matures upon the
earliest to occur of completion of the offering, a private equity financing of
at least $8,000,000 or January 31, 2000. It bears interest at 8% per annum,
payable quarterly. We issued a bridge warrant in connection with the bridge
financing. The bridge warrant will become exercisable on the earlier of
December 17, 1999 or six months after the completion of the offering for the
number of shares of common stock which is equal to $750,000 divided by 85% of
the initial public offering price per share of the common stock in the
offering. If the offering price is $9.00 per share, the bridge warrant will be
exercisable for 98,039 shares. The bridge warrant has an exercise price of 85%
of the initial public offering price. If the bridge financing is not repaid by
June 30, 1999, the bridge warrant becomes exercisable for twice as many shares
of common stock. The bridge warrant will expire on the earlier of December 17,
2005 or four years after the completion of the offering.
19
<PAGE>
We estimate that our current liquidity, when combined with the proceeds of
this offering and sales revenues expected after 1999, will be sufficient to
fund our operating expenses and capital requirements for approximately 18
months. This estimate is based on the market launch of our product in the
second half of 1999 and on assumptions as to the capital required to build
manufacturing capabilities, hire and train a sales force, build sufficient
inventory of product and continue research and development spending. This
estimate of the period for which we expect our available sources of cash to be
sufficient to meet our funding needs is a forward looking statement that
involves risks and uncertainties. There can be no assurance that we will be
able to meet our capital requirements for this period as a result of certain
factors set forth under "Risk Factors--We May Need to Raise Substantial
Additional Funds" and elsewhere in this prospectus. In the event our capital
requirements are greater than estimated, we may need to raise additional
capital to fund our research and development activities, to scale-up
manufacturing activities and to expand our sales and marketing efforts. Our
future liquidity and capital funding requirements will depend on numerous
factors, including the extent to which our products under development are
successfully developed and gain market acceptance, the timing of regulatory
actions regarding our products, the costs and timing of expansions of sales,
marketing and manufacturing activities, procurement and enforcement of patents
important to our business, and the impact of competitors' products. There can
be no assurance that such additional capital will be available on terms
acceptable to us, if at all. Furthermore, any additional equity financing may
be dilutive to stockholders, and debt financing, if available, may include
restrictive covenants. If adequate funds are not available, we may be forced to
curtail our operations significantly or to obtain funds through entering into
collaborative agreements or other arrangements on unfavorable terms. Our
failure to raise capital on acceptable terms could have a material adverse
effect on our business, financial condition or results of operations.
INCOME TAXES
As of December 31, 1998, we had approximately $2,148,000 and $225,000 of net
operating loss and research and development credit carryforwards, respectively,
for federal income tax purposes, which expire on various dates between 2011 and
2013. These amounts reflect different treatment of expenses for tax reporting
than are used for financial reporting. As of December 31, 1998, we had
capitalized approximately $12.9 million of research and development expenses
for federal income tax purposes. The Tax Reform Act of 1986 contains certain
provisions that may limit our ability to utilize net operating loss and tax
credit carryforwards in any given year. We experienced a change in ownership
interest in excess of 50% as defined under the Tax Reform Act upon the first
closing of our 1997 equity financing. We do not believe that this change in
ownership will impact our ability to utilize our net operating loss and tax
credit carryforwards. There can be no assurance that ownership changes in
future periods will not significantly limit our use of existing or future net
operating loss and tax credit carryforwards.
YEAR 2000 COMPLIANCE
We have identified our Year 2000 risks in three major categories: internal
business operations software; software utilized within the CareSide Analyzer;
and software used by our external suppliers and distributor. A review of our
non-information technology systems did not identify any material risks.
With respect to internal operations, most of our computers and software
programs have been recently acquired. We have relied on the efforts of computer
and software vendors to make their latest hardware and software releases Year
2000 compliant. As a result, no incremental material compliance cost is
expected to be incurred in this area. Our management has contacted vendors to
confirm the status of their software that we use. In addition, we have utilized
Year 2000 test software to evaluate compliance.
With respect to the CareSide Analyzer, all development work has occurred
since the widespread recognition of the Year 2000 problem. We designed our
products and the software encoded in our system to be Year 2000 compliant. We
plan to issue software updates for the CareSide Analyzer on a routine basis to
add additional tests to the menu. If an unforeseen Year 2000 issue arises, we
could distribute compliant software to our customers at little or no
incremental cost as part of these routine updates. In the future, it will also
be
20
<PAGE>
necessary to link the CareSide Analyzer with customer systems. If these systems
are Year 2000 compliant, management's time addressing Year 2000 issues on the
CareSide Analyzer's interface with customer systems will be minimal. If they
are not, management's time may be more significant. As the specific customers
are not known at this time, it is not possible to measure the opportunity cost.
Regarding our critical suppliers, the worst scenario that we might encounter
would be a short-term disruption of supply if a vendor were impacted by an
unforeseen Year 2000 failure. We inquire regularly regarding our suppliers'
Year 2000 compliance programs. To date, we believe that our suppliers either
are or will be Year 2000 compliant. We expect to establish appropriate
contingency plans by mid-1999 in the event certain key suppliers are not year
2000 compliant. These contingency plans could include utilizing alternative
suppliers or building inventory of critical parts as appropriate. We do not
anticipate any incremental material costs if we are required to implement our
contingency plans.
Sales and distribution of our product through SmithKline is anticipated in
the third quarter of 1999. Based on inquiries of SmithKline, we do not believe
that Year 2000 problems encountered by SmithKline would impact our ability to
distribute product. Distribution of our products by other third parties is not
anticipated before the year 2000.
21
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BUSINESS
GENERAL
We have developed and plan to sell a proprietary blood testing system. It is
designed to decentralize laboratory operations. The system provides cost-
effective, accurate test results within 10 to 15 minutes at the point-of-care,
for a comprehensive menu of routine blood tests. Because it provides rapid test
results, the Careside system can also perform blood tests required for critical
care testing. The Careside system performs chemistry, electrochemistry,
coagulation and immunochemistry tests within a single testing instrument. Tests
in these four different test categories, along with hematology tests, comprise
the vast majority of blood tests ordered. No other point-of-care product
currently in the market offers as broad a menu of tests or combines these four
test categories. Our goal is to make the Careside system the standard for
routine and critical care blood testing. If we are successful, diagnostic
information will travel more rapidly and healthcare costs for physicians,
providers and payers will be reduced.
The Careside system consists of the CareSide Analyzer and disposable test
cartridges. A separate hematology testing device to be manufactured by a third
party will be connected to the CareSide Analyzer. The Careside system is easy
to use and can be operated by a non-technical person. Its software will enable
the user to capture all data required to comply with the Clinical Laboratory
Improvement Amendments of 1988. This law, commonly called CLIA, governs quality
assurance and quality control processes and reporting for healthcare providers.
The FDA has granted pre-market clearance for the CareSide Analyzer and pre-
market clearance or exemption for 23 blood tests for laboratory use. We
recently filed for clearance for five additional blood tests. Prior to the
Careside system's launch in the third quarter of 1999 through SmithKline
Beecham Clinical Laboratories, Inc., we will conduct pilot site marketing
studies. We expect the pilot studies to demonstrate how potential customers
will use the Careside system and its cost-effectiveness. We will also use the
pilot study results to obtain FDA designation of the Careside system for point-
of-care use by non-technical personnel. At product launch, we expect to have
the CareSide Analyzer and over 50 tests, including nine hematology tests,
cleared or exempt for laboratory use. As we expand our marketing efforts in the
fourth quarter of 1999, we expect to have all of our tests cleared for point-
of-care use as well. We believe that the Careside system's planned menu
represents over 80% of all blood tests ordered on an out-patient basis,
including all of the most commonly ordered out-patient blood tests. We plan to
market and distribute the Careside system in the United States through our own
sales force and through SmithKline.
We have utilized strategic partners with specific design expertise and state-
of-the-art technology in order to develop the Careside system rapidly and on a
cost-effective basis. Many of our partners' expertise is in the area of test
reagents. Reagents are the materials within the test cartridges that react with
a patient's blood. The CareSide Analyzer then performs the test by analyzing
the reaction. Currently, we have agreements with:
. Fuji Photo Film Co. for the supply of its dry film based chemistry
reagents during the Careside system's development stage,
. Diagnostic Reagents, Inc. to supply immunochemistry reagents and
technology during the Careside system's development stage,
. International Technidyne Corporation for the joint development of
coagulation reagents, and
. UMM Electronics, Inc. to design and manufacture the CareSide Analyzer.
We are negotiating long-term supply agreements with Fuji and Diagnostic
Reagents. In addition, we previously contracted with Hauser, Inc. for the
design of the Careside system and with Battelle Memorial Institute for the
design of the system's disposable test cartridges and their automated assembly
manufacturing system.
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In November 1996, we acquired the assets and contracts used in the
predecessor business, including intellectual property, equipment and other
assets, from SmithKline to continue the development of point-of-care diagnostic
technology and to create a commercial product. Several senior members of our
management team worked on this point-of-care project at SmithKline, including
our Chief Executive Officer and Executive Vice President--Research and
Development. We continue to have a business relationship with SmithKline
through a distribution and supply agreement. This agreement gives SmithKline
exclusive distribution rights in the United States and certain foreign
countries, including the right to use the Careside system in its patient
service centers where blood is drawn.
THE LABORATORY TESTING MARKET
According to industry data and estimates, the worldwide market for in vitro
testing was $18.3 billion in 1997 and is expected to grow to $20 billion in
2000. In vitro testing is the testing of all bodily tissues and fluids,
including blood. The United States and Canadian market for in vitro testing is
approximately 40% of the worldwide market. We will seek to convert a reasonable
portion of the United States and Canadian blood testing market to point-of-care
testing and then expand into the worldwide market.
Most routine blood tests are sent to a central location, either a commercial
or hospital laboratory, for processing. In these central laboratories, large
blood analyzers reduce individual test costs by producing high volumes of test
results. Commercial laboratories provide approximately 27% of all in vitro
diagnostic testing services, hospital laboratories provide approximately 63%,
and the balance is provided in physicians' offices.
Commercial laboratories are currently the low cost provider of blood testing
services due primarily to economies of scale in testing multiple samples in
large analyzers. Commercial laboratories' testing expenditures relate
predominantly to labor intensive functions such as distribution, customer
service, general administration, communication technology and preparation of
the blood sample. There are numerous steps involved in obtaining test results
from commercial laboratories. Blood samples are collected throughout the day
from a variety of sources including hospitals, physicians' offices, nursing
homes and home care agencies. The samples are transported to the laboratory,
usually with special care in packaging to preserve sample integrity. After the
samples arrive at the laboratory, several administrative tasks are necessary as
thousands of samples are processed daily. Each sample is split into tubes that
are then sorted for testing in multiple large analyzers. The high throughput
analyzers require the attention of highly skilled technicians to prepare
reagents, prime multiple pumps, calibrate, prepare and load blood samples,
conduct centrifuge operations, process measurement data and report results.
This complex process must be tightly controlled at each step to ensure both
administrative and analytical accuracy. Tests are generally run overnight and
results are sent back to the healthcare provider the following day. This
factory-like process limits the ability to provide test results in less than 24
hours. If results are required sooner, certain laboratory operations must be
interrupted, resulting in significantly increased costs.
The process in hospital laboratories is very similar. Blood samples are
typically collected in the early morning with tests performed late morning and
early afternoon. Results are generally returned within four to five hours.
However, in many instances, hospitals must respond to critical patient
conditions and conduct tests on an immediate basis in order to support the
healthcare provider when a patient's condition is life threatening. A hospital
must be able to process these critical care tests 24 hours a day. This requires
the hospital laboratory to remain open whether or not any tests are being
conducted. With insufficient testing volume to absorb laboratory operating
expenses and capital costs, tests performed in hospital laboratories are more
expensive.
Many physicians' offices currently outsource their testing to commercial or
hospital laboratories. This practice is largely the result of the enactment of
the Clinical Laboratory Improvement Amendments in 1988. CLIA was an attempt to
ensure the quality and reliability of laboratory test results by placing more
stringent administrative and regulatory burdens on testing conducted in the
physician's office. Under CLIA, technicians conducting complex tests must meet
detailed proficiency requirements and must have established well-defined
quality assurance and quality control programs. As a result, for most
individual physicians, diagnostic testing became too burdensome and costly to
justify being done in the office.
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<PAGE>
Managed care has put substantial pressure on healthcare providers to reduce
costs and to treat patients using clinical treatment protocols that have been
developed for many chronic and acute illnesses. These protocols frequently
contain diagnostic tests that are used to help avoid the occurrence of acute
episodes of illness. Diagnostic blood and urine testing are two of the major
tools used in these protocols for early detection and ongoing evaluation of
treatment efficacy. Although these pressures should increase testing volume,
managed care providers and other payers are becoming more stringent by only
reimbursing tests for which there is a clear medical need. We expect these
pressures to continue to cause healthcare providers to order individual
diagnostic tests instead of "panels," or pre-determined groups, of tests
performed at one time. Managed care providers and payers will reimburse all
tests in a panel only if there is a clear medical need for each. As managed
care pressures mount to perform only medically necessary tests, reimbursement
rates for individual tests will decrease, requiring the healthcare provider and
the testing laboratory to be even more cost-effective. Therefore, we believe
that, because the Careside system performs single reagent testing and offers
packages of tests that are based on third-party payer approved panels, it will
be well received by managed care organizations and other payers.
The lack of timely test results from central laboratories has given rise to a
growing market for point-of-care tests. The initial products in the market have
targeted point-of-care tests for use in emergency rooms or critical care units.
While immediate test results benefit the patient and the healthcare provider,
current point-of-care testing devices have added costs to the system as the
hospitals must continue to operate a central laboratory using equipment that
conducts the same critical care tests as well as a much broader menu of tests
required for routine care. Furthermore, current point-of-care devices have not
attempted to provide customers with the quality assurance and quality control
data storage and retrieval capabilities necessary for CLIA requirements. No
company has developed a point-of-care system designed to decentralize routine
and critical care blood testing.
We believe that an easy-to-use diagnostic blood testing system offering a
broad menu of accurate point-of-care tests with built-in quality assurance and
quality control features can respond to the substantial unmet needs in the
diagnostic testing marketplace. We expect that the Careside system will be able
to perform all of the most commonly ordered out-patient blood tests.
Consequently, it will enable healthcare providers to decentralize laboratory
services to the point-of-care and outsource the less common tests as necessary.
CARESIDE'S SOLUTION
We believe that the Careside system provides the platform for solving the
limitations of central blood testing laboratories and redefines the market for
point-of-care testing. In addition, we believe the features of the Careside
system will enable healthcare providers not currently conducting blood tests to
start providing this service. The following are the reasons why:
. Cost-Effective Results-- The Careside system is designed to provide test
results that are cost competitive with commercial laboratories, the
lowest cost alternative currently available in the market. This is true
even taking into consideration the initial purchase of the CareSide
Analyzer, laboratory set-up and training, and ongoing costs associated
with maintenance, cartridge and blood drawing supplies.
. Rapid Test Results--The Careside system furnishes test results within 10
to 15 minutes from the time blood is drawn from the patient. The Careside
system can test from one to six cartridges in this time period. By
comparison, 24 hours or more may elapse before a healthcare provider has
in hand the results of blood tests performed at commercial laboratories,
and four to five hours may elapse before results are in the provider's
hands for a blood test performed at a hospital laboratory.
. CComprehensive Test Menu--The Careside system will offer a broad menu of
the most commonly ordered blood tests, including critical care tests. The
Careside system performs chemistry, electrochemistry, coagulation and
immunochemistry tests, all within a single testing instrument. By the
time of product launch, over 50 tests, including nine hematology tests,
are expected to be available,
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which we believe substantially exceeds the capabilities of any other
point-of-care system currently on the market. In addition, the Careside
system will include a separate hematology testing device manufactured by a
third party.
. Ease of Use--The Careside system can be easily operated and maintained by
non-technical personnel. The test process does not require separate
centrifuging or sample splitting, and automatically doses and mixes the
patient's blood sample with reagents within the cartridges.
. Industry Standard Technology--The Careside system uses many test methods
that are the same as those used in hospital and commercial laboratories.
The Careside system's technology is a miniaturization of the technology
in the largest testing devices utilized by centralized laboratories,
which is considered the best testing technology.
. Embedded Quality Assurance and Quality Control--The CareSide Analyzer has
operating software designed to assist in meeting the quality assurance
and quality control documentation requirements of the Clinical Laboratory
Improvement Amendments of 1988.
. Ability for Practice Enhancement--The Careside system's rapid test
results enable a provider to make clinical decisions more quickly, see
more patients, eliminate time spent reviewing records and making follow-
up calls, and improve patient satisfaction and quality of care.
Healthcare providers can also increase their revenues by performing and
billing for tests themselves.
Careside's Strategy
Our goal is to make point-of-care testing with the Careside system the
standard of care for routine and critical care blood testing. If we are
successful, diagnostic information will travel more rapidly and reduce
healthcare costs for physicians, providers and payers. The following are the
key elements of our strategy to achieve our objective:
Provide the Unique Point-of-Care Solution. Most point-of-care companies have
focused solely on the critical care testing market with a limited number of
tests. In contrast, we have developed the Careside system to replace large
analyzers and decentralize testing to the point-of-care. As an illustrative
analogy, we believe that centralized laboratory testing is like using a
mainframe computer, whereas point-of-care testing is like using a desktop
personal computer. Unlike the "mainframe computer-based" approach of large
hospital and commercial testing laboratories, the Careside system creates a
"personal computer-based" solution for blood testing. We believe this will
enable hospitals and other healthcare provider-sponsored laboratories to
substantially reduce their reliance on centralized testing services. Instead,
they could use decentralized point-of-care technology on a cost-effective basis
with test results available in 10 to 15 minutes.
More complex tests that are not supportable by our decentralized testing
system, such as microbiology, genetic and other less common tests, could then
be referred outside the hospital to commercial laboratories or to a core
laboratory supporting multiple hospitals. Centralized laboratories that
continue to provide such complex testing would be able to streamline
procedures. We expect that this would lower the cost of complex testing. With
lower costs of centralized testing and the Careside system for decentralized
testing, we expect that the entire testing process will become more efficient
and cost effective. After the Careside system's launch, we intend to continue
to build its test menu so as to have the broadest test menu of any point-of-
care system on the market. Its unique menu will combine the four different test
categories of chemistry, electrochemistry, coagulation and immunochemistry into
a single testing instrument.
Satisfy Healthcare System Needs. The Careside system is designed to meet the
various needs of each of our targeted customer markets. Important factors for
hospitals will include quality of test result, ease of use, impact on
personnel, benefits to patients and whether it provides a better cost
alternative than the central
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<PAGE>
hospital laboratory. For physician group practices, the Careside system will
offer improvements in daily office routine, greater convenience, enhanced
patient satisfaction, and new revenue opportunities. For the nursing home and
home care markets, which traditionally outsource testing services, the Careside
system will offer improved turnaround time on test results, individualized
testing, cost savings or revenue opportunities, and improved patient services.
We believe that the Careside system will enable each of these types of
healthcare providers to replace their centralized testing services with
decentralized point-of-care technology on a cost-effective basis. In pursuing
this strategy, we will continue to benefit from the over 20 years experience of
our Chief Executive Officer as a senior executive of several large hospitals
where hospital laboratory costs were a significant issue, as well as his more
than four years experience as President of SmithKline Beecham Clinical
Laboratories, Inc. See "Management."
LEVERAGE EXPERTISE OF STRATEGIC PARTNERS. We expect to continue to work with
our strategic partners, such as Fuji Photo Film Co., Ltd. and UMM Electronics,
Inc. who have already developed specific expertise and state-of-the-art
technology. Fuji supplies chemistry and electrochemistry test reagents for the
Careside system's proprietary test cartridges. UMM develops the software and
manufactures the device for our system. With these and other strategic
partners, we expect to be able to develop new tests on a rapid, cost-effective
basis.
SYSTEMATIC COMMERCIAL ROLLOUT. The CareSide Analyzer and 23 tests are cleared
for marketing in the United States for use in licensed laboratories. We
recently filed for clearance of five additional blood tests. Our initial
product launch is not planned until the third quarter of 1999, at which time
over 50 tests are expected to be cleared or exempt by the FDA. In the second
quarter of 1999, we intend to conduct pilot site marketing studies in certain
of our targeted market segments to determine utilization patterns, demonstrate
cost-effectiveness and develop a "franchise book." The franchise book will be a
tool for customers to follow in order to take the appropriate steps in
establishing diagnostic testing services using the Careside system. In
addition, the pilot sites will provide validation testing necessary to obtain
FDA clearance of tests for point-of-care use by non-technical personnel. We
have arranged pilot site studies with APRIA Healthcare in the home care
services market, three hospitals affiliated with Child Health Corporation of
America in the hospital market, PSS in the nursing home market, a small group
practice in Arizona for the physician office market, and SmithKline for its own
use. We plan to market and distribute the Careside system in the United States
through our own sales force and through our distribution arrangement with
SmithKline. We believe that this systematic commercial rollout improves the
chances of having a successful product launch.
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<PAGE>
STATUS OF CARESIDE PRODUCT DEVELOPMENT
<TABLE>
<CAPTION>
TECHNOLOGY
PRODUCT REGULATORY STATUS PARTNER
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CareSide Analyzer Cleared under Section 510(k) of the Food, Drug and UMM
Cosmetic Act for use in licensed laboratories. Section Electronics, Inc.
510(k) clearance for point-of-care use will be applied Hauser, Inc.
for based on data to be gathered during marketing pilot
program.
- ----------------------------------------------------------------------------------------------------------
Disposable Test Cartridges Test cartridges are integral to approval of the tests Battelle
listed below. Chemistry, electrochemistry and Memorial
coagulation cartridges have been developed. The Institute
immunochemistry test cartridge is in development.
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
CLEARED/EXEMPT FOR SUBMITTED PENDING PLANNED 1999
TEST CATEGORY LABORATORY USE* APPROVAL SUBMISSIONS
- ----------------------------------------------------------------------------------------------------------
Chemistry Glucose AST Carbon Dioxide Fuji Photo
BUN (Urea Nitrogen) ALT/AST Ratio Ionized Calcium Film Co., Ltd.
Creatinine Bilirubin, Direct
BUN/Creatinine Magnesium
Ratio
Albumin Hemoglobin
A/G Ratio (calc.) Direct LDL-
Globulin (calc.) cholesterol
Total Cholesterol Ammonia
HDL-Cholesterol Anion Gap
LDL-Cholesterol (Chem-Echem)
(calc.)
Cholesterol/HDL Creatine Kinase
Cholesterol
Ratio Creatine Kinase MB
GGT %CKMB
ALT
Total Bilirubin
Phosphorus
Total Protein
Uric Acid
Triglycerides
LDH
Total Calcium
Alkaline
Phosphatase
Osmolatity
Amylase
- ----------------------------------------------------------------------------------------------------------
Electrochemistry Chloride Fuji Photo
Potassium Film Co., Ltd.
Sodium
- ----------------------------------------------------------------------------------------------------------
Coagulation aPTT International
Fibrinogen Technidyne
PT Corporation
Thrombin Time
- ----------------------------------------------------------------------------------------------------------
Immunochemistry Digoxin Diagnostic
Theophylline Reagents, Inc.
Phenytoin
</TABLE>
* Clearance or exemption for point-of-care use by non-technical personnel is
expected based on submissions after our pilot marketing studies.
<TABLE>
<CAPTION>
TECHNOLOGY
PRODUCT REGULATORY STATUS PARTNER
- ------------------------------------------------------------------------------------------
<C> <S> <C>
Hematology Testing In development; scheduled for filing under Independent third
Device Section 510(k) in the second quarter of party with whom we
1999. are negotiating a
supply agreement
- ------------------------------------------------------------------------------------------
Careside Cable Development planned for first quarter of UMM Electronics, Inc.
Interface between 1999 after availability of the Hematology
the CareSide Testing Device.
Analyzer and the
Hematology Testing
Device
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Hematology Tests
Platelet count All hematology tests will be submitted with Independent third
the filing of the Hematology Testing Device party with whom we
under Section 510(k) in 1999 for laboratory are negotiating a
and point-of-care use. supply agreement
Lymphocyte/Monocyte
Count
%
Lymphocyte/Monocyte
Count
Total Granulocyte
Count
% Total Granulocyte
Count
White Blood Cell
Count
Hematocrit
Hemoglobin
MCHC
</TABLE>
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THE CARESIDE SYSTEM
The Careside system is comprised of an instrument, the CareSide Analyzer, and
a series of disposable, diagnostic test cartridges designed for the accurate
determination of a wide variety of commonly ordered chemistry,
electrochemistry, immunochemistry and coagulation tests. In addition, the
Careside system will include a separate hematology testing device manufactured
by a third party. The chart on page 27 summarizes the status of tests that the
CareSide Analyzer is intended to perform.
The CareSide Analyzer
The CareSide Analyzer is approximately 13 inches tall by 12 inches wide and
11 inches deep and weighs about 17 pounds. The exterior is made of high impact
resin plastic. The top of the CareSide Analyzer consists primarily of a touch
screen, on an ergonometric angle, on which the user inputs patient, physician,
and billing information, the tests to be conducted and any pertinent desired
commentary. Alternatively, a separate keyboard is available for use if the
operator so chooses. We believe that the CareSide Analyzer's user interface
software is a significant strategic advantage. The software includes extensive
user interface applications in addition to its quality assurance and quality
control capabilities which are equal to those required of central laboratories.
The quality assurance and quality control software stores and interprets the
quality control data generated using the embedded electronic quality control
system in the CareSide Analyzer as well as the traditional wet testing quality
control approach for test cartridges. After testing, quality control data is
flagged when out of limits and plotted on graphical charts for ease of review.
A set of five re-usable and proprietary quality control test cartridges will be
provided with each instrument that allows the user to perform automated,
electronic quality control for all electrochemistry, chemistry, coagulation and
immunochemistry tests. These reusable quality control test cartridges will
replace traditional quality control which involved running multiple levels of
commercial plasma specimens for all the tests on the system. The software
utilized by the CareSide Analyzer is designed to govern testing of one patient
at a time, perform quality assurance and quality control documentation and
conduct the test ordering processes. It also contains a security system that is
compliant with the Clinical Laboratory Improvement Amendments of 1988. The user
interface system can be customized for each particular customer.
The process for using the CareSide Analyzer is streamlined and partially
automated compared to conducting tests in large commercial blood diagnostic
testing laboratories. The Careside system can be operated by non-technical
personnel. The operator will first select one or more test cartridges from
inventory depending on the tests ordered by the attending healthcare provider.
Most cartridges will contain one test, but some cartridges will contain two or
three tests. Up to six cartridges of a single patient's blood can be tested at
the same time. See "--Disposable Test Cartridges." The Careside system is
currently capable of conducting a maximum of eight tests per patient in a
single 10 to 15 minute test cycle. When the development of additional multi-
test cartridges is completed, the Careside system will be able to handle 13
tests in a single 10 to 15 minute test cycle. To prepare or "sample" a
cartridge, the operator will place a small amount of the patient's drawn blood
into the test cartridge with a pipette or other standard transfer device. The
operator will then simply load the sampled test cartridges into the instrument.
Any combination of cartridges can be loaded in any order, thus enabling the
operator flexibility to perform individual tests or customized panels. This
flexibility is designed to minimize waste by allowing the operator to run only
the tests ordered by the provider rather than traditional pre-set panels that
may contain unnecessary tests. This feature is particularly responsive to the
current and expected future requirements of third-party payers. See "--Third-
Party Reimbursement."
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<PAGE>
ROUTINE BLOOD ANALYSIS PROCEDURE: THE CARESIDE SOLUTION
<TABLE>
<CAPTION>
[DRAWING OF BLOOD BEING [DRAWING OF TEST CARTRIDGE [DRAWING OF DISCUSSION OF
INSERTED INTO TEST BEING INSERTED INTO TEST RESULTS BETWEEN
CARTRIDGE] CARESIDE ANALYZER] CAREGIVER AND PATIENT]
<S> <C> <C>
1. Draw blood. Place a few 2. Using the touch-screen 3. 10 to 15 minutes later,
drops of whole blood into or keyboard, input CareSide Analyzer provides
the cartridge sample well. demographic information test results via print
and select tests to be card, screen, and/or
performed. Insert electronic data transfer.
appropriate cartridges and Caregiver reviews test
press start. results with patient.
</TABLE>
After the operator inputs patient information and test orders, the instrument
will automatically perform the tests and record and display or print the
results. To perform the tests, the CareSide Analyzer undertakes cycles for
heating, centrifuging and several types of reading. The cycle time from the
moment the cartridge is dosed with whole blood and placed into the CareSide
Analyzer to final test result is approximately 10 to 15 minutes for chemistry,
electrochemistry, immunochemistry or coagulation tests, or any combination of
these tests. A standard Chem 7 panel, which includes sodium, potassium,
chloride, carbon dioxide, glucose, creatinine and urea nitrogen tests, can be
performed in approximately ten minutes and will utilize five cartridges.
Sodium, potassium and chloride tests are on one cartridge and they are always
ordered in combination. At the conclusion of the test, the CareSide Analyzer
ejects the cartridges into a waste container for later disposal in appropriate
biohazard vessels.
The CareSide Analyzer provides test results to the healthcare professional in
several ways. A self-adhesive label can be printed with test results for direct
transfer to the patient's chart. Each CareSide Analyzer also incorporates a
floppy disk drive so that information can be downloaded from the instrument for
analysis. An additional electronic output method is through use of the rs-232
port on the rear of the machine. We expect to routinely work with our customers
to program an appropriate software interface into the CareSide Analyzer to
allow information to be transferred electronically into the user's data system.
Disposable Test Cartridges
Each test cartridge is designed to facilitate the flow of the blood, serum or
plasma specimen onto chemicals packaged in the cartridge. These chemicals,
which are called reagents, react with the specimen and change. The changes are
then read by the CareSide Analyzer to yield the test result. Each test
cartridge is designed for a single use. Its various channels and pools assure
proper reagent and specimen temperature equilibration, sample separation,
sample metering, sample dispensing, test incubation and facilitate result
detection. Each cartridge contains all reagents necessary to perform a reagent
measurement on a serum, plasma or whole blood sample for a particular test. The
proprietary cartridges are each approximately 2.5 inches long and 1.5 inches
wide and are comprised of layers of molded plastic with channels for
application of the sample to the reagent. When stored in refrigerators, the
cartridges are expected to have a maximum of an 18 month shelf life. The
cartridges are placed in the CareSide Analyzer directly from the refrigerator
after sample dosing. The first four minutes of the test cycle warms the test
cartridges to the appropriate test temperature. If necessary, the CareSide
Analyzer then spins the cartridges using centrifugal force to push the sample
through small channels, separating it into serum or plasma. Excess sample is
deposited in an overflow well. A measured amount of sample remains in the
metering passage and is dispensed onto the reagent film or mixed with wet
reagent pushed from an interior pouch. Each test cartridge is designed to be
airtight to prevent ventilation spoilage of the specimen sample.
The three basic types of measurements that will be made are spectral
transmittance, reflectance and electrochemical. In the case of the chemistry
cartridge, the CareSide Analyzer's platter spins the cartridge containing the
dry film, which will turn color from reaction with the blood element, over
LED/photodiode pairs. The LED lights reflect through the colors of the reagent.
Multiple reflectance tests are performed to yield a result. In the case of
coagulation and immunochemistry tests, the cartridge is spun over the same
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LED/photodiode pairs which shine through a small rectangular hollowed prism,
called a prismatic cuvette, built into the cartridge. The light transmission is
then read by the CareSide Analyzer. In the case of electrochemistry, the test
is done on whole blood, before the other cartridges are centrifuged. For these
tests, the CareSide Analyzer contains ion specific electrodes which interact
with the proprietary electrochemistry cartridges to yield the test result.
The disposable test cartridges have a number of key features that we believe
contribute to the Careside system's reliability, speed, low cost and accuracy
of analysis. These include:
. Unique Cartridge Design. Specimen preparation, calibration and test
performance are incorporated in an inexpensive plastic cartridge. Where
necessary, the cartridge design incorporates storage and measured
delivery of reagents and electrolytes for mixing with the patient's
sample prior to analysis. Cartridges are loaded into the instrument
manually and are designed so that they can be inserted in only one
direction to avoid error.
. Ease of Sampling. Sampling is automatic and requires small volumes using
approximately 75 to 150 microliters (^l) of whole blood, as compared to
current approaches requiring much larger amounts. The dosing process
requires the tester to fill the cartridge well to a point indicated on
the cartridge. No precise measurement of the blood sample is required by
the tester, as the cartridges' channels measure how much sample is
applied to the reagent.
. Built-in Centrifuge. Separation of plasma from whole blood, as required
for many tests, is accomplished in the cartridge after placement in the
CareSide Analyzer, so that a separate centrifugation step is
unnecessary.
. Flexibility in Testing. One, two or three tests may be contained in each
cartridge. Single test cartridges and a three test cartridge have been
designed, manufactured and used in testing. Two test cartridges have
been designed, but have not yet been manufactured and used in testing.
Careside's multi-testing capability in a single cartridge is unique
among point-of-care instrument makers. The added cost and complications
of using test panels containing unnecessary tests is avoided.
. Quality Assurance and Quality Control Features. All test cartridges are
bar-coded for test identification. The bar codes contain the type of
test cartridge, as well as a lot number, expiration date and self-
calibration information, which are all CLIA requirements. The data from
the cartridge's bar code will be read and stored in the CareSide
Analyzer. As each test is completed, it becomes part of the CLIA
documentation. Because each cartridge contains an identifying bar code
which is read by the instrument, the order in which the cartridges are
loaded is immaterial. The Careside system will check that the ordered
tests and the cartridges entered in the device match.
Test Menu
The CareSide Analyzer combines chemistry, electrochemistry, coagulation and
immunochemistry testing in a single testing instrument. In addition, the
Careside system will include a separate hematology testing device manufactured
by a third party. We are not aware of any other point-of-care blood testing
system on the market that has this combined capability.
Chemistry Tests. Chemistry tests are used to assess general health status as
well as to diagnose and monitor diseases of the major organ systems such as the
heart, liver, kidney, blood, pancreas, endocrine and bone. The film chemistry
cartridges contain dry chemistry reagents which are stacked as required for the
test. When they react with the sample, generate an optical remission level that
correlates to the concentration of the reagent being measured. Within a few
minutes after the sample has been applied, a colored dye is produced. The color
intensity of the dye is measured by reflectance and, through calibration
information coded in the instrument and on the test cartridge, a test result is
generated.
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We have an agreement with Fuji Photo Film Co., Ltd. for the use of its dry
film chemistry reagent technology during the Careside system's development
stage and are currently negotiating a long-term supply agreement with Fuji.
Although in dry form, the film uses the same technology as the wet reagent
technology used in high volume commercial analyzers. We anticipate that the
long-term agreement will continue to provide us with an exclusive supply of
Fuji's dry film chemistry reagents for use in our point-of-care system. Under
the current development-stage agreement, Fuji has agreed to supply this reagent
technology for more than 25 chemistry tests, and we have agreed to purchase dry
chemistry reagents exclusively from Fuji. See "--Sales and Marketing--
International Sales." Fuji is also developing four additional chemistry tests
at its expense. Any additional tests that Fuji develops may be available to us
over the period of the existing agreement, which runs through 2003 and
thereafter is automatically renewed on an annual basis. If we fail to obtain
the necessary regulatory clearances for 80% of the 39 tests specified in the
contract by the end of 1999, our rights become non-exclusive.
Electrochemistry Tests. Like chemistry tests, electrochemistry tests
produced by Fuji pursuant to its agreement with us, are used to assess general
health status and to diagnose and monitor diseases of the major organ systems
such as the heart, liver, kidney, blood, pancreas, endocrine and bone. The
electrochemistry cartridge contains an ion specific electrode slide. When the
slide reacts with the sample, it generates values that correlate to the
concentration of sodium, potassium and chloride in the sample. The test
compares an electrochemical signal generated from a reference solution to a
similar signal generated from the patient's blood. The reference solution is a
liquid contained in a pre-filled pouch embedded in the cartridge. One side of
the ion specific electrode slide is exposed to a reference solution during the
testing sequence and the other side is exposed to the patient's whole blood.
The CareSide Analyzer reads the difference between the two, thereby generating
the test result.
Coagulation Tests. Coagulation testing assesses the ability of a patient's
blood to coagulate. Coagulation is the series of events that leads to the
formation of a blood clot. Tests of prothrombin time, or PT, and activated
partial thromboplastin time, or aPTT, are the primary coagulation tests used by
both physicians and hospitals.
Reagents from the coagulation test cartridge are contained inside a small
hollowed prism, called a prismatic cuvette and in a pouch. Plasma is delivered
to the cuvette, by pressurization of the membrane on the cartridge. A second
reagent, such as a buffer or calcium chloride, is added via the pouch. Light is
then transmitted through the cuvette. The coagulation reaction causes a change
in the cloudiness, or turbidity, of the plasma that is detected optically by
the CareSide Analyzer. The time it takes for this optical change to occur is
reported out as the coagulation time.
We are co-developing coagulation reagent technology for PT and aPTT tests
with International Technidyne. International Technidyne has agreed that such
reagent technology may be used by us in the CareSide Analyzer on an exclusive
basis. However, International Technidyne will retain the exclusive right to use
the technology in the field of point-of-care devices that perform only
coagulation testing. International Technidyne will also initially manufacture
the coagulation reagent and load it in the cuvette for us.
Immunochemistry Tests. Immunochemistry tests are used for the diagnosis of
drug effectiveness for heart, thyroid analysis and for other purposes. To date,
immunochemistry systems have had limited penetration in the point-of-care
market, because they are difficult to use, related instrumentation is
expensive, reagents are costly and assay times are long. We are in the process
of developing our immunochemistry test cartridge and are in the process of
performing our first validation studies using it.
The immunochemistry test cartridge is identical in form and function to the
coagulation test cartridge except that a much smaller sample size is delivered
to the prismatic cuvette. The reagents in the cuvette and pouch are different
for each immunochemistry test. The CareSide Analyzer measures a rate of change
or endpoint in cloudiness depending on the test. The rate of change or endpoint
is converted from calibration information coded in the instrument and on the
test cartridge, generating a test result. We have entered into an agreement
with Diagnostic Reagents, Inc. in which it agreed to supply immunochemistry
reagents during the Careside system's development stage. We are currently
negotiating a long-term supply agreement with Diagnostic Reagents.
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Hematology Tests. Hematology testing determines various attributes of a
patient's blood, such as how many platelets, monocytes or lymphocytes it has.
We expect to expand the Careside system's capabilities by adding nine
hematology tests, which will be performed on a separate device manufactured and
supported by a third party. It is expected that this device will be
electronically connected to the CareSide Analyzer via a cable interface to take
advantage of the CareSide Analyzer's extensive ordering, data storage, clinical
records and quality assurance and quality control capabilities.
Future Developments
We intend to have the broadest menu of any point-of-care blood testing device
and plan to continue to develop tests for the Careside system. At product
launch, the Careside system's menu is expected to include over 50 tests,
including nine hematology tests, representing over 80% of all blood tests
ordered on an out-patient basis, including all of the most commonly ordered
out-patient blood tests. Even though our point-of-care technology will not be
capable of conducting every test potentially ordered by a healthcare provider,
we believe that, over time, our planned menu will provide over 90% of all out-
patient tests in many clinical settings, and up to 60% of tests commonly
ordered in in-patient settings. For tests not performed by the Careside system,
healthcare providers could order tests from either a hospital laboratory or a
commercial laboratory.
We plan to add enhancements to the Careside system in the future, including
the ability for the blood sample to be loaded from a test tube into a test
cartridge automatically. This will eliminate the need for a person to handle an
open tube containing the patient's blood. In addition, we are evaluating
alternative methods of immunochemistry testing, such as the use of high
precision latex beads for the development of large molecule immunochemistry
tests. Also designed and under development is a multi-test cartridge that will
be able to perform two or more film tests simultaneously on one cartridge. The
CareSide Analyzer's detection technology is capable of extensive menu
expansion. This gives us the ability to add traditional chemistry, coagulation
and small molecule immunochemistry tests such as screening tests for drugs of
abuse. We expect to develop additional tests in the large molecule
immunochemistry field such as prostate specific antigen for prostate cancer and
Troponin for heart attacks, as well as tests for infectious diseases such as
Strep A and Chlamydia.
SALES AND MARKETING
Our marketing strategy is to position the Careside system as the blood
testing system of choice by demonstrating to hospitals the benefits of
decentralized blood testing, and by providing other healthcare providers with a
profitable and cost-effective alternative to central laboratory testing. In the
second quarter of 1999, we intend to conduct pilot site marketing studies with
hospitals, home care organizations and physician group practices to determine
utilization patterns, create a franchise book, demonstrate cost-effectiveness
and obtain FDA designation of the Careside system for point-of-care use. We
currently plan to rollout our system in the third quarter of 1999 through
SmithKline Beecham Clinical Laboratories, Inc. pursuant to our distribution and
supply agreement. Commencing in the fourth quarter of 1999, we intend to employ
our own sales force to sell the Careside system to hospitals, nursing homes,
home care organizations and larger physician group practices. At the time of
product rollout, our goal is to have the most comprehensive menu of tests
available in any single point-of-care system.
Our key targeted market segments are as follows:
Hospitals. There are over 5,000 acute care hospitals in the United States.
Laboratory testing services required by hospitals are usually provided by a
central hospital laboratory, which services all of the hospital's testing needs
as well as the testing service needs of hospital physician groups. Hospital
laboratories are expensive to maintain because they have to be maintained on a
24 hour basis, they require specially trained personnel to be present at all
times to operate high volume analyzers and they demand significant amounts of
capital to equip and maintain. Furthermore, hospitals are often reimbursed by
institutional payers for patient
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admissions based on specific diagnoses reflecting the complexity of the care
needed and a predetermined payment for such care. While laboratory testing
services are an essential part of diagnosis and monitoring the beneficial
results of treatment, they also represent a cost to the hospital as it seeks to
generate a profit by completing the care and treatment of patients before their
costs exceed the level of reimbursement. The Careside system provides hospitals
with the opportunity to decentralize laboratory testing to the patient floors
and bedside, as routine and stat tests can be conducted at the time the patient
is being evaluated by providers. Consequently, the Careside system is expected
to enable some hospitals to eliminate their central laboratories or replace
certain costly analyzers and outsource non-routine testing not done on the
CareSide Analyzer to a centralized laboratory.
Physician Groups. There are over 3,500 physician groups in the United States
with practices in excess of 35 doctors. Excluding radiology groups, the target
market for the Careside system is over 2,200 groups. Physicians usually obtain
their laboratory testing services from the hospital laboratories with which the
physicians are affiliated or from a commercial laboratory. In either case,
patient samples are collected from the physician's office and sent via courier
to the applicable laboratory, with results delivered to the physician, either
electronically, by fax or by telephone. For physician group practices, the
Careside system will offer improvements in daily office routine, greater
convenience, enhanced patient satisfaction and new revenue opportunities.
Home Care. Industry data shows that the number of home care agencies and
patients receiving home care services has grown significantly in recent years.
We believe significant growth in this market segment will continue. Industry
data reported that the total number of Medicare certified home care agencies
rose from 11,000 in 1989 to over 20,000 by the end of 1996. In 1996, the Health
Care Financing Administration estimated that 3.9 million Medicare enrollees
would receive home care services during 1997. This is twice the number that
received such services in 1990. The number of home care visits increased from
70 million in 1990 to an estimated 306 million in 1997. On average, 30% of home
care patients visited each week require laboratory testing. Common laboratory
tests include, among others, Chem 7 panels, iron, blood glucose, magnesium,
prothrombin time and immunochemistry tests for monitoring phenobarbital,
phenytoin and digoxin. Patient samples are drawn from the patient, gathered
from the home care providers and delivered via courier to a commercial
laboratory for testing. Test results are made available the next day or on a
premium price basis by fax, telephone or written report delivered four or five
hours later. The CareSide Analyzer is expected to enable the home healthcare
provider to draw the patient's sample, run the test and deliver the results
without having the sample delivered via courier to a commercial laboratory.
Nursing Homes. In 1994, the most recent year for which industry data has
been compiled, there were over 15,000 nursing homes in the United States with
more than 1.6 million licensed beds. The average occupancy rate was over 92%
with each nursing home averaging nearly 100 patients. Common diagnostic tests
ordered for nursing home patients are complete blood counts, Chem 7 panels,
electrolytes, blood glucose, prostate specific antigen, therapeutic drug
monitoring and urinalysis. Nursing homes generally obtain their testing
services from commercial laboratories and encounter the same delays and
reimbursement issues as physicians. The CareSide System provides a profit
opportunity to the nursing home by allowing it to conduct and bill for
laboratory services, while simultaneously enhancing the nursing home's ability
to provide better care.
PILOT PROGRAM
Prior to the planned rollout of our system commencing in the third quarter of
1999, we will pilot the Careside system in multiple sites within certain
targeted market segments. To date, we have arranged for pilot studies with
Children's Hospital of San Diego, Children's Hospital--Los Angeles and the
Seattle Children's Hospital, all through Child Health Corporation of America,
APRIA Healthcare, one of the largest United States home care providers, a group
physician practice in the Phoenix, Arizona area, PSS in the nursing home
market, and SmithKline.
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The purposes of piloting the Careside system are to collect data
demonstrating the economic benefit of the Careside system in each customer
segment, and to create a franchise book that will be tailored to the needs of
each customer type. This franchise book will explain the process of obtaining
and maintaining a laboratory license, train personnel to conduct testing and
educate personnel about the operation of the Careside system. With both a
financial model and franchise book that are specific to customer segments, we
then intend to introduce the Careside system to the overall market in the
fourth quarter of 1999. We will also use the pilot program to generate data to
support the regulatory application for point-of-care classification.
Domestic Sales
We intend to hire, train and regionally deploy our own domestic sales force
to sell the Careside system to hospitals, healthcare systems, large physician
group practices, managed care organizations, home care agencies and nursing
homes, either directly or through institutional pharmaceutical service
organizations which serve them. Because we intend to target customers who order
large volumes of tests, we anticipate building a direct sales force of
approximately 40 people.
As one of the largest commercial laboratories in the United States,
SmithKline Beecham Clinical Laboratories, Inc. conducts millions of tests for
small physician groups and individual physicians annually. We expect the
Careside system to be available to small or solo practices through in-patient
service centers owned and staffed by SmithKline since it may be inefficient for
such practices to own and operate a CareSide Analyzer. SmithKline owns and
operates over 700 patient service centers across the United States. We have
entered into a distribution agreement with SmithKline which gives SmithKline,
with respect to domestic sales, an exclusive right, as a commercial laboratory,
to use and distribute the Careside system within the commercial laboratory
industry and the non-exclusive rights to sell the Careside system to hospitals
and healthcare systems, other health care providers, managed care organizations
and insurers. The agreement also obligates SmithKline, upon FDA clearance or
exemption of 25 specified tests, to purchase a minimum number of CareSide
Analyzers and test cartridges from us for the first five years following such
FDA action. See "Certain Transactions--SmithKline Beecham."
International Sales
In international markets, we intend initially to enter into distribution
agreements and gradually to develop our own sales force as appropriate. Our
distribution and supply agreement with SBCL gives SBCL the same exclusive and
non-exclusive distribution rights as it has in the United States in any ten of
the following countries where SBCL owns, operates, manages a commercial
laboratory on or before December 31, 2000: Great Britain, Mexico, Spain, South
Africa, Singapore, Malaysia, Indonesia, Australia, Chile, Argentina, France and
Germany. In addition, Fuji Photo Film Co., Ltd. has a right of first refusal to
be our distributor on an exclusive basis in Japan and a non-exclusive basis in
other Asian countries. The current agreement with Fuji expires in 2003 and
permits automatic annual renewals thereafter subject to cancellation by either
party. We are currently negotiating more specific terms of our supply and
distribution arrangement with Fuji. We also expect to partner with other
diagnostic instrument distributors in the international markets with an initial
focus on Europe. See "Certain Transactions--SmithKline Beecham."
RESEARCH AND DEVELOPMENT
As of December 31, 1998, we employed 25 scientists and technical staff who
supervise the development of the instrument and tests, validate test results,
and perform quality assurance and quality control documentation and regulatory
submissions.
After extensive review of available test technologies, we chose Fuji Photo
Film Co., Ltd. as our partner for chemistry and electrochemistry tests. Fuji
makes dry film based chemistry tests and uses them in large analyzers that it
produces and sells in Japan and Taiwan. In addition, Fuji has agreed to supply
this reagent technology during the Careside system's development stage for more
than 25 chemistry tests. We are currently negotiating a long-term supply
agreement with Fuji. Fuji has agreed to develop four additional tests at its
expense for the Careside system. See "--The Careside System--Test Menu."
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The utilization of third parties to develop our tests has allowed us to focus
on creating a platform for delivery of a highly efficient test system. For
hospital environments, the CareSide Analyzer's software has a configuration
capability that facilitates a test order entry menu and security processes as
determined by laboratory management. Fields exist for extensive data capture
including patient, physician and billing information. All of these systems are
optional to the user other than the data requirements for compliance with the
Clinical Laboratory Improvement Amendments of 1988. In addition, the Careside
system easily accommodates test menu additions by downloading new test
algorithms into the device via a floppy disk. This eliminates the need to
remove the instrument from the field as new test capabilities receive FDA
clearance/approval.
We have entered into a series of research and development agreements for our
system. As is customary in the industry, these agreements are short term and
provide for termination for any reason by either party on relatively short
notice. Battelle Memorial Institute, a leader in developing industrial
technology, has designed the disposable testing cartridge according to
specifications which we provided. All applicable patent rights under this
contract have been assigned to us. To date, three applications have been filed
with the United States Patent and Trademark Office. See "--Patents and
Proprietary Rights." Pursuant to this relationship, Battelle is also designing
a cost-effective manufacturing process and quality assurance methods, based on
federal Good Manufacturing Practices protocols, for the disposable cartridges.
We have engaged UMM Electronics, Inc. a contract engineering and
manufacturing firm, to perform the design and development work of the CareSide
Analyzer. Other products developed by UMM include point-of-care blood glucose
monitors, point-of-care coagulation instruments, intravenous infusion pumps,
dialysis machines and infant care warmers. UMM is an FDA-registered
manufacturer of sophisticated medical products required to comply with federal
GMP regulations.
Hauser, Inc., an industrial design consultant, has provided services for the
design and development of the entire Careside system. Hauser conducted focus
groups from each target market segment in order to obtain customer input on the
design features and to assist in the development of an instrument and software
systems involving user interaction.
MANUFACTURING AND SUPPLY
We designed and outfitted a building in Culver City, California, of
approximately 16,000 square feet in December 1996 as our development facility
and offices. The building contains space for our automated assembly system
which Battelle Memorial Institute is designing. The assembly system will mount
the reagents in the test cartridges, and package and label the cartridges. This
facility has been set up to comply with all applicable state and federal
regulatory requirements, including registration with the state and federal
governments in accordance with applicable laws governing medical devices prior
to commercial distribution. The facility will be subject to periodic FDA
inspection to determine whether our manufacturing processes comply with federal
GMP regulations for medical devices.
We intend to assemble and package at our Culver City facility all cartridges
used by the instrument. The cartridges are assembled in two main stages.
Initially, those components which are not sensitive to humidity, such as
plastic parts, are assembled in a normal humidity environment. The second stage
of the cartridge assembly process involves the mounting of dry film chemistry
strips or pouched reagents in the cartridges, which must be done in a low
humidity environment to preserve the film. This step will be performed in an
automated assembly line at our facility. We are in the process of selecting and
purchasing the equipment necessary for this process. In addition, during the
cartridge manufacturing process, our equipment must test the pressure of the
ultrasonic seal between the base plate and the upper plates of the test
cartridges. Our equipment allows for several inspection steps during the
assembly process. Battelle is assisting us in developing the fully automated
assembly line for the cartridges with these steps built in. The production
capacity of the pilot cartridge production line for chemistry and
immunochemistry will be approximately 1,800 units per hour or 13,000 units per
shift. Depending on the specific tests ordered, our current facility will
support between $40 and $60 million of test cartridge sales annually. The
automated production line will utilize proprietary process technology, designed
by Battelle and owned by us, and will be scalable to meet increasing demand.
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We will outsource the manufacturing of the plastic components of our
cartridges. We have been using a third party to manufacture these components
using injection molding processes. Recently, we obtained bids from a number of
manufacturers of cartridge components and have selected a supplier to meet our
manufacturing needs based on competitive terms.
We have entered into an agreement with UMM Electronics, Inc. for the
manufacture of the CareSide Analyzer at UMM's facility in Indianapolis. Certain
aspects of the manufacturing agreement, including the price at which UMM
Electronics will manufacture the device, are subject to further negotiation and
will be finalized once tooling is completed and the manufacturing line set up.
We expect to source our chemistry, electrochemistry, coagulation and
immunochemistry reagents from Fuji, International Technidyne and Diagnostic
Reagents. See "--The Careside System--Test Menu."
We intend to purchase and distribute a hematology testing device manufactured
by a third party and are currently negotiating a supply agreement.
COMPETITION
We will principally compete with manufacturers of traditional diagnostic
testing equipment used by centralized laboratories and current point-of-care
diagnostic companies whose products perform testing for patients in critical
condition. Historically, most clinical testing has been performed in a
centralized laboratory setting. These laboratories provide analyses similar to
those to be conducted by our system and have traditionally been effective at
processing large panels of tests using skilled technicians and complex
equipment. While the CareSide Analyzer will not be designed to provide the same
range of tests, we believe that our products will offer several advantages over
centralized laboratories, including lower costs, mobility, faster results,
simplified specimen preparation, reduced opportunity for error through
decreased specimen handling, ease of regulatory compliance and increased
patient satisfaction.
We are also aware of other companies with point-of-care analysis devices.
These companies have focused on the testing for critical care patients or tests
that are disease specific. Examples of disease specific tests are glucose and
digoxin which measure blood sugar levels in diabetic patients or heart
complications. In all cases, these companies perform a limited number of tests
and their systems are not designed to have their test menus increase.
Consequently, these devices add costs as the large analyzers in hospital or
commercial laboratories conduct these tests and many more. We believe that our
system will offer distinct competitive advantages over these products,
including the ability to conduct multiple tests in a single device, internal
centrifugation, convenience and ease of use. Several companies, including i-
STAT Corporation, Abaxis, Inc., Diametrics Medical, Inc. and PharmaNetics,
Inc., are currently making or developing products that will compete with our
tests although not with our system. Some of these companies also provide
disease specific tests that will not be available at the time of launch on the
CareSide Analyzer but which we expect will be added later.
Some large pharmaceutical companies also have point-of-care blood testing
devices and could, given their resources, develop systems which compete with
the Careside system. Abbott Laboratories, Inc., Clinical Diagnostic Systems (a
division of Johnson & Johnson) and Roche Diagnostic Systems, Inc. all have
products which perform point-of-care testing. To date, we believe that none has
developed a point-of-care testing system comparable to our system.
PATENTS AND PROPRIETARY RIGHTS
Our policy is to seek patent protection, both in the United States and
abroad, for each of the areas of invention embodied in our CareSide Analyzer
and related cartridges. To date, we have filed three patent applications with
the U.S. Patent and Trademark Office on the test cartridge technology and
expect to file several additional applications on the cartridges and the
CareSide Analyzer in 1999. Our agreements with Fuji Photo Film Co., Ltd.,
Battelle Memorial Institute, International Technidyne, Inc. and Diagnostic
Reagents, Inc.,
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assign to us certain proprietary rights that result from the research conducted
under the agreements. The Fuji agreement gives us non-exclusive rights to use
Fuji's proprietary technology in the Careside system outside of Japan. Only
Fuji will sell our system in Japan. The other agreements provide that the
technology used in the Careside system is owned either by us or jointly by us
and our partner. These agreements do not restrict us, if we choose, from
seeking other suppliers of competitive technologies. We will seek to protect
any such proprietary rights assigned to us by our technology partners.
Battelle, International Technidyne and Diagnostic Reagents have agreed to share
expenses or otherwise assist us in prosecuting patent applications. Upon
completion of the offering, we expect to proceed with the patent application
process, and anticipate the filing of additional applications. In addition to
patent protection, if any, we will rely upon trade secrets, know-how and
continuing technological innovation. Although our Chief Executive Officer,
Executive Vice President--Research and Development and Chief Financial Officer
have agreed to maintain in confidence our confidential information and
proprietary technology, we have not otherwise required our employees to sign
confidentiality agreements. We plan on seeking the execution of such
confidentiality agreements by our current and future employees.
THIRD-PARTY REIMBURSEMENT
In April 1998, the federal government instituted a policy that, in connection
with Medicare reimbursement for large panel testing, it will only reimburse
four different panels of chemistry tests, the largest of which has 13 tests.
The consequence of this policy has been that more single tests are ordered as
compared to large panels. The Careside system is currently capable of
conducting eight tests in a single 10 to 15 minute test cycle. At the time of
product launch, the 13 test panel can be accommodated in two test cycles. Upon
the completion of development of additional multi-test cartridges, the Careside
system will be able to handle a 13-test panel in a single 10 to 15 minute test
cycle. The Careside system is also configured to easily test any combination of
single test cartridges with similar cycle times for up to six single tests per
cycle. Payers have stated that they will only reimburse for panels that are
disease specific. With this change in policy and reimbursement practice, the
number of tests reimbursed as part of panels has begun to drop. The Careside
system, which places primary focus on single and disease specific testing, is
very competitive in light of these changes in payer practice related to test
panels. See "Risk Factors--Uncertainty Relating to Third-Party Reimbursement
May Impact Our Business."
Managed care provides physicians with incentives to treat patients using
clinical treatment protocols that have been developed for many chronic and
acute illnesses. These protocols frequently contain preventative diagnostic
interventions that are used to help avoid the occurrence of acute episodes of
illness. Diagnostic blood testing is one of the major tools used in these
protocols for early detection and for ongoing evaluation of treatment efficacy.
We believe that a diagnostic blood testing system that is cost effective and
adds convenience and rapid information will be well received by managed care
organizations and their physicians.
Even with the growth of managed care, more than 75% of all blood tests
continue to be reimbursed on a fee for service basis. This number has remained
steady in the commercial laboratory industry for the past three years. We
believe that in both the managed care and fee-for-service markets, our point-
of-care system will be responsive to incentives that drive the respective
markets. Many managed care entities dictate to their member physicians which
laboratories they must use for blood testing. Physicians have the opportunity
to utilize exceptions to these mandates to conduct in-office testing. The
Careside system will enable physicians to offer laboratory testing services and
take advantage of these exceptions to the managed care organizations' policies.
We expect to facilitate this by working closely with the physicians and the
managed care organizations to demonstrate cost effectiveness and cost reduction
of our system. This will be a critical component of the pilot site testing
strategy and is intended to position the Careside system as the new testing
standard and the blood testing system of choice over traditional laboratory
testing methods.
GOVERNMENT REGULATION
The FDA regulates the development, manufacture, and marketing of medical
devices including diagnostic tests. The FDA requires testing of the Careside
system in accordance with regulatory requirements in the
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laboratory and, as appropriate, in clinical settings to establish product
performance before marketing. After marketing has commenced, FDA clearance must
be obtained before making certain types of product changes. The CareSide
Analyzer and certain tests have already received marketing clearance for
laboratory use, and we expect that the CareSide Analyzer and tests will receive
marketing clearance for point-of-care use following clinical testing of the
instrument at clinical sites. Without the point-of-care use clearance, the
CareSide Analyzer could be used only at licensed laboratory sites with
laboratory personnel, which would limit our potential market.
The point-of-care designation depends upon the FDA's determination that the
results obtained from clinical studies for a small number of representative
tests, selected by the FDA, have accuracy and reliability when performed by a
non-laboratory user that is equivalent to or better than test results obtained
from the same tests performed by a laboratory professional.
The FDA has regulations that set varying requirements for medical devices
according to potential risk class. Class I devices represent the lowest
potential risk devices and are therefore subject only to the general controls
that include establishment registration, product listing, the prohibition of
mislabeling or adulteration, and a requirement to comply with federal Good
Manufacturing Practices regulations. Pre-market notification is required for
some Class I clinical diagnostic devices. Class II devices present greater risk
than Class I devices and are subject to special controls, such as guidelines or
performance standards, as well as the same general controls that are applicable
to Class I devices. Class II devices require pre-market clearance to
demonstrate that the FDA accepts the manufacturer's claims that the device is
substantially equivalent to other legally marketed devices, and meets generally
accepted performance criteria that may be required to demonstrate that the
device is safe and effective. Class III devices present a higher level of risk
and are additionally subject to rigorous demonstration of safety and
effectiveness through the pre-market approval process.
For some Class I and most Class II devices, a pre-market notification must be
submitted to the FDA. Usually within 90 days of the receipt of this
notification, the FDA makes the determination whether the device submitted is
substantially equivalent to a legally marketed device. A legally marketed
device is one which was marketed prior to the passage of the Medical Device
Amendments of 1976, or a post-1976 device that has been determined by the FDA
to be substantially equivalent to previously cleared devices. A determination
of substantial equivalence requires several FDA findings: first, that the
device has the same intended use as the legally marketed device; and second,
either that the device has the same technological characteristics as the
legally marketed device or, if it does not, that the device is as safe and
effective as the legally marketed device and does not present different
questions about safety and effectiveness. Class III devices require extensive
clinical testing to prove safety and effectiveness, and submission of the
resulting data to the FDA as a pre-market approval application. The FDA
ordinarily will refer a new device pre-market approval application to an
advisory panel of outside experts for a recommendation on whether to approve
the application or to request additional testing. We believe that the CareSide
Analyzer and all of the tests currently expected to be performed by it will be
classified in Class II requiring pre-market notification. If the FDA disagrees,
however, a pre-market approval application might be required for one or more
tests. We expect certain future tests, such as prostate specific antigen, to
require pre-market approval.
The information required for a pre-market notification for the Company's
products will be generated by or for us. For tests that will be performed in a
clinical laboratory, validation may be performed in the manufacturer's
laboratory. For tests that are intended for use outside of the clinical
laboratory, such as physician offices or nursing homes, the FDA also requires
that validation data be gathered from at least three clinical sites. We believe
that the required laboratory or clinical studies do not constitute a
significant risk for patients. Non-significant risk device studies performed in
the clinic require institutional review board approval and may require patient
informed consent but do not require the clearance of an investigational device
exemption application by the FDA. If the FDA were to believe that such studies
constitute a significant risk, we would need to submit an investigational
device exemption application, containing an investigation and study monitoring
plan, and allow the FDA 30 days to review the investigational device exemption
application or request additional information prior to initiating an
investigation.
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<PAGE>
Where a pre-market approval application is required, FDA regulations require
the demonstration of safety and effectiveness, typically based upon extensive
clinical trials. Fulfilling the requirements of the pre-market approval
application are costly and both the preparation and review are time consuming,
commonly taking from one to several years. Before granting pre-market approval,
the FDA must inspect and find acceptable the proposed manufacturing procedures
and facilities. The pre-market approval regulations also require FDA approval
of most changes made after the tests have been approved.
Manufacturing Regulation
For products either cleared through the pre-market notification process or
approved through the pre-market approval process, our manufacturing facility
must also be registered with the FDA. The manufacture of products subject to
Section 510(k) of the Federal Food, Drug, and Cosmetic Act or to Section 515
pre-market approval requirements must be in accordance with quality system
regulations and current federal Good Manufacturing Practices regulations. We
are also subject to various post-marketing requirements, such as complaint
handling and reporting of adverse events. Pre-market approval products are also
subject to annual reports. The FDA typically inspects manufacturing facilities
every two years. We intend to seek and maintain ISO 9001 certification. As a
result, inspections by notified bodies may be more frequent.
The CareSide Analyzer is being developed and will be manufactured by UMM
Electronics, Inc. UMM is an FDA registered and inspected facility. UMM is also
ISO 9001 certified. In adherence to FDA and ISO 9001 requirements, UMM follows
a structured design control process.
Third-Party Safety
Third-party safety certification is not required for FDA marketing
permission, but will be required by our customers and to enter markets in other
countries. In this regard, we intend to obtain an Underwriters Laboratories, or
UL, listing for the instrument. UL will review the CareSide Analyzer according
to UL 3101-1 that is equivalent to the international standard IEC 1010. The
CareSide Analyzer is also being designed to comply with requirements that
ultimately will facilitate marketing of the product in Europe and Japan. These
requirements include the Low Voltage Directive (73/23/EEC), the Electromagnetic
Compatibility Directive (89/336/EEC), and the In Vitro Diagnostic Medical
Device Directive (98/79/EC).
Clinical Laboratory Improvement Amendments of 1988
All medical testing in the United States is regulated by the Health Care
Financing Administration according to the complexity of the testing as
specified under the Clinical Laboratory Improvement Amendments of 1998. CLIA
regulations establish three categories of laboratory tests, for which
regulatory requirements become increasingly stringent as the complexity of the
test rises: (1) tests that require little or no operator skill, which allows
for a waiver of the regulations; (2) tests of moderate complexity; and (3) high
complexity tests which require significant operator skill or training. All
laboratories performing tests of moderate or high complexity must register with
HCFA or an organization to whom HCFA has delegated such authority. All
registered laboratories are subject to periodic inspection. We expect all of
the tests for the CareSide Analyzer to be categorized as moderate or lower
complexity. To date, the tests performed by the CareSide Analyzer have been
categorized within the moderate complexity class as defined by current CLIA
regulations. In practical terms, performing a test of moderate complexity means
that the individual supervising the test, i.e., the physician, pathologist or
laboratory director, must be appropriately educated and trained, whereas the
individual technician who operates the CareSide Analyzer requires no formal
laboratory education and only task-specific training.
State Regulation
We and our products will be subject to a variety of state laws and
regulations in those states where our products are marketed, sold or used.
Thirteen states currently restrict or control, to varying degrees, the use of
medical devices such as the Careside system outside the clinical laboratory by
persons other than doctors or licensed technicians. For example, California,
New York and Florida all have unique requirements that define which steps in
the testing process can be performed by physicians, nursing or other personnel
who are not
39
<PAGE>
licensed technicians. We have designed our testing system to comply with these
requirements, while minimizing the need for higher cost labor to run the test
process. However, these restrictions may add labor costs to the customer, and
such costs may hinder our ability to market our products in these locations.
Although we plan to seek interpretations, rulings or changes in relevant laws
and regulations to remove or ameliorate these restrictions, there can be no
assurance that we will be successful.
International Regulation
In addition to the United States market, we intend to pursue markets in Asia
and Europe through select strategic alliances. The recently published European
Community In Vitro Diagnostic Directive places our products within a category
that has a low regulatory burden. Manufacturers are allowed entry into the
market based upon self-certification that they complied with published
directives, similar to existing United States requirements, containing
performance, labeling, and other quality requirements. Japan has its own
requirements for in vitro diagnostics.
PRODUCT LIABILITY AND PROPERTY INSURANCE
Sale of our products entails risk of product liability claims. The medical
testing industry has historically been litigious, and we face financial
exposure to product liability claims in the event that use of our products
result in personal injury. We also face the possibility that defects in the
design or manufacture of our products might necessitate a product recall. There
can be no assurance that we will not experience losses due to product liability
claims or recalls in the future. We anticipate purchasing product liability
insurance in reasonable and customary amounts when we begin to sell products in
the third quarter of 1999. Such insurance can be expensive, difficult to obtain
and may not be available in the future on acceptable terms, or at all. No
assurance can be given that product liability insurance can be maintained in
the future at a reasonable cost or in sufficient amounts to protect us against
losses due to liability. An inability to maintain insurance at an acceptable
cost or to otherwise protect against potential product liability could prevent
or inhibit the commercialization of our products. In addition, a product
liability claim in excess of relevant insurance coverage or product recall
could have a material adverse effect on our business, financial condition and
results of operations.
We have liability insurance covering our property and operations with
coverage and deductible amounts and exclusions that we believe are customary
for companies of our size and adequate for our industry. There can be no
assurance that our current insurance coverage is adequate or that we will be
able to maintain insurance at an acceptable cost or otherwise to protect
against liability.
EMPLOYEES
As of December 31, 1998, we had 29 full-time employees, of which 25 were
engaged in research and development and manufacturing activities and four were
engaged in administrative activities. None of our employees is covered by a
collective bargaining agreement, and we believe our relations with our
employees are good. Additionally, our contract strategic partners, Battelle
Memorial Institute and UMM Electronics, Inc. have provided approximately 40
full-time equivalent employees on a contract basis to develop of the Careside
system.
PROPERTIES
We lease approximately 16,000 square feet of space in Culver City, California
as our executive offices and for the research and development, validation,
manufacture and assembly of test cartridges. The lease has a term of five
years, with a current monthly rent of $13,620, increasing to $15,220 per month
until the expiration of the lease in October 2001. We have an option to renew
the lease for one additional five-year term at 95% of the fair market rental
value. We believe that the Culver City facility will adequately serve our needs
for the immediate future.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
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<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information concerning the individuals
who serve as our directors, executive officers and key employees:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <S> <C>
Directors and Executive Officers:
W. Vickery Stoughton (1)......... 52 Chairman of the Board of Directors and Chief Executive Officer
Thomas H. Grove.................. 49 Executive Vice President--Research and Development,
Secretary and Director
James R. Koch (2)................ 44 Chief Financial Officer, Treasurer, Executive Vice
President and Director
Anthony P. Brenner (1)........... 41 Director
William F. Flatley (2)........... 57 Director
Kenneth N. Kermes (2)............ 63 Director
C. Alan MacDonald (2)............ 65 Director
Diana Mackie (1)................. 52 Director
Philip B. Smith (1).............. 63 Director
Key Employees:
Kenneth Asarch................... 41 Vice President--Quality Systems and Regulatory Affairs
Harry J. Fini.................... 48 Vice President--Sales and Marketing
Marija N. Valentekovich.......... 66 Vice President--Manufacturing
</TABLE>
- --------
(1) Member of Compensation Committee
(2) Member of Audit Committee
Directors and Executive Officers
W. VICKERY STOUGHTON, CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF EXECUTIVE
OFFICER. Mr. Stoughton has served as our Chairman of the Board of Directors and
the Chief Executive Officer since our formation in July 1996. Prior to that, he
served as President of SmithKline Beecham Diagnostics Systems Co., a diagnostic
services and product company, from October 1995 to July 1996, and was President
of SmithKline Beecham Clinical Laboratories, Inc., a provider of diagnostic
laboratory services, from August 1992 to September 1995. As President of SBDS,
Mr. Stoughton had responsibility for SBCL, SmithKline Beecham Clinical
Laboratories International and SBDS's genetic testing and point-of-care testing
projects. In addition, Mr. Stoughton served as Chief Executive Officer and Vice
Chancellor for Health Affairs of Duke University Hospital from 1991 to 1992,
Chief Executive Officer of Toronto Hospital in Toronto, Canada from 1981 to
1991, Chief Operating Officer of Brigham and Women's Hospital in Boston from
1980 to 1981 and Chief Executive Officer of Peter Bent Brigham Hospital in
Boston from 1978 to 1980. Mr. Stoughton holds a B.S. in Chemistry from St.
Louis University and a M.B.A. from the University of Chicago. He is currently a
director of Sun Life Assurance Company of Canada, a financial services company,
and Biomira, Inc., a pharmaceutical company.
THOMAS H. GROVE, EXECUTIVE VICE PRESIDENT--RESEARCH AND DEVELOPMENT,
SECRETARY AND DIRECTOR. Dr. Grove has served as our Executive Vice President--
Research and Development, Secretary and as one of our directors since our
formation in July 1996. From April 1984 to July 1996, he served in a number of
management positions at SmithKline Beecham Clinical Laboratories, Inc.
involving research and development activities, including the position of Vice
President of Scientific Affairs from January 1991 to July 1996, where, among
other things, he was in charge of National Quality Control and Quality
Assurance for SBCL. Dr. Grove has received a number of awards, including a NATO
Science Fellowship to attend Oxford
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<PAGE>
University from 1978 to 1979. He was also named Young Investigator of the Year
in 1980 by the American Association for Clinical Chemistry and was elected to
the National Academy of Clinical Biochemistry in 1977. Dr. Grove holds a B.S.
in Biology from SUNY-Albany and a Ph.D. in Biochemistry from Syracuse
University.
JAMES R. KOCH, CHIEF FINANCIAL OFFICER, TREASURER, EXECUTIVE VICE PRESIDENT
AND DIRECTOR. Mr. Koch has served as our Chief Financial Officer, Treasurer,
Executive Vice President and as one of our directors since July 1998. Prior to
joining us, Mr. Koch served as Vice President and Chief Financial Officer of
ILEX Oncology, Inc., a company which develops oncology drugs, from August 1996
to July 1998. In addition, Mr. Koch served as Vice President, Finance and Chief
Financial Officer for two start-up specialty pharmaceutical companies, Symphony
Pharmaceuticals, Inc., from September 1993 to August 1996, and Neose
Pharmaceuticals, Inc., currently Neose Technologies, Inc., from September 1991
to September 1993. His prior experience also includes ten years in senior
financial management positions with G.D. Searle Pharmaceutical, a manufacturer
of pharmaceutical products. Mr. Koch holds a B.S. in Mechanical Engineering
from General Motors Institute and a M.S. from the Krannert School of Management
at Purdue University.
ANTHONY P. BRENNER, DIRECTOR. Mr. Brenner has served as one of our directors
since November 1996. Since January 1998, he has served as a Managing Director
with Omega Ventures, a venture capital firm, where he oversees investment
activities in the information and business services industries. Prior to that,
Mr. Brenner served as Senior Managing Director of Advanta Partners LP, a
private equity investment partnership, and as a member of the Board of
Directors of Advanta Corporation, a financial services company, from 1992 to
1996. In addition, since 1989 Mr. Brenner has served as President of Cedar
Point Partners, a private equity investment partnership. Mr. Brenner earned a
B.A. from Yale University and a M.B.A. from Stanford University.
WILLIAM F. FLATLEY, DIRECTOR. Mr. Flatley has served as one of our directors
since November 1996. Since July 1997, he has served as the President and Chief
Executive Officer of Executive Health Group, a provider of preventive
healthcare services to corporations. From 1980 to December 1994, he held a
number of senior management positions with Bristol-Myers Squibb, including
President of a multi-division medical device business, the Health Care Group,
and President of the Drackett Company, a household products manufacturer. Mr.
Flatley retired from Bristol-Myers Squibb at the end of 1994 but continued to
provide the company with certain consulting services after his retirement. Mr.
Flatley obtained a B.S. from Villanova University and a M.B.A. from the Wharton
School of the University of Pennsylvania.
KENNETH N. KERMES, DIRECTOR. Mr. Kermes has served as one of our directors
since February 1997. Since June 1998, he has served as a principal of Riparian
Partners Limited and of Bay View Equity Partners, two related investment
banking and private equity investment partnerships. Prior to that, he served as
Vice President of Business and Finance for the University of Rhode Island from
December 1994 to June 1998 and as Chief Financial Officer for SmithKline
Beecham Corporation from October 1986 to July 1989. From 1991 to 1994, Mr.
Kermes was a consultant and an investor in the venture capital industry. Mr.
Kermes obtained a B.A. from Amherst College and attended the New York
University Graduate School of Business and the Harvard Business School Advanced
Management Program.
C. ALAN MACDONALD, DIRECTOR. Mr. MacDonald has served as one of our directors
since November 1996. Since October 1997, Mr. MacDonald has served as a Managing
Director of Directorship, Inc., a consulting firm specializing in corporate
governance issues. Prior to that, he served as General Partner of the Marketing
Partnership, Inc., a full service marketing consulting firm, from January 1995
to July 1997 and as an acquisitions consultant with the Noel Group, a venture
capital firm, from July 1994 to December 1994. In addition, he served as
Chairman and Chief Executive Officer of Lincoln Snacks Co., a caramelized
popcorn snack company, from September 1992 to July 1994. Mr. MacDonald holds a
B.S. in Hotel Administration from Cornell University and is a member of the
Cornell Society of Hotelmen and the Dean's Advisory Committee at Cornell. Mr.
MacDonald is also a director of Lincoln Snacks Co.
DIANA MACKIE, DIRECTOR. Ms. Mackie has served as one of our directors since
February 1997. She currently is a Vice President for Strategy and Business
Development at SmithKline Beecham Healthcare Services, the business development
division of SmithKline Beecham Corporation, a position she has held since
42
<PAGE>
October 1997, where her responsibilities include developing business plans,
long-range strategy and negotiating external alliances and investments. Prior
to that, Ms. Mackie served as Vice President, Group Business Initiatives for
SBHS from November 1996 to October 1997. From March 1996 to November 1996, she
was General Manager of Diversified Prescription Delivery, a pharmaceutical mail
services company and a wholly-owned subsidiary of Diversified Pharmaceutical
Services, a pharmaceutical benefit management group. From March 1993 to March
1996, she served as Vice President, Strategy Development, SmithKline Beecham
Pharmaceuticals, a pharmaceutical company. Ms. Mackie holds a B.S. in Chemistry
from the University of Illinois, a M.B.A. from The Massachusetts Institute of
Technology Sloan School of Management and a M.S. in Polymer and Fiber
Engineering from The Massachusetts Institute of Technology.
PHILIP B. SMITH, DIRECTOR. Mr. Smith has served as one of our directors since
November 1996. Since June 1998, Mr. Smith has served as a Vice Chairman of
Laird & Co., LLC, a merchant bank. In addition, from 1991 until August 1998,
Mr. Smith served as a Vice Chairman with Spencer Trask Securities Incorporated,
an investment banking firm. Mr. Smith served in a number of other senior
management positions. From June 1986 to June 1988, Mr. Smith served as Managing
Director of Prudential Securities, an investment firm, in its merchant bank
division. From December 1967 to December 1972, Mr. Smith served as President
and Chief Executive Officer of Citicorp Venture Capital, a venture capital
company which he founded. Mr. Smith currently serves on the board of directors
of Movie Gallery, Inc., Digital Video Systems, Inc., and KLS Enviro Resources,
Inc. Mr. Smith has a B.S.E. from Princeton University and a M.B.A. from the
Harvard Business School.
Key Employees
KENNETH ASARCH, VICE PRESIDENT--QUALITY SYSTEMS AND REGULATORY AFFAIRS. Dr.
Asarch has served as our Vice President--Quality Systems and Regulatory Affairs
since November 1996. From June 1995 to October 1996, Dr. Asarch served as
Director of Regulatory Affairs for SmithKline Beecham Clinical Laboratories,
Inc. and SmithKline Beecham Diagnostics Systems Co. Prior to that, he served as
Director of Regulatory Affairs, Quality Assurance and Clinical Affairs with
Diagnostic Products Corporation, an immuno-diagnostic testing company, from
1987 to 1995, where his duties included overseeing the FDA regulatory clearance
and approval process for approximately 150 blood testing products. Dr. Asarch
holds a B.S. in Biochemistry from the University of California at Los Angeles
and doctoral degrees in both Clinical Pharmacy (Pharm.D.) and Pharmaceutical
Sciences (Ph.D.) from the University of Southern California.
HARRY J. FINI, VICE PRESIDENT--SALES AND MARKETING. Mr. Fini has served as
our Vice President--Sales and Marketing since June 1997. From 1995 until he
joined us, Mr. Fini operated a consulting practice which assisted point-of-care
companies and venture capitalists in evaluating technologies, business
development, marketing and sales, and strategic planning. Prior to that, Mr.
Fini had more than 16 years of executive, sales and marketing experience,
including serving as Vice President of Sales and Marketing at i-STAT
Corporation, a medical diagnostic device manufacturer, from 1992 to 1995 where
he was responsible for marketing, market research, business development,
strategic planning and sales of a point-of-care in vitro blood diagnostics
device worldwide. From 1987 through 1992, Mr. Fini was employed at Bristol-
Myers Squibb Corporation, a pharmaceutical company, as Director of Marketing
and Sales in the managed healthcare area, and at Pyxis Corporation, a
manufacturer of drug distribution systems, as Vice President of Sales. Mr. Fini
received a B.A. in English from LaSalle College.
MARIJA N. VALENTEKOVICH, VICE PRESIDENT--MANUFACTURING. Dr. Valentekovich has
served as our Vice President--Manufacturing since January 1998 when she came
out of retirement to join us. Before that, Dr. Valentekovich served as a
Production Manager with Diagnostic Products Corporation from January 1989 to
July 1997. Dr. Valentekovich received a M.S. in Chemical Engineering and a
Ph.D. in Physical Organic Chemistry, using radioisotope techniques, from the
University of Zagreb, Croatia.
AGREEMENT RELATING TO ELECTION OF DIRECTORS
Each of our directors was nominated and elected pursuant to the terms and
conditions of a stockholders' agreement we entered into with our stockholders
and warrantholders in connection with two private placements
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<PAGE>
of our common stock in 1997 and 1998. Pursuant to this stockholders' agreement,
SmithKline Beecham Corporation was granted the right to nominate an individual
to our Board of Directors to serve as its representative. Spencer Trask
Securities Incorporated was also granted the right in the stockholders'
agreement to nominate one individual to our Board of Directors to serve as its
representative. Currently, Ms. Mackie serves as SmithKline's representative and
Mr. Smith serves as Spencer Trask's representative. Mr. Stoughton and Dr. Grove
were nominated and elected to our Board of Directors pursuant to this
stockholders' agreement. In addition, the stockholders' agreement requires that
three individuals who are independent of us and hold no more than five percent
of our common stock serve on our Board of Directors. The number of directors
permitted by the stockholders' agreement was increased from seven to nine with
the consent of Spencer Trask as called for in the stockholders' agreement. This
stockholders' agreement expires by its terms upon the completion of the
offering.
CLASSIFIED BOARD OF DIRECTORS
Upon completion of the offering, our Board of Directors will be divided into
three classes. Each class will contain, as nearly as possible, an equal number
of directors. Directors within each class will be elected to serve three-year
terms and approximately one-third of the directors will sit for election at
each annual meeting of our stockholders. Mr. Koch, Mr. Kermes and Mr. Smith
will serve in the class whose term expires in 1999. Dr. Grove, Mr. Flatley and
Ms. Mackie will serve in the class whose term expires in 2000. Mr. Stoughton,
Mr. Brenner and Mr. MacDonald will serve in the class whose term expires in
2001. A classified board of directors may have the effect of deterring or
delaying any attempt by any group to obtain control of us by a proxy contest
since such third party would be required to have its nominees elected at two
separate annual meetings of our Board of Directors in order to elect a majority
of the members of our Board of Directors. See "Description of Capital Stock--
Takeover Protection and Certain Charter and By-Law Provisions."
DIRECTOR COMPENSATION
Our non-employee directors receive an annual fee of $5,000 payable semi-
annually, plus $1,000 for each Board of Directors or committee meeting they
attend in person and $500 for those meetings they attend telephonically. Ms.
Mackie is precluded by SmithKline policy from receiving any fees or stock
options for her service as a director. We reimburse all reasonable expenses
incurred by the directors in attending Board of Directors or committee
meetings. In addition, the non-employee directors, other than the SmithKline
representative, Ms. Mackie, participate in our 1996 Incentive and Non-Qualified
Stock Option Plan. For each year that Mr. Brenner, Mr. Flatley, Mr. Kermes, Mr.
MacDonald and Mr. Smith served as directors, we granted each an annual option
to purchase 2,163 shares of common stock at the then applicable market price.
The options granted after the end of 1996 were issued at $5.20 per share. The
options granted after the end of 1997 were issued at $6.76 per share. Upon
completion of the offering, options granted to non-employee directors will only
be made under our 1998 Director Stock Option Plan. Under our 1998 Director
Stock Option Plan, we will grant each non-employee director an annual option to
purchase 2,000 shares of common stock at the then applicable market price. See
"--Stock Option Plans" and "Certain Transactions."
COMMITTEES OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board of Directors presently consists of
Mr. Stoughton, Mr. Brenner, Ms. Mackie and Mr. Smith. The Compensation
Committee makes recommendations to the Board of Directors concerning salaries
and incentive compensation for our officers and employees other than our Chief
Executive Officer, whose compensation is determined by the Board of Directors
after consultation with the non-employee directors on the Compensation
Committee. The Audit Committee of the Board of Directors presently consists of
Mr. Koch, Mr. Flatley, Mr. Kermes and Mr. MacDonald. The Audit Committee
reviews our financial statements and accounting practices, makes
recommendations to the Board of Directors regarding the selection of
independent auditors and reviews the results and scope of all audits and other
services provided by our independent auditors.
We also have granted rights to two parties to send observers to our Board
meetings. Pursuant to a letter agreement with Fahnestock & Co. Inc. entered
into in connection with the offering, Fahnestock has the right to
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<PAGE>
have one person of its choosing attend our Board meetings for up to 18 months
after completion of the offering. In addition, in connection with the bridge
financing, we granted S.R. One, Limited the right to send one observer to our
Board meetings. Each of these observers also has the right to receive materials
distributed to directors for the Board meetings. Before any information is
disclosed to these observers we will seek the agreement of Fahnestock's and
S.R. One's representatives to keep confidential all information received
through this arrangement and to abide by any and all trading restrictions that
apply to our directors generally. The observers from Fahnestock and S.R.One
shall not have any of the duties, powers or obligations of a director.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
While Mr. Stoughton, a member of our Compensation Committee, is our Chairman
of the Board of Directors and Chief Executive Officer, Mr. Brenner, Ms. Mackie
and Mr. Smith, the other members of our Compensation Committee, have not been,
at any time since our formation, an officer or employee of ours. In addition,
none of our executive officers serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving on our Board of Directors or Compensation Committee. Cedar Capital
Investors, an entity owned and controlled by Mr. Brenner, provided certain
financial consulting services to us immediately following our formation and up
to the completion of our private placement of common stock in 1997. As
consideration for such services, we reimbursed Cedar Capital's out-of-pocket
expenses and granted Cedar Capital an option to purchase 1,154 shares of common
stock at an exercise price of $.052 per share. Ms. Mackie, who serves as Vice
President for Strategy and Business Development at SmithKline Beecham
Healthcare Services, the business development division of SmithKline Beecham
Corporation, was nominated to serve on the Board of Directors by SmithKline
Beecham Corporation pursuant to the terms of a stockholders' agreement by and
among us and our stockholders and warrantholders prior to the offering. Mr.
Smith, who served as a Vice Chairman of Spencer Trask Securities Incorporated
until August 1998, was nominated to serve on the Board of Directors by Spencer
Trask Securities and was formerly a partner in Exigent Partners L.P. See "--
Agreement Relating to Election of Directors" and "Certain Transactions."
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
awarded to, earned by, or paid to our Chief Executive Officer and executive
officers whose salary and bonus exceeded $100,000 for all services rendered to
us during the years ended December 31, 1997 and 1998. No executive officer who
would otherwise have been includable in such table on the basis of salary and
bonus earned during the years ended December 31, 1997 and 1998 has resigned or
otherwise terminated employment during such years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
----------------- ------------
SECURITIES
NAME AND PRINCIPAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS(1) OPTIONS COMPENSATION(2)
------------------ ---- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
W. Vickery Stoughton...... 1998 $203,481 -- 9,135 $20,797
Chairman of the Board of 1997 $195,281 $27,000 158,655 $20,547
Directors and Chief
Executive Officer
Thomas H. Grove........... 1998 $163,880 -- 5,529 $ 8,603
Executive Vice 1997 $154,013 $25,000 79,327 $ 8,353
President--Research and
Development
</TABLE>
- --------
(1) Bonus earned in 1997 and paid in 1998.
(2) Includes $4,750 contributed under our 401(k) Plan for the benefit of each
of Mr. Stoughton and Dr. Grove in 1997 and $5,000 for the benefit of each
of Mr. Stoughton and Dr. Grove in 1998. Also includes $15,797 and $3,603 of
premiums paid for life insurance for Mr. Stoughton and Dr. Grove, in each
year, respectively.
45
<PAGE>
STOCK OPTIONS GRANTED TO EXECUTIVE OFFICERS DURING 1998
The following table sets forth certain information regarding options for the
purchase of common stock that were granted to certain executive officers during
the year ended December 31, 1998:
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
NUMBER OF PERCENT OF VALUE AT ASSUMED
SHARES TOTAL ANNUAL RATES OF STOCK
UNDERLYING OPTIONS EXERCISE OR PRICE APPRECIATION FOR
OPTIONS GRANTED BASE PRICE OPTION TERM (4)
GRANTED TO EMPLOYEES PER SHARE EXPIRATION -----------------------
NAME (1) IN 1998 (2) (3) DATE 5% 10%
---- ---------- ------------ ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
W. Vickery Stoughton.... 7,212 7% $6.76 7/30/08 $ 30,659 $ 77,695
1,923 2% $7.28 11/05/08 $ 8,805 $ 22,312
Thomas H. Grove......... 3,606 4% $6.76 7/30/08 $ 15,329 $ 38,847
1,923 2% $7.28 11/05/08 $ 8,805 $ 22,312
</TABLE>
- --------
(1) All options were granted under our 1996 Incentive and Non-Qualified Stock
Option Plan. The first listed grant for each person vested or will vest 12%
on December 31, 1998, 1999, 2000, 2001 and 2002 and 40% on July 30, 2007.
The second listed grant vested or will vest 20% on each December 31,
commencing December 31, 1998. See "--Stock Option Plans."
(2) Based on an aggregate of 102,329 shares of common stock underlying options
granted to employees in 1998.
(3) Options were granted at fair market value, as determined by our Board of
Directors, based on all factors available to them on the date of grant.
These factors included our history and prospects, as well as the history
and prospects of our industry, an assessment of our past and present
operations and financial performance, the prospects for our future
earnings, the present state of our development, the possibility of an
initial public offering by us and market prices of publicly traded common
stocks of comparable companies in recent periods.
(4) Assumes stock price appreciation of 5% and 10% compounded annually from the
date the respective options were granted to their expiration date, as
mandated by the rules of the Securities and Exchange Commission, and does
not represent our estimate or projection of the future appreciation of our
stock price. Actual gains, if any, on stock option exercises and common
stock holdings, are dependent upon the timing of such exercise and the
future performance of the common stock and may be greater or less than the
potential realizable value set forth in the table.
The following table sets forth certain information regarding options held as
of December 31, 1998 by certain executive officers. None of such executive
officers exercised options during the year ended December 31, 1998.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR- IN-THE-MONEY OPTIONS AT
END FISCAL YEAR-END (1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
W. Vickery Stoughton....... 81,865 85,923 $287,333 $295,138
Thomas H. Grove............ 41,048 43,808 $151,453 $155,749
</TABLE>
- --------
(1) There was no public trading market for the common stock as of December 31,
1998. Accordingly, these values have been calculated on the basis of the
assumed initial public offering price of $9.00 per share minus the
applicable per share exercise price.
46
<PAGE>
EMPLOYMENT AGREEMENTS
We are party to employment agreements with each of Mr. Stoughton, Dr. Grove
and Mr. Koch. On the anniversary date of each employment agreement, the
agreement is automatically extended for three-year rolling terms unless either
party, at least 60 days prior to the annual extension date, gives notice that
the employment agreement shall not be extended or otherwise terminates the
agreement. Mr. Stoughton, Dr. Grove and Mr. Koch may resign upon 90 days notice
to us. Under the employment agreements, if Mr. Stoughton, Dr. Grove or Mr. Koch
is terminated by us, other than for cause, including disloyalty, dishonesty,
fraud, conviction of a felony, the disclosure of confidential information and
the like, or disability, or if such officer terminates the employment agreement
as a result of a reduction in his duties, our breach of the employment
agreement or a transaction resulting in our sale, such officer will be entitled
to have his base salary, bonus and stock options, continue to accrue through
the end of the then current term that would exist absent such termination. The
employment agreements prohibit Mr. Stoughton, Dr. Grove and Mr. Koch from
engaging in the point-of-care diagnostics business during the term of such
employment agreements. These non-compete clauses will remain in effect for one
year after the expiration or termination of employment. If, however, the term
of employment had continued for at least two years then the non-compete clauses
have no effect when employment is terminated or expires. However, if we
terminate employment without cause or if the employee terminates his employment
following our breach of the agreement or because of a change of control, the
non-compete clause terminates.
Under their respective employment agreements, Mr. Stoughton serves as our
Chairman of the Board of Directors and Chief Executive Officer, and currently
earns an annual base salary of $210,893, Dr. Grove serves as Executive Vice
President--Research and Development, and currently earns an annual base salary
of $167,633, and Mr. Koch serves as our Chief Financial Officer, Treasurer and
Executive Vice President, and currently earns an annual base salary of
$160,000. In addition, Mr. Koch received a $15,000 relocation allowance in
connection with entering into his employment agreement. At the discretion of
our Board of Directors, an annual bonus may be paid to Mr. Stoughton, Dr. Grove
and Mr. Koch. In each case, we may agree to future raises and other
compensation for each of Mr. Stoughton, Dr. Grove and Mr. Koch. In addition,
Mr. Stoughton, Dr. Grove and Mr. Koch are eligible to receive stock options
pursuant to the 1996 Incentive and Non-Qualified Stock Option Plan, the 1996
Key Executive Stock Option Plan and the 1998 Incentive and Non-Qualified Stock
Option Plan. Such executive officers are also entitled to reimbursement for
certain travel and entertainment expenses incurred in connection with the
performance of their duties.
STOCK OPTION PLANS
Prior to completion of the offering, we have had two stock option plans in
place: the 1996 Incentive and Non-Qualified Stock Option Plan and the 1996 Key
Executive Stock Option Plan. These plans provide for the grant of stock options
to purchase up to 576,923 shares of common stock. To date, we have granted
options to purchase 430,309 shares of common stock under these plans. Of these,
options to purchase 411,923 shares are outstanding. The weighted average
exercise price of options outstanding under the plans is $5.80. To date, we
have granted Mr. Stoughton, Dr. Grove, Mr. Koch, Dr. Asarch, Mr. Fini and Ms.
Valentekovich options to purchase 167,788, 84,856, 41,587, 21,875, 38,462 and
5,769 shares of common stock, respectively, at a weighted average exercise
price of $5.81. We have also granted options to purchase an aggregate of
19,471 shares of common stock to non-employee directors for their service as
directors. We may grant options to purchase 147,287 shares of common stock in
the future under the 1996 plans.
Upon completion of the offering, two additional option plans will take
effect: the 1998 Incentive and Non-Qualified Stock Option Plan and the 1998
Director Stock Option Plan. These 1998 plans provide for the grant of stock
options to purchase up to 565,000 and 60,000 shares of common stock,
respectively.
The purpose of our stock option plans is to promote our long-term growth and
profitability by providing key personnel with incentives to improve stockholder
value and to contribute to our growth and financial success. After completion
of this offering, options may be awarded under the 1996 plans and the 1998
47
<PAGE>
Incentive and Non-Qualified Stock Option Plan to our executive officers,
employees and consultants. Only non-employee directors will be eligible for
awards under the 1998 Director Stock Option Plan.
Our option plans are administered by our Board of Directors or a committee of
the Board. They decide the types of options to be granted, the number of shares
to be covered, the exercise price of each stock option, the expiration date of
each stock option, the vesting schedule and any other material provisions.
Non-employee directors have received automatic, fully-vested option grants
under the 1996 Incentive and Non-Qualified Stock Option Plan. After completion
of the offering, each year, we will automatically grant each non-employee
director an option to purchase 2,000 shares of common stock under the 1998
Director Stock Option Plan. Director options always have a fair market value
exercise price. Such options vest at the end of the year of service as a
director to which the option relates. All director options under the 1998
Director Stock Option Plan generally will be exercisable for a period of five
years.
Option grants to our employees may take the form of either incentive stock
options, which are intended to qualify for preferential tax treatment under
Section 422 of the Internal Revenue Code, or non-qualified stock options, which
do not qualify for such treatment. Directors may receive only non-qualified
stock options. The exercise price of an incentive stock option generally must
not be less than the fair market value of the common stock on the date the
option is granted. The exercise price of a non-qualified stock option will be
stated in the option agreement governing the non-qualified stock option and is
not required by the option plans to be the fair market value of the common
stock on the date the option is granted.
In the event of any stock dividend, stock split, reverse stock split,
recapitalization or reclassification, involving us, appropriate proportional
adjustments will be made in the number of shares reserved for issuance under
the option plans, and the number, kind and price of shares covered by
outstanding grants. The option plans also provide for the ability of the Board
of Directors or a committee to accelerate the exercise date of any options
granted thereunder. Options may not be exercised more than 10 years after the
date of grant. In some cases, shorter periods apply. Shares underlying options
that lapse or expire are returned to the pool of shares available under the
plans. Grants under any option plan may only be made during the 10 year period
after the plan's adoption.
Our stock option plans may be amended by the Board of Directors so long as
such amendment does not change the terms of any outstanding option without the
affected optionee's consent or increase the number of shares that are the
subject of the plans.
EMPLOYEE STOCK PURCHASE PLAN
Our Board of Directors adopted an Employee Stock Purchase Plan in November
1998. This plan qualifies as an employee stock purchase plan under Internal
Revenue Code Section 423 and will be effective upon completion of the offering.
It allows employees to purchase, in the aggregate, up to 150,000 shares of our
common stock at a discount through payroll deductions. The purchase price per
share offered under the Employee Stock Purchase Plan will be 85% of the lesser
of the fair market value per share on the first or last trading day of the
quarter. Stock purchased will not be subject to taxes until sold. The plan is
designed to encourage and facilitate the purchase of common stock by our
employees and thereby to provide our employees with both a personal stake in
our business and a long range inducement to remain our employee. Each of our
full-time employees is eligible to participate in the Employee Stock Purchase
Plan.
The number and price of shares of common stock available for purchase under
the plan is subject to adjustment in the event the outstanding shares of common
stock are increased or decreased through stock dividends, recapitalizations,
reorganizations or similar changes. The plan is to be administered by our Board
of Directors or a committee of the Board.
48
<PAGE>
All funds we hold or receive under the Employee Stock Purchase Plan may be
used for any corporate purpose until applied to the purchase of shares of
common stock or refunded to employees and will not be segregated from our
general assets. We will pay all fees and expenses incurred (excluding
individual federal, state, local or other taxes) in connection with the
Employee Stock Purchase Plan.
Unless stockholder approval is required by law, the Board of Directors or a
committee of the Board of Directors has the right to amend, modify or terminate
the Employee Stock Purchase Plan at any time without notice, provided that no
employee's then existing rights are adversely affected without his or her
consent.
401(K) PLAN
We have a 401(k) Salary Reduction Plan and Trust for eligible employees.
Eligible employees may contribute up to 15% of their current compensation, up
to a statutorily prescribed annual limit, to the 401(k) plan. Each participant
is fully-vested in his or her deferred salary contributions. A participant's
contributions are held in trust and invested pursuant to his or her directions
from among 20 or more investment funds made available under the 401(k) plan. We
may make matching contributions of 50% of each participant's deferred salary
contributions, up to a maximum of 4% of such participant's compensation. Our
matching contributions vest after a participant has completed three years of
service with us, or earlier upon attainment of age 55, death while in service,
retirement for disability or termination of the 401(k) plan. Payment of 401(k)
plan benefits are made in a single lump-sum payment. Distribution of a
participant's vested interest in his or her account generally occurs after a
participant's termination of employment for any reason, including retirement,
death or disability.
49
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of common stock as of January 29, 1999, by (1) each person or group
of affiliated persons known by us to be the beneficial owner of more than 5% of
our outstanding common stock, (2) each of our directors, (3) each of our
executive officers and (4) all of our executive officers and directors as a
group. As of such date, there were 5,084,281 shares of common stock outstanding
before giving effect to the sale of common stock in the offering.
Unless otherwise noted, we believe that all persons named in the table have
sole voting and investment power with respect to all shares beneficially owned
by them. A person is deemed to be the beneficial owner of securities that can
be acquired by such person within 60 days from January 29, 1999 upon the
exercise of warrants or options. Each beneficial owner's percentage ownership
is determined by assuming that options or warrants that are held by such person
(but not those held by any other person) and which are exercisable within 60
days from January 29, 1999 have been exercised. The address for Mr. Kimberlin
is c/o Spencer Trask Securities Incorporated, 535 Madison Avenue, 18th Floor,
New York, New York 10022. The address for Mr. Stoughton and Dr. Grove is c/o
Careside, Inc., 6100 Bristol Parkway, Culver City, California 90230. The
address for Venturetech, Inc. is c/o Friedli Corp. Finance, Freigustrasse 5,
8002 Zurich, Switzerland. The address for SmithKline Beecham Corporation is One
Franklin Plaza, Philadelphia, Pennsylvania 19101.
<TABLE>
<CAPTION>
SHARES PERCENTAGE PERCENTAGE
OF SHARES OWNED OWNED
COMMON UNDERLYING BEFORE AFTER
NAME OF BENEFICIAL OWNER STOCK OPTIONS/WARRANTS OFFERING OFFERING
------------------------ ------- ---------------- ---------- ----------
<S> <C> <C> <C> <C>
Kevin Kimberlin.............. 765,891(1) 336,349(2) 20.3% 13.4%
W. Vickery Stoughton......... 285,005 152,692 8.4% 5.5%
Venturetech, Inc............. 373,521 42,973(3) 8.1% 5.3%
SmithKline Beecham
Corporation................. 229,808 98,039(4) 6.3% 4.1%
Dr. Thomas H. Grove.......... 205,294 76,538 5.5% 3.6%
Philip B. Smith.............. 94,315(5) 113,098(6) 4.0% 2.6%
James R. Koch................ -- 32,673 * *
William F. Flatley........... 15,471 4,327 * *
Anthony P. Brenner........... 9,615 5,481(7) * *
Kenneth Kermes............... 2,959 2,163 * *
Diana Mackie................. 4,438 -- * *
C. Alan MacDonald............ -- 4,327 * *
All executive officers and
directors as a group
(9 persons)................. 617,097 391,299 18.4% 12.2%
</TABLE>
- --------
* Represents less than 1% of our outstanding shares of common stock.
(1) Includes 426,850 shares of common stock held by Oshkim Limited Partners,
L.P., and 339,041 shares of common stock held by Kevin Kimberlin Partners,
L.P., both of which are limited partnerships of which Mr. Kimberlin is the
general partner.
(2) Includes 20,517 shares of common stock issuable upon the exercise of
warrants held by Oshkim Limited Partners, L.P., and 38,095 shares of
common stock issuable upon the exercise of warrants held by Kevin
Kimberlin Partners, L.P. Also includes 277,737 shares of common stock
issuable upon the exercise of warrants owned by Spencer Trask Securities
Incorporated of which Mr. Kimberlin is Chairman and exercises voting
control. See "Certain Transactions--Financing Activities."
(3) Includes 42,973 shares of common stock issuable upon the exercise of
warrants owned by Mr. Peter Friedli, the controlling stockholder of
Venturetech, Inc., or by Pine Incorporated, a corporation owned by Mr.
Friedli. Such shares issuable upon exercise of warrants are included in
the table above as Mr. Friedli exercises control of both Venturetech, Inc.
and Pine Incorporated.
(4) Includes 98,039 shares of common stock issuable upon exercise of warrants
held by S.R. One, Limited, an affiliate of SmithKline Beecham Corporation.
Notwithstanding the exercisability of the bridge warrant by its terms,
S.R. One has separately agreed not to exercise it until the earlier of six
months after the offering or December 17, 1999.
(5) Includes 50,952 shares of common stock owned by Private Equity
Partnership, of which Mr. Smith is the general partner.
(6) Includes 108,771 shares of common stock issuable upon exercise of warrants
held by Private Equity Partnership.
(7) Includes 1,154 shares of common stock issuable upon the exercise of
options which were issued pursuant to a consulting agreement with an
affiliate of Mr. Brenner. See "Certain Transactions--Financing
Activities".
50
<PAGE>
CERTAIN TRANSACTIONS
SmithKline Beecham
In July 1996, we entered into a letter of intent with SmithKline Beecham
Corporation and SmithKline Beecham Diagnostics Systems Co., an affiliate of
SmithKline Beecham Corporation, with respect to their point-of-care development
program. Pursuant to such letter of intent, SmithKline Beecham Corporation
supported the point-of-care development program by funding $1.8 million of the
program's operating expenses for the transition period from July 1, 1996
through October 31, 1996. This funding has been reflected in the Statement of
Operations of the predecessor business for the ten months ended October 31,
1996. Pursuant to an asset purchase agreement, SmithKline Beecham Diagnostics
Systems Co. and SmithKline Beecham Clinical Laboratories, Inc., sold us certain
fixed and intangible assets used in connection with the point-of-care
development program. As consideration for the purchase of the assets,
SmithKline Beecham Diagnostics Systems Co. was issued 5% of our total common
stock outstanding at that time. This stock was later transferred to SmithKline
Beecham Corporation. Ms. Mackie, Vice President for Strategy and Business
Development at SmithKline Beecham Healthcare Services, a division of SmithKline
Beecham Corporation, has served as one of our directors since February 1997 as
a representative of SmithKline Beecham Corporation. SmithKline Beecham
Corporation is one of our significant stockholders.
In addition to the operating funding provided during the transition period,
SmithKline Beecham Corporation made available to us a $1.0 million credit
facility at an interest rate of 8% per annum. We used the $1.0 million to fund
research and development and to establish our production facility by funding
capital purchases, rental payments for our facilities in Culver City,
California and operating expenses. In January 1997, the SmithKline Beecham
Corporation credit facility was converted into an additional 2% of our
outstanding common stock simultaneously with the initial closing of our 1997
private placement of common stock.
Simultaneously with the closing of the asset purchase, we entered into a
distribution and supply agreement with SmithKline Beecham Clinical
Laboratories, Inc. pursuant to which SmithKline received exclusive distribution
rights to sell our products to segments of the commercial laboratory industry.
The exclusive distribution rights will extend to ten of the following
countries: United States, Great Britain, Mexico, Spain, South Africa,
Singapore, Malaysia, Indonesia, Australia, Chile, Argentina, France or Germany,
to the extent and for so long as SmithKline or one of its affiliates owns,
operates or manages a clinical laboratory in such country on or before December
31, 2000. Whenever we obtain the necessary approvals to market and sell our
products in a listed country, SmithKline must submit purchase orders for the
products within designated time periods in order to preserve its exclusive
rights in that country. Otherwise, we will be free to sell our products in that
country to the commercial laboratory industry as well. Our ability to sell our
products outside the commercial laboratory industry is not limited by the
contract with SmithKline. SmithKline and its affiliates are not restricted from
entering into similar commercial distribution arrangements with other point-of-
care diagnostic companies. In consideration for this grant of exclusivity,
SmithKline will pay us an annual fee of up to $100,000 commencing on the date
of FDA approval of the CareSide Analyzer and 25 designated tests. Subject to
earlier termination, the distribution and supply agreement will terminate five
years from the date of such FDA approval.
Under the distribution and supply agreement, SmithKline will, until December
31, 2000 or any earlier termination of the agreement, supply us with clinical
samples to enable us to validate tests for our research and development of
point-of-care products. We will bear the cost of retrieving the samples and
conducting our comparative validation tests. In addition, the distribution and
supply agreement obligates SmithKline, upon FDA approval of the CareSide
Analyzer and 25 designated tests, to purchase minimum numbers of CareSide
Analyzers and test cartridges from us for the first five years following such
FDA approval. We have agreed to supply SmithKline with its requirements of
CareSide Analyzers and cartridges at our cost plus a reasonable margin. If we
do not develop the CareSide Analyzer and obtain FDA approval of the 25
designated tests by December 31, 2000, SmithKline has the option to terminate
the agreement or waive the FDA approval requirement.
51
<PAGE>
Under our distribution and supply agreement with SmithKline, all intellectual
property rights to patents, trademarks or otherwise which are associated with
the marketing and development of point-of-care products remain with us although
we share certain rights and responsibilities with SmithKline in the protection
of these rights.
Financing Activities
On December 2, 1996, in connection with the establishment of a $1 million
working capital facility, we issued 557,600 shares of common stock to Exigent
Partners, L.P. for an aggregate purchase price of $98,995. The working capital
facility was arranged by Exigent Partners, L.P. to be provided to us in the
form of a $1.0 million irrevocable letter of credit from Citibank, N.A.,
secured by pledges of cash or cash equivalents by Exigent Partners, L.P. The
general partner of Exigent Partners, L.P. was Kevin Kimberlin, an affiliate of
Spencer Trask Securities Incorporated and one of our principal stockholders,
and the limited partners were Mr. Stoughton and Dr. Grove, two of our executive
officers and directors, and Mr. Smith, one of our directors. Of the 557,600
shares of common stock issued to Exigent Partners, L.P., Mr. Kimberlin took
beneficial ownership of 426,850 shares of common stock, and Mr. Stoughton and
Dr. Grove took beneficial ownership of 36,802 and 18,958 shares of common
stock, respectively. We repaid all funds drawn under the facility and the
letter of credit, both of which have since terminated. Exigent Partners, L.P.
was dissolved and each of its partners received a pro rata distribution of
shares of common stock. See "Principal Stockholders."
In 1997 and 1998, we undertook two private placements of our common stock,
both of which were completed through Spencer Trask Securities Incorporated.
Spencer Trask received approximately $2.5 million in commissions and expenses
from the private placements, which generated aggregate net proceeds to us of
$19.0 million. Affiliates of Spencer Trask, including its employees, received
warrants to purchase 384,615 shares of common stock at $5.20 per share in the
1997 private placement and warrants to purchase 340,238 shares of common stock
at $6.76 per share in the 1998 private placement. Warrants issued in connection
with both private placements will expire three years from the closing of the
offering.
As partial consideration for its services in the 1997 private placement,
Spencer Trask was granted a right of first refusal to act as underwriter or
agent for any proposed public offering or any private placement of our
securities. Spencer Trask was also granted the right to purchase securities in
any such offering in which purchasers in the 1997 private placement are
entitled to preemptive rights or in any sale of common stock by the former
partners of Exigent Partners, L.P. Spencer Trask has waived all such rights in
connection with the offering. Upon completion of the offering, Spencer Trask
will be paid $100,000 pursuant to a letter agreement signed in connection with
the 1998 private placement.
At the first closing of the 1997 private placement, we entered into an
investment banking agreement with Spencer Trask pursuant to which Spencer Trask
will receive a percentage, ranging from seven percent to two and one-half
percent depending upon the size of the transaction involved, of the
consideration involved in any transaction we undertake with a person introduced
to us by Spencer Trask in the five years ending March 2002. The agreement also
provides for Spencer Trask, subject to certain terms and conditions, to act as
our exclusive representative in advising us with respect to executive
compensation benefits, insurance and retirement planning, providing us with
certain investment banking services and addressing our cash management needs.
Spencer Trask has waived all such rights relating to investment banking
services.
In connection with the 1997 and 1998 private placements, we entered into a
stockholders' agreement with each of our stockholders and warrantholders. The
stockholders' agreement, which expires by its terms upon completion of the
offering, provided for the nomination and election of each of our current
directors including Diana Mackie, Vice President of a division of SmithKline
Beecham Corporation. See "Management-- Agreement Relating to Election of
Directors."
52
<PAGE>
In December 1997, Cedar Capital Investors, an entity owned and controlled by
Anthony P. Brenner, one of our directors, provided certain financial consulting
services to us in connection with the 1998 private placement. In consideration
for providing such services, Cedar Capital Investors was reimbursed $6,651 for
out-of-pocket expenses and received options to purchase 1,154 shares of common
stock at an exercise price of $.052 per share. These options remain exercisable
until August 8, 2007.
In July 1998, in connection with the relocation of James R. Koch, our Chief
Financial Officer, Treasurer and Executive Vice President, as well as one of
our directors, from Texas to the Los Angeles area in August 1998, we provided a
bridge loan to Mr. Koch, pursuant to a promissory note executed in our favor by
Mr. Koch, in the aggregate principal amount of $125,000. The bridge loan, which
was subject to an interest rate of 7.5% per annum, was paid in full by Mr. Koch
on September 21, 1998. As of that date, an aggregate of $125,911 in principal
and interest was owing under the promissory note.
In December 1998, we entered into a bridge financing with S.R. One, Limited,
a business trust controlled by SmithKline Beecham Corporation. For
consideration of $3.0 million, cash, we issued S.R. One a $3.0 million note
payable and a detachable bridge warrant for the purchase of that number of
shares of common stock which is equal to $750,000 divided by 85% of the initial
public offering price per share of common stock in the offering. In addition,
for so long as S. R. One owns the bridge warrant or shares purchased upon
exercise of the bridge warrant, it has the right to have a representative
observe our Board of Directors' meetings and receive all information
distributed to our directors in connection with such Board of Directors'
meetings. Before any information is disclosed to such representative, we will
seek the agreement of the representative to keep such information confidential
and to abide by any and all trading restrictions that apply to our directors
generally. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
We consider the terms of all of the above-referenced transactions to be at
arm's length and reasonably equivalent to terms it could have obtained through
negotiations with unaffiliated third parties under similar economic conditions.
Any transactions undertaken in the future, including loans, we enter into with
any of our officers, directors and principal stockholders or their affiliates,
will be approved by a majority of the entire Board of Directors, and will be on
terms no less favorable to us than could be obtained from unaffiliated third
parties. See "Description of Capital Stock--Takeover Protection and Certain
Charter and By-Law Provisions."
53
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of the offering, our authorized capital stock will consist of
(1) 50,000,000 shares of common stock, $.01 par value per share and (2)
5,000,000 shares of preferred stock, $.01 par value per share, of which there
will be 7,884,281 shares of common stock and no shares of preferred stock
outstanding, assuming no exercise of the underwriters' over-allotment option.
The following description of our capital stock is a summary and is qualified in
its entirety by the provisions of our Amended and Restated Certificate of
Incorporation and Amended and Restated By-Laws, copies of which have been filed
as exhibits to the registration statement of which this prospectus forms a
part.
COMMON STOCK
The issued and outstanding shares of common stock being offered hereby will
be, when sold and issued in accordance herewith, validly issued, fully paid and
non-assessable. Each holder of shares of common stock will be entitled to one
vote for each share held of record and may not cumulate votes for election of
directors. The shares will not be entitled to preemptive rights under
applicable law and will not be subject to redemption or assessment. Subject to
the rights and preferences of the holders of any preferred stock outstanding in
the future, upon our liquidation, dissolution or winding-up, the holders of
shares of common stock will be entitled to receive, pro rata, our assets which
are legally available for distribution to stockholders. In addition, subject to
the rights and preferences of the holders of any preferred stock outstanding in
the future, the holders of shares of common stock will be entitled to share
ratably in dividends as, if and when declared by our Board of Directors. We do
not anticipate that any dividends will be paid in the foreseeable future. As of
December 31, 1998, there were 433 holders of common stock.
PREFERRED STOCK
In addition to the common stock, we are, without further action by
stockholders, also authorized to issue up to 5,000,000 shares of preferred
stock. Our Board of Directors may determine the timing, series, designation,
and number of shares of preferred stock to be issued, as well as the rights,
preferences, and limitations of such shares, including those relating to voting
power, redemption, conversion, dividend rights, and liquidation. The issuance
of preferred stock could adversely affect the voting power of the holders of
common stock or have the effect of deterring, delaying or preventing any
attempt by a person, entity or group to obtain control of us. We have no
current plans to issue any shares of preferred stock.
WARRANTS
As of December 31, 1998, we had outstanding exercisable warrants to purchase
384,615 shares of common stock at $5.20 per share. These warrants were issued
in connection with the 1997 private placement and will expire on the later of
three years from the completion of the offering. In addition, as of December
31, 1998, we had outstanding exercisable warrants to purchase 340,238 shares of
common stock at $6.76 per share. These warrants were issued in connection with
the 1998 private placement and will expire three years from the closing of the
offering. Further, we issued a bridge warrant to S.R. One, Limited in
connection with the bridge financing. The bridge warrant will become
exercisable on the earlier of December 17, 1999 or six months after the
completion of the offering for the number of shares of common stock which is
equal to $750,000 divided by 85% of the initial public offering price per share
of the common stock in the offering. The bridge warrant would be exercisable
for 98,039 shares if the initial public offering price were $9.00 per share.
The bridge warrant has an exercise price of 85% of the initial public offering
price. If the bridge financing is not repaid by June 30, 1999, the bridge
warrant becomes exercisable for twice as many shares of common stock. The
bridge warrant will expire four years after completion of the offering. Upon
the completion of the offering, an additional 280,000 warrants will be issued
to the representatives of the underwriters. These warrants will have an
exercise price equal to 120% of the initial public offering price and will
expire five years from the date of their issuance. See "Underwriting."
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<PAGE>
REGISTRATION RIGHTS
Granted in Private Placements
We granted investors in the 1997 and 1998 private placements of common stock
demand and incidental registration rights. These include the right of the
holders of a majority of the registrable shares to demand registration of their
shares and the right of these investors to include their shares in other
registrations of our equity securities, other than in connection with issuances
under our benefit and other employee plans. We granted similar rights with
respect to the shares underlying the warrants issued to Spencer Trask
Securities Incorporated in connection with the 1997 and 1998 private
placements. In addition, we agreed to effect a registration under the
Securities Act for the resale of the common stock purchased by investors in the
1997 private placement automatically within 180 days after the date of this
prospectus. We also agreed to effect a registration for the resale of the
common stock purchased by investors in the 1998 private placement automatically
within 360 days after the date of this prospectus. This automatic registration
may be delayed by Spencer Trask together with Fahnestock & Co Inc. If we fail
to register the common stock underlying the shares in accordance with the terms
of the agreements with the investors in the 1997 and 1998 private placements,
we must either repurchase the shares at the fair market value or give investors
the ability to elect a majority of our Board of Directors in order to provide
liquidity. Pursuant to powers of attorney granted by many investors, and
amendments and waivers to the registration agreements, our obligation to effect
such registrations has been deferred until one year after the date of this
prospectus.
Granted to SmithKline
We have also granted demand and incidental registration rights to SmithKline
Beecham Corporation for the registration under the Securities Act of the resale
of any or all of the common stock held by it at any time after the date of this
prospectus. SmithKline has agreed not to make a demand for registration for a
period of at least one year after the offering. If we register an issuance of
our equity securities, other than shares issuable under employee or other
benefit plans, SmithKline may request that its shares be included in the
registration.
Granted to Management and Exigent Partners, L.P.
Additionally, Messrs. Stoughton and Smith, Drs. Grove and Asarch and three of
our employees and the former partners of Exigent Partners, L.P. have also been
granted demand and incidental registration rights with respect to their common
stock. The holders of a majority of all registrable securities owned by these
stockholders may demand on two occasions registration for the resale of any or
all of their shares. If we register an issuance of our equity securities, other
than shares issuable under our employee or other benefit plans, these holders
may request to include their shares in the registration.
Granted to S.R. One
In December 1998, we granted demand and incidental registration rights to
S.R. One, Limited in connection with the bridge financing. S.R. One may demand
that their shares of common stock purchased upon exercise of the bridge warrant
be registered under the Securities Act. S.R. One may make such demand anytime
after one year and before three years after this offering. S.R. One has the
same incidental registration rights as SmithKline, described above.
Granted to Representatives
Finally, pursuant to a warrant agreement that we will enter into with each of
the representatives of the underwriters, we will agree, on or before the date
which is one year after the issuance of the representatives' warrants, to file
a registration statement under the Securities Act covering the common stock
issuable upon the
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<PAGE>
exercise of the representatives' warrants. Such registration statement will
allow the representatives of the underwriter to offer and resell such shares of
common stock to the public. We will cause the registration statement to remain
effective until the earlier of the time that all of the representatives'
warrants have been exercised and the date which is five years after the
issuance of such warrants. All expenses incurred in connection with the
registration of the shares issuable upon the exercise of the representatives'
warrants will be borne by us. Under the warrant agreement, the parties will
also be bound by standard indemnification and contribution provisions with
respect to the registration of the warrant shares issuable upon the exercise of
the representatives' warrants.
General
As of December 31, 1998, there were 5,084,281 shares of common stock subject
to registration rights. We will pay for all expenses incurred in connection
with these registrations, other than underwriting discounts and commissions.
The registration agreements also provide for customary indemnification and
contribution provisions involving the participants in any registration effected
pursuant thereto. The foregoing is only a summary of certain of the terms and
conditions of the registration rights agreements involving such parties. Copies
of the actual agreements have been filed with the Securities and Exchange
Commission as exhibits to the registration statement of which this prospectus
is a part.
TAKEOVER PROTECTION AND CERTAIN CHARTER AND BY-LAW PROVISIONS
Certain provisions of the Delaware General Corporation Law (the "DGCL"), our
Amended and Restated Certificate of Incorporation (the "Charter") our Amended
and Restated By-Laws (the "By-Laws") and our stock option plans may have an
anti-takeover effect and may delay, deter or prevent a tender offer, proxy
contest or other takeover attempt. This may be true even in circumstances where
a takeover attempt might result in payment of a premium over market price for
shares held by stockholders.
Following the completion of the offering, we will become subject to Section
203 of the DGCL. Section 203 prohibits, subject to certain exceptions, a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years following the date that such
stockholder became an interested stockholder. A business combination includes
mergers, asset sales and other transactions that may result in a financial
benefit to stockholders. A person will be deemed an interested stockholder
triggering this protection if the person together with any affiliates or
associates of such person, beneficially owns, directly or indirectly, 15% or
more of our outstanding voting stock. There are three exceptions to these
provisions. First, if our Board of Directors gives prior approval to either the
business combination or the transaction which resulted in the stockholder
becoming an interested stockholder then the restrictions do not apply. Second,
the restrictions will not apply if, upon the consummation of the transaction
which resulted in the stockholder becoming an interested stockholder, the
interested stockholder owns at least 85% of our outstanding voting stock.
Finally, the restrictions will not apply if, at the time of or following the
consummation of the transaction in which the stockholder became an interested
stockholder, our Board of Directors approves the business combination and
stockholders holding at least 66 2/3% of our outstanding voting stock not owned
by the interested stockholder authorize the business combination.
Upon completion of the offering, our Board of Directors will be divided into
three classes of directors each containing, as nearly as possible, an equal
number of directors. Directors within each class will serve three-year terms.
Approximately one-third of the directors will sit for election at each annual
meeting of our stockholders. All directors elected to our classified Board of
Directors serve until the election and qualification of their successors or
their earlier resignation or removal. The Board of Directors may create new
directorships and fill such positions so created. In addition, the Board of
Directors or its remaining members, even though
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<PAGE>
less than a quorum may fill vacancies on the Board of Directors occurring for
any reason until the next annual election of directors. Members of the Board of
Directors may only be removed for cause. These provisions may have the effect
of deterring or delaying any attempt by any group to obtain control of us by a
proxy contest. For example, a third party would be required to have its
nominees elected at two separate annual meetings in order to elect a majority
of the members of the Board of Directors.
We may issue 5,000,000 shares of undesignated preferred stock. Under certain
circumstances, the issuance of preferred stock could be utilized as a method of
discouraging, delaying or preventing a change in control of our stock.
Our Charter provides that any action required or permitted to be taken by our
stockholders may be effected only at an annual or special meeting of
stockholders. Such action will not be permitted to be taken by written consent
in lieu of a meeting. Our Charter and the By-Laws also provide that special
meetings of stockholders may only be called by a majority of our Board of
Directors, our Chairman or our Chief Executive Officer. Stockholders will not
be permitted to call a special meeting or to require that our Board of
Directors call a special meeting of stockholders.
Our Charter provides that any director or the entire Board of Directors may
be removed only for cause and only upon the affirmative vote of holders of 80%
or more of the outstanding shares of our capital stock. Further, our Charter
provides that the amendment of this provision for removing directors for cause
may only be amended by the affirmative vote of at least 75% of the voting power
of all the then outstanding shares of our capital stock voting together as a
single class.
Our By-Laws establish an advance notice procedure for nomination, other than
by or at the direction of our Board of Directors, of candidates for election as
directors. Advance notice procedures also exist for other stockholder proposals
to be considered at annual or special meetings of stockholders. In general, we
must receive notice of intent to nominate a director or raise business at an
annual meeting not less than 60 nor more than 90 days prior to the scheduled
annual meeting. In the case of a special meeting called for the purpose of
electing directors, such notice of intent must be received not later than the
close of business on the fifth day following the day on which notice of the
date of the meeting was mailed. Such notice of intent must contain certain
specified information concerning the person to be nominated or the mater to be
brought before the meeting.
In addition, our By-Laws allow our Board of Directors to increase the number
of directors from time to time although a decrease in the number of directors
may not have the effect of shortening the term of any incumbent director. Our
By-Laws also grant the Board of Directors the authority to fill any vacancies
on the Board of Directors, including vacancies resulting from an increase in
the number of directors. Our Charter states that our By-Laws may be amended by
the stockholders only by the vote of not less than 80% of the outstanding
shares of stock entitled to vote upon the election of directors.
The provisions of the Charter and the By-Laws summarized in the preceding
paragraphs may have the effect of delaying, deferring or preventing a non-
negotiated merger or other business combination involving us. These provisions
are intended to encourage any person interested in acquiring us to negotiate
with and obtain the approval of our Board of Directors in connection with the
transaction. Certain of these provisions may, however, discourage our future
acquisition in a transaction not approved by our Board of Directors in which
stockholders might receive an attractive value for their shares or that a
substantial number or even a majority of our stockholders might believe to be
in their best interest. As a result, stockholders who desire to participate in
such a transaction may not have the opportunity to do so. Such provisions could
also discourage bids for our common stock at a premium, as well as create a
depressive effect on the market price of our common stock. See "Risk Factors--
Statute, Charter and Bylaws May Delay or Prevent Acquisition of Careside."
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Our stock option plans, in certain circumstances, allow our Board of
Directors or a committee thereof to accelerate the vesting or exercise date of
any options granted thereunder. The ability to accelerate the vesting or
exercise date of options could be utilized as a method of discouraging,
delaying or preventing a change in control of our stock. See "Management--Stock
Option Plans."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company, New York, New York.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, we expect to have 7,884,281 shares of common
stock outstanding, assuming no exercise of outstanding options or warrants, or
8,304,281 shares if the underwriters' over-allotment is exercised in full. Of
these shares, the 2,800,000 shares of common stock sold in the offering will be
freely tradeable without restrictions or further registration under the
Securities Act, except that any shares purchased by our "affiliates", as that
term is defined under the Securities Act, may generally only be sold in
compliance with the limitations of Rule 144 under the Securities Act. All of
the remaining outstanding shares of common stock are restricted securities
within the meaning of Rule 144 and may not be sold in the absence of
registration under the Securities Act unless an exemption from registration is
available, including the exemption from registration offered by Rule 144.
Holders of restricted shares of common stock have agreed (the "Lock-Up
Agreements") not to sell or otherwise dispose of any of their shares of common
stock for a period of one year after completion of the offering (the "Lock-Up
Period"), without the prior written consent of Fahnestock & Co. Inc., subject
to certain limited exceptions. After the expiration of the Lock-Up Period, or
earlier upon the prior written consent of Fahnestock, 5,084,281 shares of the
common stock may be sold in the public market pursuant to Rule 144.
In general, under Rule 144, as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned restricted
shares for at least one year, including a person who may be deemed to be our
affiliate, may sell within any three-month period a number of shares of common
stock that does not exceed the greater of (1) 1% of the then outstanding shares
of our common stock or (2) the average weekly trading volume in the common
stock during the four calendar weeks immediately preceding such sale. Sales
under Rule 144 are also subject to certain restrictions relating to manner of
sale, notice and availability of current public information about us. In
addition, under Rule 144(k) of the Securities Act, a person who is not our
affiliate, has not been an affiliate of ours within three months prior to the
sale and has beneficially owned shares for at least two years would be entitled
to sell such shares immediately without regard to volume limitations, manner of
sale provisions, notice or other requirements of Rule 144.
Beginning 90 days after the date of this prospectus, certain shares issued or
issuable upon the exercise of options granted by us prior to the date of this
prospectus will also be eligible, subject to the Lock-Up Period, for sale in
the public market pursuant to Rule 701 under the Securities Act. Pursuant to
Rule 701, persons who purchase shares upon exercise of options granted under a
written compensatory plan or contract may sell such shares in reliance on Rule
144 without having to comply with the holding period requirements of Rule 144,
and in the case of non-affiliates, without having to comply with the public
information, volume limitation or notice provisions of Rule 144. As of January
28, 1999, we have options outstanding to purchase 411,923 shares of common
stock which have not been exercised and which become exercisable at various
times in the future. Any shares issued upon the exercise of these options will
be eligible for sale pursuant to Rule 701.
We intend to file a Form S-8 registration statement under the Securities Act
approximately 180 days after the closing of the offering to register up to an
aggregate of 1,334,210 shares of common stock reserved for issuance under our
stock option plans and the employee stock purchase plan. See "Management--Stock
Option Plans" and "--Employee Stock Purchase Plan." Accordingly, shares
registered under such registration statement will, subject to Rule 144 volume
limitations applicable to affiliates, be available for sale in the open market,
unless such options are subject to vesting restrictions or the Lock-Up
Agreements. As of January 28, 1999, options to purchase 411,923 shares of
common stock were outstanding and 932,287 shares of common stock remained
available for future grants under our stock option plans and issuance under the
employee stock purchase plan.
We previously issued warrants to purchase an aggregate of 724,853 shares of
common stock at exercise prices ranging $5.20 to $6.76 per share to Spencer
Trask Securities Incorporated. These warrants are exercisable until three years
after completion of the offering. The bridge warrant issued to S.R. One,
Limited will become exercisable on the earlier of December 17, 1999 or six
months after completion of the offering to purchase such number of shares of
common stock determined by dividing $750,000 by 85% of the initial public
offering price per share. The bridge warrant has an exercise price of 85% of
the initial public offering
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price and will expire on the earlier of December 17, 2005 or four years after
the completion of the offering. The holders of the warrants and the bridge
warrant are entitled to certain registration rights with respect to the shares
issuable upon exercise of such warrants. These shares may be sold without
restriction in the public market upon registration, and with respect to of
these shares, after the lock-up period expires.
In connection with the offering, the Company has agreed to issue to the
representatives of the underwriters warrants to purchase 280,000 shares of
common stock. This number is equal to 10% of the number of shares of common
stock being offered hereby, excluding over-allotment shares. The
representatives' warrants will be exercisable at any time during the four-year
period commencing one year after the date of their issuance. The common stock
issued to the representatives will be freely tradeable.
Prior to the offering, there has been no market for our common stock and
there can be no assurance that a significant public market for the common stock
will develop or be sustained after the offering. Future sales of substantial
amounts of common stock, including shares issued upon exercise of outstanding
options and warrants in the public market after the offering, or the perception
that such sales may occur, could adversely affect market prices prevailing from
time to time and could impair our ability to raise capital through the sale of
our securities.
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UNDERWRITING
The underwriters named below, for whom Fahnestock & Co. Inc., Wedbush Morgan
Securities, Inc. and Southeast Research Partners, Inc. are acting as the
representatives, have severally agreed, subject to the terms and conditions
contained in an underwriting agreement, to purchase from us, and we have agreed
to sell to each underwriter, the aggregate number of shares of common stock
indicated below opposite the name of such underwriter at the initial public
offering price less the underwriting discount set forth below and on the cover
page of this prospectus:
<TABLE>
<CAPTION>
NUMBER OF
SHARES
NAME OF UNDERWRITER PURCHASED
- ------------------- ---------
<S> <C>
Fahnestock & Co. Inc..................................................
Wedbush Morgan Securities, Inc. ......................................
Southeast Research Partners, Inc......................................
---
TOTAL...............................................................
===
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are subject to certain conditions and that the underwriters are committed to
purchase all of the shares, other than those covered by the over-allotment
option described below, if any are purchased. The underwriting agreement also
provides that we will indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, and will contribute to payments
which the underwriters may be required to make in respect thereof.
The representatives of the underwriters have advised us that the underwriters
propose to offer the common stock directly to the public initially at the
public offering price set forth on the cover page of this prospectus and to
certain dealers, who may include the underwriters, at such public offering
price less a selling concession not to exceed $ per share. The underwriters
may allow, and such dealers may reallow, a concession of not more than $ per
share to certain other dealers. After the offering, the offering price, the
concession to certain dealers and other selling terms may be changed by the
representatives of the underwriters. The underwriters have agreed not to
confirm sales of common stock in excess of 5% of the total amount of shares
offered hereby to any account over which they exercise discretionary authority.
The underwriters have also agreed not to confirm any such sales without the
prior written approval of the customer.
We have granted to the underwriters an option, exercisable not later than 30
days after the date of this prospectus, to purchase up to a maximum of 420,000
additional shares of common stock solely to cover over-allotments, if any, at
the initial public offering price less the underwriting discount set forth
herein. To the extent that the underwriters exercise such option, each
underwriter will be committed, subject to certain conditions, to purchase
approximately the same proportion of additional shares as the number of shares
to be purchased by it shown in the preceding table bears to the total number of
shares of common stock initially offered hereby.
Without the prior written consent of Fahnestock, holders of shares of
common stock, certain option and warrant holders, including our officers and
directors, and we, are not permitted to offer, pledge, sell, contract to sell
or otherwise transfer or dispose of, directly or indirectly, our securities
until after , 2000, one year after the closing of the offering. Such
prohibition does not apply to our grant of options under our stock option
plans, our issuance of warrants to representatives of the underwriters or to
the potential issuance of our common stock upon exercise of the over-allotment
option.
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The following table sets forth the amount of the underwriting discount and
the nature of the compensation to be paid to the underwriters for each share of
common stock and in total. Such amounts are shown assuming both no exercise and
full exercise of the underwriters' over-allotment option.
<TABLE>
<CAPTION>
COMPENSATION TO BE PAID TO UNDERWRITERS
---------------------------------------------------------------
NO EXERCISE OF OVER- FULL EXERCISE OF OVER-
ALLOTMENT OPTION ALLOTMENT OPTION
------------------------------- -------------------------------
PER SHARE TOTAL PER SHARE TOTAL
-------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Underwriting Discount...
Representatives'
Warrants(1)............ 1/10th Warrant 280,000 Warrants 1/10th Warrant 280,000 Warrants
Non-accountable Expense
Allowance(2)........... N/A $250,000 N/A $250,000
</TABLE>
- --------
(1) In connection with the offering, we have agreed to issue warrants to the
representatives of the underwriters to purchase a number of shares of
common stock equal to ten percent (10%) of the number of shares of common
stock being offered hereby, excluding over-allotment shares. The
representatives' warrants will be exercisable during the four-year period
commencing one year after the date of their issuance, at an exercise price
equal to one hundred twenty percent (120%) of the initial public offering
price set forth on the cover page of this prospectus. The representatives'
warrants may not be transferred, except to affiliates of the
representatives of the underwriters. The representatives of the
underwriters are entitled to certain rights with respect to the
registration of shares of the common stock issuable upon the exercise of
the representatives' warrants for offer and sale to the public under the
Securities Act. See "Description of Capital Stock--Registration Rights." To
the extent that the representatives of the underwriters realize any gain
from the resale of the shares issuable upon the exercise of such warrants,
such gain may be deemed additional underwriting compensation.
(2) We have also agreed to pay Fahnestock a non-accountable expense allowance
equal to 1% of the gross proceeds of the offering, up to a maximum of
$250,000, of which $60,000 has been paid to date.
We will enter into an investment banking agreement with Fahnestock which,
among other things, will grant Fahnestock a right of first refusal in
connection with any investment banking services we require for a period of 18
months after the completion of the offering. In addition, pursuant to a letter
of intent executed in connection with this offering, Fahnestock has the right
to nominate one person to our Board of Directors who is acceptable to us. Such
nominee may be a director, officer, partner, employee or affiliate of
Fahnestock. As of January 29, 1999, Fahnestock has not exercised its right to
nominate any person to our Board of Directors. However, Fahnestock is expected
to exercise its right and nominate a person to our Board of Directors after the
closing of the offering. Fahnestock also has the right to have one
representative observe all meetings of our Board of Directors and to have such
person receive all information provided to our Board of Directors for a period
of 18 months after the closing of the offering. Before any information is
disclosed to such a representative, we will seek the agreement of the
representative to keep such information confidential and to abide by any and
all trading restrictions that apply to our directors generally.
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The following table sets forth an itemization of all expenses we will pay in
connection with the issuance and distribution of the securities being
registered. Except for the SEC Registration Fee, the Nasdaq National Market
Listing Fee and the NASD Fee, the amounts listed below are estimates.
<TABLE>
<CAPTION>
NATURE OF EXPENSE AMOUNT
- ----------------- ----------
<S> <C>
SEC Registration Fee................................................ $ 9,174
Nasdaq National Market Listing Fee.................................. 72,875
NASD Fee............................................................ 3,720
Printing and engraving fees......................................... 150,000
Registrant's counsel fees and expenses.............................. 320,000
Accounting fees and expenses........................................ 125,000
Spencer Trask Fee................................................... 100,000
Underwriters' Expenses.............................................. 250,000
Blue Sky expenses and counsel fees.................................. 25,000
Transfer agent and registrar fees................................... 8,000
Miscellaneous....................................................... 36,231
----------
TOTAL............................................................. $1,100,000
==========
</TABLE>
Prior to the offering, there has been no public market for our common stock.
We will negotiate the initial public offering price for our common stock with
the representatives of the underwriters. Such public offering price will not
necessarily bear any relationship to our assets, book value, revenues or other
established criteria of value. The initial public offering price should not be
considered to be indicative of our actual value. Among the factors to be
considered in determining the initial public offering price, in addition to
prevailing market conditions, will be the prospects for the business and
industry in which we compete, an assessment of our management, our capital
structure, our past and present operations, our prospects for future earnings
and other factors deemed relevant. There can be no assurance that an active
trading market will develop for our common stock or that the prices at which
our common stock will sell in the public market after the offering will not be
lower than the price at which it will be sold in the offering.
In connection with the offering, certain underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of our common stock.
Such transactions may include stabilization transactions effected in accordance
with Regulation M of the Securities Exchange Act of 1934, pursuant to which
such persons may bid for or purchase common stock for the purpose of pegging,
fixing or maintaining the price of our common stock at a level that is higher
than the market would dictate in the absence of such transactions.
The underwriters may also create a short position for the account of the
underwriters by selling more shares of common stock in connection with the
offering than they are committed to purchase from the company, and in such case
may purchase common stock in the open market following the completion of the
offering to cover all or a portion of such short position. The underwriters may
also cover all or a portion of such short position, up to 420,000 shares of
common stock, by exercising the over-allotment option described herein.
In addition, the representatives of the underwriters may also impose a
"penalty bid" under contractual arrangements with the underwriters whereby the
representatives may reclaim from an underwriter, or dealer participating in the
offering, for the account of other underwriters, the selling concession with
respect to common stock that is distributed in the offering but subsequently
purchased for the account of the underwriters in the open market.
In general, any of the transactions described above may result in the
maintenance of the price of our common stock at a level above that which might
otherwise prevail in the absence of such transactions. We and the underwriters
make no representation or prediction as to the direction or magnitude of any
effect that such
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transactions may have on the price of our common stock. In addition, we and the
underwriters make no representation that the representatives of the
underwriters or the underwriters, as the case may be, will engage in such
transactions or that such transactions, once commenced, will not be
discontinued without notice.
Spencer Trask Securities Incorporated is not participating as an underwriter
or member of the selling group in the offering. However, we will pay Spencer
Trask a $100,000 fee upon completion of the offering pursuant to a placement
agency agreement we entered into with Spencer Trask in connection with our 1998
private placement of common stock. See "Certain Transactions--Financing
Activities."
LEGAL MATTERS
The validity of shares of common stock offered hereby will be passed upon for
us by Pepper Hamilton LLP. Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.,
Boston, Massachusetts has acted as counsel for the underwriters in connection
with the offering.
EXPERTS
The audited financial statements included in this prospectus and elsewhere in
the registration statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports. Reference is made to their report on us which
contains an explanatory paragraph regarding our ability to continue as a going
concern.
The statements in this prospectus under the captions "Risk Factors -- Our
Proprietary Technology is a Crucial Part of Our Business" and "Business --
Patents and Proprietary Rights" relating to patent matters have been passed
upon by Oppenheimer Wolff & Donnelly LLP, 2029 Century Park East, Suite 3800,
Los Angeles, California, our patent counsel.
WHERE YOU CAN GET MORE INFORMATION
Our fiscal year ends on December 31. We will file annual, quarterly and
current reports, proxy statements and other information with the Securities and
Exchange Commission. You may read and copy any reports, statements or other
information on file at the SEC's public reference room in Washington, D.C. You
can request copies of those documents, upon payment of a duplicating fee, by
writing to the SEC.
We have filed a registration statement on Form S-1 with the SEC. This
prospectus, which forms a part of the registration statement, does not contain
all of the information included in the registration statement. Certain
information is omitted. You should refer to the registration statement and its
exhibits. With respect to references made in this prospectus to any contract or
other document relating to us, such references are not necessarily complete.
You should refer to the exhibits attached to the registration statement for
copies of the actual contract or document. You may review a copy of the
registration statement at the SEC's public reference room in Washington, D.C.,
and at the SEC's regional offices in Chicago, Illinois and New York, New York.
Please call the SEC at 1-800-SEC-0330 for further information on the operation
of the public reference rooms. Our SEC filings, including the registration
statement, can also be reviewed by accessing the SEC's Internet site at
http://www.sec.gov.
64
<PAGE>
CARESIDE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CARESIDE, INC.:
Report of Independent Public Accountants................................. F-2
Balance Sheets........................................................... F-3
Statements of Operations................................................. F-4
Statements of Stockholders' Equity (Deficit)............................. F-5
Statements of Cash Flows................................................. F-6
Notes to Financial Statements............................................ F-7
PREDECESSOR BUSINESS:
Report of Independent Public Accountants................................. F-14
Statement of Operations.................................................. F-15
Notes to Statement of Operations......................................... F-16
</TABLE>
F-1
<PAGE>
After the recapitalization referred to in Note 2 to the Financial Statements
is effected, we will be in a position to render the following report.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
January 29, 1999
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Careside, Inc.:
We have audited the accompanying balance sheets of Careside, Inc. (a Delaware
corporation in the development stage) as of December 31, 1997 and 1998, and the
related statements of operations, stockholders' equity (deficit) and cash flows
for the period from inception (July 10, 1996) to December 31, 1996, the years
ended December 31, 1997 and 1998, and the period from inception (July 10, 1996)
to December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Careside, Inc. as of December
31, 1997 and 1998, and the results of its operations and its cash flows for the
period from inception (July 10, 1996) to December 31, 1996, the years ended
December 31, 1997 and 1998, and the period from inception (July 10, 1996) to
December 31, 1998, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company will require significant funding to continue
operations, which raises substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 1. The financial statements do not include any adjustments relating to
the recoverability and classification of asset carrying amounts or the amount
and classification of liabilities that might result should the Company be
unable to continue as a going concern.
Philadelphia, Pa.,
January 20, 1999 (except for the
recapitalization discussed in Note 2, as
to which the date is , 1999)
F-2
<PAGE>
CARESIDE, INC.
(A DEVELOPMENT-STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1998
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................... $ 1,237,149 $ 3,926,603
Prepaid expenses and other........................ 226,580 251,698
----------- ------------
Total current assets............................ 1,463,729 4,178,301
PROPERTY AND EQUIPMENT, net......................... 1,578,727 3,216,959
DEFERRED OFFERING COSTS............................. -- 498,443
DEPOSITS............................................ 97,767 17,700
----------- ------------
$ 3,140,223 $ 7,911,403
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt................. $ -- $ 186,998
Accounts payable.................................. 492,985 1,369,889
Accrued expenses.................................. 209,631 160,439
----------- ------------
Total current liabilities....................... 702,616 1,717,326
----------- ------------
LONG-TERM DEBT...................................... -- 2,044,932
----------- ------------
COMMITMENTS (Note 9)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued.......................... -- --
Common stock, $.01 par value, 50,000,000 shares
authorized, 3,365,385 and 5,084,281 shares issued
and outstanding.................................. 33,654 50,843
Additional paid-in capital........................ 10,372,907 21,003,545
Deficit accumulated during development stage...... (7,968,954) (16,905,243)
----------- ------------
Total stockholders' equity...................... 2,437,607 4,149,145
----------- ------------
$ 3,140,223 $ 7,911,403
=========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
CARESIDE, INC.
(A DEVELOPMENT-STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
FROM FROM
INCEPTION FOR THE YEAR INCEPTION
(JULY 10, 1996) ENDED (JULY 10, 1996)
THROUGH DECEMBER 31, THROUGH
DECEMBER 31, ------------------------ DECEMBER 31,
1996 1997 1998 1998
--------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
OPERATING EXPENSES:
Research and
development........... $ 1,561,847 $ 5,895,465 $ 8,297,974 $ 15,755,286
General and
administrative........ 55,515 640,574 850,129 1,546,218
----------- ----------- ----------- ------------
Operating loss......... (1,617,362) (6,536,039) (9,148,103) (17,301,504)
INTEREST INCOME......... -- 213,585 234,089 447,674
INTEREST EXPENSE........ (20,809) (8,329) (22,275) (51,413)
----------- ----------- ----------- ------------
NET LOSS................ $(1,638,171) $(6,330,783) $(8,936,289) $(16,905,243)
=========== =========== =========== ============
BASIC NET LOSS PER
SHARE.................. $ (2.25) $ (2.04) $ (1.93)
=========== =========== ===========
SHARES USED IN COMPUTING
BASIC NET LOSS PER
SHARE 728,465 3,098,980 4,629,916
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
CARESIDE, INC.
(A DEVELOPMENT-STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL STOCK DURING TOTAL
----------------- PAID-IN SUBSCRIPTION DEVELOPMENT STOCKHOLDERS'
SHARES AMOUNT CAPITAL RECEIVABLE STAGE EQUITY (DEFICIT)
--------- ------- ----------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 10, 1996
(inception)............ -- $ -- $ -- $ -- $ -- $ --
Shares issued to
founders and
management............ 659,342 6,593 (6,593) -- -- --
Shares issued to
SmithKline Beecham
Corporation in
connection with asset
purchase.............. 34,702 347 571,006 -- -- 571,353
Sale of shares to
Exigent Partners,
L.P................... 557,600 5,576 93,419 (98,995) -- --
Shares issued to
investment banker in
connection with equity
financing............. 30,173 302 (302) -- -- --
Shares issued to
SmithKline Beecham
Corporation pursuant
to antidilution
agreement............. 30,936 310 (310) -- -- --
Net loss............... -- -- -- -- (1,638,171) (1,638,171)
--------- ------- ----------- ------- ------------ -----------
BALANCE, DECEMBER 31,
1996................... 1,312,753 13,128 657,220 (98,995) (1,638,171) (1,066,818)
Shares issued in
connection with
private placement, net
of expenses of
$1,291,772 1,923,077 19,231 8,688,998 -- -- 8,708,229
Shares issued to
SmithKline Beecham
Corporation upon
conversion of note
payable............... 129,555 1,295 1,026,689 -- -- 1,027,984
Payment of stock
subscription.......... -- -- -- 98,995 -- 98,995
Net loss............... -- -- -- -- (6,330,783) (6,330,783)
--------- ------- ----------- ------- ------------ -----------
BALANCE, DECEMBER 31,
1997................... 3,365,385 33,654 10,372,907 -- (7,968,954) 2,437,607
Shares issued in
connection with
private placement, net
of expenses of
$1,302,029............ 1,701,183 17,012 10,180,959 -- -- 10,197,971
Shares issued in
connection with
exercise of stock
options............... 17,713 177 119,565 -- -- 119,742
Value of warrants
issued in connection
with bridge
financing............. -- -- 330,114 -- -- 330,114
Net loss............... -- -- -- -- (8,936,289) (8,936,289)
--------- ------- ----------- ------- ------------ -----------
BALANCE, DECEMBER 31,
1998 .................. 5,084,281 $50,843 $21,003,545 $ -- $(16,905,243) $ 4,149,145
========= ======= =========== ======= ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
CARESIDE, INC.
(A DEVELOPMENT-STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
FROM FROM
INCEPTION INCEPTION
(JULY 10, 1996) FOR THE YEAR ENDED (JULY 10, 1996)
THROUGH DECEMBER 31, THROUGH
DECEMBER 31, ------------------------ DECEMBER 31,
1996 1997 1998 1998
--------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss............... $(1,638,171) $(6,330,783) $(8,936,289) $(16,905,243)
Adjustments to
reconcile net loss to
net cash used in
operating activities--
Depreciation.......... 12,275 145,858 367,231 525,364
Imputed interest on
note payable......... -- 8,329 -- 8,329
Amortization of debt
discount............. -- -- 20,960 20,960
Changes in assets and
liabilities--
Increase in prepaid
expenses and other... (15,840) (210,740) (25,118) (251,698)
Decrease (increase) in
deposits............. (102,700) 19,933 80,067 (2,700)
Increase in accounts
payable.............. 284,079 208,906 876,904 1,369,889
Increase (decrease) in
accrued expenses..... 575,301 (346,014) (49,192) 180,095
----------- ----------- ----------- ------------
Net cash used in
operating
activities........... (885,056) (6,504,511) (7,665,437) (15,055,004)
----------- ----------- ----------- ------------
INVESTING ACTIVITIES:
Purchases of property
and equipment......... (344,733) (888,510) (2,005,463) (3,238,706)
----------- ----------- ----------- ------------
FINANCING ACTIVITIES:
Net borrowings
(repayments) on line
of credit............. 400,000 (400,000) -- --
Proceeds from issuance
of notes.............. 1,000,000 -- 2,541,084 3,541,084
Deferred offering
costs................. (191,906) -- (498,443) (690,349)
Proceeds from the
issuance of Common
stock................. -- 8,900,134 10,317,713 19,217,847
Payment of stock
subscription.......... -- 98,995 -- 98,995
Cash received from
SmithKline Beecham
Corporation in
connection with asset
purchase.............. 52,736 -- -- 52,736
----------- ----------- ----------- ------------
Net cash provided by
financing
activities........... 1,260,830 8,599,129 12,360,354 22,220,313
NET INCREASE IN CASH AND
CASH EQUIVALENTS....... 31,041 1,206,108 2,689,454 3,926,603
CASH AND CASH
EQUIVALENTS, BEGINNING
OF YEAR................ -- 31,041 1,237,149 --
----------- ----------- ----------- ------------
CASH AND CASH
EQUIVALENTS, END OF
YEAR................... $ 31,041 $ 1,237,149 $ 3,926,603 $ 3,926,603
=========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
CARESIDE, INC.
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. CARESIDE:
BACKGROUND
Careside, Inc., formerly Exigent Diagnostics, Inc., is focused on designing
products intended to perform routine diagnostic blood tests in doctors'
offices, hospital rooms, patient homes or anywhere a patient is receiving
medical attention. Careside's first product in development is a compact
portable device with related disposables that performs chemistry,
electrochemistry, immunochemistry and coagulation testing.
DEVELOPMENT-STAGE RISKS AND LIQUIDITY
Careside was incorporated in July 1996 to acquire an ongoing, point-of-care
("POC") testing, development-stage product from SmithKline Beecham Corporation
and its affiliates ("SmithKline") and to complete the development of and to
manufacture, market and distribute POC diagnostic products. Since its
inception, Careside has generated no revenues and incurred significant losses.
Careside anticipates incurring additional losses over at least the next several
years, and such losses are expected to increase as Careside expands its
research and development activities. Substantial financing will be needed by
Careside to fund its operations and to commercially develop its products. The
ability of Careside to commercialize its products will depend on, among other
things, the relative cost to the customer of Careside's products compared to
alternative products, its ability to obtain necessary regulatory approvals and
to manufacture the products in accordance with Good Manufacturing Practices,
and its ability to market and distribute its products. There can be no
assurance that Careside's research and development efforts will be successful
or that any products developed by Careside will receive regulatory clearance or
be profitable in the marketplace.
The accompanying financial statements have been prepared in conformity with
principles of accounting applicable to a going concern. These principles
contemplate the realization of assets and the satisfaction of liabilities in
the normal course of business. As shown in the accompanying financial
statements, Careside incurred a net loss of $8,936,289 and used cash for
operating activities of $7,665,437 for the year ended December 31, 1998.
Management believes that Careside's existing sources of liquidity together with
the proceeds to be received from its initial public offering (the "Offering")
contemplated in this Prospectus will be sufficient to fund its planned
operations into 2000. There can be no assurance that the Offering will be
successful.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of expenses during the reporting period. Actual results
could differ from those estimates.
CASH AND CASH EQUIVALENTS
Careside considers all highly liquid investments consisting of purchases with
an original maturity of three months or less to be cash equivalents.
F-7
<PAGE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Property and equipment capitalized
under capital leases are recorded at the present value of the minimum lease
payments due over the lease term. Depreciation and amortization are provided
using the straight-line method over the estimated useful lives of the related
assets or the lease term, whichever is shorter. Careside uses lives of three to
five years for research and manufacturing equipment and five to seven years for
office equipment.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents, prepaid expenses and other current assets,
accounts payable and accrued expenses are reflected in the accompanying
financial statements at fair value due to the short-term nature of those
instruments. The carrying amount of long-term debt approximates fair value on
the balance sheet dates.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred.
INCOME TAXES
Careside follows Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes." Under SFAS No. 109, the liability method is
used in accounting for income taxes. Under this method, deferred tax assets and
liabilities are determined based on differences between the financial reporting
and tax bases of assets and liabilities and are measured using enacted tax
rates that are expected to be in effect when the differences reverse.
ACCOUNTING FOR STOCK-BASED COMPENSATION
Careside applies Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," in accounting for its stock
options. Careside follows the disclosure requirements of SFAS No. 123,
"Accounting for Stock-Based Compensation," which permits pro forma disclosure
of the net loss using a fair value-based method of accounting for employee
stock option plans (see Note 8).
NET LOSS PER COMMON SHARE
Careside has presented net loss per share pursuant to SFAS No. 128, "Earnings
per Share," and the Securities and Exchange Commission Staff Accounting
Bulletin No. 98. Net loss per share is computed using the weighted average
number of common and dilutive common equivalent shares outstanding during the
period.
Basic loss per share was computed by dividing net loss applicable to common
shareholders by the weighted average number of shares of Common stock
outstanding during the period. Dilutive loss per share has not been presented,
since the impact on loss per share using the treasury stock method is anti-
dilutive due to Careside's losses.
RECAPITALIZATION
In 1999, Careside's stockholders approved a 1-for-5.2 reverse stock
split of Careside's Common stock. All references in the accompanying financial
statements to the number of shares and per share amounts have been
retroactively restated to reflect the reverse stock split.
RECENTLY ISSUED PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income." This statement requires companies to
classify items of other comprehensive income
F-8
<PAGE>
separately from retained earnings and additional paid-in capital in the
stockholders' equity section of the balance sheet. SFAS No. 130 is effective
for financial statements issued for fiscal years beginning after December 15,
1997. Management believes that SFAS No. 130 will not have a material adverse
effect on Careside's financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." This statement establishes additional
standards for segment reporting in the financial statements and is effective
for fiscal years beginning after December 15, 1997. Management is currently
evaluating the need to make additional disclosures under SFAS No. 131. However,
this statement will not have any effect on Careside's reported financial
position or results of operations.
3. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1998
---------- ----------
<S> <C> <C>
Laboratory equipment................................ $1,280,663 $3,264,286
Leasehold improvements.............................. 371,239 371,239
Computer and office equipment....................... 84,958 106,798
---------- ----------
1,736,860 3,742,323
Less-Accumulated depreciation and amortization...... (158,133) (525,364)
---------- ----------
$1,578,727 $3,216,959
========== ==========
</TABLE>
Depreciation and amortization expense for the period from inception (July 10,
1996) through December 31, 1996, the years ended 1997 and 1998, and the period
from inception (July 10, 1996) through December 31, 1998 was $12,275, $145,858,
$367,231 and $525,364, respectively.
4. INCOME TAXES:
At December 31, 1998, Careside had net operating loss carryforwards for
federal income tax purposes of approximately $2,148,000. In addition, Careside
has federal research and development credit carryforwards of approximately
$225,000. The net operating loss and credit carryforwards begin to expire in
2011 and are subject to review and possible adjustment by the Internal Revenue
Service. The Tax Reform Act of 1986 contains provisions that may limit the net
operating loss carryforwards available to be used in any given year in the
event of significant changes in ownership interest.
The approximate income tax effect of each type of temporary difference and
carryforward is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1998
---------- ----------
<S> <C> <C>
Net operating loss carryforwards........................ $ 233,188 $ 730,438
Research and development credit carryforwards........... 128,623 224,775
Capitalized research and development.................... 2,219,926 4,395,926
Start-up costs.......................................... 185,906 419,936
Nondeductible accruals.................................. 8,779 6,663
Nondeductible depreciation and amortization............. 53,765 178,623
Valuation allowance..................................... (2,830,187) (5,956,361)
---------- ----------
$ -- $ --
========== ==========
</TABLE>
Due to the uncertainty surrounding the realization of the deferred tax asset,
Careside has provided a full valuation allowance against this asset.
F-9
<PAGE>
5. COMMON STOCK PRIVATE PLACEMENTS:
In March 1997, Careside completed a private placement (the "1997 Private
Placement") of 1,923,077 shares of its Common stock at $5.20 per share. The
1997 Private Placement raised approximately $8,800,000, net of the placement
agent's commission and offering costs. In connection with the 1997 Private
Placement, the placement agent and its affiliates received warrants to purchase
384,615 shares of Careside's Common stock at $5.20 per share. These warrants
are currently exercisable and expire on the later of seven years from the date
of issuance or three years from the closing the Offering.
In June 1998, Careside completed a private placement (the "1998 Private
Placement") of 1,701,183 shares of its Common stock at $6.76 per share, which
generated net proceeds of approximately $10,200,000. In connection with the
1998 Private Placement, the placement agent and its affiliates received
warrants to purchase 340,238 shares of Careside's Common stock at $6.76 per
share. These warrants are currently exercisable and expire on the later of
seven years from the date of issuance or three years from the closing of the
Offering. In connection with providing financial consulting services for the
1998 Private Placement, Careside granted an option to purchase 1,154 shares of
Common stock at $.05 per share to an entity owned by a director of Careside.
6. TRANSACTIONS WITH SMITHKLINE:
On November 7, 1996, Careside and SmithKline entered into an Asset Purchase
Agreement (the "Agreement") under which Careside acquired certain assets and
intangible property related to SmithKline's POC business in exchange for a 5%
equity interest in Careside. In connection with the Agreement, SmithKline
loaned Careside $1,000,000, which was converted into an additional 2% equity
interest in Careside upon the closing of the 1997 Private Placement (see Note
5). The Agreement provided for certain antidilution protection, which required
Careside to issue additional shares of Common stock to SmithKline such that it
maintained its 7% ownership interest, until a defined equity financing was
completed. Upon the closing of the 1997 Private Placement, the antidilution
protection lapsed and SmithKline owned 195,193 shares, representing 5.8% of the
then outstanding Common stock. The tangible property received in connection
with the Agreement was as follows:
<TABLE>
<S> <C>
Cash........................................................... $ 52,736
Property and equipment......................................... 503,617
Deposit........................................................ 15,000
--------
$571,353
========
</TABLE>
In December 1998, Careside entered into an agreement with an affiliate of
SmithKline for up to $3,000,000 of bridge financing (see Note 7).
7. DEBT:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- ----------
<S> <C> <C>
Note payable, interest at 8%, $1,500,000 due on January
31, 1999,
net of unamortized discount of $309,154................ $ -- $1,190,846
Equipment loan due to finance company, interest at 14%,
due in 47
remaining monthly installments of principal and
interest
of $26,836, with a final payment of $133,489 in
December 2002.......................................... -- 1,041,084
------- ----------
2,231,930
Less--Current portion................................... -- (186,998)
------- ----------
Long-term debt.......................................... $ -- $2,044,932
======= ==========
</TABLE>
In connection with the Agreement (see Note 6), Careside borrowed $1,000,000
from SmithKline. In connection with closing the 1997 Private Placement (see
Note 5), 129,555 shares of Common stock were issued to SmithKline upon the
conversion of the $1,000,000 note plus accrued interest of $27,985.
F-10
<PAGE>
In December 1996, Careside established a $1,000,000 line of credit facility
with a bank collateralized by a standby letter of credit guaranteed by Exigent
Partners, L.P. ("Exigent Partners"), whose partners are the founders of
Careside and an affiliate of the private placement agent. In consideration for
the establishment of the standby letter of credit, Exigent Partners was issued
557,600 shares of Common stock at $0.18 per share. The balance outstanding
under the line at December 31, 1996 was $400,000, with interest at 9.25% per
year. The line was repaid in connection with the 1997 Private Placement.
In December 1998, Careside entered into a $2,500,000 facility with an
equipment lease financing company. Borrowings under the facility will be
evidenced as separate loans and will be secured by specific equipment assets.
Each equipment loan will have a 48-month term and bears interest at
approximately 14% per year, adjusted for an index rate based on 48-month U.S.
Treasury Notes at the time of borrowing.
In December 1998, Careside entered into an agreement with an affiliate of
SmithKline for up to $3,000,000 of bridge financing, of which $1,500,000 was
drawn on December 28, 1998. The remaining $1,500,000 may be drawn, at
Careside's option, prior to January 31, 1999. The outstanding principal under
the bridge financing matures upon the earliest of the completion of the
Offering, a private equity financing of at least $8,000,000 or January 31,
2000. Careside issued a warrant (the "Bridge Warrant") in connection with the
bridge financing. The Bridge Warrant is exercisable into that number of shares
of Common stock which is equal to $750,000 divided by 85% of the Offering price
per share (98,039 shares based on an assumed Offering price of $9.00 per
share). The Bridge Warrant has an exercise price equal to 85% of the Offering
price. If the Offering does not occur, the Bridge Warrant is exercisable into
103,022 shares of Common stock at an exercise price of $7.28 per share. If the
outstanding principal under the bridge financing is not repaid by June 30,
1999, the Bridge Warrant becomes exercisable for twice as many shares of Common
stock. The Bridge Warrant becomes exercisable on the earlier of December 1999
or six months after the completion of the Offering and expires on the earlier
of December 2005 or four years after the completion of the Offering. Using the
Black-Scholes model, the estimated fair value of the Bridge Warrant was
calculated at $330,114 and was recorded as a reduction in the carrying amount
of the bridge note, with a corresponding increase in stockholders' equity. The
discount on the bridge note is being amortized over the estimated term of the
note as additional interest expense.
Future maturities of debt at December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999......................................................... $ 186,998
2000......................................................... 1,715,141
2001......................................................... 247,520
2002......................................................... 391,425
----------
2,541,084
Less--Unamortized discount................................... (309,154)
----------
$2,231,930
==========
</TABLE>
Careside borrowed the remaining $1,500,000 under the Bridge Financing in
January 1999.
8. STOCK OPTIONS AND WARRANTS:
STOCK OPTIONS
Careside has adopted the 1996 Incentive and Non-Qualified Stock Option Plan
and the 1996 Key Executive Stock Option Plan (together, the "Plans"), which
provide for the granting of options to purchase up to 576,923 shares of Common
stock to directors, officers, consultants and employees of Careside. The number
of options to be granted and the option prices are determined by the Board of
Directors in accordance with the terms of the Plans. Each option expires on
such date as the Board of Directors may determine.
F-11
<PAGE>
For purposes of SFAS No. 123 disclosure requirements, the fair value of each
option grant is estimated on the date of grant using the Black-Scholes option-
pricing model using the following assumptions for options granted during 1997
and 1998: weighted average risk-free interest rate of 6.41% and 5.56%; expected
weighted average life of 6.7 and 7.0 years; dividend yield of zero; and
volatility of zero. The weighted average fair value of each option granted
during 1997 and 1998 was $1.72 and $2.20, respectively. Had the compensation
cost of these options been recorded for the year ended December 31, 1997 and
1998, the Company's net loss would have increased by approximately $28,000 and
$316,000, respectively.
Information with respect to options under the Plans is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------
AVAILABLE PRICE AGGREGATE
FOR GRANT SHARES PER SHARE PRICE
--------- ------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, inception (July
10, 1996)................ -- -- $ -- $ --
Authorized.............. 576,923 -- -- --
-------- ------- ---------- ----------
Balance, December 31,
1996..................... 576,923 -- -- --
Granted................. (317,163) 317,163 .05--7.44 1,741,123
-------- ------- ---------- ----------
Balance, December 31,
1997..................... 259,760 317,163 .05--7.44 1,741,123
Granted................. (113,146) 113,146 6.76--8.00 772,367
Cancelled............... 673 (673) 5.20 (3,500)
Exercised............... -- (17,713) 6.76 (119,742)
-------- ------- ---------- ----------
Balance, December 31,
1998..................... 147,287 411,923 $.05--8.00 $2,390,248
======== ======= ========== ==========
</TABLE>
As of December 31, 1998, 202,580 options were exercisable at prices ranging
from $.05 to $8.00 per share, with a weighted average exercise price of $5.59
per share. At December 31, 1998, the aggregate exercise price of these options
was $1,131,732.
STOCK WARRANTS
The following table summarizes outstanding warrants at December 31, 1998:
<TABLE>
<CAPTION>
TYPE OF OUTSTANDING EXERCISE
WARRANTS WARRANTS PRICE ISSUANCE DATE
-------- ----------- -------- -------------
<S> <C> <C> <C>
Common stock 384,615 $5.20 February 1997
Common stock 340,238 $6.76 April 1998
Common stock 98,039 $7.65 December 1998
-------
822,892
=======
</TABLE>
The warrants issued in March 1997 and June 1998 are currently exercisable and
expire on the later of seven years from the date of issuance or three years
from the closing of the Offering. The number of warrants outstanding and the
exercise price of the Bridge Warrant issued in December 1998 is based on an
assumed Offering price of $9.00 per share. If the outstanding principal under
the bridge financing is not repaid by June 30, 1999, the Bridge Warrant becomes
exercisable for twice as many shares of Common stock. The Bridge Warrant
becomes exercisable on the earlier of December 1999 or six months after the
completion of the Offering and expires on the earlier of December 2005 or four
years after the completion of the Offering.
F-12
<PAGE>
9. COMMITMENTS:
LEASES
Careside leases an office and laboratory facility under a noncancelable
operating lease. Rent expense for the period from inception (July 10, 1996)
through December 31, 1996, the years ended 1997 and 1998, and the period from
inception (July 10, 1996) through December 31, 1998 was $26,126, $156,756,
$156,756 and $339,638, respectively. Future minimum rental payments under these
leases at December 31, 1997 are as follows:
<TABLE>
<S> <C>
1999............................................................ 167,440
2000............................................................ 177,040
2001............................................................ 152,200
--------
$496,680
========
</TABLE>
COLLABORATIVE ARRANGEMENTS
Careside has utilized strategic partners with specific design expertise and
state-of-the-art technology in order to develop the Careside system rapidly and
on a cost-effective basis. Careside has agreements with (i) Fuji Photo Film
Co., Ltd. for the supply of its dry film based chemistry reagents during the
Careside system's development stage, (ii) Diagnostic Reagents, Inc. to supply
immunochemistry reagents and technology during the Careside system's
development stage, (iii) International Technidyne Corporation for the joint
development of coagulation reagents and (iv) UMM Electronics, Inc. to design
and manufacture the CareSide Analyzer. In addition, Careside contracted with
Hauser, Inc. for the design of the Careside system and with Battelle Memorial
Institute for the design of the system's disposable test cartridges and their
automated assembly manufacturing system. Careside's agreements with its
strategic partners do not obligate Careside to any minimum purchase
commitments.
EMPLOYMENT AGREEMENTS
Careside has entered into three-year renewable employment agreements with
three of its executive officers that provide for aggregate annual compensation
of approximately $539,000.
10.RETIREMENT PLAN:
Careside maintains a 401(k) profit sharing plan on behalf of its employees.
Participation in the plan is voluntary and eligible employees, as defined, may
contribute up to 15% of their compensation to the plan. Careside matches 50% of
the employee's contribution up to 4% of an employee's compensation. Careside's
contributions were zero, $32,315, $34,657 and $66,972 for the period from
inception (July 10, 1996) through December 31, 1996, the years ended 1997 and
1998, and the period from inception (July 10, 1996) through December 31, 1998,
respectively.
F-13
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Careside, Inc:
We have audited the accompanying statement of operations for the ten months
ended October 31, 1996 of the Predecessor Business (see Note 1). This financial
statement is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
The statement of operations has been prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission (for
inclusion in the Form S-1 filing of Careside, Inc.) as described in Note 1 and
is not intended to be a complete presentation of the financial results of the
Predecessor Business.
In our opinion, the statement of operations referred to above presents
fairly, in all material respects, the results of operations of the Predecessor
Business for the ten months ended October 31, 1996, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
October 16, 1998
F-14
<PAGE>
PREDECESSOR BUSINESS (NOTE 1)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
TEN MONTHS
ENDED
OCTOBER 31,
1996
-----------
<S> <C>
OPERATING EXPENSES:
Research and development........................................ $ 3,054,503
General and administrative...................................... 224,399
-----------
NET LOSS.......................................................... $(3,278,902)
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-15
<PAGE>
PREDECESSOR BUSINESS
NOTES TO STATEMENT OF OPERATIONS
1.BASIS OF PRESENTATION:
Careside, Inc. was incorporated in Delaware on July 12, 1996, and had no
operations until the purchase of certain assets from SmithKline Beecham
Corporation ("SmithKline") on November 7, 1996. The assets were acquired in
exchange for an equity interest in Careside. The assets acquired are referred
to as the "Predecessor Business." In connection with Careside's initial public
offering as contemplated in this Prospectus, the accompanying financial
statement has been prepared to comply with the rules and regulations of the
Securities and Exchange Commission. These rules and regulations require a
statement of operations of the Predecessor Business which does not include
interest and income taxes.
The statement of operations represents the research and development and
related general and administrative expenses incurred by the Predecessor
Business in connection with the technology and know-how acquired by Careside.
The development of the technology related to the Predecessor Business commenced
in 1994.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of expenses during the reporting period. Actual results
could differ from those estimates.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred.
TRANSACTIONS WITH SMITHKLINE
For the ten months ended October 31, 1996, SmithKline allocated corporate
overhead to the Predecessor Business of $55,118 for employee benefits and other
corporation services. In addition, SmithKline funded approximately $7,450,000
since the commencement of the Predecessor Business for which no interest charge
has been reflected in the statement of operations.
CASH FLOW INFORMATION
For the ten months ended October 31, 1996, cash used in operations was
$3,233,423 and purchases of property and equipment were $242,507.
F-16
<PAGE>
[INSIDE BACK COVER]
ROUTINE BLOOD ANALYSIS PROCEDURE
<TABLE>
<CAPTION>
THE TRADITIONAL WAY [Careside Logo] THE CARESIDE SOLUTION
<S> <C> <C> <C> <C>
[Drawings of At hospital or 1. [Photos of Draw blood. Place a
Traditional 1 commercial lab, Cartridge and Blood few drops of whole
Blood Testing caregiver or Test] blood into the
Procedures] phlebotomist draws blood cartridge sample well.
sample.
Technicians properly
2 package and store blood
sample for transport.
Hospitals hand-carry 2. [Photos of Using the touch-screen
multiple samples to the CareSide Analyzer or keyboard, input
3 clinical lab. Commercial and Test Menu] demographic
laboratories receive information and select
samples via ground tests to be performed.
and/or air courier. Insert appropriate
cartridges and press
start.
4 Lab technicians receive
and log the samples.
5 Samples are then 3. [Photos of Test 10 to 15 minutes
separated for different Results and Test later, CareSide
testing stations. Analysis] Analyzer provides test
results via print
card, screen and/or
electronic data
transfer. Caregiver
can immediately review
data with patient.
Technicians centrifuge
6 the samples to separate
whole blood into serum
and plasma.
Skilled technologists
7 prepare various large,
high-volume analyzers
for batch processing and
run the tests.
Skilled technologists CareSide Analyzer: 10 to 15 Minutes
8 review results to assure
that they pass quality Hospital lab: Typically 4 to 6 Hours
control checks.
Commercial lab: Typically 24 Hours
Data is transferred to
9 laboratory information
systems and into QA/QC
records.
10 Data is disseminated to
the caregivers.
11 Caregiver reviews the
data and reconciles it
with patient charts.
Caregiver calls patient
12 to report results and to
order additional therapy
or schedule follow-up
visit if required.
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST
NOT RELY ON ANY UNAUTHORIZED INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO
SELL OR BUY ANY SHARES IN ANY JURISDICTION WHERE IT IS UNLAWFUL. THE
INFORMATION IN THIS PROSPECTUS IS CURRENT AS OF JANUARY , 1999.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Special Note Regarding Forward-Looking Statements........................ 13
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 14
Capitalization........................................................... 15
Dilution................................................................. 16
Selected Financial Data.................................................. 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 22
Management............................................................... 41
Principal Stockholders................................................... 50
Certain Transactions..................................................... 51
Description of Capital Stock............................................. 54
Shares Eligible for Future Sale.......................................... 59
Underwriting............................................................. 61
Legal Matters............................................................ 64
Experts.................................................................. 64
Where You Can Get More Information....................................... 64
Index to Financial Statements............................................ F-1
</TABLE>
----------------
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
THAT BUY, SELL OR TRADE THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE
DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[CARESIDE LOGO]
CARESIDE, INC.
2,800,000 SHARES
Common Stock
----------------
PROSPECTUS
----------------
FAHNESTOCK & CO. INC.
WEDBUSH MORGAN SECURITIES
SOUTHEAST RESEARCH PARTNERS, INC.
, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemization of all estimated expenses, all
of which we will pay, in connection with the issuance and distribution of the
securities being registered:
<TABLE>
<CAPTION>
NATURE OF EXPENSE AMOUNT
----------------- ----------
<S> <C>
SEC Registration Fee............................................. $ 9,174
Nasdaq National Market Listing Fee............................... 72,875
NASD Fee......................................................... 3,720
Printing and engraving fees...................................... 150,000
Registrant's counsel fees and expenses........................... 320,000
Accounting fees and expenses..................................... 125,000
Spencer Trask Fee................................................ 100,000
Underwriters' Expenses........................................... 250,000
Blue Sky expenses and counsel fees............................... 25,000
Transfer agent and registrar fees................................ 8,000
Miscellaneous.................................................... 36,231
----------
TOTAL.......................................................... $1,100,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our Amended and Restated Certificate of Incorporation (the "Charter")
provides that we shall indemnify and advance expenses to the fullest extent
permitted by Section 145 of the Delaware General Corporation Law ("DGCL"), as
amended from time to time, to each person who is or was one of our directors or
officers and the heirs, executors and administrators of such a person. Any
expenses, including attorneys' fees, incurred by a person who is or was one of
our directors or officers, and the heirs, executors and administrators of such
a person in connection with defending any such proceeding in advance of its
final disposition shall be paid by us; provided, however, that if the DGCL
requires, an advancement of expenses incurred by an indemnitee in his capacity
as a director or officer, and not in any other capacity in which service was or
is rendered by such indemnitee, including, without limitation, service to an
employee benefit plan, shall be made only upon delivery to us of an undertaking
by or on behalf of such indemnitee, to repay all amounts so advanced, if it
shall ultimately be determined that such indemnitee is not entitled to be
indemnified for such expenses. Notwithstanding the aforementioned
indemnification provisions, we may, at the discretion of our Chief Executive
Officer, enter into indemnification agreements with directors or officers.
Section 145 of the DGCL provides that a corporation has the power to
indemnify any director or officer, or former director or officer, who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, other than an action by or in the right of the corporation,
by reason of the fact that such director or officer or former director or
officer is or was a director, officer, employee or agent of the corporation,
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by them in connection with such
action, suit or proceeding, if such person shall have acted in good faith and
in a manner reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or proceeding,
provided that such person had no reasonable cause to believe his or her conduct
was unlawful, except that, if such action shall be in the right of the
corporation, no such indemnification shall be provided as to any claim, issue
or matter as to which such person shall have been judged to have been liable to
the corporation unless and to the extent that the Court of Chancery of the
State of Delaware, or any court in which such suit or action was brought, shall
determine upon application that, in view of all of the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses as such court shall deem proper.
II-1
<PAGE>
The Charter, which will be filed prior to the completion of our initial
public offering of securities, contains a provision to limit the personal
liability of our directors to the fullest extent permitted by Section 102(b)(7)
of the DGCL, as amended. In addition, the Amended and Restated By-Laws, which
will become effective prior to the completion of the offering of securities,
provide that we shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
other than an action by us or in our right, by reason of the fact that he is or
was one of our directors, officers, employees or agents, or is or was serving
at our request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to our best interests, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. See Exhibit 3.1c, "Form of Amended and
Restated Certificate of Incorporation of Careside, Inc."
As permitted by the DGCL, the Charter, which will be filed prior to the
completion of the offering, provides that, subject to certain limited
exceptions, none of our directors shall be liable to us or our stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (1) for any breach of the director's duty of loyalty to us or our
stockholders, (2) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) for the unlawful
payment of dividends on or redemption or repurchase of our capital stock or (4)
for any transaction from which the director derived an improper personal
benefit. The effect of this provision is to limit our ability and our
stockholders' ability through stockholder derivative suits on our behalf, to
recover monetary damages against a director for the breach of certain fiduciary
duties as a director, including breaches resulting from grossly negligent
conduct. In addition, the Charter and Amended and Restated By-Laws provide that
we shall, to the fullest extent permitted by the DGCL, indemnify all of our
directors and officers and that we may, to the extent permitted by the DGCL,
indemnify our employees and agents.
We have agreed to indemnify the underwriters against certain liabilities,
including civil liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since our formation in July 1996, we have issued the following securities,
giving retroactive effect to a 1-for-5.2 reverse stock split to be effected in
connection with the offering described in the prospectus, without registration
under the Securities Act:
1. In July 1996 and October 1996, we issued an aggregate of 659,342 shares
of common stock to our founder group.
2. In November 1996, pursuant to an asset purchase agreement, SmithKline
Beecham Diagnostics Systems Co. and SmithKline Beecham Clinical
Laboratories, Inc. sold us certain fixed and intangible assets used in
connection with our point-of-care development program. As consideration
for the purchase of the assets, we issued to SBDS 34,702 shares of
common stock, representing 5% of our total common stock outstanding at
that time.
3. In December 1996, in connection with the establishment of a $1.0 million
working capital facility, we issued Exigent Partners, L.P. 557,600
shares of common stock for an aggregate purchase price of $98,995. In
the same month, we issued (1) 30,936 shares of common stock to
SmithKline Beecham Corporation pursuant to certain anti-dilution
protections granted to SmithKline Beecham Corporation in connection with
a credit facility and asset transfer and (2) 30,173 shares of common
stock to Philip B. Smith for the investment banking services he provided
in connection with our equity financing.
4. In January 1997, our credit facility from SmithKline Beecham
Corporation, pursuant to its terms, was converted into 129,555 shares of
common stock, representing 2% of our total common stock outstanding at
that time.
II-2
<PAGE>
5. In March 1997, we completed a private placement of securities through
Spencer Trask Securities Incorporated which resulted in our issuance of
1,923,077 shares of common stock at $5.20 per share to 203 investors who
were deemed to be accredited investors under Rule 501(a) of Regulation D
of the Securities Act of 1933 based upon representations made to us by
such investors. In connection with the private placement in February
1997, we issued warrants to Spencer Trask Securities Incorporated to
purchase 384,615 shares of common stock at an exercise price of $5.20
per share as partial consideration for its services in the private
placement. These warrants expire three (3) years after closing of the
offering. Of the proceeds of this private placement, which totalled in
the aggregate approximately $10 million, we received approximately $9
million with the remainder paid as a commission to Spencer Trask for its
services in the private placement.
6. In February 1997, we granted stock options to purchase an aggregate of
256,370 shares of common stock under our 1996 Incentive and Non-
Qualified Stock Option Plan and 1996 Key Executive Stock Option Plan
(collectively, the "1996 Stock Option Plans") to ten employees and
directors. The weighted average per share exercise price of these stock
options is $5.29.
7. In May 1997, we granted stock options to purchase 192 shares of common
stock under our 1996 Incentive and Non-Qualified Stock Option Plan to
one employee. The per share exercise price of these stock options is
$5.20.
8. In June 1997, we granted stock options to purchase an aggregate of
31,731 shares of common stock under our 1996 Stock Option Plans to an
individual who was both one of our employees and a director. The per
share exercise price of these stock options is $6.76.
9. In August 1997, we granted Cedar Capital Investors, options to purchase
1,154 shares of common stock at an exercise price of $.052 per share.
These options remain exercisable until August 8, 2007. These options
were granted to Cedar Capital Investors in consideration for providing
certain financial consulting services to us in connection with a private
placement of securities in 1998.
10. In December 1997, we granted stock options to purchase an aggregate of
27,716 shares of common stock under our 1996 Incentive and Non-
Qualified Stock Option Plan to 20 employees. The weighted average per
share exercise price of these stock options is $6.09.
11. In January 1998, we granted stock options to purchase an aggregate of
1,923 shares of common stock under our 1996 Incentive and Non-Qualified
Stock Option Plan to one employee. The per share exercise price of
these stock options is $6.76.
12. In February 1998, we granted stock options to purchase an aggregate of
13,702 shares of common stock under our 1996 Incentive and Non-
Qualified Stock Option Plan to six employees. The per share exercise
price of these stock options is $6.76.
13. In May 1998, we granted stock options to purchase an aggregate of
17,713 shares of common stock under our 1996 Incentive and Non-
Qualified Stock Option Plan to 18 employees which were immediately
exercised. The per share exercise price of these stock options was
$6.76 per share.
14. In June 1998, we completed a second private placement of securities
through Spencer Trask Securities Incorporated which resulted in our
issuance of 1,701,183 shares of common stock at $6.76 per share to 311
investors, of whom 101 invested in the 1997 private placement of
securities, who were deemed to be accredited investors under Rule
501(a) of Regulation D of the Securities Act of 1933 based upon certain
representations made to us by such investors. In connection with the
private placement in 1998, we issued warrants to Spencer Trask
Securities Incorporated to purchase 340,238 shares of common stock at
an exercise price of $6.76 per share as partial consideration for our
services in these private placements. These warrants expire three years
from the date of closing of the offering. Of the proceeds of this
private placement, which totalled in the aggregate approximately $11.5
million, we received approximately $10 million with the remainder paid
as a commission to Spencer Trask Securities Incorporated for its
services in the private placement.
15. In July 1998, we granted stock options to purchase an aggregate of
67,068 shares of common stock under our 1996 Stock Option Plans to 29
employees and directors. The per share exercise price of these stock
options is $6.76.
II-3
<PAGE>
16. In November 1998, we granted stock options to purchase an aggregate of
11,538 shares of common stock under our 1996 Incentive and Non-
Qualified Stock Option Plan to six employees. The per share exercise
price of these stock options is $7.28.
17. In December 1998, we entered into a bridge loan agreement with S.R.
One, Limited for a $3.0 million loan. Draw down of $1.5 million on this
loan occured on December 28, 1998 with the remaining $1.5 million drawn
down in January 1999. The bridge loan matures on the date of completion
of the offering or January 31, 2000, whichever occurs sooner. The
bridge loan carries an interest rate of 8% per annum. We issued a
warrant to S.R. One, Limited which will be based upon the price of the
offering, less a 15% discount as partial consideration for providing
the bridge loan. Such warrant will not be exercisable until at least
twelve months after completion of the offering.
18. In January 1999, we granted stock options to purchase an aggregate of
1,202 shares of common stock under our 1996 Incentive and Non-Qualified
Stock Option Plan to one employee. The per share exercise price of
these stock options is $8.00.
We believe that the transactions described in paragraphs 1 through 18 above
were exempt from registration under Section 3(b) or 4(2) of the Securities Act
because the subject securities were either (1) issued pursuant to a
compensatory benefit plan pursuant to Rule 701 under the Securities Act or (2)
issued to a limited group of persons, each of whom was believed to have been a
sophisticated investor or to have had a preexisting business or personal
relationship with us or our management and to have been purchasing for
investment without a view to further distribution. In addition, the recipients
of securities in each such transaction represented their intentions to acquire
the securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were affixed
to the share certificates issued in such transactions. All recipients had
adequate access, through their relationships with us, to information about us.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
1.1** Form of Underwriting Agreement
3.1a* Amended and Restated Certificate of Incorporation of Careside, Inc.
3.1b* Form of Certificate of Amendment of Certificate of Incorporation of Careside, Inc. (to be filed
immediately prior to completion of the offering)
3.1c* Form of Amended and Restated Certificate of Incorporation of Careside, Inc. (effective upon
the completion of the offering)
3.2a* Amended and Restated Bylaws of Careside, Inc.
3.2b* Form of Amended and Restated Bylaws of Careside, Inc. (effective upon completion of the offering)
4.1** Specimen Stock Certificate
4.2* Placement Agent Warrant Agreement dated as of January 31, 1997 by and between
Careside, Inc. and Spencer Trask Securities Incorporated (including Form of Warrant)
4.3* Placement Agent Warrant Agreement dated as of March 6, 1998 by and between Careside,
Inc. and Spencer Trask Securities Incorporated (including Form of Warrant)
4.4* Securities Purchase Agreement dated as of December 17, 1998 by and between S.R. One,
Limited and Careside, Inc. (including Form of Note)
4.5* Warrant Issued to S.R. One, Limited on December 17, 1998
4.6** Form of Warrant Agreement dated as of , 1999, by and among Careside, Inc.,
Fahnestock & Co. Inc., Wedbush Morgan Securities, Inc. and Southeast Research Partners, Inc.
(including Form of Warrant)
5.1** Opinion of Pepper Hamilton LLP
10.1* Registration Rights Agreement dated as of November 7, 1996 by and among SmithKline
Beecham Diagnostic Systems Co., SmithKline Beecham Corporation and Careside, Inc.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.2 Registration Rights Agreement dated as of December 4, 1996 by and
among Careside, Inc.,
Exigent Partners, L.P., W. Vickery Stoughton, Thomas H. Grove,
Kenneth B. Asarch,
William S. Knight, Donald S. Wong, Ashok K. Sawhney and Philip B.
Smith
10.3* Amendment No. 1 to Registration Rights Agreement dated as of
January 31, 1997 by and among
Careside, Inc. Exigent Partners, L.P., W. Vickery Stoughton,
Thomas H. Grove,
Kenneth B. Asarch, William S. Knight, Donald S. Wong, Ashok K.
Sawhney and Philip B. Smith
10.4* Registration Rights Agreement dated as of December 4, 1996 by and
between Careside, Inc.
and Spencer Trask Securities Incorporated
10.5* Registration Rights Agreement dated as of January 31, 1997 by and
among Careside, Inc.
and the Investors signatory thereto
10.6 Stockholders Agreement dated as of December 4, 1996 by and among
the Careside, Inc.,
SmithKline Beecham Corporation, SmithKline Beecham Diagnostic
Systems Co., Spencer Trask
Securities Incorporated, Exigent Partners, L.P., W. Vickery
Stoughton, Thomas H. Grove,
Kenneth B. Asarch, William S. Knight, Donald S. Wong, Ashok K.
Sawhney, Philip B. Smith
and each Investor signatory thereto
10.7* Consulting Agreement by and between Careside, Inc. and Cedar
Capital Investors dated August 8, 1997
10.8* Employment Agreement dated as of March 3, 1997 between Careside,
Inc. and W. Vickery Stoughton
10.9* Employment Agreement dated as of March 3, 1997 between Careside,
Inc. and Thomas H. Grove
10.10* Employment Agreement dated as of July 30, 1998 between Careside,
Inc. and James R. Koch
10.11* 1996 Incentive and Non-Qualified Stock Option Plan, as amended and
restated
10.12* 1996 Key Executive Stock Option Plan, as amended and restated
10.13* 1998 Incentive and Non-Qualified Stock Option Plan
10.14* 1998 Director Stock Option Plan
10.15 Standard Industrial/Commercial Single-Tenant Lease-NET dated as of
October 14, 1996,
by and between Fox Hills Business Park, a California Limited
Partnership and Careside, Inc.
10.16 Agreement dated as of August 23, 1996, by and between Fuji Photo
Film Co., Ltd. and Careside, Inc.+
10.17* Agreement dated as of December 12, 1995, by and between United
Medical Manufacturing
Company and SmithKline Beecham Corporation and assignment
10.18* Product Development and Supply Agreement dated as of July 18,
1997, by and between
Careside, Inc. and UMM Electronics, Inc.
10.19* Agreement executed December 7, 1995 and February 28, 1996, by and
between SmithKline
Beecham Corporation and Hauser, Inc. and assignment
10.20* Agreement Number CP032284 Cost Type executed December 5 and 17,
1996 by and between
Battelle Memorial Institute and Careside, Inc.
10.21 Joint Research and Development Agreement dated as of October 28,
1996 by and between
Careside, Inc. and International Technidyne Company+
10.22 [INTENTIONALLY OMITTED]
10.23 Distribution and Supply Agreement dated as of November 7, 1996, by
and between SmithKline
Beecham Clinical Laboratories, Inc. and Careside, Inc.+
10.24 Asset Purchase Agreement dated as of November 7, 1996, by and
among SmithKline Beecham
Clinical Laboratories, Inc., SmithKline Beecham Diagnostic Systems
Co. and Careside, Inc.
10.25* Loan and Security Agreement dated as of October 1, 1996, by and
between Careside, Inc. and
SmithKline Beecham Corporation
10.26* Placement Agency Agreement dated as of December 10, 1996, by and
between Careside, Inc.
and Spencer Trask Securities Incorporated
10.27 Placement Agency Agreement dated as of January 29, 1998, by and
between Spencer Trask
Securities Incorporated and Careside, Inc.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.28* Investment Banking Agreement dated as of January 31, 1997, by and
between Careside, Inc.
and Spencer Trask Securities Incorporated
10.29* Agreement of Limited Partnership of Exigent Partners, L.P. dated
as of October 1996,
by and between Kevin Kimberlin and those persons listed on
Schedule A attached thereto
10.30 The Lincoln National Life Insurance Company Standardized 401(k)
Salary Reduction Plan
and Trust Prototype Plan Adoption Agreement Plan #008, effective
January 1, 1997, by and
between Careside, Inc. W. Vickery Stoughton and Thomas Grove
10.31 Employee Stock Purchase Plan
10.32* Registration Rights Agreement dated as of March 6, 1998 by and
among Careside, Inc. and the Investors signatory thereto
10.33* Registration Rights Agreement dated as of March 6, 1998 by and
between Careside, Inc. and Spencer Trask Securities Incorporated
10.34* Registration Rights Agreement dated as of December 17, 1998 by and
between Careside, Inc. and S.R. One, Limited
10.35 Waiver Letter Agreement dated as of December 8, 1998 by and
between Careside, Inc. and Spencer Trask Securities Incorporated
23.1 Consent of Arthur Andersen LLP
23.2** Consent of Pepper Hamilton LLP
23.3 Consent of Oppenheimer Wolff & Donnelly LLP
24.1* Power of Attorney (included on Signature Pages)
27.1 Financial Data Schedule
</TABLE>
- --------
* Previously filed with the Securities and Exchange Commission.
** To be filed by amendment.
+ Portions of these documents have been omitted pursuant to a request for
confidential treatment. The material has been filed separately with the
Securities and Exchange Commission.
(B) FINANCIAL STATEMENT SCHEDULES:
Financial Statement Schedules are omitted because the information is included
in the Financial Statements or notes thereto.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared effective.
II-6
<PAGE>
(2) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
In addition, the undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
II-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-1 AND HAS DULY CAUSED THIS AMENDMENT NO. 1 TO
THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN CULVER CITY, CALIFORNIA, ON THE 29TH DAY OF
JANUARY, 1999.
CARESIDE, INC.
/s/ W. Vickery Stoughton
By: _________________________________
W. VICKERY STOUGHTON
CHAIRMAN OF THE BOARD OF
DIRECTORS
AND CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ W. Vickery Stoughton Chairman of the Board of January 29, 1999
______________________________________ Directors, Chief
W. VICKERY STOUGHTON Executive Officer and
Director (principal
executive officer)
/s/ Thomas H. Grove Executive Vice President-- January 29, 1999
______________________________________ Research and Development
THOMAS H. GROVE and Director
/s/ James R. Koch Chief Financial Officer, Janaury 29, 1999
______________________________________ Treasurer, Executive Vice
JAMES R. KOCH President and Director
(principal financial and
accounting officer)
* Director January 29, 1999
______________________________________
ANTHONY P. BRENNER
* Director January 29, 1999
______________________________________
WILLIAM F. FLATLEY
* Director January 29, 1999
______________________________________
KENNETH N. KERMES
* Director January 29, 1999
______________________________________
C. ALAN MACDONALD
* Director January 29, 1999
______________________________________
DIANA MACKIE
* Director January 29, 1999
______________________________________
</TABLE> PHILIP B. SMITH
/s/ W. Vickery Stoughton
*By: ________________________________
W. VICKERY STOUGHTON ATTORNEY-IN-
FACT
II-8
<PAGE>
EXHIBIT 10.2
REGISTRATION RIGHTS AGREEMENT
-----------------------------
REGISTRATION RIGHTS AGREEMENT dated December 4, 1996 (the "Effective
Date") between Exigent Diagnostics, Inc.., a Delaware corporation (the
"Company"), Exigent Partners, L.P., a Delaware limited partnership (the
"Partnership"), W. Vickery Stoughton ("Stoughton"), Thomas H. Grove ("Grove"),
Kenneth B. Asarch ("Asarch"), William S. Knight ("Knight"), Donald S. Wong
("Wong"), Ashok K. Sawhney ("Sawhney") and Philip B. Smith ("Smith") (the
Partnership and each of the foregoing listed individuals is a "Stockholder";
collectively, are the "Stockholders").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Stoughton and Grove formed the Company on July 10, 1996 and
as a result of the incorporation were issued that number of shares of common
capital stock of the Company, $.01 par value per share ("Common Stock"), as is
set forth opposite their names on Exhibit A hereto;
---------
WHEREAS, Asarch, Knight, Wong, Sawhney and Smith became Stockholders
of the Company in October, 1996 subject to certain forfeiture restrictions
pertaining to their stock, and in the case of Smith, rights to additional stock,
as more fully set forth in the letter agreements entered into between each of
them and the Company (the "Letter Agreement Shares");
WHEREAS, Smith has purchased additional shares of Common Stock from
the Company pursuant to a Subscription Agreement dated today's date (the
"Subscription Agreement Shares")
WHEREAS, the Partnership purchased the number of shares of Common
Stock set opposite its name on Exhibit A hereto (the "Partnership Shares") in
---------
November 1996;
WHEREAS, the Company intends to undertake a 7,257.258 for one stock
split and, thereafter, the offer and sale of an additional 7,500,000 shares of
Common Stock (exclusive of an option by the Company to offer and sell an
additional 1,125,000 shares of Common Stock solely to cover over subscriptions)
pursuant to a private placement memorandum contemplated by a letter of intent
with Spencer Trask Securities Incorporated (the "Memorandum")
NOW, THEREFORE, in consideration of the mutual covenants and
agreements made herein, and other good valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and accepted, the parties hereto
agree as follows:
1. Definitions. As used herein, unless the context otherwise requires,
-----------
the following terms have the following respective meanings:
"Affiliate" has the meaning set forth in Rule 12b-2 under the Exchange
Act.
<PAGE>
"Closing Price" means the last sale price, regular way, as reported in
the principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the principal national securities
exchange on which the Registrable Securities shall be listed or admitted to
trading on a Trading Day or, if the Registrable Securities shall not be listed
or admitted to trading on any national securities exchange an such Trading Day,
the last reported transaction price on such Trading Day or, if not so quoted,
the closing bid price in the over-the-counter market on such Trading Day, as
reported by NASDAQ or such other system then in use.
"Commission" means the United States Securities and' Exchange
Commission or any other federal agency at the time administering the Securities
Act.
"Common Stock" has the meaning set forth in the first WHEREAS clause
of the Recitals.
"Demand" has the meaning set forth in Section 2.1.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar federal statute, and the rules and regulations of the Commission
promulgated thereunder, as the same shall be in effect at the time. Reference to
a particular section of the Securities Exchange Act of 1934, as amended, shall
include reference to the comparable section, if any, of any such subsequent
similar federal statute.
"Participating Holder" has the meaning set forth in Section 2.1.4.
"Person" means any individual, partnership, joint venture,
corporation, trust, unincorporated organization, government or department or
agency of a government.
"Public Offering" means a Public Offering of securities registered
with the Commission under the Securities Act.
"Registrable Common Securities" means the Letter Agreement Shares, the
Subscription Agreement Shares and the Partnership Shares.
"Registrable Securities" means collectively the Registrable Common
Securities and any other securities issuable in connection therewith or in
replacement thereof by way of a dividend, distribution, recapitalization,
exchange, merger, consolidation or other reorganization. As to any particular
Registrable Securities, once issued such securities shall cease to be
Registrable Securities when (a) a registration statement with respect to the
sale of such securities shall have become effective under the Securities Act and
such securities shall have been disposed of in accordance with such registration
statement, (b) they shall have been sold as permitted by, and in compliance
with, Rule 144 (or any successor provision) promulgated under the Securities Act
or (c) they shall have ceased to be outstanding.
-2-
<PAGE>
"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with Section 2, including, without limitation, all
registration, filing and National Association of Securities Dealers, Inc. fees,
all listing fees, all fees and expenses of complying with securities or blue sky
laws (including, without limitation, reasonable fees and disbursements of
counsel for the underwriters in connection with blue sky qualifications of the
Registrable Securities), all word processing, duplicating and printing expenses,
messenger and delivery expenses, the fees and disbursements of counsel for the
Company and counsel for the Participating Holders comprising not more than one
outside law firm which shall be selected by the Participating Holders of a
majority of the Registrable Securities sought to be registered in such
registration (the "Selling Stockholder Counsel"), and of the Company's
independent public accountants, including the expenses of "comfort" letters
required by or incident to such performance and compliance, and any fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities.
"Securities Act" means the Securities Act of 1933, as amended, or any
subsequent similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
References to a particular section of the Securities Act of 1933, as amended,
shall include a reference to the comparable section, if any, of any such
subsequent similar federal statute.
2. Registration Rights.
-------------------
2.1. Registration on Demand.
----------------------
2.1.1. Demand. After the earlier of the effective date of
------
the initial Public Offering of Common Stock and the fifth (5th) anniversary of
the Final Closing (as defined in the Memorandum), subject to Section 2.1.7, upon
the written request (the "Demand") of the holders of a majority of Registrable
Securities that the Company effect the registration under the Securities Act of
all or part of the Registrable Securities, the Company shall cause to be filed,
and shall take all commercially reasonable actions to effect, as soon as
practicable and in any event, subject to the reasonable cooperation of the
Stockholders, within 120 days after the Demand is received from the
Stockholders, the registration under the Securities Act, of the Registrable
Securities which the Company has been so requested to register by the
Stockholders. Prior to such registration being declared effective, the holders
of a majority of the Registrable Securities requesting such Demand registration
may withdraw such Demand registration, subject to the provisions of Section
2.1.4 below.
2.1.2. Registration of Other Securities. Whenever the
--------------------------------
Company shall effect a registration pursuant to this Section 2.1 in connection
with an underwritten offering by the Stockholders of Registrable Securities,
holders of securities of the Company who have "piggyback" registration rights
may include all or a portion of such securities in such registration, offering
or sale. If the managing underwriter of any such offering shall inform the
Company by letter of its belief that the number or type of securities of the
Company requested by holders of the securities of the Company other than the
Stockholders to be included in such registration would
-3-
<PAGE>
materially and adversely affect the underwritten offering, then the Company
shall include in such registration, to the extent of the number and type of
securities which the Company is so advised can be sold in (or during the time
of) such offering, first, all of the Registrable Securities specified by the
Stockholders in the Demand and second, for each holder of the Company's
securities other than the Stockholders, the fraction of each holder's securities
proposed to be registered which is obtained by dividing (i) the number of the
securities of the Company that such holder proposes to include in such
registration by (ii) the total number of securities proposed to be included in
such registration by all holders other than the Stockholders.
2.1.3. Registration Statement Form. Registrations under
---------------------------
this Section 2.1 shall be on such appropriate registration form of the
Commission as shall be selected by the Company. The Company shall include in any
such registration statement all information which, in the opinion of counsel to
the Company, is required to be included.
2.1.4. Expenses. The Company shall pay the Registration
--------
Expenses in connection with any Demand registration effected pursuant to this
Section 2.1, other than underwriting discounts and selling commissions relating
to the sale or disposition of Registrable Securities and the fees and expenses
of the Stockholders' counsel. If the registration pursuant to a Demand is
withdrawn at the request of the Stockholders participating in the registration
(a "Participating Holder") and such Stockholders elect not to have such
registration count as its Demand registration under this Section 2.1, the
Stockholders shall pay all the Registration Expenses of such registration, other
than the fees and expenses of counsel to Company or of any other holder of
Common Stock. At no time shall the Stockholders be required to pay the
underwriting discounts or selling commissions relating to the sale or
disposition of shares of Common Stock by other Persons, or the fees and expenses
of any other Persons or the Company's counsel, except as required by Section
2.6.2 below.
2.1.5. Effective Registration Statement. A registration
--------------------------------
requested pursuant to this Section 2.1 shall not be deemed to have been effected
(i) unless a registration statement with respect thereto has become effective,
(ii) if after it has become effective, such registration is interfered with by
any stop order, injunction or other order or requirement of the Commission or
other governmental agency or court for any reason and has not thereafter become
effective, or (iii) in the case of an underwritten offering, if the conditions
to closing specified in the underwriting agreement, if any, entered into in
connection with such registration are not satisfied or waived.
2.1.6. Selection of Underwriters. In connection with each
-------------------------
underwritten offering, (a) the Company shall promptly select the managing
underwriter subject to the approval of the Stockholders (which approval shall
not be unreasonably withheld, delayed or conditioned by the Stockholders) and
(b) if they so desire, the Stockholders shall promptly (by the holders of a
majority of the Registrable Securities sought to be registered by the
Participating Holders in such Demand) select the co-managing underwriter subject
to the approval of the Company (which approval shall not be unreasonably
withheld, delayed or conditioned by the Company).
-4-
<PAGE>
2.1.7. Limitations on Registration on Demand. The Company
-------------------------------------
shall not be required to prepare and file a registration statement pursuant to
this Section 2.1 which would become effective within (a) 180 days following the
effective date of a registration statement filed by the Company with the
Commission pertaining to an initial underwritten Public Offering of convertible
debt securities or equity securities for cash (a "Public Offering") for the
account of the Company, provided that no other holder of the Company's
securities shall have been permitted to participate in such initial Public
Offering, or (b) 120 days following the effective date of a registration
statement (other than a registration statement filed on Form S-4 or S-8) filed
by the Company with the Commission pertaining to any subsequent Public Offering
for the account of the Company or another holder of securities of the Company if
the Stockholders were afforded the opportunity to include all of its Registrable
Securities in such subsequent registration pursuant to Section 2.2. In no event
shall the Company be required to effect more than two (2) registrations pursuant
to this Section 2.1. Notwithstanding the foregoing, if, in the good faith
determination of the Company's Board of Directors, a registration would
adversely affect certain activities of the Company to the material detriment of
the Company, then the Company may at its option direct that such Demand be
delayed for a period not in excess of 90 days in the aggregate from the date of
the Company's receipt of the Demand. The rights of the holders of Registrable
Securities to cause a Demand registration to be effected hereunder are subject
to the prior rights of the investors in the private offering contemplated by the
Memorandum (the "Offering") to effect a registration pursuant to the last
sentence of Section 2.1.7 of the Registration Rights Agreement to be entered
into by the Company in connection with the Private Offering, the form of which
is attached to the Memorandum.
2.2. Piggyback Registration.
----------------------
2.2.1. Right to Include Registrable Securities. If the
---------------------------------------
Company at any time proposes to register any of its securities under the
Securities Act by registration on Forms S-1, S-2, S-3 or any successor or
similar form(s) (except registrations on such Forms or similar forms solely for
registration of securities in connection with (i) an employee benefit plan or
dividend reinvestment plan or a merger or consolidation or (ii) debt securities
which are not convertible into Common Stock), whether or not for sale for its
own account, it shall each such time give written notice to the Stockholders of
its intention to do so at least 30 days prior to the anticipated filing date of
a registration statement with respect to such registration with the Commission.
Upon the written request of the Stockholders made as promptly as practicable and
in any event within 10 business days after the receipt of any such notice, which
request shall specify the Registrable Securities intended to be disposed of by
the Stockholders, the Company shall use commercially reasonable efforts to
effect the registration under the Securities Act of all Registrable Securities
which the Company has been so requested to register by the Stockholders;
provided, however, that if, at any time after giving written notice of its
intention to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register or to delay registration of such
securities, the Company may, at its election, give written notice of such
determination to the Stockholders and (i) in the case of a determination not to
register, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from
-5-
<PAGE>
any obligation of the Company to pay the Registration Expenses in connection
therewith), without prejudice, (provided, however, that the Stockholders may
request that such registration be effected as a registration under Section 2.1
hereof) and (ii) in the case of a determination to delay registering, shall be
permitted to delay registering any Registrable Securities for the same period as
the delay in registering such other securities.
2.2.2. Priority in Piggyback Registrations. Notwithstanding
-----------------------------------
anything in Section 2.2.1 above to the contrary, if the managing underwriter of
any underwritten offering shall inform the Company by letter of its belief that
the number or type of Registrable Securities requested to be included in such
registration would materially and adversely affect such offering, then the
Company shall promptly notify the Stockholders of such fact. If the managing
underwriter does not agree to include all (or such lesser amount as the
Stockholders shall, in their discretion, agree to) of the number of the
Registrable Securities initially requested by the Stockholders to be included in
such registration, then the Company shall include in such registration, to the
extent of the number and type which the Company is so advised can be sold in (or
during the time of) such offering first, all securities proposed by the Company
to be sold for its own account, if the Company initiated such registration, or
by the holder of securities who initiated such demand registration, if any,
second, for each of the Stockholders, Spencer Trask Securities Incorporated,
SmithKline Beecham Corporation (and its affiliates), and the purchasers of
Common Stock offered pursuant to the Memorandum (and the respective successors
and assigns of any of the foregoing), other than the holder of the securities
who initiated such demand registration, if any, the fraction of such holder's
securities proposed to be registered which is obtained by dividing (i) the
number of the securities of the Company that such holder proposes to include in
such registration by (ii) the total number of securities proposed to be sold in
such offering by such holders, and third, for each remaining holder of the
Company's securities, other than the holder of the securities who initiated such
demand registration and the holders listed above, if any, the fraction of such
holder's securities proposed to be registered which is obtained by dividing (i)
the number of the securities of the Company that such holder proposes to include
in such registration by (ii) the total number of securities proposed to be sold
in such offering by such holders.
2.3. Registration Procedures.
-----------------------
2.3.1. In connection with the registration of any Registrable
Securities under the Securities Act as provided in Sections 2.1 and 2.2, the
Company shall as promptly as practicable:
(i) prepare and file with the Commission the
requisite registration statement to effect such registration and thereafter use
commercially reasonable efforts to cause such registration statement to become
and remain effective;
(ii) prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective and to comply with provisions of the Securities Act with
respect to the disposition of all Registrable Securities covered by such
-6-
<PAGE>
registration statement for 180 days or such shorter period as may be required
for the disposition of all of such Registrable Securities by the underwriters;
(iii) furnish to the Stockholders such number of
conformed copies of such registration statement and of each such amendment and
supplement thereto (in each case including all exhibits), such number of copies
of the prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other prospectus
filed under Rule 424 under the Securities Act, in conformity with the
requirements of the Securities Act, and such number of copies of such other
documents as the Stockholders may reasonably request;
(iv) use commercially reasonable efforts (x) to
register or qualify all Registrable Securities and other securities covered by
such registration statement under such other securities or Blue Sky laws of such
States of the United States of America where an exemption is not available and
as the Stockholders shall reasonably request, (y) to keep such registration or
qualification in effect for so long as such registration statement remains in
effect, and (z) to take any other action which may reasonably be necessary or
advisable to enable the Stockholders to consummate the disposition in such
jurisdictions of the Registrable Securities to be sold by the Stockholders,
except that the Company shall not for any such purpose be required to qualify
generally to do business as a foreign Company in any jurisdiction wherein it
would not, but for the requirements of this paragraph (iv), be obligated to be
so qualified or to consent to general service of process in any such
jurisdiction;
(v) use commercially reasonable efforts to cause
all Registrable Securities covered by such registration statement to be
registered with or approved by such other federal or state governmental agencies
or authorities as may be necessary in the opinion of counsel to the Company and
counsel to the Stockholders to consummate the disposition of such Registrable
Securities in accordance with their intended method of disposition;
(vi) furnish to the Stockholders, (x) an opinion of
outside counsel for the Company, and (y) a copy of a "comfort" letter addressed
to the Company and/or any managing underwriter signed by the certified
independent public accountants who have certified the Company's financial
statements included or incorporated by reference in such registration statement,
each covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of the
accountant's comfort letter, with respect to events subsequent to the date of
such financial statements, as are customarily covered in opinions of issuer's
counsel and in accountant's comfort letters delivered to the underwriters in
underwritten Public Offerings of securities (and dated the dates such opinions
and comfort letters are customarily dated);
(vii) notify the Stockholders when a prospectus
relating thereto is required to be delivered under the Securities Act, upon
discovery that, or upon the happening of any event as a result of which, the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state any material fact
required
-7-
<PAGE>
to be stated therein or necessary to make the statements therein not misleading,
in the light of the circumstances under which they were made, and at the request
of the Stockholders to use its best efforts to promptly prepare and furnish to
the Stockholders such number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made;
(viii) otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission, and make available to
its security-holders, as soon as reasonably practicable, an earnings statement
meeting the requirements of Section 11(a) of the Securities Act, which the
Company shall be entitled to satisfy by complying with the requirements of Rule
158 promulgated thereunder, and promptly furnish a copy of the same to the
Stockholders;
(ix) provide and cause to be maintained a transfer
agent and registrar for all Registrable Securities covered by such registration
statement from and after a date not later than the effective date of such
registration statement; and
(x) use commercially reasonable efforts to list all
Registrable Securities covered by such registration statement on any national
securities exchange or over-the-counter market, if any, on which Registrable
Securities of the same class, and if applicable, series, covered by such
registration statement are then listed.
The Stockholders agree that upon receipt of any notice from the
Company of the happening of an event of the kind described in Section
2.3.1(vii), the Stockholders shall forthwith discontinue its disposition of
Registrable Securities pursuant to the registration statement relating to such
Registrable Securities until the Stockholders' receipt of the copies of the
supplemented or amended prospectus contemplated by Section 2.3.1(vii).
2.4. Underwritten Offerings.
----------------------
2.4.1. Requested Underwritten Offerings. If requested by
--------------------------------
the underwriters for any underwritten offering by the Stockholders pursuant to a
registration requested under Section 2.1, the Company shall enter into an
underwriting agreement with such underwriters for such offering, such agreement
to be reasonably satisfactory in substance and form to the Company, the
Stockholders and the underwriters, and to contain such representations and
warranties by the Company and the Stockholders and such other terms as are
generally prevailing in agreements of that type, including, without limitation,
indemnities to the effect and to the extent provided in Section 2.6 or as are
generally prevailing in agreements of that type. The Stockholders shall
cooperate with the Company in the negotiation of the underwriting agreement and
shall give consideration to the reasonable suggestions of the Company regarding
the form and substance thereof. The Stockholders shall be a party to such
underwriting agreement. The
-8-
<PAGE>
Stockholders shall not be required to make any representations or warranties to
or agreements with the Company or the underwriters other than representations,
warranties or agreements regarding the Stockholders, the Stockholders'
Registrable Securities, the Stockholders' intended method of distribution and
any other representations or warranties required by law or customarily given by
selling shareholders in an underwritten Public Offering or as reasonably
required by the managing underwriter of the offering of Registrable Securities.
2.4.2. Piggyback Underwritten Offerings. If the Company
--------------------------------
proposes to register any of its securities under the Securities Act as
contemplated by Section 2.2 and such securities are to be distributed by or
through one or more underwriters, subject to the priority and other provisions
of Section 2.2.2 the Company shall, if requested by the Stockholders, arrange
for such underwriters to include all the Registrable Securities to be offered
and sold by the Stockholders among the securities of the Company to be
distributed by such underwriters. The Stockholders shall become a party to the
underwriting agreement negotiated between the Company and such underwriters. The
Stockholders shall not be required to make any representations or warranties to
or agreements with the Company or the underwriters other than representations,
warranties or agreements regarding the Stockholders, the Stockholders'
Registrable Securities and the Stockholders' intended method of distribution or
any other representations or warranties required by law or customarily given by
selling shareholders in an underwritten Public Offering or as reasonably
required by the managing underwriter of the offering of Registrable Securities.
2.4.3. Holdback Agreements.
-------------------
(i) In connection with the initial Public Offering
or any registration of Registrable Securities in connection with an underwritten
Public Offering, the Stockholders agree if required by the underwriter or
underwriters not to effect any public sale or distribution, including any sale
pursuant to Rule 144 under the Securities Act, of any Registrable Securities,
and not to effect any such public sale or distribution of any other equity
security of the Company or of any security convertible into or exchangeable or
exercisable for any equity security of the Company (in each case, other than as
part of such underwritten Public Offering) during the 15 days prior to, and
during the 180-day period, or such shorter period set forth in the underwriting
agreement with respect to such offering as the managing underwriter of such
offering shall reasonably require, beginning on, the effective date of such
registration statement.
(ii) If any registration of Registrable Securities
shall be in connection with an underwritten Public Offering, the Company agrees
(x) if required by the underwriter or underwriters, not to effect any public
sale or distribution of any of its equity securities or of any security
convertible into or exchangeable or exercisable for any equity security of the
Company (other than in connection with any employee stock option or other
benefit plan which has been duly adopted by the Company and which provides for
the distribution to participants in the plan of equity securities of the Company
or securities convertible or exchangeable or exercisable for equity securities
of the Company, or in connection with a merger or acquisition approved by the
Board of Directors of the Company) during the 180-day period, or
-9-
<PAGE>
such other period as the managing underwriter of such offering shall reasonably
require, beginning on the effective date of such registration statement (except
as part of such registration) and (y) that any agreement entered into after the
date of this Agreement pursuant to which the Company issues or agrees to issue
any privately placed equity securities shall contain a provision under which
holders of such securities agree that, if required by the underwriter or
underwriters, they will not effect any public sale or distribution of any such
securities during the period referred to in the foregoing clause (x), including
any sale pursuant to Rule 144 under the Securities Act (except as part of such
registration, if permitted), if such holder is participating in the offering
pursuant to such registration.
2.5. Preparation; Reasonable Investigation. In connection with the
-------------------------------------
preparation and filing of any registration statement under the Securities Act in
which the Stockholders are a selling shareholder, the Company shall give the
Stockholders not less than 30 days prior written notice of the preparation of
such registration statement and give the Stockholders and its counsel and
accountants the opportunity to participate, at the Stockholders' expense, in the
preparation of such registration statement, each prospectus included therein or
filed with the Commission, and each amendment thereof or supplement thereto
(provided that the Stockholders shall furnish the Company with comments on any
such amendment or supplement as promptly as the Company shall reasonably
require), and give each of them such access to its books and records, such
opportunities to discuss the business of the Company with officers and the
independent public accountants who have certified its financial statements as
shall be necessary, in the opinion of the Stockholders' counsel, to conduct a
reasonable investigation within the meaning of the Securities Act. Any expenses
incurred by the Stockholders in connection with any such investigation shall be
borne by the Stockholders, other than the reasonable fees and disbursements of
Selling Stockholder Counsel incurred in connection with such investigation.
2.6. Indemnification.
---------------
2.6.1. Indemnification by the Company. In the event of any
------------------------------
registration of any securities of the Company under the Securities Act in which
the Stockholders are selling shareholders, the Company shall, and hereby does,
indemnify and hold harmless, in the case of any registration statement filed
pursuant to Sections 2.1 or 2.2, the Participating Holders, its directors,
officers, employees, agents and affiliates and, to the extent required by any
underwriting agreement entered into by the Company, each other Person who
participates as an underwriter in the offering or sale of such securities and
each other Person who controls a Participating Holder or any such underwriter
within the meaning of the Securities Act, insofar as losses, claims, damages, or
liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any fact contained in any registration statement under which
such securities were registered under the Securities Act, any preliminary
prospectus, final prospectus, or summary prospectus contained therein, or any
amendment or supplement thereto, or any omission or alleged omission to state
therein a fact required to be stated therein or necessary to make the statements
therein in light of the circumstances in which they were made not misleading,
and the Company shall reimburse the Stockholders and each such director,
officer, agent or affiliate, and, to the extent required by any
-10-
<PAGE>
underwriting agreement entered into by the Company, underwriter and controlling
Person for any legal or any other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, liability,
action or proceeding; provided, however, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage, liability (or
action or proceeding in respect thereof) or expense arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement, any such preliminary prospectus,
final prospectus, summary prospectus, amendment or supplement in reliance upon
and in conformity with written information furnished to the Company through an
instrument duly executed by the Participating Holders, specifically stating that
it is for use in the preparation thereof. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of the
Participating Holders or any such director, officer, agent or affiliate or
controlling Person and shall survive the transfer of such securities by the
Participating Holders.
2.6.2. Indemnification by the Stockholders. If any Registrable
-----------------------------------
Securities are included in any registration statement, the Participating
Holders shall indemnify and hold harmless (in the same manner and to the same
extent as set forth in Section 2.6.1 above) the Company, each director of the
Company, each officer of the Company and each employee of the Company and, to
the extent required by any underwriting agreement entered into by the
Participating Holders, each other Person who participates as an underwriter in
the offering or sale of such securities and each other Person who controls any
such underwriter within the meaning of the Securities Act, with respect to any
statement or alleged statement in or omission or alleged omission from such
registration statement, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, if such
statement or alleged statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to the
Company through an instrument duly executed by the Participating Holders
specifically stating that it is for use in the preparation of such registration
statement, preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement; provided, however, in no event shall the liability of
any Participating Holder under this Section 2.6.2 exceed the proceeds from the
Sale of the securities to be sold by such Participating Holder in any such
registration.
2.6.3. Notice of Claims, Etc. Promptly after receipt, by an indemnified
----------------------
party of notice of the commencement of any action or proceeding involving a
claim referred to in the preceding paragraphs of this Section 2.6, such
indemnified party shall, if a claim in respect thereof is to be made against an
indemnifying party, immediately give written notice to the latter of the
commencement of such action; provided, however, that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding paragraphs of this
Section 2.6, except to the extent that the indemnifying party is materially
prejudiced by such failure. The indemnified party shall be entitled to receive
the indemnification payments described in Section 2.6.6 after providing such
written notice to the indemnifying party. In case any such action is brought
against an indemnified party, unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist in respect of such claim, the indemnifying party shall be
entitled to
-11-
<PAGE>
participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that the indemnifying
parties may agree, with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party shall not
be liable to such indemnified party for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof other than
reasonable out of pocket costs related to the indemnified party's cooperation
with the indemnifying party, unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties arises in respect of such claim after the assumption of the defense
thereof. No indemnifying party shall be liable for any settlement of any action
or proceeding effected without its written consent, which consent shall not be
unreasonably withheld, delayed or conditioned. Consent of the indemnified party
shall be required for the entry of any judgment or to enter into a settlement
only when such judgment or settlement 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 such claim or litigation.
2.6.4. Contribution. If the indemnification provided for in this Section
------------
2.6 shall for any reason be held by a court to be unavailable to an indemnified
party under Section 2.6.1 or 2.6.2 hereof in respect of any loss, claim, damage
or liability, or any action in respect thereof, then, in lieu of the amount paid
or payable under Sections 2.6.1 or 2.6.2 hereof, the indemnified party and the
indemnifying party under Sections 2.6.1 or 2.6.2 hereof shall contribute to the
aggregate losses, claims, damages and liabilities (including legal or other
expenses reasonably incurred in connection with investigating the same), (i) in
such proportion as shall be appropriate to reflect the relative benefits
received by the Company on one hand and the Stockholders on the other or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect the relative fault of the
Company on one hand and the Stockholders on the other that resulted in such
loss, claim, damage or liability, or action in respect thereof, as well as any
other relevant equitable considerations. No Person guilty of fraudulent
misrepresentation (within the meaning of the Securities Act) shall be entitled
to contribution from any Person who was not guilty of such fraudulent
misrepresentation. In addition, no Person shall be obligated to contribute
hereunder any amounts in payment for any settlement of any action or claim,
effected without such Person's written consent, which consent shall not be
unreasonably withheld; provided, however, in no event shall the liability of any
Participating Holder under this Section 2.6.4 exceed the proceeds from the sale
of the securities to be sold by such Participating Holder in any such
registration.
2.6.5. Other Indemnification. Indemnification and contribution similar to
---------------------
that specified in the preceding paragraphs of this Section 2.6 (with appropriate
modifications) shall be given by the Company and the Participating Holders with
respect to any required registration or other qualification of securities under
any federal or state law or regulation of any governmental authority other than
the Securities Act.
-12-
<PAGE>
3. Rule 144. With a view to making available the benefits of certain
--------
rules and regulations of the Commission that may permit the sale of the
Registrable Securities to the public without registration after an initial
Public Offering, the Company agrees to:
(a) provide information and such other assistance requested by the
Stockholders as is customarily provided by issuers in connection with sales of
their common stock by directors or affiliates under Rule 144, promulgated under
the Securities Act;
(b) make and keep public information available, as those terms are
understood and defined in Rule 144 promulgated under the Securities Act at all
times;
(c) use its best efforts to 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; and
(d) deliver a written statement as to whether it has complied with
such requirements of this Section, to the Stockholders upon the Stockholders'
request.
4. Intentionally Omitted
---------------------
5. Modification; Waivers. This Agreement may be modified or amended only
---------------------
with the written consent of each party hereto. No party shall be released from
its obligations hereunder without the written consent of the other party. The
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively) by the party
entitled to enforce such term, but any such waiver shall be effective only if in
a writing signed by the party against which such waiver is to be asserted.
Except as otherwise specifically provided herein, no delay on the part of any
party hereto in exercising any right, power or privilege hereunder shall operate
as a waiver thereof, nor shall any waiver on the part of any party hereto of any
right, power or privilege hereunder operate as a waiver of any other right,
power or privilege hereunder nor shall any single or partial exercise of any
right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any right, power or privilege hereunder.
6. Entire Agreement. This Agreement represents the entire understanding
----------------
and agreement between the parties hereto with respect to the subject matter
hereof and supersedes all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof.
7. Severability. If any provision of this Agreement, or the application
------------
of such provision to any Person or circumstance, shall be held invalid, the
remainder of this Agreement or the application of such provision to other
Persons or circumstances, to the extent permitted by law, shall not be affected
thereby; provided, that the parties shall negotiate in good faith with respect
to an equitable modification of the provision or application thereof held to be
invalid.
-13-
<PAGE>
8. Notices.
-------
(a) Any notice or communication to any party hereto shall be duly
given if in writing and delivered in person, receipt requested, or courier
guaranteeing next day delivery, or facsimile (with written confirmation of
receipt) to such other party's address or facsimile number set forth below.
If to EXIGENT DIAGNOSTICS, INC., W. VICKERY STOUGHTON, THOMAS H.
GROVE, KENNETH B. ASARCH, WILLIAM S. KNIGHT, DONALD S. WONG or ASHOK K. SAWHNEY:
7 Harford Lane
Radnor, Pennsylvania 19087
Attention: W. Vickery Stoughton
Facsimile: 610-270-6150
with a copy to:
James D. Epstein, Esquire
Pepper, Hamilton & Scheetz
3000 Two Logan Square
Philadelphia, Pennsylvania 19103-2799
Facsimile: (215) 981-4750
If to EXIGENT PARTNERS, L.P. OR PHILIP B. SMITH:
c/o Spencer Trask Securities Incorporated
535 Madison Avenue
18th Floor
New York, New York 10022
Facsimile: (212) 751-3483
with a copy to:
John D. Vaughan, Esquire
Hertzog, Calamari & Gleason
100 Park Avenue
New York, New York 10017
Facsimile: 212-213-1199
(b) All notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered or facsimiled
(with written confirmation of receipt); and the next business day after timely
delivery to the courier, if sent by courier guaranteeing next day delivery.
-14-
<PAGE>
9. Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
and shall be binding upon the Company and the Stockholders and their respective
successors and permitted assigns. Each Stockholder may assign its rights under
this Agreement to any Person to whom the Stockholder transfers any of the
Registrable Securities or any interest therein without the necessity of
obtaining any consent to such assignment, provided that the such Person becomes
a party to that certain stockholders agreement, by and among the Company, the
Stockholders and certain other holders of the Common Stock. In the event that a
Stockholder assigns its rights to a holder or holders of only a portion of the
Registrable Securities, then all references to the Stockholder herein shall also
be deemed to refer to such other holder or holders, but in such event the
Stockholder shall have the sole right to make all decisions by and give notices
for such holder or holders under this Agreement; provided, that if the
Stockholder no longer owns any Registrable Securities, then all decisions and
notices hereunder shall be made by the holders of not less than a majority of
the Registrable Securities outstanding and all other holders of Registrable
Securities shall be bound by any such decision.
10. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which for all purposes shall be deemed to be an original
and all of which together shall constitute the same agreement.
11. Headings. The Section headings in this Agreement are for convenience
--------
of reference only, and shall not be deemed to alter or affect the meaning or
interpretation of any provisions hereof.
12. Construction. This Agreement shall be governed, construed and
------------
enforced in accordance with the laws of the State of New York without regard to
its principles of conflict of laws.
13. No Inconsistent Agreements. The Company has not previously, and shall
--------------------------
not hereafter, enter into any agreement with respect to its securities which is
inconsistent with the rights granted to the Stockholders in this Agreement.
14. Recapitalizations, Etc. In the event that any capital stock or other
-----------------------
securities are issued in respect of, in exchange for, or in substitution of, any
Registrable Securities by reason of any reorganization, recapitalization,
reclassification, merger, consolidation, spin-off, partial or complete
liquidation, stock dividend, split-up, sale of assets, distribution to
stockholders or combination of the shares of Registrable Securities or any other
similar change in the Company's capital structure, appropriate adjustments shall
be made in this Agreement so as to fairly and equitably preserve, as far as
practicable, the original rights and obligations of the parties hereto under
this Agreement.
15. Arbitration. Any controversy or claim arising out of or relating to
-----------
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the Rules of the American Arbitration Association in effect at
the time such arbitration is instituted. The arbitration panel shall be
composed of three arbitrators, one of whom shall be chosen by the Company, one
of
-15-
<PAGE>
whom shall be chosen by the Stockholders, and one of whom shall be chosen by the
two arbitrators previously designated. If both or either of the Company and/or
the Stockholders fails to choose an arbitrator within fourteen (14) calendar
days after receiving notice of commencement of arbitration or if the two
arbitrators fail to choose a third arbitrator within fourteen (14) calendar days
of their appointment, such arbitrators shall be chosen by the American
Arbitration Association. Unless the parties to the arbitration shall otherwise
agree to a different place of arbitration, the place of arbitration shall be New
York, New York. The arbitration award shall be final and binding upon the
parties thereto and may be entered in any court having jurisdiction. Each party
shall bear (i) its own expenses in connection with such arbitration and (ii)
one-half of the fees and expenses of the American Arbitration Association and
all arbitrators unless any arbitration award shall contain otherwise provide.
16. Specific Performance. The parties hereto agree that the Registrable
--------------------
Securities of the Company cannot be purchased or sold in the open market and
that, for these reasons, among others, the holder or holders of the Registrable
Securities will be irreparably damaged in the event that this Agreement is not
specifically enforceable. Accordingly, in the event of any controversy
concerning the Registrable Securities which are the subject of this Agreement,
or any right or obligation to register such securities, such right or obligation
determined as part of an arbitration award described in Section 15 shall be
enforceable in a court of equity by specific performance. The rights granted in
this Section 16 shall be cumulative and not exclusive, and shall be in addition
to any and all other rights which the parties hereto may have hereunder, at law
or in equity. the Stockholders consents to the jurisdiction of the federal
courts in the City of New York in any suit, action or proceeding brought
pursuant to this Section 16, waives any objection it may have to the laying of
venue in any such suit, action or proceeding in any of such court, and agrees
that service of any court paper may be made in such manner as may be provided
under applicable laws or court rules governing service of process.
17. Term. This Agreement shall continue in full force and effect for nine
----
(9) years from the Final Closing or, with respect to any Stockholder, the first
date on which the such Stockholder and their affiliates may sell all of the
Registrable Securities held by them in a ninety (90) day period pursuant to Rule
144 under the Securities Act.
-16-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
on the date first above written and delivered by their respective duly
authorized officers.
EXIGENT DIAGNOSTICS, INC.
By: /s/ W. Vickery Stoughton
---------------------------------
W. Vickery Stoughton
Chairman and Chief Executive Officer
EXIGENT PARTNERS, L.P.
By: /s/ Kevin Kimberlin
---------------------------------
Kevin Kimberlin, General Partner
/s/ W. VICKERY STOUGHTON
-------------------------------------
W. VICKERY STOUGHTON
/s/ THOMAS H. GROVE
--------------------------------------
THOMAS H. GROVE
/s/ KENNETH B. ASARCH
--------------------------------------
KENNETH B. ASARCH
/s/ WILLIAM S. KNIGHT
--------------------------------------
WILLIAM S. KNIGHT
/s/ DONALD S. WONG
--------------------------------------
DONALD S. WONG
/s/ ASHOK K. SAWHNEY
--------------------------------------
ASHOK K. SAWHNEY
/s/ PHILIP B. SMITH
--------------------------------------
PHILIP B. SMITH
-17-
<PAGE>
EXHIBIT A
---------
Name of Shareholder Number of Shares of Common Stock
- ------------------- --------------------------------
Exigent Partners, L.P. 2,887,553*
W. Vickery Stoughton 1,908,151
Thomas A. Grove 939,815
Kenneth B. Asarch 134,477
William S. Knight 100,876
Donald S. Wong 100,876
Ashok K. Sawhney 100,876
Phillip B. Smith 223,376*
__________________________
* Subject to reduction pursuant to certain call rights contained in
Subscription Agreements executed by them and the Company.
-18-
<PAGE>
EXHIBIT 10.6
================================================================================
STOCKHOLDERS AGREEMENT
among
EXIGENT DIAGNOSTICS, INC.,
SMITHKLINE BEECHAM CORPORATION,
SMITHKLINE BEECHAM DIAGNOSTIC SYSTEMS CO.,
SPENCER TRASK SECURITIES INCORPORATED,
EXIGENT PARTNERS, L.P.,
W. VICKERY STOUGHTON,
THOMAS H. GROVE,
KENNETH B. ASARCH,
WILLIAM S. KNIGHT,
DONALD S. WONG,
ASHOK K. SAWHNEY,
PHILIP B. SMITH,
AND
EACH INVESTOR SIGNATORY HERETO
================================================================================
Dated as of December 4, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Sections Page
- -------- ----
<S> <C>
1. Certain Defined Terms.................................. 3
2. Limitations on Transfers............................... 7
3. Consultation with and Consent of Spencer Trask in
Connection with Future Issuances of Securities........ 8
4. Preemptive Rights...................................... 8
5. Stock Splits, Etc...................................... 11
6. Registration Rights.................................... 11
7. Financial Reports and Information...................... 11
8. Corporation Governance Provisions...................... 12
9. Specific Performance................................... 14
10. Legend................................................. 14
11. Notices................................................ 14
12. Termination............................................ 17
13. Entire Agreement; Effectiveness and Amendments......... 17
14. Expenses............................................... 17
15. Governing Law; Successors and Assigns.................. 17
16. Waivers................................................ 18
17. Severability........................................... 18
18. Captions............................................... 18
19. Counterparts........................................... 18
20. Attorney's Fees........................................ 18
21. Parties Benefitted..................................... 18
22. Successors and Assigns................................. 18
</TABLE>
<PAGE>
STOCKHOLDERS AGREEMENT
----------------------
THIS STOCKHOLDERS AGREEMENT (the "Agreement") is made as of this 4th
day of December, 1996, by and among
. EXIGENT DIAGNOSTICS, INC., a Delaware corporation (the
"Corporation"),
. SMITHKLINE BEECHAM CORPORATION, a Pennsylvania corporation
("SmithKline"),
. SMITHKLINE BEECHAM DIAGNOSTIC SYSTEMS CO., a Pennsylvania
limited liability company ("SBD"),
. SPENCER TRASK SECURITIES INCORPORATED, a Delaware Corporation
("Spencer Trask"),
. EXIGENT PARTNERS, L.P., a Delaware limited partnership ("Exigent
Partners"),
. W. VICKERY STOUGHTON ("Stoughton"),
. THOMAS H. GROVE ("Grove"),
. KENNETH B. ASARCH ("Asarch"),
. WILLIAM S. KNIGHT ("Knight"),
. DONALD S. WONG ("Wong"),
. ASHOK K. SAWHNEY ("Sawhney"),
. PHILIP B. SMITH ("Smith"), and
. EACH INVESTOR WHO SHALL HEREAFTER BECOME A SIGNATORY HERETO
(individually, an "Investor" and collectively, the "Investors").
WHEREAS, Stoughton and Grove formed the Corporation on July 10, 1996
and as a result of the incorporation were issued that number of shares of common
capital stock of the Corporation, $.01 par value per share ("Common Stock"), as
is set forth opposite their names on Exhibit A hereto;
---------
<PAGE>
WHEREAS, on July 24, 1996, the Corporation entered into a letter of
intent (the "Letter of Intent") with SmithKline relating to the Corporation's
purchase from SmithKline of substantially all of the assets and assumption of
liabilities relating to the business then being operated by SmithKline in
connection with the research and development of point of care diagnostic
equipment (as more particularly described in the Private Placement Memorandum
(hereinafter defined), the "POC Business");
WHEREAS, Asarch, Knight, Wong, Sawhney (collectively, the "Employee
Stockholders", and together with Stoughton and Grove, the "Management
Stockholders") and Smith became Stockholders of the Corporation in October,
1996, subject to certain forfeiture restrictions pertaining to their stock and,
in the case of Smith, rights to additional stock, as more fully set forth in the
letter agreements entered into between each of them and the Corporation attached
hereto as Exhibit B (the "Letter Agreements");
---------
WHEREAS, on or prior to the date hereof, pursuant to an Asset Purchase
Agreement (the "Purchase Agreement") by and among the Corporation, SmithKline
Beecham Clinical Laboratories, Inc. and SBD, the Corporation has purchased the
assets and assumed the liabilities of the POC Business from SBD and in
consideration therefor has issued to SBD that number of shares of Common Stock
as is set forth opposite SBD's name on Exhibit A hereto, such number comprising
---------
five percent (5%) of the total issued and outstanding shares of Common Stock as
of the date hereof;
WHEREAS, pursuant to the Purchase Agreement, the Company may from time
to time issue to SBD and its Affiliates (defined below) additional shares of
Common Stock to prevent the dilution of their equity interests in the Company
(the "Antidilution Shares");
WHEREAS, on or prior to the date hereof, Exigent Partners has extended
or caused a third party to extend to the Corporation a working capital loan in
the original principal amount of One Million Dollars ($1,000,000) and in
consideration therefor has received the shares of Common Stock set forth
opposite its name on Exhibit A hereto;
---------
WHEREAS, the Corporation has engaged Spencer Trask to conduct a
private offering (the "Private Offering") to the Investors of shares of Common
Stock equal to up to 50% of the total issued and outstanding shares of Common
Stock (plus certain over-subscription shares) of Common Stock (all as more
particularly described in the private placement memorandum ("Private Placement
Memorandum") prepared by the Corporation in connection with the Private
Offering), the first closing thereunder to occur at such time as a minimum of
Four Million Dollars ($4,000,000) has been raised from the Investors in such
offering, and subsequent closings to occur as additional funds up to an
aggregate (including the initial closing's funds) of Seven Million Five Hundred
Thousand Dollars ($7,500,000) are raised from the Investors (all such amounts
being before commissions and expenses);
-2-
<PAGE>
WHEREAS, the Corporation will issue to Spencer Trask warrants to
purchase a number of shares of Common Stock equal to twenty percent (20%) of
that number of shares of Common Stock sold in the Private Offering;
WHEREAS, if the minimum amount of funds, Four Million Dollars
($4,000,000), is raised in the Private Offering, the Investors will own thirty-
five and 81/100 percent (35.81%) of the total issued and outstanding Common
Stock; if the maximum amount, Seven Million Five Hundred Thousand Dollars
($7,500,000), is raised, the Investors will own fifty percent (50%) of the total
issued and outstanding Common Stock of the Corporation (the shares of Common
Stock representing such percentages being the "Private Offering Stock");
WHEREAS, pursuant to the Letter of Intent, SmithKline made available
to the Corporation a One Million Dollar ($1,000,000) loan, secured by all of the
present and future assets of the Corporation, the outstanding principal amount
of which loan is convertible, at the election of SmithKline or as otherwise
required by the loan documents, into up to two percent (2%) of the Corporation's
issued and outstanding Common Stock upon the earlier of the first closing of the
Private Offering or December 31, 1996 (the "Conversion Shares");
WHEREAS, the Corporation and its stockholders desire to set forth
certain rights and obligations which each will have to the other with respect to
their stock interest in the Corporation, whether now owned or hereafter
acquired; and desire to cause each new stockholder to enter into a counterpart
to and to become bound by the terms and conditions of this Agreement at such
time as they become stockholders in the Corporation.
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and undertakings set forth below, the parties hereto,
intending to be legally bound hereby, agree with each other as follows:
1. Certain Defined Terms. Capitalized terms used in this Agreement
---------------------
have the meanings set forth in this Section 1, or are defined in the provisions
of this Agreement identified in this Section 1.
(a) "Affiliate" of a Person shall mean any Person which,
---------
directly or indirectly, controls, is controlled by, is under common control
with, or under a common management agreement with, such Person. For purposes
hereof, (i) the partners of Exigent Partners shall be deemed to be Affiliates of
Exigent Partners (but only to the extent of their pro rata interest therein),
(ii) other members of the consolidated group of corporations of which SmithKline
is a member, as well as SBD and SmithKline Beecham Clinical Laboratories, Inc.,
shall be considered to be Affiliates of SmithKline and SBD, and (iii) the
officers and directors of the Corporation shall be deemed to be Affiliates of
the Corporation for so long as they hold such position.
-3-
<PAGE>
(b) "Agreement" means this Stockholders Agreement, as the same may be
---------
amended from time to time in accordance herewith.
(c) "Bona Fide Offer" shall mean a bona fide written offer from any
---------------
Person to purchase any Securities owned by a Stockholder.
(d) "Common Equity Percentage" shall mean, as to any Stockholder, the
------------------------
percentage that (i) the outstanding shares of Common Stock then owned by such
Stockholder and any shares of Common Stock issuable upon exercise of any
warrants (including as warrants for this purpose the right to receive
Antidilution Shares) or Options, in each case which are fully vested and then
owned by such Stockholder, is of (ii) the aggregate outstanding number of shares
of Common Stock then owned by Stockholders, plus all shares of Common Stock
issuable upon exercise of any warrants (including as warrants for this purpose
the right to receive Antidilution Shares) or Options, in each case which are
fully vested and then owned by such Stockholders.
(e) "Common Shares" shall mean issued and outstanding shares of Common
-------------
Stock.
(f) "Counterpart" shall mean a counterpart to this Agreement in the
-----------
form of Exhibit C hereto, pursuant to the execution of which a Person shall
---------
become bound by all of the terms and conditions to this Agreement.
(g) "Excluded Securities" shall mean, collectively:
-------------------
(i) the Warrant Shares and shares issued in connection with the
exercise of Options;
(ii) Stock to be issued as a stock dividend;
(iii) any Antidilution Shares or Conversion Shares
issued to SmithKline or its Affiliates;
(iv) shares of any class of the Corporation's Stock to be issued
upon any subdivision, combination, stock split or reverse
stock split of all the outstanding shares of such class of
Stock of the Corporation;
(v) any securities to be issued by the Corporation pursuant to
the acquisition by the Corporation of any Person by means
of merger, stock purchase, reorganization, purchase of
substantially all the assets or otherwise in which the
-4-
<PAGE>
Corporation or its stockholders of record immediately
prior to the effective date of such transaction, directly
or indirectly, own at least a majority of the voting power
of the acquired or resulting entity after such
transaction; provided, that such recipient(s) of shares of
--------
Stock execute(s) a Counterpart and agree(s) to be bound by
the terms and conditions hereof; and provided, further,
-------- -------
that such acquisition has been approved by a majority of
the Independent Directors; and
(vi) any securities to be issued pursuant to a Public Offering;
(vii) the Private Offering Stock; and
(viii) any Securities to be issued to one or more investors for
the purpose of raising additional capital for the benefit
of the Corporation and such issuance is approved by a
majority of the Independent Directors (the "Exempted
Securities").
(h) "Options" shall mean incentive stock or non-qualified options
-------
granted in accordance with the Purchase Agreement, pursuant to the Stock Option
Plan as described in the Private Placement Memorandum.
(i) "Person" shall mean an individual, a sole proprietorship, a
------
corporation, a partnership, limited liability company, limited liability
partnership, a joint venture, an association, a trust, or any other entity or
organization, including a government or a political subdivision, agency or
instrumentality thereof.
(j) "Public Offering" shall mean the sale of shares of Common Stock
---------------
in a registered underwritten public offering.
(k) "Securities" shall mean all shares of capital stock, options,
----------
warrants, notes, bonds or other equity or debt securities offered or sold by the
Corporation from time to time on or after the date hereof.
(l) "Stock" shall mean any Common Shares or any other shares of any
-----
other class of capital stock that the Corporation may from time to time have
outstanding.
(m) "Stockholder" shall mean any Person who is a party to this
-----------
Agreement, provided such person holds one or more shares of Stock.
-5-
<PAGE>
(n) "Stock Option Plan" shall mean the Stock Option Plan adopted by
-----------------
the Corporation on or after the date hereof providing for the issuance of the
shares of Common Stock to certain employees of the Corporation.
(o) "Transfer" shall mean any transfer of Stock, whether by sale,
--------
assignment, gift, will, devise, bequest, operation of the laws of descent and
distribution, or in trust, pledge, hypothecation, mortgage, encumbrance or other
disposition. The verb to "Transfer" shall mean to sell, assign, give, transfer
(including by gift, will, devise, bequest, or operation of laws of descent and
distribution, or in trust), pledge, hypothecate, mortgage, encumber or dispose
of.
(p) "Warrant Shares" shall mean the warrants and shares of Stock
--------------
issuable on exercise thereof to be issued to Spencer Trask at each closing of
the Private Offering.
Other capitalized terms used in this Agreement have the definitions set
forth in the following sections:
Capitalized Term Section
---------------- -------
5-Day Period 4(d)
20-Day Period 4(b)
90-Day Period 4(f)
Accepting Stockholders 4(d)
Additional Directors 8(b)
Antidilution Shares Preamble
Board 2(d)
Conversion Shares Preamble
Director 8(b)
Employee Stockholders Preamble
Fair Market Value 2(f)
Final Closing 3(a)
First Closing 8(b)
Holdings Preamble
Independent Directors 8(b)
Investor Registration Agreement 8(b)
Management Directors 8(b)
Management Stockholders Preamble
Notice of Acceptance 4(c)
Notice of Refused Securities 4(c)
Offer 3(b)
-6-
<PAGE>
Outside Offer 4(f)
Purchase Agreement Preamble
Preemptive Offer 4(a)
Private Offering Preamble
Private Offering Stock Preamble
Private Placement Memorandum Preamble
Refused Securities 4(c)
SKB Director 8(b)
Spencer Trask Directors 8(b)
Strategic/Venture Capital Securities 4(a)
Voting Securities 8(b)
2. Limitations on Transfers.
------------------------
(a) Each Stockholder hereby agrees that it shall Transfer all or
any of his or its Stock only if such Transferee shall, as a condition to such
Transfer, execute a Counterpart and thereafter the Transferee shall be treated
as a Stockholder having the obligations of the Stockholder from whom Transferred
for all purposes under this Agreement. No Transfer shall be effective and the
Corporation shall not, and shall not be compelled to, recognize any Transfer or
record any Transfer on their books made unless such Transfer is effected in
accordance with the terms of this Agreement, or issue any certificate
representing any Stock to any Person who has received such Stock in a Transfer
unless such Transfer is effected in accordance with the terms of this Agreement.
(b) Any Stockholder shall be permitted to pledge his Stock to a
lender to the pledging Stockholder provided that, in the case of Stockholders
other than Investors, (i) prior to completing the pledge, the lender undertakes
in a writing (in form and substance acceptable to the lender and the
Corporation) delivered to the Corporation that (A) such lender is prohibited
from selling or syndicating all, or any portion of the debt obligation secured
by the pledge, and (B) in the event of any default on the debt secured by such
pledge, all or any portion of the pledged Stock (as determined by the
Corporation) may be purchased by the Corporation for a price equal to the lower
of (1) the Fair Market Value (as determined under procedures comparable to those
set forth in Section 2(c) hereof with decisions as to choice of the valuation
determiner being made by the Corporation and the lender) of the Stock being
purchased, or (2) the unpaid principal, plus accrued interest, plus all other
amounts accrued and owing to the lender in respect of such indebtedness, secured
by the pledge, and (ii) the lender is an institution normally engaged in the
business of making commercial loans.
(c) For purposes of this Agreement, "Fair Market Value" of a
share of Stock shall mean such value as determined by an investment banking firm
mutually acceptable to both the Board of Directors of the Corporation (the
"Board") and the Stockholder. In the event an investment banking firm cannot be
mutually agreed upon, such value shall be a value per
-7-
<PAGE>
share of Stock as determined by a nationally recognized firm engaged in the
business of (among other things) valuing privately held businesses, which is not
an Affiliate of the Corporation, any director of the Corporation, or any of the
Stockholders, and which is selected by the Corporation.
3. Consultation with and Consent of Spencer Trask in Connection with
-----------------------------------------------------------------
Future Issuances of Securities.
- ------------------------------
(a) Until the second anniversary of the final closing (the "Final
Closing") of the Private Offering, the Corporation shall not issue any
Securities, or other rights to acquire Securities, or create any class of
Securities, without prior consultation with, and obtaining the consent of (which
consent will not be unreasonably withheld, delayed or conditioned) Spencer
Trask; provided, however, no such consultation or consent shall be required (i)
-------- -------
if the Corporation does not sell at least $4,000,000 of Common Stock in the
Private Offering or (ii) in connection with Excluded Securities, except that the
Corporation shall first be required to consult with, but not be required to
obtain the consent of, the Placement Agent with respect to the Exempted
Securities.
4. Preemptive Rights.
-----------------
(a) The Corporation shall not issue, sell or exchange, agree to
issue, sell or exchange, or reserve or set aside for issuance, sale or exchange,
any Securities unless it shall have first offered (the "Preemptive Offer") to
sell such Securities to the Stockholders on the terms set forth herein;
provided, however, the Preemptive Offer shall not apply to Excluded Securities,
- -------- -------
other than to Exempted Securities (exclusive of those Exempted Securities that
are to be offered in any transaction or series of related transactions to a
limited number, not to exceed four (4), of institutional, venture capital or
strategic investors ("Strategic/Venture Capital Securities") in which case the
Preemptive Offer shall not apply thereto). Each Stockholder shall have a
preemptive right to purchase up to such Stockholder's Common Equity Percentage
of such Securities. Each Stockholder may assign all or any part of its rights
and responsibilities with respect to such Offer (as defined below) to an
Affiliate (or a permitted transferee). Such Affiliate or Affiliates (or a
permitted transferee) which are such assignees shall thereafter be deemed to be
such assigning Stockholder (to the extent of such assignment) for purposes of
applying this Section 4 to such Preemptive Offer. Each such Affiliate shall
agree in writing, as a condition to such assignment, to execute a Counterpart in
the event of a purchase of Securities pursuant to such assignment.
(b) The Corporation shall deliver to each Stockholder written
notice of the Preemptive Offer, specifying the price and terms and conditions of
the offer, including, without limitation, the minimum and maximum limits on the
amount of Securities proposed to be sold by the Corporation pursuant to the
offer (the "Offer"), and the Common Equity Percentage applicable to the
Stockholder receiving such notice. The Preemptive Offer by its terms shall
-8-
<PAGE>
remain open and irrevocable for a period of twenty (20) days from the date such
notice is given (the "20-Day Period").
(c) If a Stockholder desires to purchase Securities pursuant to
the Preemptive Offer, such Stockholder shall evidence his or its intention to
accept the Preemptive Offer by delivering a written notice to the Corporation
signed by the Stockholder, setting forth the percentage of the Securities (not
exceeding such Stockholder's Common Equity Percentage of such Securities) that
the Stockholder agrees to purchase pursuant to the terms and conditions set
forth herein (the "Notice of Acceptance"). Provided the minimum number of
Securities set forth in the Preemptive Offer has been sold after conclusion of
all procedures set forth in this Section 4, then, upon closing of the Preemptive
Offer, each Stockholder shall be obligated to buy the percentage set forth in
such Stockholder's Notice of Acceptance times the number of Securities being
sold at such closing. The Corporation shall not be permitted to sell at such
closing (or any subsequent closing with respect to which the procedures set
forth in this Section 4 have not again been followed, except as provided in this
Section 4) more than the maximum number of Securities set forth in the
Preemptive Offer. The Notice of Acceptance must be given, if at all, prior to
the end of the 20-Day Period.
(d) Within five (5) days following the end of the 20-Day Period,
the Corporation shall give written notice (the "Notice of Refused Securities")
to the Stockholders setting forth the percentage, if any, of Securities for
which a Notice of Acceptance could have been but was not received from the
Stockholders (the "Refused Securities"). Each Stockholder giving a Notice of
Acceptance ("Accepting Stockholders") shall be entitled to purchase by an
additional Notice of Acceptance given to the Corporation within five (5) days
after the date the Notice of Refused Securities is given (the "5-Day Period"),
that proportion of any Refused Securities which the Common Equity Percentage of
such Accepting Stockholder (prior to the Offer) bears to the Common Equity
Percentage of all Accepting Stockholders (prior to the Offer). The procedure set
forth in this section shall be repeated until there are no more Accepting
Stockholders or no more Refused Securities, whichever occurs first. To the
extent any Investor does not purchase a portion of the Refused Securities within
the 5-Day Period so entitled to be purchased by such Investor (the "Investor
Refused Securities"), Spencer Trask shall be entitled to purchase all, but not
less than all of the Investor Refused Securities by giving notice of its
agreement to do so within two business days of the end of the 5-Day Period (the
"7-Day Period").
(e) If, subject to Section (d) above, the Stockholders give
Notices of Acceptance prior to the end of the 20-Day Period or a 7-Day Period,
as applicable, indicating their intention to purchase, in the aggregate, at
least the minimum amount of Securities set forth in the Preemptive Offer, the
Corporation shall schedule a closing of the sale of the Securities to occur on a
date not more than sixty (60) days nor less than twenty (20) days after the
termination of the 20-Day Period or 7-Day Period, as applicable. Upon the
closing of the sale of the Securities, each Accepting Stockholder shall purchase
those Securities for which it tendered Notices of Acceptance upon the terms
specified in the Offer.
-9-
<PAGE>
(f) Upon completion of the procedures set forth in Sections 4(b)
through 4(d) above, regardless of whether the Stockholders tender Notices of
Acceptance for at least the minimum amount of Securities set forth in the Offer
allocable to their Common Equity Percentages, any remaining Refused Securities
may be sold for a period of ninety (90) days after the expiration of the 20-Day
Period or 7-Day Period, as applicable (the "90-Day Period"), to any other Person
or Persons (including without limitation, executive officers of the Corporation)
upon terms and conditions which are in all material respects (including without
limitation, price, form of consideration, payment period and interest rates) the
same as those set forth in the Preemptive Offer (the "Outside Offer"). The
closing of the sale of such Refused Securities (which shall only occur if the
minimum amount is sold pursuant to this Section 4 and shall include full payment
to the Corporation in cash or notes in accordance with the terms of such offer)
shall take place not more than thirty (30) days after the expiration of such 90-
Day Period and not less than twenty (20) days after notice of said closing shall
have been given by the Corporation to each Accepting Stockholder. In the event
Accepting Stockholders gave Notices of Acceptance for less than the minimum
number of Securities set forth in the Preemptive Offer, provided the Refused
Securities agreed to be purchased pursuant to the Outside Offer, plus the
Securities for which Accepting Stockholders gave Notices of Acceptance exceeds
such minimum, then at the same time as the closing of the sale of Refused
Securities, each Accepting Stockholder shall purchase those Securities for which
it tendered Notices of Acceptance upon the terms specified in the Preemptive
Offer.
(g) (i) If at least the minimum amount of the Securities set
forth in the Preemptive Offer and the Outside Offer are not agreed to be
purchased within the 90-Day Period, the Corporation may rescind all Notices of
Acceptance tendered by Stockholders by providing written notice of such
rescission to each Accepting Stockholder and the Corporation shall not sell any
Securities pursuant to the Outside Offer.
(ii) Any Securities as to which Notices of Acceptance are rescinded,
and any Refused Securities not purchased in the Outside Offer may not be sold or
otherwise disposed of until they are again offered to the Stockholders under the
procedures specified in subsections (a) through (g) hereof.
(h) The transferability of Securities purchased by any Stockholder or
other Person pursuant to this Section 4 shall be subject to the terms and
conditions set forth in this Agreement and any Person who is not then a
Stockholder and who purchases Securities shall execute a Counterpart as a
condition precedent to such purchase. The obligation of any Stockholder to
purchase such Securities is further conditioned upon the preparation of a
purchase agreement embodying the terms of the Preemptive Offer or Outside Offer
which shall be
-10-
<PAGE>
reasonably satisfactory in form and substance to the Corporation and its
counsel, and such Stockholder or other purchaser and such Stockholder's or other
purchaser's counsel.
5. Stock Splits, Etc. If there shall be any change in the Stock
------------------
of a Corporation as a result of any merger, consolidation, reorganization,
recapitalization, stock dividend, split-up, combination or exchange of Shares,
or otherwise, the provisions of this Agreement shall apply with equal force to
additional and/or substitute Securities, if any, received by each Stockholder in
exchange for or by virtue of its ownership of Shares.
6. Registration Rights. The Stockholders shall have the registration
-------------------
and other rights set forth in the various Registration Rights Agreements between
the Corporation and the Stockholders.
7. Financial Reports and Information.
---------------------------------
(a) Within ninety (90) days after the end of each fiscal year of
the Corporation, for so long as this Agreement shall be in effect, the
Corporation shall furnish each of the Stockholders with audited consolidated and
consolidating financial statements of the Corporation for such fiscal year
(showing comparison to the prior fiscal year) which shall include a statement of
income and retained earnings for each such fiscal year, a balance sheet as at
the last day thereof, and a statement of cash flows prepared in accordance with
generally accepted accounting principles consistently applied, and accompanied
by the report, without qualification, of the Corporation's independent certified
public accountants (which shall be of recognized national standing), including
such accountant's management letters to the Corporation and a breakdown of all
the Stockholders of each Corporation, listing next to each Stockholder's name,
the Stockholder's Common Equity Percentage.
(b) If for any period the Corporation shall have any subsidiary
or subsidiaries whose accounts are consolidated with those of the Corporation,
then in respect of such period the financial statements delivered pursuant to
the foregoing Section 7(a) shall be the consolidated financial statements of the
Corporation and all such consolidated subsidiaries.
(c) Promptly upon becoming available, copies of all financial
statements, reports, press releases, notices, proxy statements and other
documents sent by any of the Corporation to their lenders or released to the
public and copies of all regular and periodic reports, if any, filed by the
Corporation with the Securities and Exchange Commission or any securities
exchange.
(d) Upon request from any Stockholder including any Selling
Stockholder, the Corporation shall disclose to such Stockholder, in writing, the
name and address of such Stockholder (as it then appears on the records of the
Corporation) and such Stockholder's Common Equity Percentage.
-11-
<PAGE>
8. Corporation Governance Provisions.
---------------------------------
(a) The Board shall have a minimum of two (2) and a maximum of
ten (10) seats; provided, however, in no event shall the number of directors
-------- -------
exceed seven (7) without the prior written consent of Spencer Trask. Effective
with the First Closing of the Private Offering (the "First Closing"), there
shall be not less than seven (7) directors. No person shall serve as a director
of the Corporation unless such person meets the qualifications set by the
Corporation applicable to all of its directors.
(b) Following the First Closing and continuing for a period of
five (5) years thereafter, except as set forth in Section 5 of the Registration
Rights Agreement among the Corporation and the Investors (the "Investor
Registration Agreement"), the Corporation shall cause from time to time the
following individuals to be nominated to serve as members of the Board, and the
Stockholders shall promptly (i) vote any shares of Stock and any other
securities issued by the Corporation which are entitled to be voted for the
election of directors (collectively, "Voting Securities") which they own or
otherwise have the power to vote (including, without limitation, by execution of
a written consent or in any other manner permitted by law, the Corporation's
certificate of incorporation and by-laws), and (ii) take any other action
necessary or otherwise reasonably requested by the Corporation, in each case to
facilitate the election of the following nominees to serve as members of the
Board:
(i) Stoughton and Grove; provided, that (A) if Stoughton is
not then employed by the Corporation, the Corporation's then Chief Executive
Officer, unless such Chief Executive Officer is Grove, in which case, an
executive officer selected by Grove; and (B) if Grove is not then employed by
the Corporation, an executive officer of the Corporation selected by Stoughton
or, if Stoughton is not then employed by the Corporation, by the then Chief
Executive Officer of the Corporation (the "Management Directors");
(ii) so long as SmithKline or its Affiliates beneficially
own at least five-sevenths (5/7ths) of the shares of Common Stock owned in the
aggregate by it and by its Affiliates on November 7, 1996, an individual
selected by SmithKline, if SmithKline shall so designate an individual to so
serve on the Board, which individual shall be reasonably acceptable to Stoughton
or, if Stoughton is no longer employed by the Corporation, by the Corporation's
then Chief Executive Officer (the "SKB Director"); provided, that the SKB
--------
Director shall be elected pursuant to this Section 8(b)(ii) notwithstanding any
provisions of the Investor Registration Agreement or any other agreement; and
provided, further, that the SKB Director shall serve on any compensation
- -------- -------
committee of the Board of Directors; and provided, further, if SKB shall not be
-------- -------
entitled to designate the SKB Director, then an individual designated by Mr.
Stoughton (or if Mr. Stoughton is not then employed by the Corporation, an
individual designated by the then Chief Executive Officer of the Corporation)
shall be designated as a director nominee (an "Additional Management Director").
-12-
<PAGE>
(iii) one individual designated by Spencer Trask, if Spencer
Trask shall so designate an individual to so serve on the Board, which
individual shall be reasonably acceptable to the Corporation and the Management
Directors; provided, however, if the Board shall consist of more than seven
individuals, then two individuals designated by Spencer Trask, if Spencer Trask
shall so designate two individuals to so serve on the Board, which individuals
shall be reasonably acceptable to Stoughton or, if Stoughton is no longer
employed by the Corporation, by the Corporation's then Chief Executive Officer
(the "Spencer Trask Directors");
(iv) three individuals (who are neither full-time employees
of the Corporation nor Affiliates of any beneficial owner of 5% or more of the
then outstanding Voting Securities of the Corporation) designated by Stoughton
or, if Stoughton is no longer employed by the Corporation, by the Corporation's
then Chief Executive Officer, which individuals shall be reasonably acceptable
to Spencer Trask and SmithKline (the "Independent Directors"); and
(v) subject to Spencer Trask's agreement to the expansion
of the Board to consist of more than seven (7) individuals, that number of
individuals, any of whom may be affiliates or employees of the Corporation,
designated by Stoughton or, if Stoughton is no longer employed by the
Corporation, by the Corporation's then Chief Executive Officer, up to a maximum
of two individuals, which individuals shall be reasonably acceptable to Spencer
Trask and SmithKline (the "Additional Directors").
The Management Directors, the Additional Management Director, the SKB Director,
the Spencer Trask Directors, the Independent Directors and the Additional
Directors are each a "Director" and collectively, the "Directors."
Notwithstanding the foregoing, the five (5) year time limitation set forth in
the first sentence of this subsection (b) shall not apply to the nomination of,
the agreement to vote in favor of, or the rights of, the SKB Director.
(c) Subject to the provisions of Section 5 of the Investor
Registration Agreement: (i) no Director may be removed, except for cause,
without the approval of the Person nominating such director; provided however,
-------- -------
that in no event shall the SKB Director be removed, other than for cause,
without the consent of SmithKline; and (ii) any Director which is nominated
pursuant to this Agreement may be removed by the Person so nominating such
Director, with or without cause, and each Stockholder agrees to vote their
shares of Common Stock (whether at a meeting duly called and held, by execution
of a written consent, or otherwise) in favor of the removal of any such Director
if so requested to do so by the Person who nominated such Director sought to be
removed. Upon the creation of any vacancies on the Board as a result of the
death, disability, resignation or removal of any Director, the person nominating
the director whose death, disability, resignation or removal resulted in the
vacancy in the Board shall be entitled to nominate a replacement Director and
the Stockholders shall promptly vote their Voting Securities (including, without
limitation, by execution of a written consent or in any other manner permitted
by law, the Corporation's certificate of incorporation and by-laws), and (ii)
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<PAGE>
take any other action necessary or otherwise reasonably requested by the
Corporation, to cause the election of such nominee.
(d) Unless an individual nominated to serve on the Board
expressly agrees in writing otherwise, such nominee shall not be deemed to be
the deputy of or otherwise required to discharge his or her duties on the Board
under the direction of, or with special attention to the interests of, the
person or designating such nominee to serve on the Board.
9. Specific Performance. Because of the unique character of the
--------------------
shares of Stock, the Corporation will be irreparably damaged if this Agreement
is not specifically enforced. Should any dispute arise concerning the Transfer
of Stock, an injunction may be issued restraining any Transfer pending the
determination of such controversy. In the event of any controversy concerning
the right or obligation to Transfer any such Stock, such right or obligation
shall be enforceable in a court of equity by a decree of specific performance.
Such remedy shall be cumulative and not exclusive, and shall be in addition to
any other remedy which the Corporation or the other Stockholders of the
Corporation may have.
10. Legend. Each certificate evidencing any of the Shares shall bear
------
a legend substantially as follows:
"The shares represented by this Certificate are subject to
restrictions on transfer and may not be sold, exchanged, transferred,
pledged, hypothecated or otherwise disposed of except in accordance
with and subject to all the terms and conditions of a certain
Stockholders Agreement dated as of December 4, 1996, among the
Corporation and its stockholders, a copy of which the Corporation will
furnish to the holder of this certificate upon request and without
charge."
11. Notices. All notices and other communications hereunder shall be
-------
in writing and shall be given to the person either personally or by sending a
copy thereof by first class or express mail, postage prepaid, or by telegram
(with messenger service specified), telex or TWX (with answer back received) or
courier services, charges prepaid, or by telecopier, to such party's address (or
to such party's telex, TWX, telecopier or telephone number). If the notice is
sent by mail, it shall be deemed to have been received by the addressee five (5)
business days after being deposited in the United States mail, and if the notice
is sent by telegraph or courier services, it shall be deemed to have been given
to the addressee one (1) business day after deposited with a telegraph office or
courier service for delivery to that person or, in the case of telex, TWX or
telecopy when dispatched.
-14-
<PAGE>
If to the Corporation or Stoughton to:
Exigent Diagnostics, Inc.
709 Swedeland Road
P.O. Box 1539
King of Prussia, PA 19406-0939
Attention: W. Vickery Stoughton
Telecopy No.: 610-270-6150
With a copy to:
Pepper, Hamilton & Scheetz
3000 Two Logan Square
Philadelphia, PA 19103
Attention: Julia D. Corelli, Esquire
Telecopy No.: 215-981-4750
If to any of the Management Stockholders other than Stoughton to:
Exigent Diagnostics, Inc.
7600 Tyrone Avenue
Van Nuys, CA 91405
Attention: Dr. Thomas H. Grove
Telecopy No.: 818-376-6387
With a copy to:
Pepper, Hamilton & Scheetz
3000 Two Logan Square
Philadelphia, PA 19103
Attention: Julia D. Corelli, Esquire
Telecopy No.: 215-981-4750
If to SmithKline to:
SmithKline Beecham Corporation
One Franklin Plaza (Mail Code FP 2225)
P.O. Box 7929
Philadelphia, PA 19101
Attention: Chief Operating Officer
Telecopy No.: 215-751-3935
-15-
<PAGE>
With a copy to:
SmithKline Corporation
One Franklin Plaza (Mail Code FP 2225)
P.O. Box 7929
Philadelphia, PA 19101
Attention: General Counsel, Corporate Law - U.S.
Telecopy No.: 215-751-3935
If to Exigent Partners to:
Exigent Partners, L.P.
c/o Spencer Trask Securities Incorporated
535 Madison Avenue
New York, NY 10022
Attention: Kevin Kimberlin, General Partner
Telecopy No.: 212-751-3483
With a copy to:
Hertzog, Calamari & Gleason
100 Park Avenue
New York, NY 10017
Attention: John D. Vaughan
Telecopy No.: 212-213-1199
If to Spencer Trask Securities Incorporated to:
Spencer Trask Securities Incorporated
535 Madison Avenue
New York, NY 10022
Attention: Ms. Laura McNamara
Telecopy No.: 212-751-3483
With a copy to:
Hertzog, Calamari & Gleason
100 Park Avenue
New York, NY 10017
Attention: John D. Vaughan
Telecopy No.: 212-213-1199
-16-
<PAGE>
If to an Investor, to the address set forth on the Investor Signature
Page hereto.
Notice of any change in any such address shall also be given in the manner set
forth above. Whenever the giving of notice is required, the giving of such
notice may be waived by the party entitled to receive such notice.
12. Termination. Except as provided in Section 13 hereof, this
-----------
Agreement shall terminate upon (i) the consummation of a Public Offering or (ii)
the earlier mutual agreement of a group of Stockholders having an aggregate
Common Equity Percentage of at least ninety percent (90%) of the aggregate
Common Equity Percentage of all shareholders in the Corporation, so long as such
group includes Exigent Partners and SmithKline.
13. Entire Agreement; Effectiveness and Amendments. This Agreement
----------------------------------------------
constitutes the entire agreement of the parties with respect to the subject
matter hereof and shall be effective as of December 4, 1996 as to the parties
who are then signatories hereto and, thereafter, as to all other parties at the
time they became signatories hereto. Except as provided in Section 12 hereof,
neither this Agreement nor any provision hereof may be waived, modified, amended
or terminated except by a writing duly executed by holders of Stock having an
aggregate Common Equity Percentage of at least ninety (90%) so long as such
writing is executed by SmithKline, and, if the waiver, modification, amendment
or termination would affect the rights or obligations of a holder of another
class of Stock other than Common Stock, by holders of at least eighty percent
(80%) of the outstanding shares of such class of Stock so affected; provided,
--------
that (i) until the termination of this Agreement pursuant to Section 12 hereof,
and except as otherwise provided by operation of the terms of Section 8 hereof,
the right of any Stockholder to nominate a director in accordance with the
provisions of Section 8 hereof may not be modified, amended or terminated
without the consent of such Stockholder, (ii) any such waiver, amendment or
modification shall affect all Stockholders equally unless the Stockholder
affected differently shall have specifically approved the waiver, amendment or
modification, and (iii) the terms and provisions of this Section 13 shall not be
modified or amended without the prior written consent of each of the
Stockholders. To the extent any term or other provision of any other indenture,
agreement or instrument by which any party hereto is bound conflicts with this
Agreement, this Agreement shall have precedence over such conflicting term or
provision.
14. Expenses. Each of the parties hereto shall bear its or his own
--------
expenses with respect to the agreements set forth herein unless expressly agreed
otherwise in a writing signed by the parties to bear such expenses.
15. Governing Law; Successors and Assigns. This Agreement shall be
-------------------------------------
construed and enforced in accordance with New York law without regard to the
choice of law
-17-
<PAGE>
provisions thereof and shall be binding upon the parties hereto and their
respective successors and assigns.
16. Waivers. The failure of any party to insist upon strict
-------
performance of any of the terms or conditions of this Agreement will not
constitute a waiver of any of its rights hereunder.
17. Severability. If any provision of this Agreement is held
------------
illegal, invalid, or unenforceable, such illegality, invalidity, or
unenforceability will not affect any other provision hereof. This Agreement
shall, in such circumstances, be deemed modified to the extent necessary to
render enforceable the provisions hereof.
18. Captions. Captions are for convenience only and are not deemed
--------
to be part of this Agreement.
19. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
20. Attorney's Fees. In the event of litigation of any dispute or
---------------
controversy arising from, in, under or concerning this Agreement or any
amendment hereof, including, without limiting the generality of the foregoing,
any claimed breach hereof or thereof, the prevailing party in such action shall
be entitled to recover from the other party in such action, such sum as the
court shall fix as reasonable attorney's fees incurred by such prevailing party.
21. Parties Benefitted. Nothing in this Agreement, express or
------------------
implied, is intended to confer upon any third party any rights, remedies,
obligations or liabilities.
22. Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and be binding upon the parties hereto and their respective heirs,
personal representatives, successors and permitted assigns.
[SPACE INTENTIONALLY LEFT BLANK]
-18-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Stockholders
Agreement under seal on the date first above written.
EXIGENT DIAGNOSTICS, INC.
By: /s/ W. Vickery Stoughton
----------------------------------------
W. Vickery Stoughton
President and Chief Executive Officer
SMITHKLINE BEECHAM CORPORATION
By: /s/ E. J. Buthusien
----------------------------------------
Name: E J Buthusien
Title: Attorney in fact
SPENCER TRASK SECURITIES INCORPORATED
By: /s/ William P. Dioguench
----------------------------------------
Name: William P. Dioguench
Title: President
EXIGENT PARTNERS, L.P.
By: /s/ Kevin Kimberlin
-----------------------------------------
Kevin Kimberlin
General Partner
/s/ W. Vickery Stoughton
--------------------------------------------
W. VICKERY STOUGHTON
/s/ Thomas H. Grove
--------------------------------------------
THOMAS H. GROVE
[EXECUTIONS CONTINUED]
-19-
<PAGE>
/s/ Kenneth B. Asarch
--------------------------------------
KENNETH B. ASARCH
/s/ William S. Knight
--------------------------------------
WILLIAM S. KNIGHT
/s/ Donald S. Wong
--------------------------------------
DONALD S. WONG
/s/ Ashok K. Sawhney
--------------------------------------
ASHOK K. SAWHNEY
/s/ Philip B. Smith
--------------------------------------
PHILIP B. SMITH
[INVESTOR SIGNATURES FOLLOW ON SEPARATE PAGES]
-20-
<PAGE>
INVESTOR SIGNATURE PAGE
TO STOCKHOLDERS' AGREEMENT
IN WITNESS WHEREOF, the undersigned Investor has executed this
Agreement as of ____________ ___, 199__.
If the Holder is an INDIVIDUAL:
____________________________________
Print Name
____________________________________
Signature
____________________________________
____________________________________
Print Address
If the Holder is a PARTNERSHIP,
CORPORATION or a TRUST:
____________________________________
Name of Partnership, Corporation
or Trust
By:__________________________________
Signature
Print Name:___________________________
Print Title:____________________________
_____________________________________
_____________________________________
Print Address
Accepted and agreed to this
____ day of ___________, 199__
EXIGENT DIAGNOSTICS, INC.
By:____________________________________
W. Vickery Stoughton
Chairman & CEO
-21-
<PAGE>
EXHIBIT A
Shareholder No. of Shares
----------- -------------
W. Vickery Stoughton 262.93
Thomas H. Grove 129.50
Kenneth B. Asarch 18.53
William S. Knight 13.90
Ashok K. Sawhney 13.90
Donald S. Wong 13.90
Phillip B. Smith 30.38
SmithKline Beecham Corporation 45.98
<PAGE>
EXHIBIT "B"
LETTER AGREEMENTS
<PAGE>
EXIGENT DIAGNOSTICS, INC.
July 10, 1996
W. Vickery Stoughton
Exigent Diagnostics, Inc.
c/o SmithKline Beecham Clinical Laboratories
7600 Tyrone Avenue
Van Nuys, CA 91405
Dear Vick:
Exigent Diagnostics, Inc, ("Exigent" or the "Company") is pleased to
present you with Common Stock Certificate Number 1 for 262.93 shares of Exigent
common stock, par value $.01 per share (the "Shares") which represents
approximately 57% of the current issued and outstanding stock of Exigent. If our
capital raising efforts and other future events unfold as anticipated, your
percentage ownership thereafter will be approximately 13.25% of Exigent.
This letter sets forth certain representations you are making
regarding your investment in Exigent as well as your agreement with Exigent as
to the restrictions applicable to your stock. These restrictions will be more
fully set forth in a Stockholders Agreement to be executed among Exigent and all
of its stockholders, including you (the "Stockholders Agreement"), and will be
binding on you before and after the Stockholders Agreement is executed except to
the extent expressly modified by the Stockholders Agreement.
You hereby represent, warrant, covenant, agree and acknowledge that
the Shares are intended to be and are being acquired solely for your own account
without a view to the distribution or resale thereof, and you do not have any
contract, undertaking, agreement or arrangement to sell or otherwise transfer
or dispose of any of the Shares in any manner to any person. You agree that you
will not sell, transfer or otherwise dispose of any of your Shares, in any
manner, unless at the time of any such transfer: (a) a Registration under the
Securities Act and under the Applicable Laws (each such term being hereinafter
defined) is in effect with respect to the Shares to be sold, transferred or
disposed of, and you comply with all of the requirements of the Securities Act
and the Applicable Laws with respect to the proposed transaction; or (b) you
have obtained and have provided to the Company an opinion from counsel
satisfactory to the Company (as to both the counsel rendering such opinion and
<PAGE>
the substance of the opinion) that the proposed sale, transfer or disposition
does not require Registration under the Securities Act or the Applicable Laws.
As used herein; the term "Registration" means registration under the Securities
Act and, with respect to the Applicable Laws, such registration thereunder (or,
with respect to any of the Applicable Laws which do not provide for
registration, such compliance therewith which is similar to registration) which
has then proposed transaction; the term "Securities Act" means the Securities
Act of 1933, as amended, and the rules and regulations thereunder; and the term
"Applicable Laws" means any applicable state securities laws and any other
applicable law.
You understand and acknowledge that the Shares have not been issued to
you by Exigent pursuant to a Registration under the Securities Act. Neither
Exigent nor any other person has any obligation or intention to effect the
Registration of your Shares for sale, transfer or disposition by you under the
Securities Act or the Applicable Laws, or to take any action or provide any
information (including, without limitation, the filing of reports or the
publication of information required by Rule 144 under the Securities Act) which
would make available any exemption from the Registration requirements of the
Securities Act or the Applicable Laws. You understand that you must therefore
hold your Shares indefinitely unless a subsequent Registration or exemption
therefrom is available and is obtained. No federal or state agency has approved
or disapproved the Shares for investment or any other purpose. All of your
Shares have been issued and sold to you in reliance upon a specific exemption
from the Registration requirements of the Securities Act which depends, in part,
upon the accuracy of your representations, warranties and agreements set forth
in this letter.
A legend has been placed on the certificates evidencing your Shares,
and stop-transfer instructions will be issued to any transfer agent of such
Shares, to ensure compliance with the provisions of this letter and of the
Securities Act and the Applicable Laws.
The Stockholders Agreement will provide, and you agree, that your
stock is not transferable without first offering it to Exigent and all of the
other stockholders for an amount equal to its fair market value at the time of
transfer or, if applicable, the price offered for it by an independent third
party.
All of the representations, warranties, agreements, acknowledgments
and understandings made by you in this letter shall survive the delivery of this
letter, your purchase of the Shares, and the execution of the Stockholders
Agreement (except to the extent expressly set forth in the Stockholders
Agreement).
The Shareholders Agreement will address, and you agree to, these and
other reasonable arrangements applicable to you
<PAGE>
ownership of Exigent common stock, including so-called "drag-along" rights which
may require you to sell your stock in the event a substantial number of other
shares are being sold. In the meantime, if you agree that this letter sets forth
your investment representations and our agreement as to the matters set forth
herein please so indicate in the space provided below.
Sincerely,
EXIGENT DIAGNOSTICS, INC.
By: /s/ W. Vickery Stoughton
---------------------------------
W. Vickery Stoughton, President
Acknowledged and agreed
as of July 10, 1996
/s/ W. Vickery Stoughton
- ----------------------------
W. Vickery Stoughton
<PAGE>
EXIGENT DIAGNOSTICS, INC.
July 10, 1996
Thomas H. Grove
Exigent Diagnostics, Inc.
c/o SmithKline Beecham Clinical Laboratories
7600 Tyrone Avenue
Vans Nuys, CA 91405
Dear Tom:
Exigent Diagnostics, Inc. ("Exigent" or the "Company") is pleased to
present you with Common Stock Certificate Number 2 for 129.50 shares of Exigent
common stock, par value $.01 per share (the "Shares") which represents
approximately 28% of the current issued and outstanding stock of Exigent. If
our capital raising efforts and other future events unfold as anticipated, your
percentage ownership thereafter will be approximately 6.5% of Exigent.
This letter sets forth certain representations you are making regarding
your investment in Exigent as well as your agreement with Exigent as to the
restrictions applicable to your stock. These restrictions will be more fully
set forth in a Stockholders Agreement to be executed among Exigent and all of
its stockholders, including you (the "Stockholders Agreement"), and will be
binding on you before and after the Stockholders Agreement is executed except to
the extent expressly modified by the Stockholders Agreement.
You hereby represent, warrant, covenant, agree and acknowledge that the
Shares are intended to be and are being acquired solely for your own account
without a view to the distribution or resale thereof, and you do not have any
contract, undertaking, agreement or arrangement to sell or otherwise transfer or
dispose of any of the Shares in any manner to any person. You agree that you
will not sell, transfer or otherwise dispose of any of your Shares, in any
manner, unless at the time of any such transfer: (a) a Registration under the
Securities Act and under the Applicable Laws (each such term being hereinafter
defined) is in effect with respect to the Shares to be sold, transferred or
disposed of, and you comply with all of the requirements of the Securities Act
and the Applicable Laws with respect to the proposed transaction; or (b) you
have obtained and have provided to the Company an opinion from counsel
satisfactory to the Company (as to both the counsel rendering such opinion and
<PAGE>
the substance of the opinion) that the proposed sale, transfer or disposition
does not require Registration under the Securities Act or the Applicable Laws.
As used herein: the term "Registration" means registration under the Securities
Act and, with respect to the Applicable Laws, such registration thereunder (or,
with respect to any of the Applicable Laws which do not provide for
registration, such compliance therewith which is similar to registration) which
has then resulted in statutory or administration authorization for the proposed
transaction; the term "Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations thereunder; and the term "Applicable
Laws" means any applicable state securities laws and any other applicable law.
You understand and acknowledge that the Shares have not been issued to you
by Exigent pursuant to a Registration under the Securities Act. Neither Exigent
nor any other person has any obligation or intention to effect the Registration
of your Shares for sale, transfer or disposition by you under the Securities Act
or the Applicable Laws, or to take any action or provide any information
(including, without limitation, the filing of reports or the publication of
information required by Rule 144 under the Securities Act) which would make
available any exemption from the Registration requirements of the Securities
Act or the Applicable Laws. You understand that you must therefore hold your
Shares indefinitely unless a subsequent Registration or exemption therefrom is
available and is obtained. No federal or state agency has approved or
disapproved the Shares for investment or any other purpose. All of your Shares
have been issued and sold to you in reliance upon a specific exemption from the
Registration requirements of the Securities Act which depends, in part, upon the
accuracy of your representations, warranties and agreements set forth in this
letter.
A legend has been placed on the certificates evidencing your Shares, and
stop-transfer instructions will be issued to any transfer agent of such Shares,
to ensure compliance with the provisions of this letter and of the Securities
Act and the Applicable Laws.
The Stockholders Agreement will provide, and you agree, that your stock is
not transferable without first offering it to Exigent and all of the other
stockholders for an amount equal to its fair market value at the time of
transfer or, if applicable, the price offered for it by an independent third
party.
All of the representations, warranties, agreements, acknowledgments and
understandings made by you in this letter shall survive the delivery of this
letter, your purchase of the Shares, and the execution of the Stockholders
Agreement (except to the extent expressly set forth in the Stockholders
Agreement).
The Shareholders Agreement will address, and you agree to, these and other
reasonable arrangements applicable to your
<PAGE>
ownership of Exigent common stock, including so-called "drag-along" rights which
may require you to sell your stock in the event a substantial number of other
shares are being sold. In the meantime, if you agree that this letter sets forth
your investment representations and our agreement as to the matters set forth
herein please so indicate in the space provided below.
Sincerely,
EXIGENT DIAGNOSTICS, INC.
By: /s/ W. Vickery Stoughton
-----------------------------------
W. Vickery Stoughton, President
Acknowledged and agreed
as of July 10, 1996
/s/ Thomas H. Grove
- ------------------------
Thomas H. Grove
<PAGE>
EXIGENT DIAGNOSTICS, INC.
October 1, 1996
Kenneth B. Asarch
Vice president, Regulatory Affairs
Exigent Diagnostics, Inc.
c/o SmithKline Beecham Clinical Laboratories
7600 Tyrone Avenue
Vans Nuys, CA 91405
Dear Ken:
Exigent Diagnostics, Inc. ("Exigent" or the "Company") is pleased to
present you with Common Stock Certificate Number 3 for 18.53 shares of Exigent
common stock, par value $.01 per share (the "Shares") which represents
approximately 4% of the current issued and outstanding stock of Exigent. If
our capital raising efforts and other future events unfold as anticipated, your
percentage ownership thereafter will be approximately 1% of Exigent.
This letter sets forth certain representations you are making regarding
your investment in Exigent as well as your agreement with Exigent as to the
restrictions applicable to your Stock. These restrictions will be more fully
set forth in a Stockholders Agreement to be executed among Exigent and all of
its stockholders, including you (the "Stockholders Agreement"), and will be
binding on you before and after the Stockholders Agreement is executed except
to the extent expressly modified by the Stockholders Agreement.
You hereby represent, warrant, covenant, agree and acknowledge that the
Shares are intended to be and are being acquired solely for your own account
without a view to the distribution or resale thereof, and you do not have any
contract, undertaking, agreement or arrangement to sell or otherwise transfer or
dispose of any of the Shares in any manner to any person. You agree that you
will not sell, transfer or otherwise dispose of any of your Shares, in any
manner, unless at the time of any such transfer: (a) a Registration under the
Securities Act and under the Applicable Laws (each such term being hereinafter
defined) is in effect with respect to the Shares to be sold, transferred or
disposed of, and you comply with all of the requirements of the Securities Act
and the Applicable Laws with respect to the transaction; or (b) you have
obtained and have provided to the Company an opinion from counsel satisfactory
<PAGE>
to the Company (as to both the counsel rendering such opinion and the substance
of the opinion) that the proposed sale, transfer or disposition does not require
Registration under the Securities Act or the Applicable Laws. As used herein:
the term "Registration" means registration under the Securities Act and, with
respect to the Applicable Laws, such registration thereunder (or, with respect
to any of the Applicable Laws which do not provide for registration, such
compliance therewith which is similar to registration), which has then resulted
in statutory or administration authorization for the proposed transaction; the
term "Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder; and the term "Applicable Laws" means any
applicable state securities laws and any other applicable law.
You understand and acknowledge that the Shares have not been issued to
you by Exigent pursuant to a Registration under the Securities Act. Neither
Exigent nor any other person has any obligation or intention to effect the
Registration of your Shares for sale, transfer or disposition by you under the
Securities Act or the Applicable Laws, or to take any action or provide any
information (including, without limitation, the filing of reports or the
publication of information required by Rule 144 under the Securities Act) which
would make available any exemption from the Registration requirements of the
Securities Act or the Applicable Laws. You understand that you must therefore
hold your Shares indefinitely unless a subsequent Registration or exemption
therefrom is available and is obtained. No federal or state agency has approved
or disapproved the Shares for investment or any other purpose. All of your
Shares have been issued and sold to you in reliance upon a specific exemption
from the Registration requirements of the Securities Act which depends, in part,
upon the accuracy of your representations, warranties and agreements set forth
in this letter.
A legend has been placed on the certificates evidencing your Shares,
and stop-transfer instructions will be issued to any transfer agent of such
Shares, to ensure compliance with the provisions of this letter and of the
Securities Act and the Applicable Laws.
The Stockholders Agreement will provide, and you agree, that your
stock is not transferable without first offering it to Exigent and all of the
other stockholders for an amount equal to its fair market value at the time of
transfer or, if applicable, the price offered for it by an independent
third party.
The Stockholders Agreement will also provide, and you agree, that your
stock or a portion thereof will be subject to repurchase by Exigent at par value
in the event you leave the employ of Exigent, other than by reason of death,
disability or termination of your employment by Exigent without Cause (as
hereinafter defined), in accordance with the following timetable: Exigent's
repurchase right will attach to 100% of your stock if
<PAGE>
your employment so terminates at any time prior to October 31, 1997, 66.67% if
your employment so terminates after October 31, 1997 and prior to October 31,
1998, and 33.33% if your employment so terminates after October 31, 1998 and
prior to October 31, 1999 (the "Repurchase Right").
That portion of your stock which has vested in accordance with the
foregoing provision, i.e., that portion which is no longer subject to the
----
Repurchase Right, will be subject to purchase by Exigent and/or the other
shareholders at fair market value at any time you leave the employ of Exigent
for any reason other than a termination for Cause. If you are terminated by the
Company for "Cause" at any time, any vested stock may be repurchased by Exigent
and the repurchase price will be the par value of the stock. In the event your
employment terminates prior to October 31, 1999 by reason of your death or
disability or because your employment is terminated by Exigent without Cause,
that portion of your stock which has not vested, i.e., which is still subject to
----
the Repurchase Right, will be subject to purchase by Exigent and/or the other
shareholders at fair market value. For these purposes, "Cause" means commission
of a felony or other serious act of disloyalty to Exigent, or the deliberate and
sustained failure to perform the reasonable duties assigned to you by Exigent's
President (or his designee) from time to time. In the event of a purchase at
fair market value, the fair market value or your stock will be determined
pursuant to appraisal or a formula set forth in the Shareholders Agreement and
approved by the Board of Directors of Exigent.
Provided you remain employed by Exigent through the date of closing of the
applicable event, the Repurchase Right will terminate upon a pubic offering of
Exigent's common stock or upon a sale of more than 50% of the outstanding common
stock of Exigent or of substantially all of Exigent's assets, in either case to
a single person or group of related persons in one transaction or a series
of related transactions.
All of the representations, warranties, agreements, acknowledgments and
understandings made by you in this letter shall survive the delivery of this
letter, your purchase of the Shares, and the execution of the Stockholders
Agreement (except to the extent expressly set forth in the Stockholders
Agreement).
The Shareholders Agreement will address, and you agree to, these and other
reasonable arrangements applicable to your ownership of Exigent common stock,
including so-called "drag-along" rights which may require you to sell your stock
in the event a substantial number of other shares are being sold. In the
meantime, if you agree that this letter sets forth your investment
representations and our agreement as to the matters set forth herein please so
indicate in the space provided below. Further, by signing below, you acknowledge
your understanding and agreement that each of the initial shareholders who are
employees of Exigent other than W. Vickery Stoughton and Thomas H. Grove
<PAGE>
(the Company's founders) will be executing a letter agreement with Exigent
containing identical terms to those set forth herein.
Sincerely,
EXIGENT DIAGNOSTICS, INC.
By: /s/ W. Vickery Stoughton
------------------------------------
W. Vickery Stoughton, President
Acknowledged and agreed
as of October 1, 1996
/s/ Kenneth B. Asarch
- ------------------------
Kenneth B. Asarch
<PAGE>
EXIGENT DIAGNOSTICS, INC.
October 1, 1996
William S. Knight
Exigent Diagnostics, Inc.
c/o SmithKline Beecham Clinical Laboratories
7600 Tyrone Avenue
Van Nuys, CA 91405
Dear Bill;
Exigent Diagnostics, Inc. ("Exigent" or the "Company") is pleased to
present you with Common Stock Certificate Number 4 for 13.90 shares of Exigent
common stock, par value $.01 per share (the "Shares") which represents
approximately 3% of the current issued and outstanding stock of Exigent. If our
capital raising efforts and other future events unfold as anticipated, your
percentage ownership thereafter will be approximately .74% of Exigent.
This letter sets forth certain representations you are making
regarding your investment in Exigent as well as your agreement with Exigent as
to the restrictions applicable to your stock. These restrictions will be more
fully set forth in a Stockholders Agreement to be executed among Exigent and
all of its stockholders, including you (the "Stockholders Agreement"), and will
be binding on you before and after the Stockholders Agreement is executed except
to the extent expressly modified by the Stockholders Agreement.
You hereby represent, warrant, covenant, agree and acknowledge that
the Shares are intended to be and are being acquired solely for your own account
without a view to the distribution or resale thereof, and you do not have any
contract, undertaking, agreement or arrangement to sell or otherwise transfer or
dispose of any of the Shares in any manner to any person. You agree that you
will not sell, transfer or otherwise dispose of any of your Shares, in any
manner, unless at the time of any such transfer: (a) a Registration under the
Securities Act and under the Applicable Laws (each such term being hereinafter
defined) is in effect with respect to the Shares to be sold, transferred or
disposed of, and you comply with all of the requirements of the Securities Act
and the Applicable Laws with respect to the proposed transaction; or (b) you
have obtained and have provided to the Company an opinion from counsel
satisfactory to the Company (as to both the counsel rendering such opinion and
<PAGE>
the substance of the opinion) that the proposed sale, transfer or disposition
does not require Registration under the Securities Act or the Applicable Laws.
As used herein: the term "Registration" means registration under the Securities
Act and, with respect to the Applicable Laws, such registration thereunder (or,
with respect to any of the Applicable Laws which do not provide for
registration, such compliance therewith which is similar to registration) which
has then resulted in statutory or administration authorization for the proposed
transaction; the term "Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations thereunder; and the term "Applicable
Laws" means any applicable state securities laws and any other applicable law.
You understand and acknowledge that the Shares have not been issued to
you by Exigent pursuant to a Registration under the Securities Act. Neither
Exigent nor any other person has any obligation or intention to effect the
Registration of your Shares for sale, transfer or disposition by you under the
Securities Act or the Applicable Laws, or to take any action or provide any
information (including, without limitation, the filing of reports or the
publication of information required by Rule 144 under the Securities Act) which
would make available any exemption from the Registration requirements of the
Securities Act or the Applicable Laws. You understand that you must therefore
hold your Shares indefinitely unless a subsequent Registration or exemption
therefrom is available and is obtained. No federal or state agency has approved
or disapproved the Shares for investment or any other purpose. All of your
Shares have been issued and sold to you in reliance upon a specific exemption
from the Registration requirements of the Securities Act which depends, in part,
upon the accuracy of your representations, warranties and agreements set forth
in this letter.
A legend has been placed on the certificates evidencing your Shares,
and stop-transfer instructions will be issued to any transfer agent of such
Shares, to ensure compliance with the provisions of this letter and of the
Securities Act and the Applicable Laws.
The Stockholders Agreement will provide, and you agree, that your
stock is not transferable without first offering it to Exigent and all of the
other stockholders for an amount equal to its fair market value at the time of
transfer or, if applicable, the price offered for it by an independent third
party.
The Stockholders Agreement will also provide, and you agree, that your
stock or a portion thereof will be subject to repurchase by Exigent at par value
in the event you leave the employ of Exigent, other than by reason of death,
disability or termination of your employment by Exigent without Cause (as
hereinafter defined), in accordance with the following timetable Exigent's
repurchase right will attach to 100% of your stock if your employment so
terminates at any time prior to October 31,
<PAGE>
1997, 66.67% if your employment so terminates after October 31, 1997 and prior
to October 31, 1998, and 33.33% if your employment so terminates after October
31, 1998 and prior to October 31, 1999 (the "Repurchase Right").
That portion of your stock which has vested in accordance with the
foregoing provisions, i.e., that portion which is no longer subject to the
---
Repurchase Right, will be subject to purchase by Exigent and/or the other
shareholders at fair market value at any time you leave the employ of Exigent
for any reason other than a termination for Cause. If you are terminated by the
Company for "Cause" at any time, any vested stock may be repurchased by Exigent
and the repurchase price will be the par value of the stock. In the event your
employment terminates prior to October 31, 1999 by reason of your death or
disability or because your employment is terminated by Exigent without Cause,
that portion of your stock which has not vested, i.e., which is still subject to
---
the Repurchase Right, will be subject to purchase by Exigent and/or the other
shareholders at fair market value. For these purposes, "Cause" means commission
of a felony or other serious act of disloyalty to Exigent, or the deliberate and
sustained failure to perform the reasonable duties assigned to you by Exigent's
President (or his designee) from time to time. In the event of a purchase at
fair market value, the fair market value or your stock will be determined
pursuant to appraisal or a formula set forth in the Shareholders Agreement and
approved by the Board of Directors of Exigent.
Provided you remain employed by Exigent through the date of closing of
the applicable event, the Repurchase Right will terminate upon a public offering
of Exigent's common stock or upon a sale of more than 50% of the outstanding
common stock of Exigent or of substantially all of Exigent's assets, in either
case to a single person or group of related persons in one transaction or a
series of related transactions.
All of the representations, warranties, agreements, acknowledgments
and understandings made by you in this letter shall survive the delivery of this
letter, your purchase of the Shares, and the execution of the Stockholders
Agreement (except to the extent expressly set forth in the Stockholders
Agreement).
The Shareholders Agreement will address, and you agree to, these and
other reasonable arrangements applicable to your ownership of Exigent common
stock, including so-called "drag-along" rights which may require you to sell
your stock in the event a substantial number of other shares are being sold. In
the meantime, if you agree that this letter sets forth your investment
representations and our agreement as to the matters set forth herein please so
indicate in the space provided below. Further, by signing below, you acknowledge
your understanding and agreement that each of the initial shareholders who are
employees of Exigent other than W. Vickery Stoughton and Thomas H. Grove
<PAGE>
(the Company's founders) will be executing a letter agreement with Exigent
containing identical terms to those set forth herein.
Sincerely,
EXIGENT DIAGNOSTICS, INC.
By: /s/ W. Vickery Stoughton
----------------------------
W. Vickery Stoughton, President
Acknowledged and agreed
as of October 1, 1996
/s/ William S. Knight
- ------------------------
William S. Knight
<PAGE>
EXIGENT DIAGNOSTICS, INC.
October 1, 1996
Donald S. Wong
Exigent Diagnostics, Inc.
c/o SmithKline Beecham Clinical Laboratories
7600 Tyrone Avenue
Vans Nuys, CA 91405
Dear Don:
Exigent Diagnostics, Inc. ("Exigent" or the "Company") is pleased to
present you with Common Stock Certificate Number 5 for 13.90 shares of Exigent
common stock, par value $.01 per share (the "Shares") which represents
approximately 3% of the current issued and outstanding stock of Exigent. If our
capital raising efforts and other future events unfold as anticipated, your
percentage ownership thereafter will be approximately .74% of Exigent.
This letter sets forth certain representations you are making regarding
your investment in Exigent as well as your agreement with Exigent as to the
restrictions applicable to your stock. These restrictions will be more fully
set forth in a Stockholders Agreement to be executed among Exigent and all of
its stockholders, including you (the "Stockholders Agreement"), and will be
binding on you before and after the Stockholders Agreement is executed except to
the extent expressly modified by the Stockholders Agreement.
You hereby represent, warrant, covenant, agree and acknowledge that the
Shares are intended to be and are being acquired solely for your own account
without a view to the distribution or resale thereof, and you do not have any
contract, undertaking, agreement or arrangement to sell or otherwise transfer or
dispose of any of the Shares in any manner to any person. You agree that you
will not sell, transfer or otherwise dispose of any of your Shares, in any
manner, unless at the time of any such transfer: (a) a Registration under the
Securities Act and under Applicable Laws (each such term being hereinafter
defined) is in effect with respect to the Shares to be sold, transferred or
disposed of, and you comply with all of the requirements of the Securities Act
and the Applicable laws with respect to the proposed transaction; or (b) you
have obtained and have provided to the Company an opinion from counsel
satisfactory to the Company (as to both the counsel rendering such opinion and
<PAGE>
the substance of the opinion) that the proposed sale, transfer or disposition
does not require Registration under the Securities Act or the Applicable Laws.
As used herein: the term "Registration" means registration under the Securities
Act and, with respect to the Applicable Laws, such registration thereunder (or,
with respect to any of the Applicable Laws which do not provide for
registration, such compliance therewith which is similar to registration) which
has then resulted in statutory or administration authorization for the proposed
transaction; the term "Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations thereunder; and the term "Applicable
Laws" means any applicable state securities laws and any other applicable law.
You understand and acknowledge that the Shares have not been issued to you
by Exigent pursuant to a Registration under the Securities Act. Neither Exigent
nor any other person has any obligation or intention to effect the Registration
of your Shares for sale, transfer or disposition by you under the Securities Act
or the Applicable Laws, or to take any action or provide any information
(including, without limitation, the filing of reports or the publication of
information required by Rule 144 under the Registration requirements of the
Securities Act or the Applicable Laws. You understand that you must therefore
hold your Shares indefinitely unless a subsequent Registration or exemption
thereform is available and is obtained. No federal or state agency has approved
or disapproved the Shares for investment or any other purpose. All of your
Shares have been issued and sold to you in reliance upon a specific exemption
from the Registration requirements of the Securities Act which depends, in part,
upon the accuracy of your representations, warranties and agreements set forth
in this letter.
A legend has been placed on the certificates evidencing your Shares, and
stop-transfer instructions will be issued to any transfer agent of such Shares,
to ensure compliance with the provisions of this letter and of the Securities
Act and the Applicable Laws.
The Stockholders Agreement will provide, and you agree, that your stock is
not transferable without first offering it to Exigent and all of the other
stockholders for an amount equal to its fair market value at the time of
transfer or, if applicable, the price offered for it by an independent third
party.
The Stockholders Agreement will also provide, and you agree, that your
stock or a portion thereof will be subject to repurchase by Exigent at par value
in the event you leave the employ of Exigent, other than by reason of death,
disability or termination of your employment by Exigent without Cause (as
hereinafter defined), in accordance with the following timetable: Exigent's
repurchase right will attach to 100% of your stock if your employment so
terminates at any time prior to October 31,
<PAGE>
1997, 66.67% if your employment so terminates after October 31, 1997 and prior
to October 31, 1998, and 33.33% if your employment so terminates after October
31, 1998 and prior to October 31, 1999 (the "Repurchase Right").
That portion of your stock which has vested in accordance with the
foregoing provisions, i.e., that portion which is no longer subject to the
---
Repurchase Right, will be subject to purchase by Exigent and/or the other
shareholders at fair market value at any time you leave the employ of Exigent
for any reason other that a termination for Cause. If you are terminated by the
Company for "Cause" at any time, any vested stock may be repurchased by Exigent
and the repurchase price will be the par value of the stock. In the event your
employment terminates prior to October 31, 1999 by reason of your death or
disability or because your employment is terminated by Exigent without Cause,
that portion of your stock which has not vested i.e., which is still subject to
----
the Repurchase Right, will be subject to purchase by Exigent and/or the other
shareholders at fair market value. For these purposes, "Cause" means commission
of a felony or other serious act of disloyalty to Exigent, or the deliberate and
sustained failure to perform the reasonable duties assigned to you by Exigent's
President (or his designee) from time to time. In the event of a purchase at
fair market value, the fair market value of your stock will be determined
pursuant to appraisal or a formula set forth in the Shareholder's Agreement and
approved by the Board of Directors of Exigent.
Provided you remain employed by Exigent through the date of closing of the
applicable event, the Repurchase Right will terminate upon a pubic offering of
Exigent's common stock or upon a sale of more than 50% of the outstanding common
stock of Exigent or of substantially all of Exigent's assets, in either case to
a single person or group of related persons in one transaction or a series of
related transactions.
All of the representations, warranties, agreements, acknowledgments and
understandings made by you in this letter shall survive the delivery of this
letter, your purchase of the Shares, and the execution of the Stockholders
Agreement (except to the extent expressly set forth in the Stockholders
Agreement).
The Shareholders Agreement will address, and you agree to, these and other
reasonable arrangements applicable to your ownership of Exigent common stock,
including so-called "drag-along" rights which may require you to sell your stock
in the event a substantial number of other shares are being sold. In the
meantime, if you agree that this letter sets forth your investment
representations and our agreement as to the matters set forth herein please so
indicate in the space provided below. Further, by signing below, you acknowledge
your understanding and agreement that each of the initial shareholders who are
employees of Exigent other than W. Vickery Stoughton and Thomas H. Grove
<PAGE>
(the Company's founders) will be executing a letter agreement with Exigent
containing identical terms to those set forth herein.
Sincerely,
EXIGENT DIAGNOSTICS, INC.
By: /s/ W. Vickery Stoughton
-------------------------------
W. Vickery Stoughton, President
Acknowledged and agreed
as of October 1, 1996
/s/ Donald S. Wong
- ------------------------
Donald S. Wong
<PAGE>
EXIGENT DIAGNOSTICS, INC.
October 1, 1996
Ashok K. Sawhney
Exigent Diagnostics, Inc.
c/o SmithKline Beecham Clinical Laboratories
7600 Tyrone Avenue
Van Nuys, CA 91405
Dear Ashok:
Exigent Diagnostics, Inc. ("Exigent" or the "Company") is pleased to
present you with Common Stock Certificate Number 6 for 13.90 shares of Exigent
common stock, par value $.01 per share (the "Shares") which represents
approximately 3% of the current issued and outstanding stock of Exigent. If our
capital raising efforts and other future events unfold as anticipated, your
percentage ownership thereafter will be approximately .74% of Exigent.
This letter sets forth certain representations you are making
regarding your investment in Exigent as well as your agreement with Exigent as
to the restrictions applicable to your stock. These restrictions will be more
fully set forth in a Stockholders Agreement to be executed among Exigent and all
of its stockholders, including you (the "Stockholders Agreement"), and will be
binding on you before and after the Stockholders Agreement is executed except to
the extent expressly modified by the Stockholders Agreement.
You hereby represent, warrant, covenant, agree and acknowledge that
the Shares are intended to be and are being acquired solely for your own account
without a view to the distribution or resale thereof, and you do not have any
contract, undertaking, agreement or arrangement to sell or otherwise transfer or
dispose of any of the Shares in any manner to any person. You agree that you
will not sell, transfer or otherwise dispose of any of your Shares, in any
manner, unless at the time of any such transfer: (a) a Registration under the
Securities Act and under the Applicable Laws (each such term being hereinafter
defined) is in effect with respect to the Shares to be sold, transferred or
disposed of, and you comply with all of the requirements of the Securities Act
and the Applicable Laws with respect to the proposed transaction; or (b) you
have obtained and have provided to the Company an opinion from counsel
satisfactory to the Company (as to both the counsel rendering such opinion and
<PAGE>
the substance of the opinion) that the proposed sale, transfer or disposition
does not require Registration under the Securities Act or the Applicable Laws.
As used herein: the term "Registration" means registration under the Securities
Act and, with respect to the Applicable Laws, such registration thereunder (or,
with respect to any of the Applicable Laws which do not provide for
registration, such compliance therewith which is similar to registration) which
has then resulted in statutory or administration authorization for the proposed
transaction; the term "Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations thereunder; and the term "Applicable
Laws" means any applicable state securities laws and any other applicable law.
You understand and acknowledge that the Shares have not been issued to
you by Exigent pursuant to a Registration under the Securities Act. Neither
Exigent nor any other person has any obligation or intention to effect the
Registration of your Shares for sale, transfer or disposition by you under the
Securities Act or the Applicable Laws, or to take any action or provide any
information (including, without limitation, the filing of reports or the
publication of information required by Rule 144 under the Securities Act) which
would make available any exemption from the Registration requirements of the
Securities Act or the Applicable Laws. You understand that you must therefore
hold your Shares indefinitely unless a subsequent Registration or exemption
therefrom is available and is obtained. No federal or state agency has approved
or disapproved the Shares for investment or any other purpose. All of your
Shares have been issued and sold to you in reliance upon a specific exemption
from the Registration requirements of the Securities Act which depends, in part,
upon the accuracy of your representations, warranties and agreements set forth
in this letter.
A legend has been placed on the certificates evidencing your Shares,
and stop-transfer instruction will be issued to any transfer agent of such
Shares, to ensure compliance with the provisions of this letter and of the
Securities Act and the Applicable Laws.
The Stockholders Agreement will provide, and you agree, that your
stock is not transferable without first offering it to Exigent and all of the
other stockholders for an amount equal to its fair market value at the time of
transfer or, if applicable, the price offered for it by an independent third
party.
The Stockholders Agreement will also provide, and you agree, that your
stock or a portion thereof will be subject to repurchase by Exigent at par value
in the event you leave the employ of Exigent, other than by reason of death,
disability or termination of your employment by Exigent without Cause (as
hereinafter defined), in accordance with the following timetable: Exigent's
repurchase right will attach to 100% of your stock if your employment so
terminates at any time prior to October 31,
<PAGE>
1997, 66.67% if your employment so terminates after October 31, 1997 and prior
to October 31, 1998, and 33.33% if your employment so terminates after October
31, 1998 and prior to October 31, 1999 (the "Repurchase Right").
That portion of your stock which has vested in accordance with the
foregoing provisions, i.e., that portion which is no longer subject to the
---
Repurchase Right, will be subject to purchase by Exigent and/or the other
shareholders at fair market value at any time you leave the employ of Exigent
for any reason other than a termination for Cause. If you are terminated by the
Company for "Cause" at any time, any vested stock may be repurchased by Exigent
and the repurchase price will be the par value of the stock. In the event your
employment terminates prior to October 31, 1999 by reason of your death or
disability or because your employment is terminated by Exigent without Cause,
that portion of your stock which has not vested, i.e., which is still subject to
----
the Repurchase Right, will be subject to purchase by Exigent and/or the other
shareholders at fair market value. For these purposes, "Cause" means commission
of a felony or other serious act of disloyalty to Exigent, or the deliberate
and sustained failure to perform the reasonable duties assigned to you by
Exigent's President (or his designee) from time to time. In the event of
a purchase at fair market value, the fair market value or your stock will be
determined pursuant to appraisal or a formula set forth in the Shareholders
Agreement and approved by the Board of Directors of Exigent.
Provided you remain employed by Exigent through the date of closing of
the applicable event, the Repurchase Right will terminate upon a public offering
of Exigent's common stock or upon a sale of more than 50% of the outstanding
common stock of Exigent or of substantially all of Exigent's assets, in either
case to a single person or group of related persons in one transaction or a
series of related transactions.
All of the representations, warranties, agreements, acknowledgements
and understandings made by you in this letter shall survive the delivery of this
letter, your purchase of the Shares, and the execution of the Stockholders
Agreement (except to the extent expressly set forth in the Stockholders
Agreement).
The Shareholders Agreement will address, and you agree to, these and
other reasonable arrangements applicable to your ownership of Exigent common
stock, including so-called "drag-along" rights which may require you to sell
your stock in the event a substantial number of other shares are being sold. In
the meantime, if you agree that this letter sets forth your investment
representations and our agreement as to the matters set forth herein please so
indicate in the space provided below. Further, by signing below, you acknowledge
your understanding and agreement that each of the initial shareholders who are
employees of Exigent other than W. Vickery Stoughton and Thomas H. Grove
<PAGE>
(the Company's founders) will be executing a letter agreement with Exigent
containing identical terms to those set forth herein.
Sincerely,
EXIGENT DIAGNOSTICS, INC.
By: /s/ W. Vickery Stoughton
--------------------------------
W. Vickery Stoughton, President
Acknowledged and agreed
as of October 1, 1996
/s/ Ashok K. Sawhney
- -------------------------
Ashok K. Sawhney
<PAGE>
EXIGENT DIAGNOSTICS, INC.
July 10, 1996
Philip Smith
Spencer Trask Securities Incorporated
535 Madison Avenue
New York, New York 10022
Dear Phil:
Exigent Diagnostics, Inc. ("Exigent" or the "Company") is pleased to
present you with Common Stock Certificate Number 7, dated July 10, 1996, for
9.24 shares of Exigent common stock, par value $.01 per share (the "Shares").
The Shares are being provided to you in consideration for your assistance to the
founders of the Company.
This letter sets forth certain representations you are making
regarding your investment in Exigent as well as your agreement with Exigent as
to the restrictions applicable to the Shares. These restrictions will be more
fully set forth in a Stockholders Agreement to be executed among Exigent and all
of its stockholders, including you (the "Stockholders Agreement"), and will be
binding on you before and after the Stockholders Agreement is executed except to
the extent expressly modified by the Stockholders Agreement.
You hereby represent, warrant, covenant, agree and acknowledge that
the Shares are intended to be and are being acquired solely for your own account
without a view to the distribution or resale thereof, and you do not have any
contract, undertaking, agreement or arrangement to sell or otherwise transfer or
dispose of any of the Shares in any manner to any person. You agree that you
will not sell, transfer or otherwise dispose of any of your Shares, in any
manner, unless at the time of any such transfer: (a) a Registration under the
Securities Act and under the Applicable Laws (each such term being hereinafter
defined) is in effect with respect to the Shares to be sold, transferred or
disposed of, and you comply with all of the requirements of the Securities Act
and the Applicable Laws with respect to the proposed transaction; or (b) you
have obtained and have provided to the Company an opinion from counsel
satisfactory to the Company (as to both the counsel rendering such opinion and
the substance of the opinion) that the proposed sale, transfer or disposition
does not require Registration under the Securities Act or the Applicable Laws.
As used herein: the term
<PAGE>
"Registration" means registration under the Securities Act and, with respect to
the Applicable Laws, such registration thereunder (or, with respect to any of
the Applicable Laws which do not provide for registration, such compliance
therewith which is similar to registration) which has then resulted in statutory
or administration authorization for the proposed transaction; the term
"Securities Act" means the Securities Act of 1933, as amended, and the rules and
regulations thereunder; and the term "Applicable Laws" means any applicable
state securities laws and any other applicable law.
You understand and acknowledge that the Shares have not been issued to
you by Exigent pursuant to a Registration under the Securities Act. Neither
Exigent nor any other person has any obligation or intention to effect the
Registration of your Shares for sale, transfer or disposition by you under the
Securities Act or the Applicable Laws, or to take any action or provide any
information (including, without limitation, the filing of reports or the
publication of information required by Rule 144 under the Securities Act) which
would make available any exemption from the Registration requirements of the
Securities Act or the Applicable Laws. You understand that you must therefore
hold your Shares indefinitely unless a subsequent Registration or exemption
therefrom is available and is obtained. No federal or state agency has approved
or disapproved the Shares for investment or any other purpose. All of your
Shares have been issued and sold to you in reliance upon a specific exemption
from the Registration requirements of the Securities Act which depends, in part,
upon the accuracy of your representations, warranties and agreements set forth
in this letter.
A legend has been placed on the certificates evidencing your Shares,
and stop-transfer instructions will be issued to any transfer agent of such
Shares, to ensure compliance with the provisions of this letter and of the
Securities Act and the Applicable Laws.
The Stockholders Agreement will provide, and you agree, that your
stock is not transferable without first offering it to Exigent and all of the
other stockholders for an amount equal to its fair market value at the time of
transfer or, if applicable, the price offered for it by an independent third
party.
The restrictions set forth in the foregoing paragraph will terminate
upon a public offering of Exigent's common stock or upon a sale of more than 50%
of the outstanding common stock of Exigent or of substantially all of Exigent's
assets, in either case to a single person or group of related persons in one
transaction or a series of related transactions.
All of the representations, warranties, agreements, acknowledgments
and understandings made by you in this letter shall survive the delivery of this
letter, your purchase of the
<PAGE>
Shares, and the execution of the Stockholders Agreement (except to the extent
expressly set forth in the Stockholders Agreement).
The Stockholders Agreement will address, and you agree to, these and
other reasonable arrangements applicable to your ownership of Exigent common
stock, including so-called "drag-along" rights which may require you to sell
your stock in the event a substantial number of other shares are being sold. In
the meantime, if you agree that this letter sets forth your investment
representations and our agreement as to the matters set forth herein please so
indicate in the space provided below.
Sincerely,
EXIGENT DIAGNOSTICS, INC.
By:________________________________
W. Vickery Stoughton, President
Acknowledged and agreed
as of July 10, 1996
________________________________
Philip Smith
<PAGE>
EXIGENT DIAGNOSTICS, INC.
November 1, 1996
Philip smith
Spencer Trask Securities Incorporated
535 Madison Avenue
New York, New York 10022
Dear Phil:
Exigent Diagnostics, Inc. ("Exigent" or the "Company") is pleased to
present you with Common Stock Certificate Number 8, dated November 1, 1996, for
27.97 shares of Exigent common stock, par value $.01 per share (the "Shares").
The Shares are being provided to you in consideration for your assistance to the
Company in the private placement (the "Private Placement") of its stock.
You acknowledge that you will forfeit a certain number of Shares (the
"Forfeitable Shares"), up to your full 27.97 shares, based on the amount of
money raised for the Company (the "New Equity") by June 30, 1997 through its
contemplated Private Placement. The number of Forfeitable Shares will be 27.97
if the New Equity is less that $4 million. If the New Equity is greater than $4
million but less than $7 million, the number of Forfeitable Shares will be
calculated using the following formula:
Forfeitable Shares = (16.97) ($7 million - New Equity)
---------------------------------
($3 million)
There will be no forfeiture if the New Equity is $7 million or greater.
This letter also sets forth certain representations you are making
regarding your investment in Exigent as well as your agreement with Exigent as
to the restrictions applicable to the Shares. These restrictions will be more
fully set forth in a Stockholders Agreement to be executed among Exigent and all
of its stockholders, including you (the "Stockholders Agreement"), and will be
binding on you before and after the Stockholders Agreement is executed except to
the extent expressly modified by the Stockholders Agreement.
<PAGE>
You hereby represent, warrant, covenant, agree and acknowledge that
the Shares are intended to be and are being acquired solely for your own account
without a view to the distribution or resale thereof, and you do not have any
contract, undertaking, agreement or arrangement to sell or otherwise transfer or
dispose of any of the Shares in any manner to any person. You agree that you
will not sell, transfer or otherwise dispose of any of your Shares, in any
manner, unless at the time of any such transfer: (a) a Registration under the
Securities Act and under the Applicable Laws (each such term being hereinafter
defined) is in effect with respect to the Shares to be sold, transferred or
disposed of, and you comply with all of the requirements of the Securities Act
and the Applicable Laws with respect to the proposed transaction; or (b) you
have obtained and have provided to the Company an opinion from counsel
satisfactory to the company (as to both the counsel rendering such opinion and
the substance of the opinion) that the proposed sale, transfer or disposition
does not require Registration under the Securities Act or the Applicable Laws.
As used herein: the term "Registration" means registration under the Securities
Act and, with respect to the Applicable Laws, such registration thereunder (or,
with respect to any of the Applicable Laws which do not provide for
registration, such compliance therewith which is similar to registration) which
has then resulted in statutory or administration authorization for the proposed
transaction; the term "Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations thereunder; and the term "Applicable
Laws" means any applicable state securities laws and any other applicable law.
You understand and acknowledge that the Shares have not been issued to
you by Exigent pursuant to a Registration under the Securities Act. Neither
Exigent nor any other person has any obligation or intention to effect the
Registration of your Shares for sale, transfer or disposition by you under the
Securities Act or the Applicable Laws, or to take any action or provide any
information (including, without limitation, the filing of reports or the
publication of information required by Rule 144 under the Securities Act) which
would make available any exemption from the Registration requirements of the
Securities Act or the Applicable Laws. You understand that you must therefore
hold your Shares indefinitely unless a subsequent Registration or exemption
therefrom is available and is obtained. No federal or state agency has approved
or disapproved the Shares for investment or any other purpose. All of your
Shares have been issued and sold to you in reliance upon a specific exemption
from the Registration requirements of the Securities Act which depends, in part,
upon the accuracy of your representations, warranties and agreements set forth
in this letter.
A legend has been placed on the certificates evidencing your Shares,
and stop-transfer instructions will be issued to any transfer agent of such
Shares, to ensure compliance with the
<PAGE>
provisions of this letter and of the Securities Act and the Applicable Laws.
The Stockholders Agreement will provide, and you agree, that your
stock is not transferable without first offering it to Exigent and all of the
other stockholders for an amount equal to its fair market value at the time of
transfer or, if applicable, the price offered for it by an independent third
party.
The restrictions set forth in the foregoing paragraph will terminate
upon a public offering of Exigent's common stock or upon a sale of more than 50%
of the outstanding common stock of Exigent or of substantially all of Exigent's
assets, in either case to a single person or group of related persons in one
transaction or a series of related transactions.
All of the representations, warranties, agreements, acknowledgments
and understandings made by you in this letter shall survive the delivery of this
letter, your purchase of the Shares, and the execution of the Stockholders
Agreement (except to the extent expressly set forth in the Stockholders
Agreement).
The Stockholders Agreement will address, and you agree to, these and
other reasonable arrangements applicable to your ownership of Exigent common
stock, including so-called "drag-along" rights which may require you to sell
your stock in the event a substantial number of other shares are being sold. In
the meantime, if you agree that this letter sets forth your investment
representations and our agreement as to the matters set forth herein please so
indicate in the space provided below.
Sincerely,
EXIGENT DIAGNOSTICS, INC.
By:________________________________
W. Vickery Stroughton, President
Acknowledgment and agreed
as of November 1, 1996
_____________________________
Philip Smith
<PAGE>
EXHIBIT C
TO
STOCKHOLDERS AGREEMENT
COUNTERPART
-----------
THIS INSTRUMENT forms part of the Stockholders Agreement (the
"Agreement") made as of the 4th day of December, 1996 among Exigent Diagnostics,
Inc., SmithKline Beecham Corporation, SmithKline Beecham Diagnostic Systems Co.,
Spencer Trask Securities Incorporated, Exigent Partners, L.P., W. Vickery
Stoughton, Thomas H. Grove, Kenneth B. Asarch, William S. Knight, Donald S.
Wong, Ashok K. Sawhney, Philip B. Smith and the Investors, and any additional
Stockholders (as such terms are defined in the Agreement) of the Corporation,
from time to time, which Agreement permits execution by counterpart. The
undersigned hereby acknowledges having received a copy of the said Agreement
(which is annexed hereto as Schedule I) and having read the said Agreement in
its entirety, and for good and valuable consideration, receipt and sufficiency
of which is hereby acknowledged, hereby agrees that the terms and conditions of
the said Agreement shall be binding upon the undersigned as a Stockholder and
such terms and conditions shall inure to the benefit of and be binding upon the
undersigned and its successors and permitted assigns.
IN WITNESS WHEREOF, the undersigned has executed this instrument
this ____ day of ___________, 199_.
----------------------------------------
(Signature of Stockholder)
----------------------------------------
(Name in block letters)
<PAGE>
EXHIBIT 10.15
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE - NET
(Do not use this form for Multi-Tenant Property)
1. Basic Provisions ("Basic Provisions")
1.1. Parties: This Lease ("Lease"), dated for reference purposes only,
October 14, 1996, is made by and between FOX HILLS BUSINESS PARK, a California
-------------------------------------
limited partnership ("Lessor") and EXIGENT DIAGNOSTICS, INC. ("Lessee"),
- ------------------- -------------------------
collectively the "Parties," or individually a "Party").
1.2. Premises: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known by the street address of 6100 Bristol Parkway, Culver City located in the
---------------------------------
County of Los Angeles, State of California and generally described as (describe
----------- ----------
briefly the nature of the property) approximately 16,023 rentable square feet in
--------------------------------------------
a single-story building. (See paragraph 2 for further provisions.)
- -----------------------
1.3. Term: Five (5) years and no months ("Original Term") commencing
-------- --
October 14, 1996 ("Commencement Date") and ending October 13, 2001 ("Expiration
----------------
Date"). (See Paragraph 3 for further provisions.)
1.4. Early Possession: ("Early Possession Date"). (See Paragraphs 3.2
and 3.3 for further provisions).
1.5. Base Rent: $6,000.00 per month ("Base Rent"), payable on the first
--------- -----
day of each month commencing October 14, 1996 (See Paragraph 4 for further
----------------
provisions.)
[X] If this box is checked, there are provisions in this Lease for the Base Rent
to be adjusted.
1.6. Base Rent Paid Upon Execution: $6,000.00 as Base Rent for the period
---------
October 14, 1996 through November 13, 1996.
- ------------------------------------------
1.7. Security Deposit: $15,000.00 ("Security Deposit"). (See Paragraph 5
----------
for further provisions.)
1.8. Permitted Use: A FACILITY TO DEVELOP AND MANUFACTURE MEDICAL
---------------------------------------------
DIAGNOSTIC TESTING DEVICES FOR USE AT THE POINT OF PATIENT CARE (See Paragraph 6
- ---------------------------------------------------------------
for further provisions.)
1.9. Insuring Party: Lessor is the "Insuring Party" unless otherwise
stated herein. (See Paragraph 8 for further provisions.)
1.10. Real Estate Brokers: The following real estate brokers
(collectively, the "Brokers") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
<PAGE>
Lee & Associates Commercial Real Estate Services represents [X] Lessor
- ------------------------------------------------
exclusively ("Lessor's Broker"); [_] both Lessor and Lessee, and CB Commercial
-------------
represents [X] Lessee exclusively ("Lessee's Broker); [_] both Lessee and
Lessor. (See paragraph 15 for further provisions.)
1.11. Guarantor. The obligations of the Lessee under this Lease are to be
guaranteed by __________________________________________________________
("Guarantor"). (See Paragraph 37 for further provisions.)
1.12. Addenda. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 84 and Exhibits A and B all of which constitute a part of
-- -- -------
this Lease.
2. Premises.
2.1. Letting. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental, is an approximation which Lessor
and Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2. Condition. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date. If a non-
compliance with said warranty exists as of the Commencement Date, Lessor shall,
except as otherwise provided in this Lease, promptly after receipt of written
notice from Lessee setting forth with specificity the nature and extent of such
non-compliance, rectify same at Lessor's expense. If Lessee does not give
Lessor written notice of a non-compliance with this warranty within thirty (30)
days after the Commencement Date, correction of that non-compliance shall be the
obligation of Lessee at Lessee's sole cost and expense.
2.3. Compliance with Covenants, Restrictions and Building Code. Lessor
warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to
be made by Lessee. If the Premises do not comply with said warranty, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify the same at Lessor's expense.
2.4. Acceptance of Premises. Lessee hereby acknowledges:
(1) that is has been advised by the Brokers to satisfy itself with
respect to the condition of the Premises (including but not limited to the
electrical and fire sprinkler systems,
<PAGE>
security, environmental aspects, compliance with Applicable Law, as defined in
Paragraph 6.3) and the present and future suitability of the Premises for
Lessee's intended use;
(2) that Lessee has made such investigation as it deems necessary
with reference to such matters and assumes all responsibility therefor as the
same relate to Lessee's occupancy of the Premises and/or the term of this Lease,
and
(3) that neither Lessor, nor any of Lessor's agents, has made any
oral or written representations or warranties with respect to the said matters
other than as set forth in this Lease.
2.5. Lessee Prior Owner/Occupant. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any non-
compliance of the Premises with said warranties.
3. Term.
3.1. Term. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2. Early Possession. If Lessee totally or partially occupies the Premises
prior to the Commencement Date, the obligation to pay Base Rent shall be abated
for the period of such early possession. All other terms of this Lease, however,
(including but not limited to the obligations to pay Real Property Taxes and
Insurance premiums and to maintain the Premises) shall be in effect during such
period. Any such early possession shall not affect nor advance the Expiration
Date of the Original Term.
3.3. Delay in Possession. If for any reason . . . illegible. If one is
specified in Paragraph 1.4 or, if no Early Possession Date is specified, by the
Commencement Date, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days
thereafter, cancel this Lease, in which event the Parties shall be discharged
from all obligations hereunder; provided, however, that if such written notice
by Lessee is not received by Lessor within said ten (10) day period, Lessee's
right to cancel this Lease shall terminate and be of no further force or effect.
Except as may be otherwise provided, and regardless of when the term actually
commences, if possession is not tendered to Lessee when required by this Lease
and Lessee does not terminate this Lease, as aforesaid, the period free of the
obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed
shall run from the date of delivery of possession and continue for a period
equal to what Lessee would otherwise have enjoyed
Page 3
<PAGE>
under the terms hereof, but minus any days of delay caused by the acts, changes
or omissions of Lessee.
4. Rent.
4.1. Base Rent. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by Lessor
in lawful money of the Untied States, without offset or deduction, on or before
the 5th day of the month. Base Rent and all other rent and charges for any
period during the term hereof which is for less than one (1) full calendar month
shall be prorated based upon the actual number of days of the calendar month
involved. Payment of Base Rent and other charges shall be made to Lessor at its
address stated herein or to such other persons or at such other addresses as
Lessor may from time to time designate in writing to Lessee.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use upon 5 days
prior written notice to Lessee, apply or retain all or any portion of said
Security Deposit for the payment of any amount due Lessor or to reimburse or
compensate Lessor for any liability, cost, expense, loss or damage (including
attorneys' fees) which Lessor may suffer or incur by reason thereof. If Lessor
uses or applies all or any portion of said Security Deposit, Lessee shall within
ten (10) days after written request therefor deposit moneys with Lessor
sufficient to restore said Security Deposit to the full amount required by this
Lease. Lessor shall not be required to keep all or any part of the Security
Deposit separate from its general accounts. Lessor shall, at the expiration or
earlier termination of the term hereof and after Lessee has vacated the
Premises, return to Lessee (or, at Lessor' option, to the last assignee, if any,
of Lessee's interest herein), that portion of the Security Deposit not used or
applied by Lessor. Unless otherwise expressly agreed in writing by Lessor, no
part of the Security Deposit shall be considered to be held in trust, to bear
interest or other increment for its use, or to be prepayment for any moneys to
be paid by Lessee under this Lease.
6. Use.
6.1. Use. Lessee shall use and occupy the Premises for the purposes set
forth in Paragraph 1.8, or any other use which is comparable thereto, and for no
other purpose. Lessee shall not use or permit the use of the Premises in a
manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties. Lessor
hereby agrees to not unreasonably withhold or delay its consent to any written
request by Lessee. Lessees assignees or subtenants, and by prospective assignees
and subtenants of the Lessee, its assignees and subtenants, for a modification
of said permitted purpose for which the premises may be used or occupied, so
long as the same will not impair the structural integrity of the Improvements on
the Premises, the mechanical or electrical systems therein, is not significantly
more burdensome to the Premises and the improvements thereon, and is
Page 4
<PAGE>
otherwise permissible pursuant to this Paragraph 6. If Lessor elects to withhold
such consent, Lessor shall within five (5) business days give a written
notification of same, which notice shall include an explanation of Lessor's
reasonable objections to the change in use.
6.2. Hazardous Substances.
(1) Reportable Uses Require Consent. The term "Hazardous Substance"
as used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect; either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for liability of Lessor to any governmental agency
of third party under any applicable statute or common law theory. Hazardous
Substance shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, crude oil or any products, by-products or fractions thereof. Lessee
shall not engage in any activity in, on or about the Premises which constitutes
a Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Law (as defined in Paragraph
6.3). "Reportable Use" shall mean (i) the installation or use of any above or
below ground storage tank, (ii) the generation, possession, storage, use,
transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority. Reportable Use shall
also include Lessee's being responsible for the presence in, on or about the
Premises of a Hazardous Substance with respect to which any Applicable Law
requires that a notice be given to persons entering or occupying the Premises or
neighboring properties. Notwithstanding the foregoing, Lessee may, without
Lessor's prior consent, but in compliance with all Applicable Law, use any
ordinary and customary materials reasonably required to be used by Lessee in the
normal course of Lessee's business permitted on the Premises, so long as such
use is not a Reportable Use and does not expose the Premises or neighboring
properties to any meaningful risk of contamination or damage or expose Lessor to
any liability therefor. In addition, Lessor may (but without any obligation to
do so) condition its consent to the use or presence of any Hazardous Substance,
activity or storage tank by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefrom or therefor, including, but
not limited to, the installation (and removal on or before Lease expiration or
earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(2) Duty to inform Lessor. If Lessee knows, or has reasonable cause
to believe, that a Hazardous Substance, or a condition involving or resulting
from same, has come to be located in, on, under or about the Premises, other
than as previously consented to by Lessor, Lessee shall immediately give written
notice of such fact to Lessor. Lessee shall also immediately give Lessor a copy
of any statement, report, notice, registration, application, permit,
Page 5
<PAGE>
business plan, license, claim, action or proceeding given to, or received from,
any governmental authority or private party, or persons entering or occupying
the Premises, concerning the presence, spill, release, discharge of, or exposure
to, any Hazardous Substance or contamination in, on, or about the Premises,
including but not limited to all such documents as may be involved in any
Reportable Uses involving the Premises.
(3) Indemnification. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney's and consultant's fees arising out of or involving any Hazardous
Substances or storage tank brought onto the Premises by or for Lessee or under
Lessee's control. Lessee's obligations under this Paragraph 6 shall include, but
not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
investigation (including consultant's and attorney's fees and testing), removal,
remediation, restoration and/or abatement thereof, or of any contamination
therein involved, and shall survive the expiration or earlier termination of
this Lease. No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its obligations under this Lease
with respect to Hazardous Substances or storage tanks, unless specifically so
agreed by Lessor in writing at the time of such agreement.
6.3. Lessee's Compliance with Law. Except as otherwise provided in this
Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently and
in a timely manner, comply with all "Applicable Law," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, relating in any
manner to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil, groundwater conditions, and (iii) the use, generation,
manufacture, production, installation, maintenance, removal, transportation,
storage, spill or release of any Hazardous Substance or storage tank), now in
effect or which may hereafter come into effect, and whether or not reflecting a
change in policy from any previously existing policy. Lessee shall, within five
(5) days after receipt of Lessor's written request, provide Lessor with copies
of all documents and information, including, but not limited to, permits,
registrations, manifests, applications, reports and certificates, evidencing
Lessee's compliance with any Applicable Law specified by Lessor, and shall
immediately upon receipt, notify Lessor in writing (with copies of any documents
involved) of any threatened or actual claim, notice, citation, warning,
complaint or report pertaining to or involving failure by Lessee or the Premises
to comply with any Applicable Law.
6.4. Inspection; Compliance. Lessor and Lessor's Lender(s) (as defined in
Paragraph shall have the right to enter the Premises at any time, in the case of
an emergency, and otherwise at reasonable times, for the purpose of inspecting
the condition of the Premises and for verifying compliance by Lessee with this
Lease and all Applicable Laws (as defined in Paragraph 6.3), and to employ
experts and/or consultants in connection therewith and/or to advise Lessor with
respect to Lessee's activities, including but not limited to the installation,
operation, use,
Page 6
<PAGE>
monitoring, maintenance, or removal of any Hazardous Substance or storage tank
on or from the Premises. The costs and expenses of any such inspections shall be
paid by the party requesting same, unless a Default or Breach of this Lease,
violation of Applicable Law, or a contamination, caused or materially
contributed to by Lessee is found to exist or be imminent, or unless the
inspection is requested or ordered by a governmental authority as the result of
any such existing or imminent violation or contamination. In any such case,
Lessee shall upon request reimburse Lessor or Lessor's Lender, as the case may
be, for the costs and expenses of such inspections. Lessor acknowledges that as
a result of an inspection, it may be exposed to confidential or proprietary
information of Lessee ("Confidential Information"), and the Lessor agrees that
neither its employees or its representatives shall use or disclose Confidential
Information for any purpose, except as required by law. This covenant shall
survive a termination of this Agreement and Lessee shall have the right to
obtain an injunction to enforce this covenant.
7. Maintenance; Repairs; Utility Installations; Trade Fixtures and
Alterations.
7.1. Lessee's Obligations.
(1) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as
to condition), 2.3 (Lessor's warranty as to compliance with covenants, etc.).
7.2. (Lessor's obligations to repair), 9 (damage and destruction), and 14
(condemnation), Lessee shall at Lessee's sole cost and expense and at all times,
keep the Premises and every part thereof in good order, condition and repair,
structural and non-structural (whether or not such portion of the Premises
requiring repairs, or the means of repairing the same, are reasonably or readily
accessible to Lessee, and whether or not the need for such repairs occurs as a
result of Lessee's use, any prior use, the elements or the age of such portion
of the Premises ), including, without limiting the generality of the foregoing,
all equipment or facilities serving the Premises, such as plumbing, heating, air
conditioning, ventilating, electrical, lighting facilities, boilers, fired or
unfired pressure vessels, fire sprinkler and/or standpipe and hose or other
automatic fire extinguishing system, including fire alarm and/or smoke detection
systems and equipment, fire hydrants, fixtures, walls (interior and exterior),
foundations, ceilings, roofs, floors, windows, doors, plate glass, skylights,
landscaping, driveways, parking lots, fences, retaining walls, signs, sidewalks
and parkways located in, on, about, or adjacent to the Premises. Lessee shall
not cause or permit any Hazardous Substance to be spilled or released in, on,
under or about the Premises (including through the plumbing or sanitary sewer
system) and shall promptly, at Lessee's expense, take all investigatory and/or
remedial action reasonably recommended, whether or not formally ordered or
required, for the cleanup of any contamination of, and for the maintenance,
security and/or monitoring of the Premises, the elements surrounding same, or
neighboring properties, that was caused or materially contributed to by Lessee,
or pertaining to or involving any Hazardous Substance and/or storage tank
brought onto the Premises by or for Lessee or under its control. Lessee, in
keeping the Premises in good order, condition and repair, shall exercise and
perform good maintenance practices. Lessee's obligations shall include
restorations, replacements or renewals when necessary to keep the Premises and
all improvements thereon or a part thereof in good order, condition and state of
Page 7
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repair. If Lessee occupies the Premises for seven (7) years or more, Lessor may
require Lessee to repaint the exterior of the buildings on the Premises as
reasonably required, but not more frequently than once every seven (7) years.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance for,
and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii)fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing systems,
including fire alarm and/or smoke detection, (iv) landscaping and irrigation
systems, (v) roof covering and drain maintenance and (vi) asphalt and parking
lot maintenance.
7.2 Lessor's Obligations. Except for the warranties and agreements of
Lessor contained in Paragraphs 2.2 (relating to condition of the Premises), 2.3
(relating to compliance with covenants, restrictions and building code), 9
(relating to destruction of the Premises) and 14 (relating to condemnation of
the Premises), it is intended by the Parties hereto that Lessor have no
obligation, in any manner whatsoever, to repair and maintain the Premises, the
improvements located thereon, or the equipment therein, whether structural or
non-structural, all of which obligations are intended to be that of the Lessee
under Paragraph 7.1 hereof. It is the intention of the Parties that the terms of
this Lease govern the respective obligations of the Parties as to maintenance
and repair of the Premises. Lessee and Lessor expressly waive the benefit of any
statute now or hereafter in effect to the extent it is inconsistent with the
terms of this Lease with respect to, or which affords Lessee the right to make
repairs at the expense of Lessor or to terminate this Lease by reason of any
needed repairs.
7.3. Utility Installations; Trade Fixtures; Alterations.
(1) Definitions; Consent Required. The term "Utility Installations"
is used in this Lease to refer to all carpeting, window coverings, air lines,
power panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be
removed without doing material damage to the Premises. The term "Alterations"
shall mean any modification of the improvements on the Premises from that which
are provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures, whether by addition or deletion. "Lessee Owned
Alterations and/or Utility Installations" are defined as Alterations and/or
Utility Installations made by Lessee that are not yet owned by Lessor as defined
in Paragraph 7.4(a). Lessee shall not make any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. Lessee may, however, make non-structural Utility Installations to the
interior of the Premises (excluding the roof), as long as they are not visible
from the outside, do not involve puncturing, relocating or removing the roof or
any existing walls, and the cumulative cost thereof during the term of this
Lease as extended does not exceed $25,000.
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<PAGE>
(2) Consent. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with proposed detailed plans. All consents
given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific
consent, shall be deemed conditioned upon: (i) Lessee's acquiring all applicable
permits required by governmental authorities, (ii) the furnishing of copies of
such permits together with a copy of the plans and specifications for the
Alteration or Utility Installation to Lessor prior to commencement of the work
thereon, and (iii) the compliance by Lessee with all conditions of said permits
in a prompt and expeditious manner. Any Alterations or Utility Installations by
Lessee during the term of this Lease shall be done in a good and workmanlike
manner, with good and sufficient materials, and in compliance with all
Applicable Law. Lessee shall promptly upon completion thereof furnish Lessor
with as-built plans and specifications therefor. Lessor may (but without
obligation to do so) condition its consent to any requested Alteration or
Utility Installation that costs $10,000 or more upon Lessee's providing Lessor
with a lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation and/or upon Lessee's
posting an additional Security Deposit with Lessor under Paragraph 36 hereof.
(3) Indemnification. Lessee shall pay, when due, all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall at its sole expense defend and protect itself, Lessor
and the Premises against the same and shall pay and satisfy any such adverse
judgment that may be rendered thereon before the enforcement thereof against the
Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor
a surety bond satisfactory to Lessor in an amount equal to one and one-half
times the amount of such contested lien claim or demand, indemnifying Lessor
against liability for the same, as required by law for the holding of the
Premises free from the effect of such lien or claim. In addition, Lessor may
require Lessee to pay Lessor's attorney's fees and costs in participating in
such action if Lessor shall decide it is to its best interest to do so.
7.4. Ownership; Removal; Surrender; and Restoration.
(1) Ownership. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.
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(2) Removal. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(3) Surrender/Restoration. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, with all
of the improvements, parts and surfaces thereof clean and free of debris and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or deterioration
that would have been prevented by good maintenance practice or by Lessee
performing all of its obligations under this Lease. Except as otherwise agreed
or specified in writing by Lessor, the Premises, as surrendered, shall include
the Utility Installations. The obligation of Lessee shall include the repair of
any damage occasioned by the installation, maintenance or removal of Lessee's
Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may be required by Applicable Law
and/or good service practice. Lessee's Trade Fixtures shall remain the property
of Lessee and shall be removed by Lessee subject to its obligation to repair and
restore the Premises per this Lease.
8. Insurance; Indemnity.
8.1. Payment For Insurance. Regardless of whether the Lessor or Lessee is
the Insuring Party, Lessee shall pay for all insurance required under this
Paragraph 8 except to the extent of the cost attributable to liability insurance
carried by Lessor in excess of $1,000,000 per occurrence. Premiums for policy
periods commencing prior to or extending beyond the Lease term shall be prorated
to correspond to the Lease term. Payment shall be made by Lessee to Lessor
within ten (10) days following receipt of an invoice for any amount due.
8.2. Liability Insurance.
(1) Carried by Lessee. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtant thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than $1,000,000 per
occurrence with an "Additional Insured-Managers or Lessors of Premises"
Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not contain
any intro-insured exclusions as between insured persons or organizations, but
shall include coverage for liability assumed under this Lease as an "insured
contract" for the performance of Lessee's indemnity obligations under this
Lease. The limits of
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said insurance required by this Lease or as carried by Lessee shall not,
however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and or
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(2) Carried By Lessor. In the event Lessor is the Insuring Party,
Lessor shall also maintain liability insurance described in Paragraph 8.2(a)
above, in addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.
8.3. Property Insurance - Building, Improvements and Rental Value.
(1) Building and Improvements. The Insuring Party shall obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to the holders of any mortgages, deeds
of trustor ground leases on the Premises ("Lender(s)"), insuring loss or damage
to the Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises, as the same shall exist from time to time, or
the amount required by Lenders, but in no event more than the commercially
reasonable and available insurable value thereof if, by reason of the unique
nature or age of the improvements involved, such latter amount is less than full
replacement cost. If Lessor is the Insuring Party, however, Lessee Owned
Alterations and Utility Installations shall be insured by Lessee under Paragraph
8.4 rather than by Lessor. If the coverage is available and commercially
appropriate, such policy or policies shall insure against all risks of direct
physical loss or damage (except the perils of flood and/or earthquake unless
required by a Lender), including coverage for any additional costs resulting
from debris removal and reasonable amounts of coverage for the enforcement of
any ordinance or law regulating the reconstruction or replacement of any
undamaged sections of the Premises required to be demolished or removed by
reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered cause of loss. Said policy or policies shall also
contain an agreed valuation provision in lieu of any coinsurance clause, waiver
of subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located. If such insurance coverage has a
deductible clause, the deductible amount shall not exceed $1,000 per occurrence,
and Lessee shall be liable for such deductible amount in the event of an insured
Loss, as defined Paragraph 9.1(c).
(2) Rental Value. The Insuring Party shall, in addition, obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and Lender(s) insuring the loss of the full
rental and other charges payable by Lessee to Lessor under this Lease for one
(1) year (including all real estate taxes, insurance costs, and any scheduled
rental increases). Said insurance shall provide that in the event the Lease is
terminated by reason of an insured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an
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agreed valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period. Lessee shall be liable
for any deductible amount in the event of such loss.
(3) Adjacent Premises. If the Premises are part of a larger building,
or if the Premises are part of a group of buildings owned by Lessor which are
adjacent to the Premises, the Lessee shall pay for any increase in the premiums
for the property insurance of such building or buildings if said increase is
caused by Lessee's acts, omissions, use or occupancy of the Premises.
(4) Tenant's Improvements. If the Lessor is the Insuring Party, the
Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease. If Lessee is the Insuring Party, the policy
carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned Alterations
and Utility Installations.
8.4. Lessee's Property Insurance. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Lessee Owned Alterations and Utility
Installations in, on, or about the Premises similar in coverage to that carried
by the insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for the
replacement of personal property or the restoration of Lessee Owned Alterations
and Utility Installations. Lessee shall be the Insuring Party with respect to
the insurance required by this Paragraph 8.4 and shall provide Lessor with
written evidence that such insurance is in force.
8.5. Insurance Policies. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B+, V, or such other rating as may be required by a Lender having a lien
on the Premises, as set forth in the most current issue of "Best's Insurance
Guide." Lessee shall not do or permit to be done anything which shall invalidate
the insurance policies referred to in this Paragraph 8. If Lessee is the
Insuring Party, Lessee shall cause to be delivered to Lessor certified copies of
policies of such insurance or certificates evidencing the existence and amounts
of such insurance with the insureds and loss payable clauses as required by this
Lease. No such policy shall be cancellable or subject to modification except
after thirty (30) days prior written notice to Lessor. Lessee shall at least
thirty (30) days prior to the expiration of such policies, furnish Lessor with
evidence of renewals or "insurance binders" evidencing renewal thereof, or
Lessor may order such insurance and charge the cost thereof to lessee, which
amount shall be payable by Lessee to Lessor upon demand. If the Insuring Party
shall fail to procure and maintain the insurance required to be carried by the
Insuring Party under this Paragraph 8, the other Party may, but shall not be
required to, procure and maintain the same, but at Lessee's expense.
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8.6. Waiver of Subrogation. Without affecting any other rights or remedies,
Lessee and Lessor ("Waiving Party") each hereby release and relieve the other,
and waive their entire right to recover damages (whether in contract or in tort)
against the other, for loss of or damage to the Waiving Party's property damages
shall not be limited by the amount of insurance carried or required or by any
deductibles applicable thereto.
8.7. Indemnity. Except for Lessor's negligence, willful misconduct and/or
breach of express warranties, Lessee shall indemnify, protect, defend and hold
harmless the Premises. Lessor and its agents, Lessor's master or ground lessor,
partners and Lenders, from and against any and all claims, loss of rents and/or
damage, costs, liens, judgments, penalties, permits, attorney's and consultant's
fees, expenses and/or liabilities arising out of, involving, or in dealing with
the occupancy of the Premises by Lessee, the conduct of Lessee's business, any
act, omission or neglect of Lessee, its agents, contractors, employees, or
invitees, and out of any Default or Breach by Lessee in the performance in a
timely manner of any obligation on Lessee's part to be performed under this
Lease. The foregoing shall include, but not be limited to, the defense or
pursuit of any claim or any action or proceeding involved therein, and whether
or not (in the case of claims made against Lessor) litigated and/or reduced to
judgment, and whether well founded or not. In case any action or proceeding be
brought against Lessor by reason of any of the foregoing matters, Lessee upon
notice from Lessor shall defend the same at Lessee's expense by counsel
reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such
defense. Lessor need not have first paid any such claim in order to be so
indemnified.
8.8. Exemption of Lessor from Liability. Except in the event of Lessor's
gross negligence or willful misconduct, Lessor shall not be liable for injury or
damage to the person or goods, wares, merchandise or other property of Lessee,
Lessee's employees, contractors, invitees, customers, or any other person in or
about the Premises, whether such damage or injury is caused by or results from
fire, steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, fire sprinklers, wires, appliances,
plumbing, air conditioning or lighting fixtures, or from any other cause,
whether the said injury or damage results from conditions arising upon the
Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places and regardless of whether the cause of
such damage or injury or the means of repairing the same is accessible or not,
Lessor shall not be liable for any damages arising from any act or neglect of
any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss or income or profit therefrom.
9. Damage or Destruction.
9.1. Definitions.
(1) "Premises Partial Damage" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations,
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the repair cost of which damage or destruction is less than 50% of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(2) "Premises Total Destruction" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations the
repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises Immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(3) "Insured Loss" shall mean damage or destruction to improvements
on the Premises, other than Lessee Owned Alterations and Utility Installations,
which was caused by an event required to be covered by the Insurance described
in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits
involved.
(4) "Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(5) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on or under the
Premises.
9.2. Partial Damage - Insured Loss. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage
(but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect. Notwithstanding the foregoing, if the required insurance
was not in force or the insurance proceeds are not sufficient to effect such
repair, the Insuring Party shall promptly contribute the shortage in proceeds
(except as to the deductible which is Lessee's responsibility) as and when
required to complete said repairs. In the event, however, the shortage in
proceeds was due to the fact that, by reason of the unique nature of the
improvements, full replacement cost insurance coverage was not commercially
reasonable and available, Lessor shall have no obligation to pay for the
shortage in insurance proceeds or to fully restore the unique aspects of the
Premises unless Lessee provides Lessor with the funds to cover same, or adequate
assurance thereof, within ten (10) days following receipt of written notice of
such shortage and request therefor. If Lessor receives said funds or adequate
assurance thereof within said ten (10) day period, the party responsible for
making the repairs shall complete them as soon as reasonably possible and this
Lease shall remain in full force and effect. If Lessor does not receive such
funds or assurance within said period, Lessor may nevertheless elect by written
notice to Lessee within ten (10) days thereafter to make such restoration and
repair as is commercially reasonable with Lessor paying any shortage in
proceeds, in which case this Lease shall remain in full force and effect. If in
such case Lessor
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does not so elect, then this Lease shall terminate sixty (60) days following the
occurrence of the damage or destruction. Unless otherwise agreed, Lessee shall
in no event have any right to reimbursement from Lessor for any funds
contributed by Lessee to repair any such damage or destruction. Premises Partial
Damage (illegible) Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that
there may be some insurance coverage, but the net proceeds of any such insurance
shall be made available for the repairs if made by either Party.
9.3. Partial Damage - Uninsured Loss. If a Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such damage of Lessor's desire to terminate this Lease as of the
date sixty (60) days following the giving of such notice. In the event Lessor
elects to give such notice of Lessor's intention to terminate this Lease, Lessee
shall have the right within ten (10) days after the receipt of such notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage totally at Lessee's expense and without reimbursement from Lessor.
Lessee shall provide Lessor with the required funds or satisfactory assurance
thereof within thirty (30) days following Lessee's said commitment. In such
event this Lease shall continue in full force and effect, and Lessor shall
proceed to make such repairs as soon as reasonably possible and the required
funds are available. If Lessee does not give such notice and provide the funds
or assurance thereof within the times specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.4. Total Destruction. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6.
9.5. Damage Near End of Term. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair exceeds
one (1) month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("Exercise Period"), (i) exercising such option, in such
case the provisions of 9.2, 9.3 and 9.4 shall be applicable.
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9.6. Abatement of Rent; Lessee's Remedies.
(1) In the event of damage described in Paragraph 9.2 (Partial
Damage -Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b)), shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of Base Rent, Real Property Taxes, insurance
premiums, and other charges, if any, as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim
against Lessor for any damage suffered by reason of any such repair or
restoration unless the damage is a result of Lessor's willful misconduct.
(2) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue. Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after receipt of such notice, this Lease shall
continue in full force and effect. "Commence" as used in this Paragraph shall
mean either the unconditional authorization of the preparation of the required
plans, or the beginning of the actual work on the Premises, whichever first
occurs.
9.7. Hazardous Substance Conditions. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the Investigation and remediation thereof required by Applicable Law
and this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor and at Lessor's option either (i) investigate
and remediate such Hazardous Substance Condition, if required, as soon as
reasonably possible at Lessor's expenses, in which event this Lease shall
continue in full force and effect, or (ii) if the estimated cost to investigate
and remediate such condition exceeds twelve (12) times the then monthly Base
Rent or $100,000, whichever is greater, give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
Hazardous Substance Condition of Lessor's desire to terminate this Lease as of
the date sixty (60) days following the giving of such notice. In the event
Lessor elects to give such notice of Lessor's intention to terminate this Lease.
Lessee shall have the right within ten (10) days after the receipt of such
notice to give written notice to Lessor of Lessee's commitment to pay for the
investigation and remediation of such Hazardous Substance Condition totally at
Lessee's expense and without reimbursement from Lessor except to the extent of
an amount equal to twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater. Lessee shall provide Lessor with the funds required of
Lessee or satisfactory assurance thereof within thirty
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(30) days following Lessee's said commitment. In such event this Lease shall
continue in full force and effect, and Lessor shall proceed to make such
investigation and remediation as soon as reasonably possible and the required
funds are available. If Lessee does not give such notice and provide the
required funds or assurance thereof within the times specified above, this Lease
shall terminate as of the date specified in Lessor's notice of termination. If a
Hazardous Substance Condition occurs for which Lessee is not legally
responsible, there shall be abatement of Lessee's obligations under this Lease
to the same extent as provided in Paragraph 9.6(a) for a period of not to exceed
twelve (12) months.
9.8. Termination - Advance Payments. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance Base Rent and any other advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit
as has not been, or is not then required to be, used by Lessor under the terms
of this Lease.
9.9. Waive Statutes. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10. Real Property Taxes.
10.1. (a) Payment of Taxes. Lessee shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises during the term of this
Lease. Subject to Paragraph 10.1(b), all such payments shall be made at least
ten (10) days prior to the delinquency date of the applicable installment.
Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes
have been paid. If any such taxes to be paid by Lessee shall cover any period of
time prior to or after the expiration or earlier termination of the term hereof.
Lessee's share of such taxes shall be equitably prorated to cover only the
period of time within the tax fiscal year this Lease is in effect, and Lessor
shall reimburse Lessee for any overpayment after such proration. If Lessee shall
fail to pay any Real Property Taxes required by this Lease to be paid by Lessee,
Lessor shall have the right to pay the same, and Lessee shall reimburse Lessor
therefor upon demand.
(b) Advance Payment. In order to insure payment when due or before
delinquency of any or all Real Property Taxes, Lessor reserves the right, at
Lessor's option, to estimate the current Real Property Taxes applicable to the
Premises, and to require such current year's Real Property Taxes to be paid in
advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the
installment due, at least twenty (20) days prior to the applicable delinquency
date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor
elects to require payment monthly in advance, the monthly payment shall be that
equal monthly amount which, over the number of months remaining before the month
in which the applicable tax installment would become delinquent (and without
interest thereon), would provide a fund large enough to fully discharge before
delinquency the estimated installment of taxes to be paid. When the actual
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amount of the applicable tax bill is known, the amount of such equal monthly
advance payment shall be adjusted as required to provide the fund needed to pay
the applicable taxes before delinquency. If the amounts paid to Lessor by Lessee
under the provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Real Property Taxes as the same become due,
Lessee shall pay to Lessor, upon Lessor's demand, such additional sums as are
necessary to pay such obligations. All moneys paid to Lessor under this
Paragraph may be intermingled with other moneys of Lessor and shall not bear
interest. In the event of a Breach by Lessee in the performance of the
obligations of Lessee under this Lease, then any balance of funds paid to Lessor
under the provisions of this Paragraph may, subject to proration as provided in
Paragraph 10.1(a), at the option of Lessor, be treated as an additional Security
Deposit under Paragraph 5.
10.2. Definition of "Real Property Taxes". As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage or
other improvement district thereof, levied against any legal or equitable
interest of Lessor in the Premises or in the real property of which the Premises
are a part. Lessor's right to rent or other income therefrom, and/or Lessor's
business of leasing the Premises. The term "Real Property Taxes" shall also
include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring, or changes in applicable law taking
effect, during the term of this Lease, including but not limited to a change in
the ownership of the Premises or in the improvements thereon, the execution of
this Lease, or any modification, amendment or transfer thereof, and whether or
not contemplated by the Parties. Notwithstanding the foregoing, Lessee shall not
be responsible for taxes caused solely as a result of the transfer of the
Premises. Including but not limited to transfer taxes or capital gains or income
taxes. This in no way modifies Lessee's responsibility to pay the "Joint
Consolidated Annual Tax Bill" as levied by the Los Angeles County Assessor's
office.
10.3. Joint Assessment. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the asssessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.4. Personal Property Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Lessor. If any of
Lessee's said personal property shall be assessed with Lessor's real property.
Lessee shall
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pay Lessor the taxes attributable to Lessee within ten (10) days after receipt
of a written statement setting forth the taxes applicable to Lessee's property
or, at Lessor's option, as provided in Paragraph 10.1(b).
11. Utilities. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.
12. Assignment and Subletting.
12.1. Lessor's Consent Required.
(1) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"assignment") or sublet all or any part of any Lessee's interest in this Lease
or in the Premises without Lessor's prior written consent given under and
subject to the terms of Paragraph 36.
(2) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more of the voting control of Lessee shall constitute a change
in control for this purpose. Notwithstanding the foregoing, a public offering of
securities by Lessee shall not constitute a "change of control."
(3) The involvement of Lessee of its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of the execution
by Lessor of this Lease or at the time of the most recent assignment to which
Lessor has consented, or as it exists immediately prior to said transaction or
transactions constituting such reduction, at whichever time said Net Worth of
Lessee was or is greater, shall be considered an assignment of this Lease by
Lessee to which Lessor may reasonably withhold its consent. "Net Worth of
Lessee" for purposes of this Lease shall be the net worth of Lessee (excluding
any guarantors) established under generally accepted accounting principles
consistently applied.
(4) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a noncurable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days written notice ("Lessor's Notice"), increase the monthly Base Rent to
fair market rental value or one hundred ten percent (110%) of the Base Rent then
in effect, whichever is greater. Pending
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determination of the new fair market rental blue, if disputed Lessee, Lessee
shall pay the amount set forth in Lessor's Notice, with any overpayment credited
against the next installment(s) of Base Rent coming due, and any underpayment
for the period retroactively to the effective date of the adjustment being due
and payable immediately upon the determination thereof. Further, in the event of
such Breach and market value adjustment, (i) the purchase price of any option to
purchase the Premises held by Lessee shall be subject to similar adjustment to
the then fair market value (without the Lease being considered an encumbrance or
any deduction for depreciation or obsolescence, and considering the Premises at
its highest and best use and in good condition), or one hundred ten percent
(110%) of the price previously in effect, whichever is greater, (ii) any index-
oriented rental or price adjustment formulas contained in this Lease shall be
adjusted to require that the base index be determined with reference to the
index applicable to the time of such adjustment, and (iii) any fixed rental
adjustments scheduled during the remainder of the Lease term shall be increased
in the same ratio as the new market rental bears to the Base Rent in effect
immediately prior to the market value adjustment.
(5) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and injunctive relief.
12.2. Terms and Conditions Applicable to Assignment and Subletting.
(1) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, or (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(2) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(3) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee. However,
Lessor may consent to subsequent sublettings and assignments of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their consent, and such
action shall not relieve such persons from liability under this Lease or
sublease.
(4) In the event of any Default or Breach of Lessee's obligations
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
any one else responsible for the performance of the Lessee's obligations under
this Lease, including the sublessee, without
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first exhausting Lessor's remedies against any other person or entity
responsible therefor to Lessor, or any security held by Lessor or Lessee.
(5) Each request for consent to an assignment or subletting shall
be in writing, accompanied by information relevant to Lessor's determination as
to the financial and operational responsibility and appropriateness of the
proposed assignee or sublessee, including but not limited to the intended use
and/or required modification of the Premises, if any. Lessee agrees to provide
Lessor with such other or additional information and/or documentation as may be
reasonably requested by Lessor.
(6) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed,
for the benefit of Lessor, to have assumed and agreed to conform and comply with
each and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
12.3. Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(1) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of this or any
other assignment of such sublease to Lessor, nor by reason of the collection of
the rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and shall
pay such rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary. Lessee shall have no right or claim against
said sublessee, or, until the Breach has been cured, against Lessor, for any
such rents and other charges so paid by said sublessee to Lessor.
(2) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the
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sublessor under such sublease from the time of the exercise of said option to
the expiration of such sublease; provided, however, Lessor shall not be liable
for any prepaid rents or security deposit paid by such sublessee to such
sublessor or for any other prior Defaults or Breaches of such sublessor under
such sublease.
(3) Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.
(4) No sublessee shall further assign or sublet all or any part of
the Premises without lessor's prior written consent.
(5) Lessor shall deliver a copy of any notice of Default or Breach
by Lessee to the sublessee, who shall have the right to cure the Default of
Lessee within the grace period, if any, specified in such notice. The sublessee
shall have a right of reimbursement and offset from and against Lessee for any
such Defaults cured by the sublessee.
13. Default; Breach; Remedies.
13.1. A "Default" is defined as a failure by the Lessee to observe, comply
with or perform any of the terms, covenants, conditions or rules applicable to
Lessee under this Lease. A "Breach" is defined as the occurrence of any one or
more of the following Defaults, and, where a grace period for cure after notice
is specified herein, the failure by Lessee to cure such Default prior to the
expiration of the applicable grace period, shall entitle Lessor to pursue the
remedies set forth in Paragraphs 13.2 and/or 13.3:
(1) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(2) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent or any other monetary payment
required to be made by lessee hereunder, whether to Lessor or to a third party,
as and when due, the failure by Lessee to provide Lessor with reasonable
evidence of insurance or surely bond required under this Lease, or the failure
of Lessee to fulfill any obligation under this Lease which endangers or
threatens life or property, where any such failure continues for a period of
three (3) days following written notice thereof by or on behalf of Lessor to
Lessee.
(3) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with Applicable Law per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the recission of an unauthorized assignment or
subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii)
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any other documentation or information which Lessor may reasonably require of
Lessee under the terms of this Lease, where any such failure continues for a
period of ten (10) days following written notice by or on behalf of Lessor to
Lessee.
(4) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b) or (c), above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such sure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(5) The occurrence of any of the following events: (i) The making
by lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. (S)101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days, provided, however, in the
event that any provision of this subparagraph (e) is contrary to any applicable
law, such provision shall be of no force or effect, and not affect the validity
of the remaining provisions.
(6) The discovery by Lessor that any financial statement given to
Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was
materially false.
(7) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor, (ii) the termination of a guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a
guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of lessor to Lessee of any such event, to provide Lessor with written
alternative assurance or security, which when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the guarantors that existed at the time of execution of this Lease.
13.2. Remedies. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses , permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon
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invoice therefor. If at least three checks given to Lessor by Lessee shall not
be honored by the bank upon which it is drawn, Lessor, at its option, may
require all future payments to be made under this Lease by Lessee to be made
only by cashier's check. In the event of a Breach of this Lease by Lessee, as
defined in Paragraph 13.1, with or without further notice or demand, and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such Breach, Lessor may:
(1) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of the leasing commission paid by lessor applicable to the unexpired
term of this Lease. The worth at the time of award of the amount referred to in
provision (iii) of the prior sentence shall be computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one percent (1%). Efforts by Lessor to mitigate damages
caused by Lessee's Default or Breach of this Lease shall not waive Lessor's
right to recover damages under this Paragraph. If termination of this Lease is
obtained through the provisional remedy of unlawful detainer, Lessor shall have
the right to recover in such proceeding the unpaid rent and damages as are
recoverable therein, or Lessor may reserve therein the right to recover all or
any part thereof in a separate suit for such rent and/or damages. If a notice
and grace period required under subparagraphs 13.1(b), (c) or (d) was not
previously given, a notice to pay rent or quit, or to perform or quit, as the
case may be, given to Lessee under any statute authorizing the forfeiture of
leases for unlawful detainer shall also constitute the applicable notice for
grace period purposes required by subparagraphs 13.1(b), (c) or (d). In such
case, the applicable grace period under subparagraphs 13.1(b), (c) or (d) and
under the unlawful detainer statute shall run concurrently after the one such
statutory notice and the failure of Lessee to cure the Default within the
greater of the two such grace periods shall constitute both an unlawful detainer
and a Breach of this Lease entitling Lessor to the remedies provided for in this
Lease and/or by said statute. Lessor shall use its best efforts to mitigate its
damages in the event of a Breach by attempting to relet the premises at the best
rate of rent obtainable.
(2) Continue the Lease and Lessee's right to possession in effect
(in California under California Civil Code Section 1951.4) after Lessee's Breach
and abandonment and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to
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reasonable limitations. See Paragraphs 12 and 36 for the limitations on
assignment and subletting which limitations Lessee and Lessor agree are
reasonable. Acts of maintenance or preservation, efforts to relet the Premises,
or the appointment of a receiver to protect the Lessor's interest under the
Lease, shall not constitute a termination of the Lessee's right to possession.
(3) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(4) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3. Inducement Recapture In Event of Breach. Any agreement by Lessor
for free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions," shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph shall not be deemed a waiver by Lessor of the provisions of this
Paragraph unless specifically so stated in writing by Lessor at the time of such
acceptance.
13.4. Late Charges. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or trust deed covering the
Premises. Accordingly, if any installment of rent or any other sum due from
Lessee shall not be received by Lessor or Lessor's designee within five (5) days
after such amount shall be due, then, without any requirement for notice to
Lessee, Lessee shall pay to Lessor a late charge equal to six percent (6%) of
such overdue amount. The parties hereby agree that such late charge represents
a fair and reasonable estimate of the costs Lessor will incur by reason of late
payment by Lessee. Acceptance of such late charge by Lessor shall in no event
constitute a waiver of Lessee's Default or Breach with respect to such overdue
amount, nor prevent Lessor from exercising any of the other rights and remedies
granted hereunder. In the event that a late charge is payable hereunder,
whether or not collected, for three (3) consecutive installments of Base Rent,
then
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notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5. Breach by Lessor. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, Lessor
shall be deemed to have responded within a reasonable time if, within 3 days
after receipt of written notice from Lessee specifying the obligation not
performed, Lessor commences action to fulfill its obligation and thereafter
proceeds diligently until the obligation is fully performed.
14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the land area
not occupied by any building, is taken by condemnation, Lessee may, at Lessee's
option, to be exercised in writing within ten (10) days after Lessor shall have
given Lessee written notice of such taking (or in the absence of such notice,
within ten (10) days after the condemning authority shall have taken possession)
terminate this Lease as of the date the condemning authority takes such
possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in the same
proportion as the rentable floor area of the Premises taken bears to the total
rentable floor area of the building located on the Premises. No reduction of
Base Rent shall occur if the only portion of the Premises taken is land on which
there is no building. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any compensation separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that
this Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of its net severance damages received, over and above the legal and other
expenses incurred by Lessor in the condemnation matter, repair any damage to the
Premises caused by such condemnation, except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall be responsible
for the payment of any amount in excess of such net severance damages required
to complete such repair.
15. Broker's Fee.
15.1. The Brokers named in Paragraph 1.10 are the procuring causes of this
Lease.
15.2. Upon execution of this Lease by both Parties, Lessor shall pay to
said Brokers jointly, or in such separate shares as they may mutually designate
in writing, a fee as set forth in a separate written agreement between Lessor
and said Brokers (or in the event there is no
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separate written agreement between Lessor and said Brokers, the sum of $as
--
agreed) for brokerage services rendered by said Brokers to Lessor in this
- ------
transaction.
15.3. Unless Lessor and Brokers have otherwise agreed in writing, Lessor
further agrees that: (a) if Lessee exercises any Option (as defined in Paragraph
39.1) or any Option subsequently granted which is substantially similar to an
Option granted to Lessee in this Lease, or (b) if Lessee acquires any rights to
the Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or (c) if Lessee remains in possession of the Premises,
with the consent of Lessor, after the expiration of the term of this Lease after
having failed to exercise an Option, or (d) if said Brokers are the procuring
cause of any other lease or sale entered into between the Parties pertaining to
the Premises and/or any adjacent property in which Lessor has an interest, or
(e) if Base Rent is increased, whether by agreement or operation of an
escalation clause herein, then as to any of said transactions, Lessor shall pay
said Brokers a fee in accordance with the schedule of said Brokers in effect at
the time of the execution of this Lease.
15.4. Any buyer or transferee of Lessor's interest in this Lease, whether
such transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this Paragraph 15. Each Broker shall be a
third party beneficiary of the provisions of this Paragraph 15. Each Broker
shall be a third party beneficiary of the provisions of this Paragraph 15 to the
extent of its interest in any commission arising from this Lease and may enforce
that right directly against Lessor and its successors.
15.5. Lessee and Lessor each represent and warrant to the other that it
has had no dealings with any person, firm, broker or finder (other than the
Brokers, if any named in Paragraph 1.10) in connection with the negotiation of
this Lease and/or the consummation of the transaction contemplated hereby, and
that no broker or other person, firm or entity other than said named Brokers is
entitled to any commission or finder's fee in connection with said transaction.
Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold
the other harmless from and against liability for compensation or charges which
may be claimed by any such unnamed broker, finder or other similar party by
reason of any dealings or actions of the Indemnifying Party, including any
costs, expenses, attorneys' fees reasonably incurred with respect thereto.
15.6. Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph 1.10.
16. Tenancy Statement.
16.1. Each Party (as "Responding Party") shall within ten (10) days after
written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "Tenancy Statement" form published by the
American Industrial Real Estate Association, plus such
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additional information, confirmation and/or statements as may be reasonably
requested by the Requesting Party.
16.2. If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises, or, if this
is a sublease, of the Lessee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in the Premises or in this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer or assignment.
Except as provided in Paragraph 15, upon such transfer or assignment and
delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the foregoing,
the obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinabove defined.
18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within thirty (30)
days following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. No Prior or Other Agreements; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party.
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23. Notices.
23.1. All notices required or permitted by this Lease shall be in writing
and may be delivered in person (by hand or by messenger or courier service) or
may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2. Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided a copy is also delivered via delivery or mail. If notice is received
on a Sunday or legal holiday, it shall be deemed received on the next business
day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any act shall not be deemed to render unnecessary
the obtaining of Lessor's consent to, or approval of, any subsequent or similar
act by Lessee, or be construed as the basis of an estoppel to enforce the
provision or provisions of this Lease requiring such consent. Regardless of
Lessor's knowledge of a Default or Breach at the time of accepting rent, the
acceptance of rent by Lessor shall not be a waiver of any preceding Default or
Breach by Lessee of any provision hereof, other than the failure of Lessee to
pay the particular rent so accepted. Any payment given Lessor by Lessee may be
accepted by Lessor on account of moneys or damages due Lessor, notwithstanding
any qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording
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purposes. The Party requesting recordation shall be responsible for payment of
any fees or taxes applicable thereto.
26. No Right To Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located. Any litigation between the Parties
hereto concerning this Lease shall be initiated in the county in which the
Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1. Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason thereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2. Attornment. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
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30.3. Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term thereof, will not be disturbed so long as Lessee is not in Breach
hereof and attorns to the record owner of the Premises.
30.4. Self-Executing. The agreements contained in this paragraph 30 shall
be effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. Attorney's Fees. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action or appeal thereon,
shall be entitled to reasonable attorney's fees. Such fees may be awarded in
the same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term, "Prevailing Party"
shall include, without limitation, a Party or Broker who substantially obtains
or defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment or the abandonment by the other Party or Broker of its
claim or defense. The attorney's fees award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorney's fees reasonably incurred. Lessor shall be entitled to attorney's
fees, costs and expenses incurred in the preparation and service of notices of
Default and consultations in connection therewith, whether or not a legal action
is subsequently commenced in connection with such Default or resulting Breach.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the building of which
they are a part, as Lessor may reasonably deem necessary. Lessor may at any time
place on or about the Premises or building any ordinary "For Sale" signs and
Lessor may at any time during the last one hundred twenty (120) days of the term
hereof place on or about the Premises any ordinary "For Lease" signs. All such
activities of Lessor shall be without abatement of rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
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34. Signs. Lessee shall not place any sign upon the Premises, except that
Lessee may, with Lessor's prior written consent, install (but not on the roof)
such signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor by Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. Consents.
(1) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to an
act by or for the other Party, such consent shall not be unreasonably withheld
or delayed. Lessor's consent to any act, assignment of this Lease or subletting
of the Premises by Lessee shall not constitute an acknowledgment that no Default
or Breach by Lessee of this Lease exists, nor shall such consent be deemed a
waiver of any then existing Default or Breach, except as may be otherwise
specifically stated in writing by Lessor at the time of such consent.
(2) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to the Lessor's consent shall not preclude the imposition
by Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. Guarantor.
37.1. If there are to be any Guarantors of this Lease per Paragraph 1.11,
the form of the guaranty to be executed by each such Guarantor shall be in the
form most recently published by the American Industrial Real Estate Association,
and each said Guarantor shall have the same obligations as Lessee under this
Lease, including but not limited to the obligation to provide the Tenancy
Statement and Information called for by Paragraph 16.
37.2. It shall constitute a Default of the Lessee under this Lease if any
such Guarantor fails or refuses, upon reasonable request by Lessor to give: (a)
evidence of the due execution of
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the guaranty called for by this Lease, including the authority of the Guarantor
(and of the party signing on Guarantor's behalf) to obligate such Guarantor on
said guaranty, and including in the case of a corporate Guarantor, a certified
copy of a resolution of its board of directors authorizing the making of such
guaranty, together with a certificate of incumbency showing the signature of the
persons authorized to sign on its behalf, (b) current financial statements of
Guarantor as may from time to time be requested by Lessor, (c) a Tenancy
Statement, or (d) written confirmation that the guaranty is still in effect.
38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. Options.
39.1. Definition. As used in this Paragraph 39 the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.3. Multiple Options. In the event that Lessee has any Multiple Options
to extend or renew this Lease, a later Option cannot be exercised unless the
prior Options to extend or renew this Lease have been validly exercised.
39.4. Effect of Default on Options.
(1) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i) during
the period commencing with the giving of any notice of Default under Paragraph
13.1 and continuing until the noticed Default is cured, or (ii) during the
period of time any monetary obligation due Lessor from Lessee is unpaid (without
regard to whether notice thereof is given Lessee), or (iii) during the time
Lessee is in Breach of this Lease, or (iv) in the event that Lessor has given to
Lessee three (3) or more notices of Default under Paragraph 13.1, whether or not
the Defaults are cured, during the twelve (12) month period immediately
preceding the exercise of the Option.
(2) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
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(3) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of Default under Paragraph 13.1 during any
twelve (12) month period, whether or not the Defaults are cured, or (iii) if
Lessee commits a Breach of this Lease.
40. Multiple Buildings. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
41. Security Measures. Lessee hereby acknowledges that the rental payment to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount of sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, Party shall be entitled to recover such sum or so much thereof
as it was not legally required to pay under the provisions of this Lease.
44. Authority. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
delivery this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
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45. Conflict. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. Offer. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease to Lessee.
This Lease is not intended to be binding until executed by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonably non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE
LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE
ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN
CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD
BE CONSULTED.
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The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at Newport Beach Executed at _________________________
----------------------------
on 10/96 on __________________________________
-------------------------------------
by LESSOR: by LESSEE:
FOX HILLS BUSINESS PARTY EXIGENT DIAGNOSTICS, INC.
- ---------------------------------------- -------------------------------------
a California Limited Partnership
- ---------------------------------------- _____________________________________
By: /s/ David M. Denholm By: /s/ W.V. Stoughton
------------------------------------ ----------------------------------
Name Printed: David M. Denholm Name Printed: Vick Stoughton
------------------------- ------------------------
Title: General Partner Title: President and CEO
--------------------------------- ------------------------------
By: ____________________________________ By: _________________________________
Name Printed: __________________________ Name Printed: _______________________
Title: _________________________________ Title: ______________________________
Address: 500 Newport Center Drive, Address: 6100 Bristol Parkway,
Suite #620, Newport Beach, CA 92660 Culver City, California
Tel. No. (714) 720-9797 Tel. No. (___) ______________________
-------------------------------
Fax No. (714) 721-1152 Fax No. (___) _______________________
-------------------------------
NOTICE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the most
current form: American Industrial Real Estate Association, 345 South Figueroa
Street, Suite M-1, Los Angeles, CA 90071. (213) 687-8777. Fax. No. (213) 687-
8616.
(C)Copyright 1990-By American Industrial Real Estate Association. All rights
reserved. No part of these works may be reproduced in any form without
permission in writing.
FORM 204N-R-12/91
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ADDENDUM TO STANDARD
INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE - NET
dated October 14, 1996
by and between
Fox Hills Business Park, Ltd.,
collectively as LESSOR
and
Exigent Diagnostics, Inc., as LESSEE
19. Rent Escalations. The rent shall be increased as follows:
----------------
a) On January 1, 1997 through July 31, 1997 rent, shall be: $ 9,000.00
per month.
b) On August 1, 1997 through July 31, 1998 rent shall be: $12,000.00
per month;
c) On August 1, 1998 through July 31, 1999 rent shall be: $13,620.00
per month;
d) On August 1, 1999 through July 31, 2000 rent shall be: $14,420.00
per month;
e) On August 1, 2000 through October 13, 2001 rent shall be: $15,220.00
per month;
50. Commencement Date. Notwithstanding that Lessee is not entitled to
-----------------
possession of the Premises or any part thereof until the "Early Possession
Date," Lessee shall be permitted limited access, prior to the Commencement
Date and during reasonable hours, to that portion of the Premises commonly
known as 6100 Bristol Parkway. Lessee's access shall be limited to Lessee
--------------------
and its consultants, engineers, architects and other agents, employees or
independent contractors (but not the general public) for purposes of
inspection and planning and removing fixtures, abandoned property and
debris from the designated portion of the Premises; in no event shall
Lessee be permitted to install any Utility Installations or Trade Fixtures
(as defined in this Lease) or perform any Alterations (as defined in this
Lease) (other than as set forth in this Paragraph), prior to the
Commencement Date. Lessee's right to access described in this Paragraph 49
is expressly subject to and conditioned upon Lessor's prior receipt of the
insurance policies and/or certificates required under Paragraph 8 of this
Lease.
51. Tenant Improvements. Lessee shall construct the Tenant Improvements in
-------------------
accordance with the approved working drawings.
52. Floorplan. Lessor and Lessee shall mutually agree upon the floorplan.
---------
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53. Floorplan Changes. Lessor and Lessee will make no changes or deviations
-----------------
from the approved plans and specifications without the prior written
approval of Lessor. Any changes required by any governmental authority or
its agents are deemed approved by Lessee.
54. Working Drawings. Upon completion of working drawings, Lessee shall
----------------
deliver copies of the working drawings to Lessor or any authorized agent of
Lessor. Lessor or any authorized agent of Lessor shall, by signing the
working drawings no later than fifteen (15) business days following
Lessor's receipt of said working drawings, authorize Lessee to complete the
Premises in accordance with the Plans.
55. Parking. During the term of this Lease, Lessor shall make available
-------
twenty-four (24) hours a day, seven days a week, to Lessee, its employees
and visitors, free parking for fifty six (56) automobiles with in and out
privileges. Said fifty six parking spaces shall be generally available for
Lessee's use in the vicinity of the Premises within a common parking area.
Lessor shall provide night lighting standards to illuminate the parking
area at night and the cost of operating and maintaining said lighting shall
be the responsibility of Lessee.
56. Utilities. If the utility services including but not limited to the
---------
illumination of said parking area, electricity and/or gas, water, sewer,
heating, ventilation and air conditioning for the premises are not
separately metered to Lessee, Lessee agrees to pay, a reasonable
proportion, as determined by Lessor, of all charges jointly metered with
other premises. In the event that the trash disposal service does not
lend itself to separate trash containers, Lessee shall pay a reasonable
proportion of same.
57. Common Area Maintenance. Notwithstanding anything contained to the contrary
-----------------------
in this Lease, including but not limited to paragraph 7 hereof, Lessor
shall at Lessee's expense, provide landscape and gardening services and
walkway and parking lot for the Premises. Lessee agrees to reimburse Lessor
promptly upon demand for Lessee's proportionate share of all landscaping,
gardening and maintenance expenses incurred by Lessor. Lessor shall
maintain these areas in keeping with its present quality and standards.
Lessee's proportionate share of said common area maintenance shall be
21.00%. The phrase "Common Area" means all areas and facilities outside the
Premises that are provided and designated for general use and convenience
of Lessee and other tenants in Fox Hills Business Park and their respective
officers, agents and employees, customers, and invitees. Common Areas
include (but are not limited to) pedestrian sidewalks, landscaped areas,
roadways and parking areas. Lessor reserves the right from time to time to
make changes in the shape, size location, number and extent of the land and
improvements constituting the Common Areas.
58. Building Signage. Lessee shall have the right to "monument signage"
----------------
located in front of the building.
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59. Insurance.
---------
(a) Increases in Premiums. Lessee agrees that it will not keep, use, sell
---------------------
or offer for sale in or upon the Premises any article which may be prohibited by
any insurance policy in force at an time during the term hereof covering the
Premises. If Lessee's occupancy or conduct of business in the Premises, whether
or not Lessor has consented to the same, results in any increase in premiums for
the insurance carried from time to time by Lessor hereunder, Lessee shall pay
any such increase in premiums within 10 days after being billed therefor by
Lessor. In determining whether increased premiums are a result of Lessee's use
or occupancy of the Premises, a schedule issued by the organization computing
the insurance rate on the Premises showing the various components of such rate
shall be conclusive evidence of the several items and charges which make up the
rate. Lessee shall promptly comply with all reasonable requirements of the
insurance authority or of any insurer now or hereafter in effect relating to the
Premises.
(b) Cancellation. If any insurance policy carried by Lessor hereunder
------------
shall be cancelled or cancellation shall be threatened or the coverage
thereunder reduced or threatened to be reduced in any way by reason of Lessee's
use or occupation of any portion of the Premises, or by any assignee or
sublessee of Lessee or by anyone permitted by Lessee to be upon the Premises,
and if Lessee fails to remedy the condition giving rise to such cancellation,
threatened cancellation or reduction of coverage within 48 hours after notice
thereof, Lessor may, at its option, either terminate this Lease or enter upon
the Premises and attempt to remedy such conditions and Lessee shall forthwith
pay the cost thereof to Lessor as additional rent. Lessor shall not be liable
for any damage or injury caused to Lessee's personal property or any other
property located in the Premises as a result of such entry. In the event that
Lessor shall be unable to remedy such condition, then Lessor shall have all of
the remedies provided for herein in the event of a Default by Lessee.
Notwithstanding the foregoing, Lessor shall have no obligation to remedy such
default.
(c) Liability Insurance. The liability insurance policy limits set forth
-------------------
in Paragraph 8 of this Lease shall be adjusted from time to time, as follows:
If the CPI shall, at any time after the first year of the Original Term hereof,
exceed the CPI in effect for the calendar month which is two (2) months prior
to the calendar month in which the Commencement Date occurs (the "Base CPI") by
more than ten percent (10%), said insurance policy limits shall be increased, in
the same proportion as (i) the excess of the CPI then in effect over the Base
CPI bears to (ii) the Base CPI. Thereafter, each time the CPI shall exceed the
Base CPI by an additional ten percent (10%), said insurance policy limits shall
be further increased in the same manner. If said insurance policy limits shall
have been increased from time to time or at any time in accordance with this
Paragraph and thereafter the CPI decreases by more than ten percent (10%) of the
Base CPI, Lessee may from time to time as such decreases occur, proportionately
reduce said insurance policy limits; provided, however, that in no event shall
said insurance policy limits at any time be in amounts less than those required
at the commencement of the Original Term.
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60. Indemnification of Lessor. As a material part of the consideration to
-------------------------
Lessor for entering into this Lease, Lessee hereby assumes all risk of damage or
destruction to property or injury to or the death of persons in or about the
Premises arising from any act, omission or cause by any person, and Lessee
hereby waives all claims in respect thereof against Lessor, except for any claim
arising out of Lessor's willful misconduct or gross negligence.
61. Excessive Damage or Destruction. If there is either "Premises Total
-------------------------------
Destruction" as defined in Paragraph 9.1(b) or if Lessor determines that it
cannot, with reasonable diligence, fully repair or restore any partial damage to
the Premises within 180 days after the date of the damage or destruction,
notwithstanding Lessee's exercise of any right to repair, Lessor may terminate
this Lease. Lessor shall determine whether there is Premises Total Destruction
or whether full repair or restoration can be made within the 180-day period, and
Lessor's good faith determination shall be binding upon Lessee. Lessor shall
notify Lessee of its determination, in writing, within 45 days after the date of
the damage or destruction. If Lessor determines that the Premises can be fully
repaired or restored within the 180-day period, or if it is determined that such
repair or restoration cannot be made within said period or there is Premises
Total Destruction but Lessor does not elect to terminate within 45 days from the
date of said determination, this Lease shall remain in full force and effect and
Lessor shall repair and restore the damage as soon as reasonably possible,
subject to the provisions of Paragraph 9.5. Provided that Lessee was not a cause
of the destruction, in the event that there occurs Premises Total Destruction,
Lessee may terminate the Lease upon written notice to Lessor no later than 30
days after such Premises Total Destruction.
62. Assignment and Subletting.
-------------------------
(a) Bonus Rental. If for any assignment or sublease, Lessee receives rent
------------
or other consideration, either initially or over the term of the assignment or
sublease, in excess of the Base Rent called for hereunder, or in the event of
the sublease of a portion of the Premises, in excess of such Base Rent fairly
allocable to such portion (and actual out of pocket brokerage fees expended by
Lessee in obtaining such assignment or sublease), Lessee shall pay to Lessor,
monthly as additional rent hereunder, 50% of the excess of each such payment of
rent or other consideration received by Lessee within 10 days after its receipt.
For purposes of this Paragraph 62, the term "rent or other consideration" shall
include, without limitation, all monies or other consideration of any kind, if
such sums are related to Lessee's interest in this Lease or in the Premises,
including but not limited to, bonus money, key money and payments (in excess of
book value thereof) for Lessee's assets, fixtures, inventory, accounts, good
will, equipment, furniture, general intangibles and any capital stock or other
equity ownership of Lessee.
(b) Scope. Unless Lessor requires an attornment in the event of a sublease
-----
pursuant to Paragraph 12.3 (b), at Lessor's option, any sublease shall terminate
upon termination of the Lease due to Lessee's Breach and such subtenant shall
immediately vacate the Premises upon such termination. If Lessee's obligations
under this Lease have been guaranteed by third parties, then at Lessor's option
a sublease, and Lessor's consent thereto, shall not be effective unless and
until said guarantors give their written consent to such sublease and the terms
thereof. Lessee
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immediately and irrevocably assigns to Lessor, as security for Lessee's
obligations under this Lease, all rent from any subletting of all or a part of
the Premises as permitted by this Lease, and Lessor, as assignee and as
attorney-in-fact for Lessee, or a receiver for Lessee appointed on Lessor's
application, may collect such rent and apply it toward Lessee's obligations
under this Lease; provided that, until the occurrence of an act of default by
Lessee, Lessee shall have the right to collect such rent; and provided further
that no such collection shall be construed to constitute a novation or release
of Lessee from the further performance of Lessee's obligations hereunder.
63. Limitation of Lessor's Liability. The obligations of Lessor under this
--------------------------------
Lease shall not constitute personal obligations of the individuals constituting
Lessor or any partners, directors, officers or shareholders of an entity
hereinafter constituting Lessor, and Lessee shall look solely to the real estate
that is the subject of this Lease and to no other assets of Lessor for
satisfaction of any liability in respect of this Lease.
64. Right to Rents, Issues and Profits. In the event this Lease is terminated
----------------------------------
pursuant to the provisions of Paragraph 13, all of the right, title, estate and
interest of Lessee in and to (a) the Premises, (b) all rents, issues and profits
of the Premises whether then accrued or to accrue, (c) all insurance policies
and all insurance monies paid or payable thereunder, and (d) at the election of
Lessor, all subleases then in existence for any part or parts of the Premises,
shall, without compensation being paid or required therefor, pass unto and vest
in and become the property of Lessor, free of any trust or claim thereto by
Lessee. Lessee hereby assigns to Lessor all subrents and other sums falling due
from subtenants, licensees and concessionaires during any period in which Lessor
has the right under this Lease, whether exercised or not, to re-enter the
Premises upon Lessee's breach of this Lease, and Lessee shall have no right,
interest or claim in or to such sums during any such period. Each such
sublessee, licensee or concessionaire shall agree (i) to make directly to
Lessor, upon written notice from Lessor that Lessee has breached this lease, all
payments of subrents, which payments shall be received by Lessor without any
liability or obligation to such subtenant or otherwise (except to credit such
payments against the rents and other sums due under this Lease from Lessee), and
(ii) to attorn to Lessor, at the election of Lessor at its sole discretion, in
the event this Lease is terminated as the result of Lessee's breach; provided,
however, that nevertheless Lessor shall not a. be liable for any previous act or
omission of Lessee under such sublease, b. be subject to any defense or offset
previously accrued in favor of the subtenant against Lessee, or c. be bound by
any previous modification of such sublease made without Lessor's written consent
or by any previous prepayment of more than one month's rent.
65. Indemnification.
---------------
(a) Lessor's Obligation. Lessor shall indemnify, defend and hold harmless
-------------------
Lessee, its officers, agents and employees from and against any claims, damages,
expenses, including an amount equal to reasonable attorney's fees, or
liabilities arising out of or in any way connected with this Lease including,
without limitation, claims, damages, expenses, or liabilities for loss or damage
to any property, or for death or injury to any person or persons in proportion
to and to
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the extent that such claims, damages, expenses, or liabilities arise from the
negligence or willful acts or omissions of Lessor, its officers, agents, or
employees.
(b) Lessee's Obligation. Lessee shall indemnify, defend and hold harmless
-------------------
Lessor, its officers, agents and employees from and against claims, damages,
expenses, including an amount equal to reasonable attorney's fees, or
liabilities arising out of or in any way connected with this Lease including,
without limitation, claims;, damages, expenses, or liabilities for loss or
damage to any property or for death or injury to any person or persons in
proportion to and to the extent that such claims,, damages, expenses, or
liabilities arise from the negligence or willful acts or omissions of Lessee,
its officers, agents, or employees.
66. Waiver of Subrogation. To the extent permitted by law and without
---------------------
affecting the coverage provided by insurance required to be maintained hereunder
or under the Lease, Lessor and Lessee each waive any right to recover against
the other (1) damages for injury to or death of person, (2) damages to property,
(3) damage to the demised Premises or any part thereof, and (4) claims arising
by reason of any of the foregoing, but only to the extent that any of the
foregoing damages and/or claims are covered (and then only to the extent of such
coverage) by insurance actually carried by either Lessor or Lessee or, if
greater than the amount of such actual coverage, to the extent that any of the
foregoing damages or claims are required by this Lease to be covered (and then
only to the extent of the required coverage) . This provision is intended to
waive fully, and for the benefit of each party, any rights and/or claims which
might give rise to a right of subrogation in any insurer. Each party shall
cause each insurance policy obtained by it to permit such waiver of subrogation
or to provide that the insurer waives all rights of recovery by way of
subrogation against either party in connection with any damage covered by such
policy. If any insurance policy cannot be obtained permitting or providing for
a waiver of subrogation, or is obtainable only by the payment of an additional
premium charge above that charged by insurers issuing policies not permitting or
providing for a waiver of subrogation, the party undertaking to obtain such
insurance shall notify the other party in writing of this fact. The other party
shall have a period of fifteen (15) days after receiving notice either to place
the insurance with an insurer which is reasonably satisfactory to the other
party and which will carry the insurance permitting or providing for a waiver of
subrogation, or to agree to pay the additional premium if such a policy is
obtainable at additional cost. If such insurance cannot be obtained or the
party in whose favor a waiver of subrogation is desired refuses to pay the
additional premium charged, the other party shall be relieved of the obligation
to obtain a waiver of subrogation rights with respect to the particular
insurance involved during the policy period of such insurance, but such
obligation shall revive (subject to the provisions of this Paragraph) upon the
expiration of such policy period.
67. Triple Net. This Lease is a triple net (net, net, net) Lease. In addition
----------
to Base Rent, as additional rent Lessee shall also be responsible for and shall
pay all insurance, maintenance and repair costs, property taxes, utilities and
other costs associated with the Premises, all as more fully set forth in this
Lease. Lessee shall also be responsible for all reasonable costs, fees and
expenses related to and/or to be paid to any management company retained or
employed by Lessor, at any time and from time to time, to manage the Premises or
any part thereof.
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68. Seismic Reinforcement. If at any time or from time to time Lessor is
---------------------
required by the Lender(s) or any other governmental entity to perform any
seismic related retrofitting or reinforcement of the whole or any part of the
Premises ("Seismic Work"), Lessor shall be solely responsible for the cost of
such Seismic Work; provided, however, and notwithstanding any other provision of
this Lease, Lessor shall not be responsible or liable for any loss or injury
suffered by Lessee or related to Lessee's business on the Premises, or for any
loss of income or profit therefrom, as a result of or in any way relating to the
Seismic Work. The provisions Paragraph 84 of this Lease shall specifically
apply to the Seismic Work.
69. Plate Class Insurance. The property insurance required to be maintained
---------------------
pursuant to Paragraph 8.3 of this Lease shall include all-risk coverage of all
plate glass on the Premises, with a deductible amount of no more than $250.00
per incident or loss.
70. Additional Rent/Payments Due. In addition to the monthly Base Rent, Lessee
----------------------------
shall also pay as additional rent, without deduction or offset, all other
charges, fees, costs, taxes, impositions, expenses and other sums required to be
paid by Lessee under this Lease whether or not the same is designated as
additional rent. Unless otherwise set forth in this Lease, any and all amounts
required to be paid by Lessee to Lessor, whether or not defined as additional
rent, shall be due no later than the date that is ten (10) days following the
date Lessor gives written notice to Lessee of the amount due. In the event of
nonpayment of any additional rent or other sums when due, Lessor shall have all
of the rights and remedies provided hereunder or by law for the nonpayment of
rent.
72. Heating Ventilation and Air-Conditioning (HVAC). For the first twelve (12)
-----------------------------------------------
months following the Commencement Date, Lessor shall be responsible for any and
all repairs, if any, relating to the HVAC of the Premises (unless such need for
repair is caused by or attributable to Lessee or Lessee's acts or omissions
relating to the Premises).
73. Roof. Lessor shall install a new roof prior to Lease commencement.
----
74. Service Companies. Within thirty (30) days after occupancy of the Premises
-----------------
by Lessee, Lessor shall give Lessee notice of the name, address and telephone
number of an agency or person convenient to Lessee as a local source of service
with regard to Lessor's responsibilities under this Lease as to repairs,
maintenance, and servicing of the premises and any or all related equipment,
fixtures and appurtenances. If Lessor fails to provide such notice, Lessee may
choose service companies as needed and without penalty from Lessor.
75. Holding Over. If Lessee, with Lessor's consent, remains in possession of
------------
the Premises after the Lease Term or any Extended Term, this Lease shall
automatically be extended on a month-to-month basis at a monthly rent equal to
150% of the rent in the last month of the Lease Term or Extended Term, subject
to termination upon thirty (30) days' written notice by either party. All
other terms and conditions shall remain in full force and effect.
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<PAGE>
76. Waiver. The waiver by Lessor or Lessee of any term, covenant or condition
------
herein contained shall not be deemed to be a waiver of any other term, covenant
or condition, nor shall either party's consent to any breach of any term,
covenant or condition be deemed to constitute or imply its consent to any
subsequent breach of the same or other term, covenant or condition herein
contained.
77. Quiet Possession. As long as Lessee keeps and performs the covenants in
----------------
this Lease, Lessee shall at all times during the term of this Lease peaceable
and quietly have, hold and enjoy the Premises, without suit, trouble or
hindrance from Lessor or any person claiming under Lessor.
78. Estoppel Certificate. Within thirty (30) days of written notice by one
--------------------
party to the other, each will execute, acknowledge and deliver to the other an
estoppel certificate in writing declaring any modifications, defaults or advance
payments and whether the Lease, as may be modified, is in full force and effect.
Any such certificate may be conclusively relied upon for the intended
transaction for which the statement was requested.
79. Option To Extend Term.
---------------------
(a) Lessor hereby grants to Lessee one (1) option to extend the
Original Term of this Lease for a period of five (5) years (the "Option Term")
subject to all of the same terms and conditions as those set forth for the
Original Term of this Lease, except Base Rent shall be adjusted as set forth
below, and provided that:
(b) (i) Lessee is not or has not been in default at any time for any
reason whatsoever during the initial term of this Lease, that Lessee or its
permitted assigned has physically occupied the leased premises during the full
initial term of the Lease, and is currently in physical occupancy.
(c) (ii) Subject to the terms and conditions hereinafter set forth, if
Lessee exercises the options as herein provided, the term of this Lease shall be
automatically extended for the Option Term without the execution of an extension
or renewal lease, and during the Option Term, Lessor and Lessee shall be bound
by all of the terms, covenants and conditions of this Lease except that (A) the
Base Rent for the option periods shall be ninety-five percent (95%) of the Fair
Market Rental Value determined as hereinafter provided.
(ii) The "Fair Market Rental Value" shall be determined as follows:
"Fair Market Rental Value" shall mean the fair market rental for
the entire Premises as of the commencement of the Option Term, taking into
account the value of all leasehold improvements in the Premises for a Lessee
proposing to sign a lease for a similar term and having financial qualifications
similar to Lessee and using as a guide equivalent space of similar age,
construction, quality, use and location. In determining the "Fair Market Rental
Value", the parties shall negotiate in good faith in order to reach agreement;
and in the event the
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<PAGE>
parties are unable to reach agreement during the period that is not more than
six (6) months and not less than four (4) months prior to the commencement of
the Option Term, the Lessee and lessor shall each select an appraiser within 5
days. If the two appraisers cannot agree on the Fair Market Rental Value of the
Premises within 30 days, the two appraisers shall select a mutually agreeable
independent appraiser, whose determination of Fair Market Rental Value shall be
binding on the Lessee and Lessor. Each party shall be responsible for the cost
and expense of the appraiser it selects. If a third appraiser must be appointed
because the Lessee's appraiser and Lessor's appraiser cannot reach an agreement,
the Lessee and Lessor shall equally split the cost of the third, independent
appraiser.
(iii) In no event, and notwithstanding anything to the contrary,
shall the Base Rent payable during the Option Term be less than the monthly
Base Rent payable during the last year of the Original Term of this Lease.
(c) Lessee must give written notice to Lessor of Lessee's exercise of each
option not less than nine (9) months prior to the last day of the respective
Term of this Lease.
(d) Lessee's option to extend the term of this Lease must be exercised as
to the entirely of the Premises.
(e) If after exercising the option granted herein and before the
commencement of the Option Term, Lessee defaults under this Lease, Lessor
(without prejudice to any of its other rights and remedies) may, at Lessor's
option, nullify the option herein granted by written notice and this Lease shall
terminate at the expiration of the Original Term, unless earlier terminated.
80. Interruption of Lessee's Business. Lessor shall not be liable in any
---------------------------------
manner for the interruption of, or damage or injury to, Lessee or any of its
subleases, or its or their respective businesses on the Premises arising form,
indirectly or directly relating to, or because of any construction, repair or
maintenance work by Lessor.
81. Counterparts. This Addendum may be executed in any number of counterparts,
------------
each of which shall be treated as an original and all of which together shall be
deemed one document.
32. Conflict. In the event of any conflict between the provisions of this
--------
Addendum and the provisions of the form lease to which it is attached, the
provisions of this Addendum shall control.
83. Entry by Lessor. Lessee shall permit Lessor and Lessor's agents to enter
---------------
the Premises, with reasonable advance written notice (except in the case of
emergency), provided such entry is made in a reasonable manner and does not
unreasonably interfere with the conduct of Lessee's business.
84. Miscellaneous Provisions.
------------------------
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<PAGE>
(a) No Amendments. No amendment of this lease shall be valid unless made
-------------
in writing and signed by the parties hereto, and no oral understanding or
agreement not incorporated herein shall be binding on either party hereto.
(b) Time of the Essence. Time is of the essence of each term and provision
-------------------
of this Lease.
(c) Binding Effect. Subject to any provision hereof restricting
---------------
assignment or subletting by Lessee, this lease shall bind the parties, their
personal representatives, successors, and assigns.
(d) The invalidity of any provision of this Lease as determined by a court
of competent jurisdiction shall in no way affect the validity of any other
provision hereof.
(e) Addendum. In the event of conflict between this Lease and any Addendum
--------
or Exhibit attached hereto, the provisions of such Addendum or Exhibit shall
control.
The Parties hereto have executed this Addendum as of 10/96, 1996.
"Lessor" "Lessee"
________________________________ ________________________________
Fox Hills Business Park, Ltd., Exigent Diagnostics, Inc.
a California corporation
By: /s/ David M. Denholm By: /s/ W.V. Stoughton
---------------------------- -----------------------------
David M. Denholm
General Partner
By:____________________________ Title: Chairman and CEO
--------------------------
Timothy H. Harris
General Partner
Page 46
<PAGE>
Exhibit B:
FOX HILLS BUSINESS PARK
RULES AND REGULATIONS
1. For purposes hereof, the terms "Lessor," "Lessee," "Building," and
"Premises" are defined as those terms in the Lease to which these rules and
regulations do or refrain from doing an act or thing, such obligation shall
include the exercise by Lessee of its best efforts to secure compliance with
such obligations by employees, contractors, jobbers, agents, invitees,
licensees, guests, and visitors of Lessee. The term "Building" shall include
the Premises, and any obligations of Lessee hereunder with regard to the
building shall apply with equal force to the Premises and to other parts of the
building.
2. The sidewalks, exits, and entrances of the Premises shall not be obstructed
by any Lessee or used by him for any purpose other than for ingress to and
egress from their respective Premises. Lessor reserves the right to refuse
access to any persons Lessor in good faith judges to be a threat to the safety,
reputation, or property of the Premises and its occupants.
3. Lessee shall not make or permit noise, vibrations, or odors that annoy or
interfere with other Lessees or persons having business within the Premises.
4. Lessee shall not keep animals or birds within the Premises and shall not
bring bicycles, motorcycles or other vehicles into areas not designated as
authorized for same.
5. Lessee shall not make, suffer or permit litter except in appropriate
receptacles for that purpose. No material shall be placed in the trash
receptacles if such material is of such nature that is may not be disposed of in
the ordinary manner of removing and disposing of trash and garbage in the City
of Carson without being in violation of any law or ordinance governing such
disposal.
6. The toilet rooms, toilets, urinals, wash bowls, and other apparatus shall
not be used for any purpose other than that for which they were constructed; no
foreign substance of any kind whatsoever shall be thrown therein and the expense
of any breakage, stoppage or damage resulting from the violation of this rule
shall be borne by the Lessee who, or whose employees or invitees, shall have
caused it.
7. Lessee shall not make, paint, drill into, cut, string wires with, or in any
way deface any part of the Premises without the prior written consent of Lessor,
and as Lessor may direct. Upon removal of any wall decorations or installations
or floor coverings by Lessee, any damage to the walls or floors shall be
repaired by Lessee at Lessee's sole cost and expense. Without limitations upon
any of the provisions of the lease, Lessee shall refer all contractor's
representatives, installation technicians, janitorial workers and other
mechanics, artisans and laborers rendering any service in connection with the
repair, maintenance or improvement of Premises to Lessor for
Page 1
<PAGE>
Lessor's approval and control before performance of any such service. Plans and
specifications for such work, prepared at Lessee's sole expense, shall be
submitted to Lessor and shall be subject to Lessor's prior written approval in
each instance before the commencement of work. All installations, alterations
and additions shall be constructed by the Culver City Building Code.
8. Lessee shall not suffer or permit anything in or around the Premises that
causes excessive vibration or excessive floor loading in any part of the
Premises.
9. Each Lessee shall ensure that the doors of its Premises are closed and
locked and that all water faucets, water apparatus and utilities are shut off
before Lessee or Lessee's employees leave the Premises so as to prevent waste or
damage, and for any default or carelessness in this regard, Lessee shall make
good all injuries sustained by other Lessees or occupants of the Premises.
Lessee assumes all risks from theft or vandalism and agrees to keep its Premises
locked as may be required.
10. Lessee shall be responsible for damage to the Premises arising from moving
any equipment, furniture, or freight in or out of the Premises.
11. No Lessee, employee, or invitee shall go upon the roof of the Premises.
12. No Lessee shall install any radio or television antenna, loudspeaker, or
other device without prior written consent of Lessor.
13. No Lessee shall use any method of heating or air conditioning other that as
provided by Lessor. The heating and air-conditioning systems are to be used
only for those areas that the system was originally installed for.
14. Lessee shall not use the Premises for lodging or for any purposes other
than those specified in the lease.
15. Lessee shall not place or use any flammable, combustible, explosive or
hazardous fluid, chemical, device, substance or material in or about the
Premises without the prior written consent and evacuation regulations
established by Lessor or any applicable governmental agency. Lessee shall
comply with all rules, order, regulations of the applicable Fire Rating Bureau,
or any other similar body, and the Lessee shall not commit any act or permit any
act or permit any object to be brought or kept in the Premises which shall
increase the rate of fire insurance on the Premises or on the property therein.
16. Canvassing, soliciting, peddling and/or loitering on the Premises are
prohibited, Lessee shall cooperate to prevent such activities.
17. No name, sign, trademark, design, notice, legend or advertisement shall be
painted or applied on or, affixed to the doors or windows or to the exterior of
any wall of any office without
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<PAGE>
the proper written approval of the Lessor, and then only in compliance with its
directions and at Lessee' s risk and expense.
18. Parking areas shall be used only for parking by vehicles no longer than
full size, passenger automobiles herein called "Permitted Size Vehicles".
Vehicles other than permitted size vehicles are herein referred to as "Oversized
Vehicles".
19. Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers, customers, or
invitees to be loaded, unloaded, or parked in areas other than those designated
by Lessor for such activities.
20. Users of the parking area will obey all posted signs and park only in the
areas designated for parking.
21. Unless otherwise stated, every person using the parking area is required to
park and lock his own vehicle. Lessor will not be responsible for any damage to
vehicles, injury to persons, or loss of property, all of which risks are assumed
by the party using the parking area.
22. The maintenance, washing, waxing, or cleaning of vehicles in the parking
area is prohibited.
23. Lessor shall have the right to prohibit any publicity, advertising, or use
of the name of the Premises by Lessee which in Lessor's opinion, tends to impair
the reputation of the Premises or its desirability as a building for offices and
industry, and upon written notice from Lessor, Lessee shall refrain from or
discontinue any such publicity, advertising or use of the property name.
24. Lessee may not install any signs in the parking area. All Parking is on a
first come first serve basis. No parking stalls may be reserved.
25. All insect preventative maintenance for the Premises are the responsibility
of the Lessee.
26. Lessee may not leave any vehicle in the parking area for more than twenty-
four (24) hours or Lessor may have it towed at owner's expense.
27. These Rules and Regulations are in addition to, and shall not be construed
to in any way modify or amend, in whole or part, the agreements, covenants,
conditions and provisions of any lease of the Premises. Lessor reserves the
right to waive any one of the these rules or regulations, and/or any other rule
or regulation or any subsequent application thereof to such Lessee. Lessor
reserves the right to make such other reasonable rules and regulations as it may
from time to time deem necessary for appropriate operation and safety of the
Premises and its occupants. Lessee agrees to abide by these rules, and to
exercise its best efforts to secure compliance with such obligations by
employees, contractors, jobbers, agents, invitees, licensees, guests, and
visitors of Lessee.
<PAGE>
10.2 Definition of "Real Property Taxes."
Notwithstanding the foregoing, Lessee shall not be responsible for taxes
caused solely as a result of the transfer of the Premises, including but limited
to transfer taxes or capital gains or income taxes. This in no way modifies
Lessee's responsibility to pay the "Joint Consolidated Annual Tax Bill" as
levied by the Los Angeles County Assessor's office.
9.6 Abatement of Rent; Lessee's Remedies.
unless the damage is a result of Lessor's willful misconduct.
5A
<PAGE>
13.5 Breach by Lessor.
. . . Lessor shall be deemed to have responded within a reasonable time if,
within 3 days after receipt of written notice from Lessee specifying the
obligation not performed, Lessor commences action to fulfill its obligation and
thereafter proceeds diligently until the obligation is fully performed.
7A
<PAGE>
EXHIBIT 10.16
AGREEMENT
This Agreement made and entered into the 23rd day of August, 1996 by
and between Fuji Photo Film Co., Ltd., a corporation duly organized and existing
under the laws of Japan and having its principal office at 26-30, Nishiazabu 2-
chome, Minato-ku, Tokyo, Japan (hereinafter referred to as "FUJI") and Exigent
Diagnostics, Inc., a corporation duly organized and existing under the laws of
State of Delaware and having its principal office at 709 Swedeland Road, King of
Prussia, Pennsylvania, the United States of America (hereinafter referred to as
"EXIGENT"),
WITNESSETH:
Whereas FUJI has been engaged in, among other businesses, developing
and manufacturing DRI-CHEM films and has proprietary technology and know-how
related thereto;
Whereas EXIGENT has been engaged in commercial lab business' in
clinical diagnostic field and in developing a human diagnostic testing so-called
Point of Care Testing system and has proprietary technology and know-how related
thereto;
Whereas FUJI and SmithKline Beecham Corporation, which is the
predecessor of EXIGENT have executed the Letter of Intent dated March 19, 1996
to confirm the parties' intent to enter into a definitive agreement concerning
supply of DRI-CHEM films, film-based chemistry tests and immunodiagnostic tests
and exchange of various technology for use in Point of Care Testing system;
NOW, THEREFORE, in consideration of the premises and their mutual
covenants hereinafter set forth, the parties hereto agree as follows:
Article 1 Definitions
-----------
1.1. "POCT (Point of Care Testing)" shall mean a human or animal
diagnostic testing performed in the immediate vicinity of the patient at the
time a test sample is obtained. POCT shall exclude any diagnostic testing, which
is performed at a central fixed laboratory within hospitals, other health care
facilities or commercial laboratories.
1.2. "FDC Film" shall mean films used in FUJI DRI-CHEM system applicable
to the tests listed in Schedules A and B.
1.3. "FUJI Technology" shall mean FUJI's technology, know-how and
technical assistance relating to the use of FDC Film, including but not limited
to the specifications of FDC Film, its quality assurance and other information
listed in Schedule B, as may be amended from time to time by agreement of the
parties.
1.4. "EXIGENT POCT System" shall collectively mean a system and products
thereof developed by EXIGENT for POCT, including but not limited to chemistry,
immunochemistry, coagulation, and optionally hematology tests, test cartridge
for separating blood and metering samples, analyzer(s) for said tests including
data management components and software and a mobile cart.
1.5. "EXIGENT Materials" shall mean the immunodiagnostic testing reagents,
which utilize any of the technology EXIGENT has developed, or develops or
acquires in the future, including but not limited to technology as to tests in
Hemoglobin Alc, Digoxin and HCG.
<PAGE>
1.6. "Competing Instruments" shall mean diagnostic instruments and the
disposables they use, which instruments and disposables are designed for use in
POCT and which directly compete with the EXIGENT POCT System.
1.7. "Southeast Asia" shall mean the People's Republic of China, the
Republic of China, South Korea, Vietnam, Thailand, Myanmar, India, the
Philippines, Indonesia, Malaysia and Singapore.
Article 2 Supply of FDC Film
------------------
2.1. FUJI shall supply EXIGENT with and EXIGENT shall purchase from FUJI
FDC Film for the development of EXIGENT POCT System in accordance with the terms
and conditions detailed in Schedules D and E. The terms and conditions for
supply of FDC Film to be required for marketing of EXIGENT POCT System shall be
separately agreed upon between the parties hereto. The FDC Film applicable to
the tests in Sodium, Potassium and Chloride shall be supplied to EXIGENT by FUJI
in a slide form on which such FDC Film is mounted.
2.2. EXIGENT shall supply FUJI with and FUJI shall purchase from EXIGENT
EXIGENT Materials under the terms and conditions of a separate supply/purchase
agreement in which the EXIGENT Materials shall be priced as the highest at cost
plus fifty percent (50%) on CIF TOKYO basis.
2.3. FUJI shall supply EXIGENT exclusively with FDC Film until December
31, 2003, provided that such exclusive supply shall be changed to non-exclusive
supply if EXIGENT fails to obtain by December 31, 1999 approvals from the Food
and Drug Administration ("FDA") which should be necessary for distribution of
EXIGENT POCT system using FDC Film in the United States of America to
professional market for more than eighty percent (80%) of the tests listed in
Schedule A, B and G.
2.4. In the event that exclusive supply is changed to non-exclusive supply
under Article 2.3, FUJI shall supply EXIGENT with FDC Film in accordance with
the terms and conditions to be separately agreed upon between the parties
hereto.
2.5. During the period of exclusive supply of FDC Film as provided in
Article 2.3, FUJI shall not supply FDC Film to any third party which the both
parties hereto agree may develop and sell Competing Instruments.
2.6. EXIGENT shall use FDC Film supplied by FUJI hereunder only for
development of EXIGENT POCT System and shall not supply FDC Film to or use for
any third party for any purpose.
2.7. EXIGENT agrees that it shall use only FDC Film in its POCT System for
those tests listed in Schedule A and B and shall not use other reagents or
technologies for carrying out said tests and shall not be supplied with by any
third party any chemistry reagents for development of EXIGENT POCT System or
performance of the tests listed in Schedules A and B. For POCT Systems tests
other than those listed in Schedules A and B, EXIGENT shall have
<PAGE>
the right to manufacture or purchase from others its needs for reagents or
technologies for carrying out those tests.
2.8. Nothing in this Article shall be construed to prohibit or otherwise
affect FUJI's development for or distribution to any third party of FDC Film and
FUJI Technology for use with any products other than Competing Instruments.
FUJI and EXIGENT further confirms that FUJI DRI-CHEM systems and their
disposables shall in no event be construed as Competing Instruments and that
FUJI shall in no way be restricted to market FUJI DRI-CHEM systems and their
disposables.
Article 3 Inspection and Acceptance of FDC Film
-------------------------------------
Upon the receipt of FDC Film supplied by FUJI, EXIGENT shall promptly
inspect the FDC Film in accordance with the standards mutually agreed upon
between the parties as provided in Schedule D. Such inspection by EXIGENT shall
be considered as final. In the event that EXIGENT finds during the inspection
any defects in FDC Film that could be caused prior to the receipt thereof and it
notifies FUJI to that effect within thirty (30) days of the receipt and returns
such defective FDC Film to FUJI, FUJI shall replace such defective FDC Film with
non-defective FDC Film without cost to EXIGENT. It is expressly agreed and
understood that for such defective FDC Film FUJI shall assume no other or
further liability of any kind whatsoever other than that expressly undertaken by
it in Article 3.
Article 4 License Exchange
----------------
4.1. FUJI shall from time to time during the term of this Agreement
disclose to EXIGENT on a non-exclusive basis FUJI Technology, written or oral,
to the extent that both EXIGENT and FUJI consider such disclosure is necessary
for EXIGENT to develop test cartridge of EXIGENT POCT System which incorporates
FDC Film supplied by FUJI (hereinafter referred to as "EXIGENT POCT
Cartridge(s)"). EXIGENT shall use FUJI Technology so disclosed only for
EXIGENT's development, manufacture and sale of EXIGENT POCT Cartridges and shall
not use it for any other purpose than such development, manufacture and sale.
4.2. FUJI shall grant EXIGENT a fully paid-up, non-exclusive license in the
world excluding Japan to make, have made, use, sell and offer to sell EXIGENT
POCT Cartridges under FUJI's patents directed to FDC Film and under FUJI's other
rights directed to FUJI Technology disclosed to EXIGENT.
4.3. In exchange for the rights and licenses granted by FUJI in accordance
with Article 4.1 and 4.2 above, EXIGENT shall grant FUJI:
-3-
<PAGE>
(1) a fully paid-up, irrevocable, worldwide, exclusive license
during the term of this Agreement, and a royalty-bearing, worldwide, exclusive
license thereafter, to make, have made, use, sell and offer to sell any dry
reagents under EXIGENT's patents which are directed to the tests listed in
Schedule A and B and which are applied and issued based on inventions made
during EXIGENT's development and/or manufacture of EXIGENT POCT Cartridges. The
royalty of the royalty-bearing license above shall be established in good faith
negotiation by the parties hereto; provided, however, that an amount of the
royalty shall be reasonable and favorable to FUJI compared with a similar
license to the others. In spite of FUJI's exclusive license, EXIGENT itself
shall be able to make, have made, use, sell and offer to sell any dry reagents
under EXIGENT's said patents;
(2) a fully paid-up, exclusive sub-license in Japan and a fully
paid-up, non-exclusive sub-license in the rest of the world during the term of
this Agreement, and a royalty-bearing, exclusive sub-license in Japan and a
royalty-bearing, non-exclusive sub-license in the rest of the world thereafter,
to make, have made, use, sell and offer to sell any dry reagents for
immunoassays under EXIGENT's right to grant such sublicense which right EXIGENT
has acquired, acquires or will acquire from any third party(s) under such third
party(s)'s patent(s). The royalty of the royalty-bearing license above shall be
established in good faith negotiation by the parties hereto; provided, however,
that an amount of the royalty shall be reasonable and favorable to FUJI compared
with a similar license to the others. EXIGENT shall make best efforts to acquire
such right from such third party(s) in case EXIGENT acquires a license under
such patent(s); and
(3) upon FUJI's request, a royalty-bearing, world-wide license
to make, have made, use, sell and offer to sell any dry reagents for coagulation
under EXIGENT's patent(s) and/or know-how applied or acquired before termination
of this Agreement. In case that EXIGENT acquires before termination of this
Agreement from any third party(s) a right to grant sub-licenses under such third
party(s)'s patents and/or know-how regarding coagulation, EXIGENT also shall
grant FUJI a sub-license under such right, upon FUJI's request. Other terms and
conditions of the license and/or the sub-license shall be established in good
faith negotiation by the parties hereto; provided, however, that an amount of
royalty shall be reasonable and favorable to FUJI compared with a similar
license to the others.
Article 5 Development of EXIGENT POCT System
----------------------------------
EXIGENT shall make best efforts to develop and complete EXIGENT POCT
System which incorporates FDC Film and/or FUJI Technology supplied hereunder in
accordance with the time schedule provided in Schedule H. During the term of
this Agreement, EXIGENT shall submit to FUJI a report in writing every three
months that describes the progress of development of EXIGENT POCT System. FUJI
and EXIGENT shall discuss the schedule of development of EXIGENT POCT System if
FUJI considers it necessary.
-4-
<PAGE>
Article 6 Distribution Rights
-------------------
EXIGENT shall grant FUJI right of the first refusal to distribute
EXIGENT POCT System exclusively in Japan and non-exclusively in Southeast Asia
subject to a distribution agreement to be negotiated separately. Such
distribution agreement shall include, among other terms and conditions, an
indemnification by EXIGENT with regard to EXIGENT POCT System which
indemnification shall be the same as that provided in Articles 7.4 and 7.5
below.
Article 7 Indemnification
---------------
7.1. FUJI shall indemnify and hold EXIGENT harmless from and against any
damages and costs incurred by EXIGENT which arises out of any claim or legal
action threatened or taken by any third party alleging that EXIGENT's use and/or
sale of FDC Film supplied by FUJI under this Agreement constitutes an
infringement of any intellectual property right of such third party, provided
that EXIGENT shall promptly notify FUJI of such claim or legal action in
writing, give FUJI sole control and authority with respect to the defense or
settlement of any such claim or legal action, and give FUJI reasonable
assistance with respect to the defense or settlement of any such claim or legal
action. FUJI shall have the right, with respect to any FDC Film supplied to
EXIGENT under this Agreement which becomes or is likely to become the subject of
such claim or legal action, to replace or modify such FDC Film, or in case
injunction is granted by court or FDC to withhold further shipment of such FDC
Film. The indemnification above shall be applied also to any claim or legal
action threatened or taken by any third party alleging that EXIGENT's use and/or
sale of FDC Film which is to be supplied by FUJI to EXIGENT under a separate
agreement regarding supply of FDC Film to be required for marketing of EXIGENT
POCT System.
7.2. The provision of Article 7.1 shall not apply in case where the
infringement exists as a result of:
(1) any combination of FDC Film with other material(s), part(s)
or product(s) which is not supplied by FUJI;
(2) any use of FDC Film which is not intended by FUJI;
(3) any modification of FDC Film made by any party other than
FUJI; or
(4) EXIGENT's breach of this Agreement, or any act or negligence
of EXIGENT, its employee or agent.
7.3. Notwithstanding the provision of Article 7.1, FUJI shall in no event
be liable for:
-5-
<PAGE>
(1) consequential or incidental damages; or
(2) labor costs or lost profits.
7.4. EXIGENT shall indemnify and hold FUJI harmless from and against any
damages and costs incurred by FUJI which arises out of any claim or legal action
threatened or taken by any third party alleging that FUJI's use and/or sale of
EXIGENT Materials supplied by EXIGENT under this Agreement constitutes an
infringement of any intellectual property right of such third party, provided
that FUJI shall promptly notify EXIGENT of such claim or legal action in
writing, give EXIGENT sole control and authority with respect to the defense or
settlement of any such claim or legal action, and give EXIGENT reasonable
assistance with respect to the defense or settlement of any such claim or legal
action. EXIGENT shall have the right, with respect to any EXIGENT Materials
supplied to EXIGENT under this Agreement which become or are likely to become
the subject of such claim or legal action, to replace or modify such EXIGENT
Materials or to withhold further shipment of such EXIGENT Materials.
7.5. The provision of Article 7.4 shall not apply in case where the
infringement exists as a result of:
(1) any combination of EXIGENT Materials with other materials,
part(s) or product(s) which is not supplied by EXIGENT;
(2) any use of EXIGENT Materials which is not intended by
EXIGENT;
(3) any modification of EXIGENT Materials made by any party
other than EXIGENT; or
(4) FUJI's breach of this Agreement, or any act or negligence of
FUJI, its employee or agent.
7.6. Notwithstanding the provision of Article 7.4, EXIGENT shall in no
event be liable for:
(1) consequential or incidental damages; or
(2) labor costs or lost profits.
Article 8 Regulatory Approvals
--------------------
8.1. FUJI shall comply with FDA's Good Manufacturing Practices in
manufacturing and supplying FDC Films to EXIGENT hereunder.
-6-
<PAGE>
8.2. If FUJI is granted an exclusive right to distribute the EXIGENT POCT
System in a country, FUJI shall obtain all regulatory approvals required for
marketing EXIGENT POCT System in any country.
8.3. EXIGENT shall obtain all regulatory approvals required for marketing
EXIGENT POCT System in any other countries or areas than those for which FUJI
shall do under Article 8.2.
Article 9 Confidentiality
---------------
9.1. Each party shall hold in confidence this Agreement and any and all
proprietary technical and business information furnished or disclosed by the
other party hereunder, and shall not use such information for any other purpose
than that provided herein.
9.2. The confidential obligation provided in Article 14.1 shall not apply
to:
(1) information which is known to the public or generally
available to the public prior to the date it is received;
(2) information which is known to the receiving party prior to
the date it is received from the other party;
(3) information which becomes known to the public or generally
available to the public after the date it is received through no fault of the
receiving party;
(4) information which the receiving party obtains without
restriction on disclosure from a third party having a bona fide right to
disclose such information; or
(5) information which must be disclosed by law or regulation in
order to obtain approval to sell EXIGENT POCT System, or otherwise required to
be disclosed by law, regulation or court order.
Article 10 Term
----
This Agreement shall continue in full force and effect until
December 31, 2003 from the date first above written, and will automatically be
renewed for additional periods of one (1) year, unless either party notifies the
other party of its intention not to renew this Agreement in writing at least six
(6) months before the expiration of the initial term or any successive renewal
term of this Agreement.
Article 11 Termination
-----------
-7-
<PAGE>
11.1. In the event that FUJI decides to discontinue manufacturing and
marketing FDC Film, FUJI may terminate this Agreement by giving a written one
year notice to EXIGENT, provided that, to protect the welfare of the customers
of EXIGENT POCT Systems sold by EXIGENT before such termination, FUJI shall
consult with EXIGENT and establish the necessary measures to be taken, to ensure
that EXIGENT has continued access to FDC Film and FUJI Technology, before such
termination.
11.2. In the event that either party is adjudicated bankrupt or insolvent,
or enters into an agreement for the benefit of creditors, or in the event that a
petition in bankruptcy or for corporate reorganization or for any similar relief
shall be filed by or against either party hereto or receiver is appointed with
respect to any of the assets of either party, or if all or a significant part of
the assets of either party are transferred to a third party, then the other
party hereto may immediately terminate this Agreement by giving written notice
to that effect.
11.3. In the event that there arises a material change in control or
ownership of either party which would adversely affect the transaction hereunder
between the parties hereto, specifically as regards an acquisition by a
competitor whose resulting access to the trade secrets, confidential
information, know-how or patent rights licensed hereunder would result in a loss
of competitive advantage, or a competitor that sells competing dry film
technology for chemistry tests, the other party may, at its sole discretion,
immediately terminate this Agreement by giving a written notice to such party.
11.4. In the event that either party breaches or fails to perform any of
material obligations, terms or conditions of this Agreement or Individual
Agreement and fails to cure such breach or default within thirty (30) days after
its receipt from the other party of written notice specifying the nature of such
breach or default, the other party may, without prejudice to any other remedies
available to it hereunder or under law or otherwise, terminate this Agreement
effective immediately by giving the defaulting party written notice to that
effect.
11.5. Termination of this Agreement shall not affect or diminish in any
way either party's rights, duties or obligations under any other agreements
between the parties, nor shall the breach or cancellation of any other
agreements between the parties affect or diminish in any way either party's
rights, duties or obligations under this Agreement.
Article 12 Force Majeure
-------------
Neither party hereto shall in any way be held liable to the other
party for any loss or damage sustained by the other party due to any failure or
delay on its part in performance of this Agreement caused by force majeure, such
as but not limited to strikes, lock outs, sabotage, fires, explosions, floods,
elements, acts of God, wars, hostilities, civil commotions, riots, acts,
regulations or orders of any governmental agency or authority, epidemics, and
any other
-8-
<PAGE>
circumstances, whether similar or dissimilar to any at the foregoing, beyond
reasonable control of the first party.
Article 13 Surviving Clauses
-----------------
The provisions of Article 4.3(i), (ii) and (iii), 6, 7, 9, 14.4,
14.5, 14.6 and 14.7 shall survive any termination or expiration of this
Agreement.
Article 14 General Provisions
------------------
14.1. If any provision of this Agreement is held to be ineffective,
unenforceable or illegal for any reason, such decision shall not affect the
validity or enforceability of any or all of the remaining portions hereof.
14.2. This Agreement constitutes the entire agreement between the parties
as to the subject matter hereof, and supersedes and replaces all prior or
contemporaneous agreement, written or oral, regarding such subject matter.
14.3. No amendment or modification of this Agreement shall be valid unless
set forth in a writing stating that it is such an amendment or modification and
signed by an authorized representative of each of the parties hereto.
14.4. This Agreement shall inure to the benefit of and be binding upon any
successors or assigns of either party hereto; however neither party may transfer
or assign this Agreement or any of its rights or obligations hereunder without
the prior written consent of the other party.
14.5. Any and all disputes, controversies or differences arising between
the parties hereto out of or in relation to this Agreement or for any breach
thereof which cannot be amicably settled between the parties hereto shall be
finally settled by arbitration in Tokyo, Japan in accordance with the Rules of
Conciliation and Arbitration of the International Chamber of Commerce. Any
award of the arbitration shall be final and conclusive and binding upon the
parties hereto.
14.6. This Agreement and its validity, performance and interpretation
shall be governed by the laws of Japan.
14.7. Any notice required or permitted by either party hereunder shall be
made in writing and shall be delivered in person, sent by registered mail or
sent by facsimile with confirmation by registered mail within ten (10) days to
the respective party as follows:
FUJI: Fuji Photo Film Co., Ltd.
11-46, Senzui 3-chome
-9-
<PAGE>
Asaka-shi, Saitama 351, Japan
Attention : Mr. Junichi Matsuyama
(Associate Director)
Fax number: 81-468-468-2307
EXIGENT: Exigent Diagnostics, Inc.
709 Swedeland Road
King of Prussia, PA 19406, USA
Attention : Mr. W. Vickery Stoughton
(Chairman & C.E.O.)
Fax number: 1-610-270-6150
IN WITNESS WHEREOF the parties have caused this Agreement to be
executed by their authorized representatives.
Fuji Photo Film, Co., Ltd. Exigent Diagnostics, Inc.
Title: Associate Director Title: Chairman & C.E.O.
By: /s/ Junichi Matsuyama By:/s/ W. Vickery Stoughton
------------------------------ ----------------------------
Junichi Matsuyama W. Vickery Stoughton
Date: September 10, 1996 Date: August 23, 1996
-10-
<PAGE>
Schedule A: The tests to which FDC Film is or to be applicable
--------------------------------------------------
1. Total Bilirubin 14. Triglycerides
2. Hemoglobin 15. Cholesterol
3. Uric Acid 16. HDL Cholesterol
4. Ammonia 17. Glucose
5. AST 18. Total Protein
6. GGT 19. Albumin
7. LDH 20. Creatinine
8. ALT 21. Urea Nitrogen
9. LAP 22. Inorganic Phosphorus
10. Amylase 23. Magnesium
11. Alkaline Phosphatase 24. Carbon Dioxide
12. Creatine Kinase 25. Ionized Calcium
13. Total Calcium
Schedule B: The tests to which FDC Electrolyte Slide is applicable
------------------------------------------------------
1. Sodium
2. Potassium
3. Chloride
-11-
<PAGE>
Schedule C: FUJI Technology
---------------
1. Specifications of FDC Film
1-1 List of test menu
1-2 Reaction Scheme
1-3 Structure
1-4 Assay characteristics
1-5 Principle of determination of analyte activity
1-6 Performance
2. Quality control system
2-1 Quality control standards of FDC Film (slide)
2-2 Pre-calibration QC system
3. Handling and assembling conditions of FDC Film
3-1 Archival properties in reel and slide form
3-2 Room conditions of handling FDC Film
3-3 Mechanical handling conditions
4. Specific comments on each test and measuring instrument
-12-
<PAGE>
Schedule D: Conditions of supplying FDC Film
---------------------------------------------
1. Estimate of order volume: SB shall submit to FUJI a non-binding estimate of
semi-annual order volume by, January 31 and July 31 every year.
2. Order schedule: SB shall submit to FUJI semi-annual orders twice a year by
April 30 and October 31 not later than three months prior to its desired
delivery date.
3. Acceptance of order: Order shall be subject to FUJI's acceptance.
4. Bulk form: Supplied in reel form with 12mm width. Length shall be decided
by FUJI according to the ordered volume.
5. Packing: Sealed in aluminum laminated polyethylene film and packed in
cardboard box
6. Freight: (Cool 2(degrees)C - 8(degrees)C) air cargo
7. Place of delivery: (To be designated by SB, but should somewhere in the
US)
8. [Omitted pursuant to a request for confidential treatment. The material has
been filed separately with the Securities and Exchange Commission.]
9. Payment term: Paid within thirty (30) days of the custom clearance in the
banking account designated by FUJI
10. Shelf life: The shelf life of eighteen (18) months from the shipment date
is guaranteed, provided that the storage condition instructed by FUJI is
met.
-13-
<PAGE>
Schedule E: Conditions of supplying FDC Electrolyte Slide
---------------------------------------------
1. Estimate of order volume: Same as Schedule D
2. Order schedule: Same as Schedule D
3. Acceptance of order: Same as Schedule D
4. Slide form: Supplied in the same form as used in FUJI DRI-CHEM System.
One slide contains Na, K, Cl electrode.
5. Packing: Packed in the case proposed by SB and agreed by FUJI
6. Freight: Same as Schedule D
7. Place of delivery: Same as Schedule D
8. [Omitted pursuant to a request for confidential treatment. The material has
been filed separately with the Securities and Exchange Commission.]
9. Payment term: Same as Schedule D
10. Shelf life: Same as Schedule D
-14-
<PAGE>
Schedule F: Inspection criteria of FDC Film
-------------------------------
1. Criteria for inspection by FUJI prior to shipment: (To be agreed by the
parties based on FUJI's proposal)
2. Criteria for inspection by SB after delivery:
2-1 Site of inspection: (To be designated by SB)
----------------------
2-2 Time of inspection: Inspected within seven (7) days of the custom
clearance
2-3 Method of inspection: Inspected in accordance with detailed operation
manual provided by FUJI. Cleared if meet the inspection standards agreed
upon between the parties.
(1) Sample: Using the end part of the reel in slide form
(2) Analyser: FDC 3000 for colorimetric film
(3) Specimen: Control serum for FDC
-15-
<PAGE>
Schedule G: SB POCT Systems tests other than Schedules A and B
--------------------------------------------------
1. Theophylline
2. Digoxin
3. Phenytoin
4. *
5. *
6. *
7. *
8. *
9. *
10. *
11. *
* [Omitted pursuant to a request for confidential treatment. The material has
been filed separately with the Securities and Exchange Commission.]
-16-
<PAGE>
Schedule H: Time Schedule of the development of POCT System
-----------------------------------------------
September 1996 10mcl Test Cartridge completed
October 1996 First breadboard of instrument
May 1997 Second breadboard version completed
July 1997 Prototype completed (without closed tube sampling)
October 1997 FDA submission of 11-12 tests
March 1998 FDA submission of next 20-28 tests
-17-
<PAGE>
EXHIBIT 10.21
[LETTERHEAD OF ITC APPEARS HERE]
Joint Research and Development Agreement
This Agreement (the "Agreement") is made as of Oct 28, 1996 (the "Effective
Date") by and between Exigent Diagnostics, Inc. ("Exigent"), a Delaware
corporation having its principal place of business at 6100 Bristol Parkway
Culver City, Calif, and International Technidyne Corporation ("ITC"), a Delaware
corporation having its principal place of business at 8 Olsen Avenue, Edison, NJ
08820.
WITNESSETH
WHEREAS, ITC has certain proprietary know-how, skilled laboratory
researchers and manufacturing expertise in the field of plasma coagulation and
other diagnostic assays; and
WHEREAS, Exigent has certain proprietary know-how and skilled laboratory
researchers in the field of diagnostic assays; and
WHEREAS, ITC and Exigent desire to enter into an agreement for the
research, development and evaluation of point-of-care coagulation assay test
cartridges and coagulation detector (the research, development and evaluation
hereafter referred to as "Research" and the procedures and processes resulting
from the Research hereafter referred to as the "Products").
NOW THEREFORE, for and in consideration of the promises and mutual
covenants and agreements hereinafter set forth and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged and
accepted, the parties hereto agree as follows:
1. CONTRACT PURPOSE
1.1. The goal of the joint research, development and evaluation effort to
be conducted is to develop cost-effective point-of-care plasma coagulation
assays, for the benefit of both parties hereto. The principal objectives of the
research and development efforts are more particularly set forth in the
Coagulation Assays Development Plan attached hereto as Annex I and incorporated
herein by this reference. The parties may amend Annex I from time to time by
executing a revised, restated, dated Annex I and attaching it hereto.
1.2. The parties agree that ITC and Exigent, through the respective
employees of each will perform the tasks specified hereto and in Annex I. The
parties agree periodically, but not less frequently than quarterly, commencing
on the date three months from the Effective Date of
1
<PAGE>
this Agreement, to review and revise Annex I, as needed.
2. RESEARCH
2.1. The employees of each party hereto, in their respective laboratories,
shall perform the tasks specified in Annex I, collaborating at all times in such
performance by, without limitation, exchanging materials and information and
providing all relevant data, information and results useful to the purposes of
this Agreement, to each party hereto, without restriction, other than as
specified in this Agreement.
2.2. Exigent will reimburse ITC for each hour of Research work (as per
2.3.) performed by an ITC employee, representative or agent, at the rate of $100
per hour, plus expenses, including, without limitation, the cost of dedicated
equipment (inclusive of, without limitation, design, installation and validation
costs and exclusive of depreciation costs) and materials and research and
development expenses. ITC shall render an invoice each month for such services
and expenses and Exigent shall pay such invoice in full within 30 days of
receipt thereof. Exigent shall pay ITC interest at the rate of one and one half
(1 1/2%) percent per month on any amount not timely paid.
2.3. ITC agrees to responsibility for sections 22, 27, 53 and 68 of Annex
I except for subsection 60 of section 53, which is being developed by Battelle
Research as part of a contract with Exigent. The estimated budget for ITC based
on Annex I work totals $336,000 which includes $48,000 contingency. Approval of
use of any portion of the contingency requires the sole approval of Exigent.
2.4. Neither party hereto makes any representation or warranty to the
other with respect to the purity, activity, safety, accuracy or usefulness of
the materials or information exchanged under this Agreement.
3. PRODUCTS
3.1. Subject to the exclusivity provision of Sections 3.2. and 3.3. below
and the patent and other intellectual property provisions set forth in Section 4
below, either party hereto shall have the right to develop, make, use, license
and/or sell Products for the equal benefit of both parties hereto. Subject to
the exclusivity provisions of Sections 3.2. and 3.3. below and the Royalty
provision of section 4.2., any consideration accruing as a result of the
development, use, license or sale of Products shall be shared equally by the
parties hereto. Any sale or license arrangement or agreement relating to a
Product shall be subject to the approval of the party not originating such
arrangement or agreement, such approval shall not be unreasonably withheld,
delayed or conditioned. This right shall include the right to grant sublicenses
with respect to the use or sale of Products to third parties.
2
<PAGE>
3.2. Exigent shall have the exclusive right to, and benefit of, the
inventions and discoveries, including Products, resulting from the Research in
the field of multitest device point-of-care testing. Multitest devices shall
mean those devices capable of performing more than one type of diagnostic assay
in a given run. As an example, a device which can test for blood chemistries and
coagulation time or combination of chemistry, electrochemistry, coagulation and
immunoassay, in which several samples are placed in the same device and the
device is instructed to perform the preprogrammed assay without reloading, is a
multitest device.
3.3. ITC shall have the exclusive right to, and benefit of, the inventions
and discoveries, including Products, resulting from the Research, as it pertains
to coagulation in the field of single patient point-of-care testing. Single
patient point-of-care testing shall mean cartridge technology with single or
multiple coagulation assays or such multiple assays in a single cartridge for a
single patient. The Agreement does not restrict ITC from performing coagulation,
chemistry, immunoassay or hematology tests, on whole blood or plasma, in
cartridges of ITC design provided that if the coagulation cartridge designed as
part of this project is used, a royalty will be paid to Exigent as per section
4.2.
3.4. For purposes of this Agreement, point-of-care shall mean a diagnostic
test performed in the vicinity of a patient (regardless of species) at the time
a sample is obtained from the patient and is expressly contrasted with, and
distinguished from, testing performed at a central laboratory within a hospital,
or commercial laboratory.
4. PROPRIETARY RIGHTS
4.1. The parties hereto agree promptly to disclose to the other party any
and all inventions or discoveries, including Products, made by it in the course
of or as a result of the Research, whether discovered or conceived by an
employee, agent or representative. The parties hereto acknowledge that the
Research and Products will result from the collaboration between the parties and
that the right, title and interest in the Research and Products, including the
right to domestic and foreign copyright, copyright renewal, trademark and/or
patent protection therein and the right to register and claim priority therein
under any applicable law, treaty or conventions, shall be equally and jointly
owned. Each party hereto will equally share the expenses of prosecuting any
patent or otherwise developing or protecting any intellectual property right
related to the Research or Products. The processes and strategies of development
or protection of intellectual property rights related to the Research and/or
Products, including without limitation the scope of protection and/or
international activity, shall be the responsibility of both parties equally and
each party shall use its best efforts to agree on such processes and strategies.
4.2. Each party hereto shall have, subject to the contrary provisions in
Sections 3.2. and 3.3. of this Agreement, the irrevocable right to use all
inventions and discoveries (including Products) resulting from the Research.
Exigent's rights shall be royalty free. ITC's rights shall be royalty free after
ITC has compensated Exigent in cash for 50% of the technology development costs
for coagulation assays as contained in this Agreement which payment shall be
made prior to ITC's commercialization of inventions and discoveries. Each party
hereto shall ensure that the individuals under the control of each shall assign
to such party, or to the parties hereto jointly,
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all right, title and interest in each invention and/or discovery, such that the
parties hereto become the joint owner of any such invention and/or discovery,
including all patent or other proprietary rights relating thereto.
4.3. The parties hereto each agree to execute and deliver to the other all
reasonable copyright, patent and other applications, assignments and instruments
tendered by the other and perform such acts as may be reasonably necessary or
advisable for obtaining such rights and/or of vesting and maintaining the title
to the rights as specified in this Agreement.
4.4. The parties will keep a monthly schedule of all costs incurred which
will be subject to audit if desired by the other party and which will form the
basis of calculating the total Research and Development Cost. Any change to the
Research and Development Cost that results in changes exceeding $336,000 will
require approval of both parties before incurring the cost. Such cost will
include all expenses, capital costs, material costs and interest charged. This
cost, once the project is complete, will form the basis to set the Royalty
payment due Exigent by ITC if ITC chooses to use the inventions and discoveries.
4.5. The provisions of Section 4 hereof shall survive the expiration or
other termination of this Agreement.
5. CONFIDENTIALITY
5.1. The term "Confidential Information" shall mean all confidential,
proprietary or non-public information of either party hereto, including all
materials and technical information exchanged in connection with the Research,
information developed as a result of the Research known-how, data and/or trade
secrets, regardless of form, however disclosed, and all samples or prototypes of
any Products, furnished by one party to the other, either directly or
indirectly. Confidential Information shall not include information or materials
which (i) at the time of disclosure are in the public domain, (ii) after
disclosure become part of the public domain by publication or otherwise, other
than by reason of a breach of this Agreement, (iii) the recipient can establish
by reasonable proof were in its possession at the time of disclosure or were
subsequently and independently developed by the recipient, by persons not having
access to the Confidential Information or (iv) the recipient receives from a
third party who has the right to disclose such information.
5.2. Neither party receiving Confidential Information of the other (the
"Recipient") shall use the Confidential Information for any purpose other than
to fulfill the purposes and/or obligations of this Agreement and shall not
disclose the information to any person other than a person over whom Recipient
has control, who has a need to know the information in order for Recipient to
fulfill the purposes and/or obligations of this Agreement and who agrees to be
bound by the terms of this confidentiality provision.
5.3. All originals and copies of any of the foregoing however and whenever
produced, shall be the sole property of the originator of such Confidential
Information, subject to Sections 3 and 5 hereto regarding the ownership of the
results of the Research. Upon the expiration or
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earlier termination of this Agreement, each party shall promptly surrender to
the other party all Confidential Information of such other party that is reduced
to one or more writings, drawings, schematics, tapes, disks, or other form of
documentation, together with any documents, materials and equipment belonging to
the other party and such party shall not thereafter retain or deliver to any
other person or entity any of the foregoing or any summary or memorandum
thereof.
5.4. Each party hereby agrees that it shall be responsible for the
obligations of its employees, representatives and agents hereunder and executes
this Agreement on behalf of itself and such employees, representatives and
agents. In addition to its other obligations under this Section 5, each party
shall use at least the same degree of care (which at a minimum shall be
reasonable) to avoid unauthorized dissemination of Confidential Information as
it employs for its own information of a similar nature that it does not want to
have disseminated. The parties shall not put the Confidential Information of the
other to commercial use, except as expressly provided under this Agreement.
5.5 The provisions of Section 5 shall survive expiration or earlier
TERMINATION OF THIS AGREEMENT.
6. LAWS AND REGULATIONS
6.1. The parties hereto agree that each will conduct the research, provide
materials, develop and manufacture Products strictly in compliance with all
applicable federal, state and local laws, regulations, ordinances.
6.2. Each party hereto shall obtain and maintain, at its own expense, any
non-United States governmental consents, authorizations, approvals, filings,
permits or licenses required for it to export any Product it develops and for
which it arranges a foreign sale and for it to exercise its rights and to
discharge its obligation under this Agreement, including, without limitation,
all consents and filings with any non-United States governmental body. Each
party acknowledges that the Products and all related technical information,
documents and material are subject to export controls under the US Export
Administration Act of 1969, as amended, and the rules and regulations
promulgated from time to time thereunder (collectively the "Export Act"),
restricting exports and reexports of technical data, direct products of
technical data and software media. Each party hereto will, with respect to
Products it develops and for which it arranges a foreign sale, (i) comply
strictly with all legal requirements established under the Export Act, (ii)
cooperate fully with the other party in any official or unofficial audit or
inspection relating to the Export Act and (iii) not distribute or supply any
Product to any person if there is reason to believe that such person intends to
export, reexport or otherwise take such Products to, or use such Products in,
any country in violation of the Export Act.
Each party agrees not to knowingly export or re-export the Products or any
party thereof, directly or indirectly, without first obtaining permission to do
so from the United States Office of Export Administration and other appropriate
governmental agencies, into any of those countries listed, from time to time at
the time of any shipment of Products, in Title 15 of the Code of Federal
Regulations of the United States of America (or any successor or additional
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provision) as "prohibited or restricted" countries or any other country to which
such exports or re-exports may be restricted (collectively the "Restricted
Countries"). Each party hereto agrees not to distribute the Products or any
part thereof to any person if it has reason to believe that such person intends
to export, re-export or otherwise take the same to, or to use the same in, any
of the Prohibited Countries and each such party agrees to seek reasonable
written assurances in the form of binding covenants from customers as may from
time to time be requested by the other party hereto.
7. TERM AND TERMINATION
7.1. The term of this Agreement shall be for a period of one year
commencing on the Effective Date hereof and end on the one year anniversary of
the Effective Date; provided that this agreement shall be renewed automatically
for one year increments unless terminated by either party hereto upon one-month
written notice to the other, which may be given at any time after the one year
anniversary of the Effective Date.
7.2. ITC may terminate this Agreement upon 30 days written notice to
Exigent within the first year of the Agreement upon the occurrence of any
termination event as follows: (i) Exigent or any of its employees,
representatives or agents breaches any material obligation under this Agreement,
including, without limitation, violation of any payment terms, if such breach is
not cured to ITC's satisfaction within the 30 day notice period, (ii) Exigent
ceases to conduct business in the the normal course, becomes insolvent, enters
into suspension of payments, moratorium, reorganization or bankruptcy, makes a
general assignment for the benefit of creditors, admits in writing its inability
to pay debts as they mature, suffers or permits the appointment of a receiver
for its business or assets, or avails itself of or becomes subject to any other
judicial or administrative proceeding related to insolvency or protection of
creditors' rights (and, if such action or proceeding is involuntary on the part
of Exigent, such action or proceeding is not dismissed within 90 days), (iii)
the failure of Exigent to obtain any required permit or consent required to
perform the Research.
7.3. Exigent may terminate this Agreement upon 30 days written notice to
ITC within the first year of the Agreement upon the occurrence of any
termination event as follows: (i) ITC or any of its employees breaches any
material obligation under this Agreement, if such breach is not cured to
Exigent's satisfaction within the 30 day notice period, or (ii) ITC ceases to
conduct business in the normal course, becomes insolvent, enters into suspension
of payments, moratorium, reorganization or bankruptcy, makes a general
assignment for the benefit of creditors, admits in writing its inability to pay
debts as they mature, suffers or permits the appointment of a receiver for its
business or assets, or avails itself of or becomes subject to any other judicial
or administrative proceeding related to insolvency or protection of creditors'
rights (and, if such action or proceeding is involuntary on the part of ITC,
such action or proceeding is not dismissed within 90 days).
7.4. The provisions of Sections 3, 4, 5 and 7 shall survive the expiration
or earlier termination of this Agreement. From and after the date of any such
expiration or earlier
6
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termination, neither party shall have any further rights, privileges or
obligations hereunder except that: (i) such expiration or earlier termination
shall not relieve either party of any liability or obligation accrued prior to
the expiration or termination date, including without limitation, Exigent's
obligation to purchase the components and/or raw materials purchased or
manufactured pursuant to Exigent's forecasts, if any, (ii) such expiration or
earlier termination shall not affect the continued operation or enforcement of
any provision of this Agreement which is to survive expiration or termination,
and (iii) upon such expiration or earlier termination, each party shall
immediately return to the other party all Confidential Information as required
by Section 5 of this Agreement. In no event upon the expiration or termination
of this Agreement shall the terminating party (or in the event of an expiration,
either party) be liable to the other party for any damages, indemnities, loss of
profits, loss of revenues, or other losses by reason of any such expiration or
termination.
8. MISCELLANEOUS
8.1 Exigent's representative with respect to Exigent's rights and
obligations hereunder shall be Dr. Tom Grove, or such other representative as
Exigent designates to ITC, in writing, and Exigent represents that Dr. Grove is
authorized to bind Exigent in connection with this Agreement. Likewise, ITC's
representative is Gerald Feldman who has the same authority within ITC as
affects the execution and operation of this Agreement. Each party hereto
represents and warrants to the other that it has the right and has obtained all
necessary corporate approvals, to enter into this Agreement and perform the
obligations to be performed by it under this Agreement and that this Agreement
constitutes its valid, binding and enforceable obligation, enforceable against
it in accordance with its terms.
8.2 The failure of either party hereto to perform any obligation under
this Agreement (except any payment obligation hereunder of Exigent to ITC) due
to acts of God, acts of government, civil disturbances, wars, strikes,
transportation problems, unreasonable delays by ITC's vendors in delivery,
failure to provide products or material to ITC by its vendors, or other causes
beyond its reasonable control shall not be deemed to be a breach of this
agreement; provided, however, that the party so prevented from complying
herewith shall immediately give notice thereof to the other party and shall
continue to take all commercially reasonable action to comply as fully as
possible herewith. After removal of the basis for the non-performance, the party
failing to perform shall resume performance within a reasonable time.
8.3 This Agreement, together with its Annexes, constitutes the sole and
entire agreement between the parties relating to the subject matter herein, does
not operate as an acceptance of any conflicting terms or provisions of any
Exigent purchase orders or any other instrument or document and terminates and
supersedes any and all prior agreements and understandings between the parties.
8.4 No change in, addition to, or waiver of any of the terms and
provisions herein shall be binding upon any party unless approved by it in
writing.
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8.5. The failure by either party to exercise or to enforce any of the terms
or condition of this Agreement shall not constitute or be deemed a waiver of
that party's right thereafter to enforce each and every term and condition of
this Agreement.
8.6. Should a court of law or arbitrator hold that any one or more of the
provisions in this Agreement is invalid, illegal or unenforceable, no other
provision of this Agreement shall be affected thereby, and the remaining
provision of this Agreement shall be both construed and reformed and shall
continue with the same effect as if such unenforceable, illegal or invalid
provision shall not have been inserted in this Agreement.
8.7. This Agreement and the respective rights and obligations of the
parties hereto shall be governed by and determined in accordance with the
domestic internal laws of the Commonwealth of Pennsylvania, without giving
effect to conflict of laws principles thereof.
8.8. ITC and Exigent are independent parties. It is understood and agreed
that neither party hereto is, by this Agreement or anything herein contained,
constituted or appointed the legal representative of the other, nor shall either
party hereto have the right or authority to make any representation, warranty,
covenant, guarantee or commitment or assume, create or incur any liability or
any obligation of any kind, expressed or implied, in the name of or otherwise on
behalf of the other, whether directly or indirectly. This Agreement is not
intended to create a joint venture, partnership or agency relationship between
the parties hereto.
8.9. All notices and other communications which are required or permitted
under this agreement shall be in writing and sent by facsimile (confirmed by
mail), overnight courier, or registered or certified mail, postage prepaid, to
the receiving party at the following addresses:
If to ITC: International Technidyne Corporation
8 Olsen Avenue
Edison, NJ 08820
Attention: Mr. William Schwarzlow
with a copy to: Thermo Electron Corporation
81 Wyman Street
Waltham, MA 02254
Attention: General Counsel
with copy to Pepper Hamilton Scheetz LLP
3000 Two Logon Square
Philadelphia, PA
19103
Attn: Barry Abelso
If to Exigent: Exigent Diagnostics, Inc.
6100 Bristol Parkway
Culver City Calif
92660
Attention: Dr. Tom Grove
or to any other address that the receiving party may have provided to the
sending party in writing as provided aforesaid. Any notice or other
communication delivered by facsimile shall
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be deemed to have been received the day it is sent, if sent before 5:00 p.m. on
a business day and the next business day thereafter, if sent on a weekend,
holiday or after 5:00 p.m. Any notice or other communication sent by overnight
courier shall be deemed to have been received on the business day after it is
delivered to the courier. Any notice or other communication sent by registered
or certified mail shall be deemed to have been received on the third business
day after its date of posting. The facsimile number to which notices should be
sent are:
ITC (908) 632-9299
Thermo (617) 622-1283
Exigent (610) 270-6150
Pepper Hamilton 215 981-4750
8.10. This Agreement and each and every covenant, term and condition shall
be binding upon and inure to the benefit of both parties hereto and their
respective successors. Neither this Agreement nor any right hereunder may be
assigned or otherwise transferred by either party without first receiving the
express prior written consent of the other party, except that ITC may transfer
or assign this Agreement, or any of the rights and/or obligations thereunder to
any parent, sister, subsidiary or sister entity.
8.11. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
8.12. It is expected that upon completion of this Research and Development
Agreement, Exigent will enter into a manufacturing agreement with ITC for
production of coagulation reagents in a cuvette, subject to competitive pricing
as offered by ITC.
IN WITNESS WHEREOF, ITC and Exigent have caused this Agreement to be
executed by their duly authorized representatives as of the date first set forth
above.
Exigent Diagnostics, Inc. International Technidyne Corporation
By: /s/ W. Vickery Stoughton By: /s/ Gerald Feldman
----------------------------- ----------------------------------
Name: W. Vickery Stoughton Name: Gerald Feldman
--------------------------- --------------------------------
Title: Chairman & CEO Title: President
-------------------------- -------------------------------
Date: Oct 26, 1996 Date: Oct 27, 1996
--------------------------- --------------------------------
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Annex I REV.2 Coagulation Tests Development Plan - Confidential Information
[Omitted pursuant to a request for confidential treatment. The material has been
filed separately with the Securities and Exchange Commission.]
Page 1
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EXHIBIT 10.23
DISTRIBUTION AND SUPPLY AGREEMENT
---------------------------------
This DISTRIBUTION AND SUPPLY AGREEMENT (the "Agreement"), made as of
the seventh day of November, 1996, by and between EXIGENT DIAGNOSTICS INC., a
Delaware corporation having a place of business at 709 Swedeland Road, King of
Prussia, Pennsylvania ("EXIGENT") and SMITHKLINE BEECHAM CLINICAL LABORATORIES,
INC., a Delaware corporation having a place of business at 1201 South
Collegeville Avenue, Collegeville, Pennsylvania ("SBCL").
BACKGROUND
----------
1. EXIGENT is the owner of device and reagent technology,
information and know-how relating to Point-of-Care Testing and Products, as
defined herein.
2. SBCL possesses resources of a financial, technical and commercial
nature and has expertise in commercializing clinical diagnostic testing services
such as those being developed by EXIGENT for the INDEPENDENT COMMERCIAL
LABORATORY INDUSTRY and other potential markets.
3. SBCL desires to obtain certain exclusive distribution rights for
the INDEPENDENT COMMERCIAL LABORATORY INDUSTRY from EXIGENT in the TERRITORY for
the PRODUCT.
4. EXIGENT wishes to appoint SBCL as distributor of PRODUCT in the
TERRITORY, subject to EXIGENT's rights outlined below, and to set forth terms
relating to EXIGENT's supply of PRODUCTS to SBCL, all upon the terms and
conditions set forth in this Agreement.
<PAGE>
NOW, THEREFORE, in consideration of the covenants and obligations
expressed herein and intending to be legally bound, and otherwise to be bound by
proper and reasonable conduct, the parties agree as follows:
SECTION 1. DEFINITIONS
-----------
1.01. "AFFILIATES" shall mean any corporation, firm, partnership or other
entity, whether de jure or de facto, which directly or indirectly owns, is owned
by or is under common ownership with a party to this Agreement to the extent of
at least fifty percent (50%) of the equity (or such lesser percentage which is
the maximum allowed to be owned by a foreign corporation in a particular
jurisdiction) having the power to vote on or direct the affairs of the entity
and any person, firm, partnership, corporation or other entity actually
controlled by, controlling or under common control with a party to this
Agreement.
1.02. "AGENCY" shall mean any governmental regulatory authority in any
country of the TERRITORY responsible for granting approvals for the sale of the
PRODUCT.
1.03. "CO-PROMOTION" shall mean those activities normally undertaken by a
company's sales force to implement product marketing plans and strategies aimed
at encouraging the appropriate use of a particular product, in accordance with
governmental approvals. When used as a verb, "CO-PROMOTE" shall mean to engage
in such activities.
1.04. "DISTRIBUTOR FEE" shall mean the payments by SBCL to EXIGENT as
described in Section 3.01.
1.05. "EFFECTIVE DATE" shall mean the date upon which this Agreement is
effective and shall be the date of this Agreement first written above.
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1.06. "EXIGENT" shall mean Exigent Diagnostics Inc.
1.07. "EXIGENT CONFIDENTIAL INFORMATION" shall mean all information about
any elements of the EXIGENT TECHNOLOGY or any technology of a PARTY licensed for
use with respect to PRODUCT to the extent that such information as of the date
of disclosure to SBCL is not (i) known to SBCL other than by virtue of a prior
confidential disclosure to SBCL by EXIGENT or an authorized PARTY licensee- or
(ii) disclosed in published literature, or otherwise generally known to the
public through no fault or omission of SBCL; or (iii) obtained from a THIRD
PARTY free from any obligation of confidentiality to EXIGENT.
1.08. "EXIGENT TECHNOLOGY" shall mean all of EXIGENT's proprietary
technology and information, present and future, including, without Stations
technical assistance, know-how, trademarks, and PATENTS, that relate to the
PRODUCT and shall include, without Stations all present and future information
developed by or for EXIGENT, alone or with THIRD PARTIES,
1.09. "EXIGENT TRADEMARKS" shall mean those trademarks and service marks
owned or licensed by EXIGENT by which the PRODUCTS and any related services are
known.
1.10. "FDA APPROVAL" shall mean the date upon which (i) EXIGENT completes
development of the PRODUCT and of at least 25 of the tests specified by an
asterisk in Appendix A, attached hereto and incorporated herein, or, if EXIGENT
fails to complete development of the PRODUCT and at least 25 of the tests
specified by an asterisk in Appendix A, the date upon which SBCL waives the
requirement that EXIGENT complete all the tests specified in Appendix A in
accordance with Section 3.02- and (ii) the grant of a license by the federal
Food and Drug Administration for commercial sale and promotion of the PRODUCT in
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the United States, including all of the tests specified in Appendix A or those
tests agreed to by SBCL, with labeling acceptable to SBCL, based on an
application for such license filed by EXIGENT for such PRODUCT. The parties
understand that an FDA license is required prior to commercialization and
marketing of any PRODUCT in the United States, and EXIGENT will seek and obtain
an FDA license for all PRODUCTS.
1.11. "INDEPENDENT COMMERCIAL LABORATORY INDUSTRY" shall mean with respect
to the United States of America, the Republic of Mexico and Great Britain, any
laboratory that provides testing services to any PARTIES that are not members of
their direct delivery system. Laboratories that are owned by healthcare
providers and provider systems are included in this definition.
1.12. "LAUNCH" shall mean, with respect to a country within the TERRITORY,
the date of first commercial shipment of the PRODUCT by SBCL to customers in
that country after the receipt by EXIGENT or SBCL of marketing approval by the
relevant AGENCY in that country.
1.13. "PATENTS" shall mean all patents and patent applications which are
or become owned by EXIGENT, or to which EXIGENT otherwise has, now or in the
future, the right to grant licenses, which generically or specifically claim the
PRODUCT, a process for manufacturing the PRODUCT, an intermediate used in such
process or a use of the PRODUCT. Included within the definition of PATENTS are
all continuations, continuations-in-part, divisions, patents of addition,
reissues, renewals or extensions thereof and all SPC'S. Also included within
the definition of PATENTS are any patents or patent applications which
generically or specifically claim any improvements on the PRODUCT or
intermediates or
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<PAGE>
manufacturing processes required or useful for production of the PRODUCT which
are developed by EXIGENT, or to which EXIGENT otherwise has the right to grant
licenses, now or in the future, during the term of this Agreement. The current
Est of patent applications and patents encompassed within PATENTS is set forth
in Appendix B attached hereto and incorporated herein.
1.14. "POINT OF CARE TESTING or POCT" shall mean human diagnostic testing
performed in the immediate vicinity of a patient by means of a portable device
at the time or shortly- after the time a test sample is obtained from the
patient and which produces rapid test results of equivalent quality to tests
performed in a traditional clinical laboratory. POCT shall exclude any
diagnostic testing which is performed at a central fixed laboratory within
hospitals, other health care facilities or commercial laboratories.
1.15. "PRODUCT" shall mean any and all diagnostic instruments or systems
developed by EXIGENT for use in POCT, prior to or during the TERM OF THIS
AGREEMENT. The PRODUCT shall include, without limitation, the instrument,
system, cartridges and reagents, products and software thereof developed by
E)AGENT or its agents for POCT, including but not limited to chemistry,
immunochemistry, coagulation, and hematology tests, test cartridges for
separating and metering blood, urine or other specimens, the specific tests
identified in Appendix A, an analyzer for such tests which includes computerized
data management components and software.
1.16. "PRODUCT INFORMATION" shall mean information to be supplied by
EXIGENT, and information that EXIGENT has caused or will cause to be supplied to
SBCL, relevant to the scientific or legal aspects of, or manufacturing and
development of, PRODUCT.
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<PAGE>
PRODUCT INFORMATION shall also include information relating to the scientific or
legal aspects of, or manufacturing and development of PRODUCT generated or
otherwise in the possession of any THIRD PARTY to whom EXIGENT has granted
rights.
1.17. "SBCL" shall mean SmithKline Beecham Clinical Laboratories, Inc. and
its AFFILIATES.
1.18. "SBCL CONFIDENTIAL INFORMATION" shall mean all information about
SBCL, its business and operations, to the extent that such information as of the
date of disclosure to EXIGENT is not (i) known to EXIGENT other than by virtue
of a prior confidential disclosure to EXIGENT by SBCL; or (ii) disclosed in
published literature, or otherwise legally known to the public through no fault
or emission of EXIGENT; or (iii) obtained from a PARTY free from
any obligation of confidentiality to SBCL. SBCL CONFIDENTIAL INFORMATION does
not include EXIGENT CONFIDENTIAL INFORMATION.
1.19. "SPC'S" shall mean a right based upon a PATENT to exclude others
from making, using or selling PRODUCT, such as a Supplementary Protection
Certificate.
1.20. "TERM OF THIS AGREEMENT" shall mean the term as defined in Section
14.
1.21. "TERRITORY" shall mean the United States of America, Great Britain,
the Republic of Mexico, Spain, South Africa, Singapore, Malaysia, Indonesia,
Australia, Chile, Argentina, France and Germany to the extent that and for so
long as SBCL owns, operates or manages a clinical laboratory therein on or
before December 31, 2000; provided, however, that prior to March 1, 1997 SBCL
shall delete three countries of its choice from the definition of the TERRITORY
by written notice to EXIGENT. With respect to countries outside the United
States of America, the Republic of Mexico, and Great Britain, when either SBCL
established a
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<PAGE>
clinical laboratory or EXIGENT establishes an infrastructure in a country in the
TERRITORY, both parties agree to negotiate a mutually acceptable definition of
the INDEPENDENT COMMERCIAL LABORATORY INDUSTRY for that country.
1.22. "THIRD PARTY(IES)" shall mean any party other than SBCL and EXIGENT.
1.23. "TRADEMARK LICENSE" shall mean the license granted by EXIGENT to
SBCL pursuant to Section 10.01.
SECTION 2. APPOINTMENT
-----------
2.01. Subject to the terms and conditions hereof, EXIGENT hereby appoints
SBCL as distributor and marketer of PRODUCT in the TERRITORY, subject to
EXIGENT's right pursuant to Section 2.02 to CO-PROMOTE the PRODUCT itself or
through AFFILIATES or PARTIES in the TERRITORY, in accordance with Section 2.03.
Pursuant to this appointment, SBCL shall have the right to use, market and
distribute the PRODUCT in the TERRITORY: (i) on an exclusive basis within the
INDEPENDENT COMMERCIAL LABORATORY INDUSTRY; and (H) for those countries in which
SBCL has the exclusive rights described in subparagraph (i) above, on a
nonexclusive basis, to hospitals and healthcare systems, other healthcare
providers, managed care organizations and insurers, subject to the terms and
conditions of this Agreement. For those countries in which SBCL does not have
the exclusive rights described in subparagraph (i) above, SBCL shall have only
such rights - exclusive or non-exclusive - as may be negotiated by the parties.
2.02. EXIGENT shall give SBCL prompt written notice at the time that
marketing approval for the PRODUCT has first been granted by the relevant AGENCY
in a country within
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<PAGE>
the TERRITORY. In order to exercise the right granted by EXIGENT to SBCL in
Section 2.01(i) above, within 120 days after receipt of such written notice SBCL
shall provide an initial purchase order and rolling forecast for PRODUCTS for
such country. If SBCL does not provide such purchase order and forecast, SBCL
shall have no rights under Section 2.01 for that country and shall have only
such nonexclusive distribution rights as the parties shall agree after good
faith negotiation. During the TERM OF THIS AGREEMENT, EXIGENT shall have the
right to market and sell the PRODUCT itself or through AFFILIATES or THIRD
PARTIES, in accordance with Section 2.03 and@ have the right to sign exclusive
agreements with a PARTY if SBCL has not submitted an initial purchase
order and forecast within such 120 day period.
2.03. From the EFFECTIVE DATE, EXIGENT and its AFFILIATES shall not,
directly or indirectly, license, distribute, market or sell the PRODUCT in the
TERRITORY to the INDEPENDENT COMMERCIAL LABORATORY INDUSTRY. EXIGENT shall use
its reasonable best efforts to ensure that its customers do not market or sell
PRODUCT to the INDEPENDENT COMMERCIAL LABORATORY INDUSTRY. To the extent that
such best efforts do not eliminate such marketing or sale the DISTRIBUTOR FEE
shall be reduced by $10,000 per (country; provided that the aggregate reduction
shall not exceed the amount of the DISTRIBUTOR FEE.
2.04. Nothing within this Agreement or otherwise shall restrict the
ability of SBCL to enter into similar commercial licensing, supply and
distribution arrangements such as this Agreement with POCT diagnostic and
manufacturing companies other than EXIGENT.
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<PAGE>
2.05. Nothing within this Agreement or otherwise shall restrict the
ability of SBCL, in its sole discretion, to determine whether to exercise its
rights pursuant to this AGREEMENT or to commercial and market PRODUCT in any
country of the TERRITORY.
2.06. Nothing in this Agreement or otherwise shall prevent EXIGENT from
selling PRODUCT to hospitals and healthcare systems, physicians and physician
groups, other healthcare providers, managed care organizations and insurers to
the extent such persons or entities are performing laboratory services for their
own patients or insureds, or patients within their provider organizations or
healthcare systems or networks. Nor shall anything in this Agreement prevent
EXIGENT from selling PRODUCT to physicians or physician groups, and to others
who provide similar d,- minimis levels of laboratory services, in a manner not
intending significant commercial growth in laboratory services as a source of
revenue.
2.07. As between EXIGENT and SBCL, SBCL shall have the exclusive rights to
retain and use all data and information derived from the PRODUCTS purchased and
placed by SBCL.
SECTION 3. DISTRIBUTOR FEES
----------------
3.01. Commencing on the date of FDA APPROVAL, SBCL shall pay EXIGENT an
annual DISTRIBUTOR FEE in the amount of $100,000 (subject to adjustment as
provided in Sections 3.02 and 3.03), which DISTRIBUTOR FEE shall be non-
refundable to SBCL except as provided in Section 3.03.
3.02. If EXIGENT fails to complete development of the PRODUCT and obtain
FDA APPROVAL for at least 25 of the tests specified by an asterisk in Appendix A
by December 31,
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2000, SBCL, in its discretion, shall have the option to terminate this Agreement
pursuant to Section 14.03(a) or to waive the requirement that EXIGENT obtain FDA
APPROVAL for all the tests specified in Appendix A by December 31, 2000 and,
upon such waiver, to reduce the DISTRIBUTOR FEE by $4,000 (to a maximum
aggregate reduction of $100,000 for each test not completed and cleared by the
FDA by December 31, 2000 and the minimum requirements in Section 5.02 will be as
mutually agreed by the parties. In the event that EXIGENT obtains FDA APPROVAL
for at least 36 of the tests specified in Appendix A (including at least 25
tests specified by an asterisk) the annual DISTRIBUTOR FEE shall be increased to
$125,000 with the $25,000 increase prorated for the year in which this target is
attained. In the event that, upon request from SBCL, EXIGENT grants exclusive
distribution rights to SBCL. in a country outside the TERRITORY, the annual
DISTRIBUTOR FEE shall be increased by $25,000 for each such country. In the
event that EXIGENT develops a hematology diagnostic,, instrument or system for
POCT, SBCL shall have a right of first negotiation with respect to distribution
of such an instrument in the TERRITORY. Any fees paid for any such hematology
diagnostic instrument or system shall be in addition to those otherwise payable
under this AGREE
3.03. In the event that any person or party initiates any legal or
administrative proceeding challenging the validity, scope or enforceability of a
PATENT in the United States, such as by opposing the grant of the PATENT, or
challenging SBCL's ability to market such PRODUCT in the United States, and the
claims in the PATENT which cover PRODUCT are held to be invalid or otherwise
unenforceable by a court or other legal or administrative tribunal from which no
appeal is or can be taken or SBCL is prohibited from or ordered to cease
marketing the PRODUCT in the United States, then EXIGENT shall return in full
the DISTRIBUTOR FEE
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paid by SBCL to EXIGENT for that year, prorated during the time of prohibition,
and the annual DISTRIBUTOR FEE for periods following such prohibition shall be
reduced to zero except for amounts, if any, with respect to any hematology
instrument or system. SBCL shall have the right to offset any such amounts due
SBCL from EXIGENT under this Section against any DISTRIBUTOR FEES due to
EXIGENT.
SECTION 4. COMPULSORY LICENSES AND THIRD PARTY LICENSES
--------------------------------------------
4.01. In the event that a governmental Agency in any country or territory,
grants or compels EXIGENT to grant a license to any PARTY for PRODUCT, SBCL
shall have the benefit in such country or territory of the terms granted to such
THIRD PARTY to the extent that such terms are more favorable to the PARTY than
those granted to SBCL under this Agreement.
4.02. If, during the term of this Agreement, EXIGENT is either compelled
by a court of competent jurisdiction to seek a license from any THIRD PARTY, or
if EXIGENT, in its sole discretion, deems it necessary to seek a license from
any THIRD PARTY in order- to avoid infringement during the exercise of its
fights herein granted, EXIGENT shall pay any royalties or other fees paid to
such THIRD PARTY under such license. In the event that in fight of such court
order or patent infringement EXIGENT elects to withdraw the PRODUCT from
distribution in any such country EXIGENT shall have the right to do so on the
following terms. In the event of withdrawal from a country in the TERRITORY in
which LAUNCH has not yet occurred, EXIGENT shall not have any obligation to pay
any amount to SBCL by reason of such withdrawal. If the withdrawal is from a
country in the TERRITORY in which LAUNCH has occurred, then EXIGENT shall
reimburse SBCL for SBCL's full purchase price for any
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PRODUCT returned to SBCL or EXIGENT by SBCL's customers in such country as a
consequence of such withdrawal. Upon such reimbursement, title to the PRODUCT
shall revest in EXIGENT or its designee.
SECTION 5. SUPPLY OF PRODUCT
-----------------
5.01. Until the earlier of (i) December 31, 2000 or (ii) earlier
termination of this Agreement, SBCL shall supply EXIGENT with clinical samples
to be reasonably agreed to by the parties to enable EXIGENT to validate tests
for its POCT research and development of PRODUCT. SBCL shall supply such
samples to EXIGENT and EXIGENT shall reimburse SBCL for SBCL's internal costs,
if any, for retrieving such samples. EXIGENT shall bear all costs of
transporting such samples from SBCL's facilities to EXIGENT's facilities and all
associated liabilities for transport of such samples. EXIGENT also shall bear
all cost and liability associated with such validation studies. (EXIGENT does
not hereby assume liability properly assessed against any third party.)
5.02. Within 90 days after FDA APPROVAL, or when otherwise agreed upon by
the parties, SBCL and EXIGENT shall agree upon terms (including price per each
unit of PRODUCT) for supply of PRODUCTS by EXIGENT to SBCL. EXIGENT shall
supply SBCL with all of its requirements of PRODUCT as reasonably requested by
SBCL and shall ship such PRODUCTS from EXIGENT's facility to the facility
specified by SBCL. EXIGENT shall have the fight and obligation to supply SBCL
with all of SBCL's requirements for PRODUCT (including packaging). SBCL shall
pay EXIGENT an amount equal to EXIGENT's production costs plus XXX [Omitted
pursuant to a request for confidential treatment. The material has been filed
separately with the Securities and Exchange Commission.] for the instruments and
the,, cartridges and reagents comprising the PRODUCTS.
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For purposes of this Section 5.02, EXIGENT's production costs will be all direct
and indirect manufacturing costs, overheads, packaging and labeling related to
the manufacture of POCT PRODUCTS. Costs not related to the manufacture of POCT
PRODUCTS, including without limitation research and development, administration,
sales and marketing, distribution and other miscellaneous non-manufacturing
costs, shall not be included in production costs. Warranty costs shall be
included in production costs but shall not be subject to the XXX [Omitted
pursuant to a request for confidential treatment. The material has been filed
separately with the Securities and Exchange Commission.] markup. Upon
FDA APPROVAL, SBCL shall purchase a minimum of XXXXXXXX [Omitted
pursuant to a request for confidential treatment. The material has been filed
separately with the Securities and Exchange Commission.] instruments during the
first three month period commencing with FDA APPROVAL, XXXXXXXXXXXXX [Omitted
pursuant to a request for confidential treatment. The material has been filed
separately with the Securities and Exchange Commission.] instruments
during the second three month period and thereafter XXXXXXXXXXXXXXXX [Omitted
pursuant to a request for confidential treatment. The material has been filed
separately with the Securities and Exchange Commission.] instruments
during each subsequent three month period for the TERM OF THIS AGREEMENT. Upon
FDA APPROVAL during the five one-year periods following such FDA APPROVAL, SBCL
shall purchase minimum quantities of cartridges as follows:
Year 1 XXXXXXX [Omitted pursuant to a request for
confidential treatment. The material
has been filed separately with the
Securities and Exchange Commission.]
cartridges
Year 2 XXXXXXXXX [Omitted pursuant to a request for
confidential treatment. The material
has been filed separately with the
Securities and Exchange Commission.]
cartridges
Year 3 XXXXXXXXX [Omitted pursuant to a request for
confidential treatment. The material
has been filed separately with the
Securities and Exchange Commission.]
cartridges
Year 4 XXXXXXXXX [Omitted pursuant to a request for
confidential treatment. The material
has been filed separately with the
Securities and Exchange Commission.]
cartridges
Year 5 XXXXXXXXX [Omitted pursuant to a request for
confidential treatment. The material
has been filed separately with the
Securities and Exchange Commission.]
cartridges
SBCL shall have the right to audit EXIGENT's books and records with respect to
documentation of EXIGENT's costs.
5.03. SBCL shall submit rolling forecasts with six month projections for
the PRODUCT to EXIGENT on a quarterly country by country basis. SBCL shall
place firm purchase orders with EXIGENT that are consistent with the current
three month projection in such forecasts and that contain a delivery date that
reflects quantities of instruments and cartridges that are consistent with the
amounts projected in the current forecast.
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<PAGE>
5.04. XXXXX [Omitted pursuant to a request for confidential treatment. The
material has been filed separately with the Securities and Exchange
Commission.]
5.05. To the extent of the quantities specified in SBCL's rolling
forecast, SBCL shall have priority with respect to EXIGENT's manufacturing
output vis a vis other customers.
5.06. Payment for PRODUCT shipped shall be net 45 days FOB EXIGENT's
shipping point.
5.07. In the event that EXIGENT develops a successor diagnostic instrument
or system and determines to cease production of an earlier model (including the
cartridges, reagents and other consumable supplies for the earlier model),
EXIGENT agrees that it shall continue to supply the earlier model for 12 months
from the date of approval of the successor PRODUCT in each country in the
TERRITORY and to supply the cartridges, reagents and other consumable supplies
for the earlier model for 24 months from such date or in either case for such
longer period of time as EXIGENT makes such PRODUCTS available to other
customers.
SECTION 6. DEVELOPMENT AND COMMERCIALIZATION
---------------------------------
6.01. EXIGENT shall have full control and authority over development of
PRODUCT and registration of PRODUCT in each country of the TERRITORY. EXIGENT
will exercise its reasonable efforts and diligence in developing PRODUCT in
accordance with its business, legal, medical and scientific judgment, and in
undertaking investigations and actions required to obtain appropriate
governmental approvals to market PRODUCT in the TERRITORY. EXIGENT shall bear
all responsibility for development of the PRODUCT and for seeking and obtaining,
at its
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<PAGE>
own expense, FDA APPROVAL of the PRODUCT. All such activity shall be undertaken
at EXIGENT's expense. With respect to any meetings or presentations to AGENCIES
with respect to initial approval of the PRODUCT, SBCL agrees to cooperate with
EXIGENT in such meetings or presentations to the extent reasonably requested by
EXIGENT.
6.02. SBCL shall have full control and authority over SBCL's efforts to
commercialize the PRODUCT for the INDEPENDENT COMMERCIAL LABORATORY INDUSTRY in
the TERRITORY. SBCL will exercise its reasonable efforts and diligence in
commercializing PRODUCT in accordance with its business, legal, medical and
scientific judgment. All such commercialization activity shall be undertaken at
SBCL's expense. To the extent that SBCL has rights to distribute the PRODUCT S
in a country in the TERRITORY pursuant to Section 2.01(ii), each party shaft
have full control and authority over its efforts to commercialize the PRODUCT
for markets other than those reserved exclusively to SBCL under Section 2.01(i).
6.03. EXIGENT shall keep SBCL informed of progress of EXIGENT's efforts to
develop and obtain regulatory approval, including FDA APPROVAL, for PRODUCT.
SBCL shall keep EXIGENT informed of progress of SBCL's efforts to commercialize
PRODUCT.
6.04. EXIGENT shall provide to SBCL, at SBCL's request, technical
assistance within its area of expertise concerning commercialization of PRODUCT.
Provision of such technical assistance shall include, but not be limited to,
visits by EXIGENT personnel to SBCL, at EXIGENT's expense, and visits by SBCL
personnel to EXIGENT, at SBCL's expense, at times and for periods of time upon
which the parties will agree. EXIGENT will be responsible, at its costs, for
maintenance and repair necessary to any malfunctioning instruments comprising
part of
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<PAGE>
the PRODUCT and will be available at reasonable times as the parties may agree
to SBCL or SBCL's customers to answer, questions and assist in training.
6.05. The parties shall promptly notify each other of any inspection or
other action taken or threatened by any AGENCY or with respect to PRODUCT of
which they become aware.
6.06. Following initial approval of the PRODUCT in a country, in the event
a meeting is scheduled between the FDA or any other AGENCY with EXIGENT or SBCL
regarding marketing or distribution of PRODUCT, including without limitation any
contemplated recall of the PRODUCT, EXIGENT shall give SBCL, or SBCL shall give
EXIGENT, as applicable, reasonable advance notice of such meeting in order to
allow the parties to discuss the contents of the meeting before such meeting
takes place. EXIGENT and SBCL shall consider each time whether the other
party's representatives' attendance and participation in such meeting may be
advisable and/or required by the FDA or other AGENCY.
6.07. The parties agree throughout the TERM OF THIS AGREEMENT to maintain
records and otherwise establish procedures to assure compliance with all
regulatory, professional, and other legal requirements which apply to the
promotion and marketing of PRODUCT.
SECTION 7. PERFORMANCE BY SBCL, PRODUCT MARKETING
--------------------------------------
7.01. In its capacity as distributor of PRODUCT in the INDEPENDENT
COMMERCIAL LABORATORY INDUSTRY within the TERRITORY, SBCL shall have, subject to
EXIGENT's CORPORATION rights for customers other than those in the INDEPENDENT
COMMERCIAL LABORATORY INDUSTRY to which SBCL has exclusive rights, the sole and
exclusive responsibility for all aspects of selling and distributing PRODUCT
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<PAGE>
to customers in the TERRITORY, including without limitation, warehousing,
shipping, physical distribution, inventory administration, billing, credit and
collections, rebate administration, contract administration and returned goods.
In discharging its duties and responsibilities, SBCL shall be held to a standard
of performance no less than that which it would exert in support of the
marketing and distribution of one of its own products and services with a
comparable profile and market size.
7.02. SBCL shall be responsible for the preparation of and cost relating
to all pre- and post-LAUNCH advertising and promotional material and literature
in connection with the marketing and promotion of PRODUCT for the INDEPENDENT
COMMERCIAL LABORATORY INDUST in the TERRITORY. The parties expressly agree that
neither shall be required to, and to the extent proscribed by law shall not
directly or indirectly voluntarily, confer with the other on advertising and
promotional material and literature for markets other than the INDEPENDENT
COMMERCIAL LABORATORY INDUSTRY.
7.03. SBCL shall be responsible for training its professional sales force
in connection with the promotion of PRODUCT.
7.04. With respect to each country in the TERRITORY, SBCL and EXIGENT
agree to limit their respective claims of efficacy and safety for the PRODUCT in
that country to those which are consistent with the regulatory approval received
for the PRODUCT in that country. Neither party shall add, delete or modify
claims of efficacy and safety in the advertising and promotion of the PRODUCT,
nor make any changes in advertising or promotional materials and literature,
unless authorized by the other party in writing. Throughout the TERM OF THIS
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AGREEMENT, the parties shall advertise and promote the PRODUCT in strict
adherence to applicable regulatory, professional and legal requirements.
SECTION 8. PRODUCT RECALLS
---------------
8.01. SBCL and EXIGENT shall share equally in the direct documented costs
incurred by each of them with respect to participating in any withdrawal or
recall, except that EXIGENT shall solely bear the direct costs incurred in
connection with such withdrawal or recall and shall reimburse SBCL for any such
costs incurred by it, in cases where such withdrawal or recall was caused by
EXIGENT by either of the following circumstances:
(a) a defect in manufacturing (i.e. manufacturing not in
accordance with FDA approved specifications), including any adulteration,
mislabeling or misbranding of PRODUCT if EXIGENT was responsible for the stage
of manufacturing in which such adulteration, mislabeling or misbranding
occurred, or
(b) any misrepresentation or willful omission committed by
EXIGENT, its employees, officers, directors, agents, representatives,
independent contractors or AFFILIATES in connection with PRODUCT safety or
efficacy data or information submitted or omitted from submission to any AGENCY.
8.02. SBCL shall solely bear the direct costs incurred in connection with
any PRODUCT withdrawal or recall and shall reimburse EXIGENT for any such costs
incurred by it, in the event that such withdrawal or recall was caused by:
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<PAGE>
(a) any misrepresentation made by SBCL or its employees,
officers, directors, agents, representatives, independent contractors or
AFFILIATES in connection with the promotion of PRODUCTS, or
(b) any negligence or wrongful act committed by SBCL or its
employees, officers, directors, agents, representatives, independent
contractors or AFFILIATES, including but not limited to improper storage and/or
handling of PRODUCT, in the distribution of PRODUCT.
SECTION 9. EXCHANGE OF INFORMATION AND CONFIDENTIALITY
-------------------------------------------
9.01. Immediately after the EFFECTIVE DATE, EXIGENT shall disclose all
PRODUCT INFORMATION to SBCL and any other information in its possession relating
to PRODUCT or PRODUCT relevant to the commercialization of the PRODUCT.
Thereafter, EXIGENT shall disclose to SBCL, on an ongoing basis in a timely
manner appropriate to commercialization of the PRODUCT, all information and data
on PRODUCT relevant to such commercialization, verbal or written, filed or
submitted by EXIGENT, or its designated representatives, and/or THIRD PARTY
licensees and/or commercial partners for PRODUCT with an AGENCY or information
received by any of them from any AGENCY. Subject to other provisions of this
Agreement, SBCL shall have the right to utilized, such information and data or
any portion thereof in relation to the performance of its duties and
responsibilities hereunder.
9.02. During the TERM OF THIS AGREEMENT and for five (5) years thereafter,
irrespective of any termination earlier than the expiration of the TERM OF THIS
AGREEMENT, neither SBCL or EXIGENT nor any of their respective AFFILIATES shall
use, reveal or disclose
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<PAGE>
to THIRD PARTIES any confidential information received from the other party
under this Agreement (including, without Stations SBCL CONFIDENTIAL INFORMATION
and EXIGENT CONFIDENTIAL INFORMATION) without first obtaining the written
consent of the other party, except as (i) may be otherwise provided herein, (ii)
may be required for purposes of investigating, manufacturing and marketing
PRODUCT pursuant to the terms of an appropriate Confidentiality Agreement, or
for securing essential or desirable authorizations, privileges or rights from
governmental agencies, (iii) is required to be disclosed to a governmental
AGENCY or is otherwise required by law, or (iv) is necessary to file or
prosecute patent applications concerning PRODUCT or to carry out any litigation
concerning PRODUCT. This confidentiality obligation shall not apply to such
information which is or becomes a matter of public knowledge, or is in the
possession of the receiving party on the date hereof, or is disclosed non-
confidentially to the receiving party by a THIRD PARTY having the right to do
so, or is subsequently and independently developed by employees of the receiving
party or AFFILIATES thereof who had no knowledge of the confidential information
disclosed. The parties shall take reasonable measures to assure that no
unauthorized use or disclosure is made by others to whom access to such
information is granted.
9.03. No public announcement or other disclosure to THIRD PARTIES
concerning the existence or terms of this Agreement shall be made, either
directly or indirectly, by SBCL or EXIGENT, or their respective AFFILIATES,
except as may be legally required or otherwise deemed advisable under the U.S.
Federal Securities laws, based upon the written opinion of outside legal
counsel, without first obtaining the approval of the other party and agreement
upon the nature and text of such announcement or disclosure, which approval
shall not be
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<PAGE>
unreasonably withheld. All publicity relating to this Agreement shall be
jointly planned and coordinated by and between SBCL and EXIGENT.
9.04. Nothing herein shall be construed as preventing SBCL from disclosing
any information received from EXIGENT to an AFFILIATE, sublicensee or
distributor of SBCL, provided, in the case of a sublicensee or distributor, such
sublicensee or distributor has undertaken a similar obligation of
confidentiality with respect to the confidential information.
9.05. All confidential information disclosed by one party to the other
shall remain the intellectual property of the disclosing party. In the event
that a court or other legal or administrative tribunal, directly or through an
appointed master, trustee or receiver, assumes partial or complete control over
the assets of a party to this Agreement based on the insolvency or bankruptcy of
such party, the bankrupt or insolvent party shall promptly notify the court or
other tribunal (i) that confidential information received from the other party
under this Agreement remains the property of the other party and (ii) of the
confidentiality obligations under this Agreement. In addition, the bankrupt or
insolvent party shall, to the extent permitted by law, take all steps necessary
or desirable to maintain the confidentiality of the other party's confidential
information and to ensure that the court, other tribunal or appointee maintains
such information in confidence in accordance with the terms of this Agreement.
Nothing in this Agreement shall be construed as preventing or in any way
inhibiting SBCL from other purpose. complying with statutory and regulatory
requirements governing the sale or other distribution of PRODUCT in any manner
which it reasonably deems appropriate, including, for example, by disclosing to
regulatory authorities confidential or other information received from EXIGENT
or THIRD PARTIES.
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9.06. During the TERM OF THIS AGREEMENT, each party shall promptly inform
the other party of any information that it obtains or develops regarding the
utility or safety of PRODUCT.
SECTION 10. TRADEMARKS AND NON-PROPRIETARY NAMES
------------------------------------
10.01. In accordance with the terms and subject to the conditions set
forth in this AGREEMENT, EXIGENT hereby grants to SBCL a non-exclusive, non-
transferable, royalty-free license to use the EXIGENT TRADEMARKS without
alteration solely for the purpose and in the context of identifying the origin
of the PRODUCTS and all related services in advertising and promotional
materials in the TERRITORY during the TERM OF THIS AGREEMENT and not for any
other purpose.
10.02. By accepting the TRADEMARK LICENSE, SBCL does not become the owner
of the EXIGENT TRADEMARKS and acknowledges EXIGENT's ownership of the EXIGENT
TRADEMARKS including any current and future registrations thereof SBCL shall not
at any time do, permit or cause to be done anything inconsistent with such
ownership. SBCL further acknowledges that, none of this AGREEMENT, the
TRADEMARK LICENSE or the use by SBCL of the EXIGENT TRADEMARKS shall create in
SBCL's favor any right, title or interest in or to the EXIGENT TRADEMARKS by
SBCL and that all use of the EXIGENT TRADEMARKS and all of the goodwill
associated therewith shall inure solely to SBCL's benefit.
10.03. SBCL shall use the EXIGENT TRADEMARKS and any associated logos in
the form and manner, and with all appropriate legends, that are currently or
then being used by
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EXIGENT, as such form and manner may be modified from time to time during the
TERM OF THIS AGREEMENT. SBCL shall ensure that each use of any of the EXIGENT
TRADEMARKS indicates that such EXIGENT TRADEMARK is EXIGENT's property. Without
limiting any of the foregoing and except as expressly provided otherwise in this
Agreement, SBCL shall, prior to any proposed use of the EXIGENT TRADEMARKS, give
EXIGENT at least thirty (30) days' prior written notice of exactly how SBCL
proposes to use each such EXIGENT TRADEMARK, which notice shall include drawings
of all advertising copy, if any. SBCL shall make whatever changes EXIGENT
requests in the use of any EXIGENT TRADEMARKS before making any public
distribution thereof. Without EXIGENT's prior written consent, SBCL shall not
use any EXIGENT TRADEMARK in any country in the TERRITORY until such EXIGENT
TRADEMARK has been registered in such country. SBCL shall execute any and all
Registered User Agreements reasonably necessary to protect the EXIGENT
TRADEMARKS in each country, if applicable.
10.04. SBCL shall, at all times during the TERM OF THIS AGREEMENT, abide
by EXIGENT's standards for the quality of products and services marketed,
distributed or licensed under the EXIGENT TRADEMARKS as provided by EXIGENT to
SBCL from time to time during the TERM OF THIS AGREEMENT upon ninety (90) days'
prior written notice. SBCL understands and acknowledges that SBCL's adherence
to such quality standards constitutes an essential condition of the TRADEMARK
LICENSE.
10.05. EXIGENT may discontinue use of any of the EXIGENT TRADEMARKS at any
time, and SBCL shall thereafter cease to use any such EXIGENT TRADE . In
addition,
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EXIGENT may alter any EXIGENT TRADEMARK, or add a new trademark or service mark,
at any time and from time to time during the TERM OF THIS AGREEMENT.
10.06. This AGREEMENT is not intended to convey and does not convey to
SBCL the right to use any trademarks or service marks of EXIGENT other than the
EXIGENT TRADEMARKS.
10.07. SBCL shall ensure that none of the EXIGENT TRADEMARKS or any
confusingly similar mark appears in any portion of any trademark or service mark
of SBCL or of any marks or names under which SBCL may do business without the
prior written consent of EXIGENT in its sole discretion.
SECTION 11. PATENT PROSECUTION AND LITIGATION
---------------------------------
11.01. EXIGENT agrees to keep SBCL promptly and fully informed of the
course of patent prosecution or other proceedings. SBCL shall hold all
information disclosed to it under this section as confidential subject to the
provisions of Sections 9.02 and 9.03.
11.02. Each party shall have and retain sole and exclusive title to all
inventions, discoveries and know-how which are made, conceived, reduced to
practice or generated by its respective employees, agents, or other persons
acting under its authority in the course of or as a result of this Agreement.
Ownership in all such inventions, discoveries and know-how made, conceived,
reduced to practice or generated jointly by employees, agents, or other persons
acting under the authority of both parties in the course of or as a result of
this Agreement will be negotiated on a case by case basis, and in the event
there is no agreement from such negotiation, such ownership shall be divided
equally. Except as expressly provided in this Agreement or as
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subsequently negotiated pursuant to the foregoing sentence, each joint owner may
make, use, sell, keep, license, assign, or mortgage such jointly owned
inventions, discoveries and know-how, and otherwise undertake all activities a
sole owner might undertake with respect to such inventions, discoveries and
know-how, without the consent of and without accounting to the other joint
owner. Notwithstanding anything above in this paragraph, if (i) SBCL uses its
invention or discovery to modify EXIGENT TECHNOLOGY or (ii) EXIGENT expresses an
interest in an exclusive license to SBCL's interest in any joint invention
(subject to preexisting rights in THIRD PARTIES), then SBCL and EXIGENT shall in
good faith negotiate a license of SBCL's invention or discovery or SBCL's
interest in such joint invention, as the case may be, to EXIGENT.
11.03. SBCL shall have the right to assume responsibility for any PATENT
or any part of a PATENT which EXIGENT intends to abandon or otherwise cause or
allow to be forfeited. EXIGENT shall give SBCL reasonable written notice prior
to abandonment or other forfeiture of any PATENT or any part of a PATENT so as
to permit SBCL to exercise its rights under this Section.
11.04. In the event of the institution of any suit by a THIRD PARTY
against EXIGENT, SBCL or its sublicensees or distributors for patent
infringement involving the manufacture, use, sale, distribution or marketing of
PRODUCT anywhere in the TERRITORY, the party sued shall promptly notify the
other party in writing. If named as a defendant in such suit, SBCL shall have
the right but not the obligation to defend such suit at its own expense and
shall allow EXIGENT to participate therein if it does assume such defense. If
both parties are sued, EXIGENT shall
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<PAGE>
have the right to control the defense thereof EXIGENT and SBCL shall assist one
another and cooperate in any such litigation at the other's request without
expense to the requesting party.
11.05. In the event that EXIGENT or SBCL becomes aware of actual or
threatened infringement of a PATENT anywhere in the TERRITORY, that party shall
promptly notify the other party in writing. EXIGENT shall have the first right
but not the obligation to bring, at its own expense, an infringement action
against any THIRD PARTY and to use SBCL's name in connection therewith and to
name SBCL as a party thereto. If EXIGENT does not commence a particular
infringement action within ninety (90) days after receipt of the notice of
infringement, then SBCL, after providing reasonable advance notice to EXIGENT in
writing, shall be entitled to bring such infringement action at its own expense.
The party conducting such action shall have full control over its conduct,
including settlement thereof subject to Section 11.07. In any event, EXIGENT and
SBCL shall assist one another and cooperate in any such litigation at the
other's request without expense to the requesting party.
11.06. In any action brought pursuant to Section 11.05 where the interests
of SBCL and EXIGENT are adverse, the party bringing the action shall indemnify
the other party, its officers, directors, shareholders, employees, agents,
successors and assigns from any loss, damage or liability, including for
attorney's fees and costs, which may result from defending against claims,
counterclaims or crossclaims asserted by a defendant, except to the extent that
such losses, damages or liabilities result from the negligence or willful
misconduct of the other party.
11.07. In a joint action by EXIGENT and SBCL, each shall recover their
respective actual out -of-pocket expenses, or equitable proportions thereof,
associated with any litigation or settlement thereof from any recovery made by
any party.
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<PAGE>
11.08. The parties shall keep one another informed of the status of and of
their respective activities regarding any litigation or settlement thereof
concerning PRODUCT, provided however that no settlement or consent judgment or
other voluntary final disposition of any suit defended or action brought by a
party pursuant to this Section 11 may be entered into without the consent of the
other party if such settlement would require the other party to be subject to an
injunction or to make a monetary payment or would otherwise adversely affect the
other party's rights under this Agreement. No party withholding consent from a
proposed settlement shall be indemnified for any amount above the amount at
which it could have settled under the proposed settlement.
11.09. At SBCL's request, EXIGENT shall seek to obtain SPC's or authorize
SBCL to obtain SPC's on EXIGENT's behalf. Where SBCL holds a relevant Marketing
Authorization, SBCL shall at EXIGENT's request provide to EXIGENT a copy of said
Marketing Authorization and any information necessary for the purpose of
obtaining an SPC.
SECTION 12. REPRESENTATIONS, WARRANTEES AND COVENANTS
-----------------------------------------
12.01. Each party represents, warrants and covenants to the other that it
has the fun right and authority to enter into this Agreement, and that it is not
aware of any impediment that would inhibit its ability to perform its
obligations under this Agreement.
12.02. EXIGENT represents, warrants and covenants that (i) it has or will
acquire the exclusive right to use the PATENT in connection with the
manufacture, use and sale of PRODUCT in each country of the TERRITORY, and (ii)
it has or will acquire sole and exclusive rights to manufacture, use and sell
PRODUCT in each country of the TERRITORY.
-27-
<PAGE>
12.03. EXIGENT hereby represents that it has no present knowledge from
which it can be inferred that any PATENT is or will be when issued invalid or
that any use thereof would infringe patent rights of THIRD PARTIES.
12.04. EXIGENT acknowledges that, in entering into this Agreement, SBCL
has relied or will rely upon PRODUCT INFORMATION, and EXIGENT warrants,
represents and[ covenants that the PRODUCT INFORMATION is and will be timely and
accurate in all material respects to its best knowledge and belief EXIGENT
further warrants and represents that it has not, up through and including the
date of this Agreement, omitted to furnish SBCL with any information known to
EXIGENT concerning the PRODUCT or the transactions contemplated by this
Agreement, which would be material to SBCL's decision to enter into this
Agreement and to undertake the commitments and obligations set forth herein.
12.05. EXIGENT represents and warrants that, to the best of its knowledge
and belief, it has no present knowledge of the existence of any pre-clinical or
clinical data or information concerning the PRODUCT which suggests that there
may exist toxicity, safety and/or efficacy concerns which may materially impair
the utility and/or safety of the PRODUCT. EXIGENT shall extend to SBCL the same
warranties it received from its manufacturers and suppliers.
12.06. EXIGENT represents, warrants and covenants that all PRODUCT shall
be supplied to SBCL free and clear of any hens, encumbrances or rights of THIRD
PARTIES of any notice whatsoever, including THIRD PARTY patent rights, and that
all PRODUCT supplied to SBCL shall conform to standards of quality approved by
applicable AGENCIES, shall be produced according to applicable GNP (Good
Manufacturing Practices) standards in the applicable country of the TERRITORY or
any other applicable laws or regulations of the
-28-
<PAGE>
applicable country of the TERRITORY, shall not be adulterated or misbranded, and
shall be manufactured in accordance with the specifications reviewed and
approved by SBCL and EXIGENT.
SECTION 13. INSURANCE AND INDEMNIFICATION
-----------------------------
13.01. During the TERM OF THIS AGREEMENT and for a period of five (5)
years after its expiration or earlier termination, EXIGENT and SBCL shall each
obtain and/or maintain, respectively, at their sole cost and expense, product
liability insurance or self-insurance that meets the following requirements:
(a) the insurance shall insure the respective company against all
liability related to the PRODUCT (whether the company's liability arises from
the company's own conduct or by virtue of its participation in this Agreement),
including liability for bodily injury, property damage, wrongful death, and any
contractual indemnity obligations imposed by this Agreement; and
(b) the insurance shall be in amounts, respectively, that are
reasonable and customary in the U.S. clinical laboratory and medical device
manufacturing companies of comparable sizes and activities.
13.02. EXIGENT will indemnify and hold SBCL, its directors, officers,
employees and representatives harmless from any claims, damages, or losses of a
THIRD PARTY, including reasonable attorneys' fees (hereinafter "Losses"),
arising from (i) the sale of PRODUCT, if such claims are the result of any
negligent or wrongful act of EXIGENT or a defect in manufacturing by EXIGENT,
including without limitation PRODUCT not manufactured by EXIGENT in
-29-
<PAGE>
accordance with FDA approved specifications therefor, (ii) any misrepresentation
or breach of warranty or covenant by EXIGENT, or (iii) the infringement of any
THIRD PARTY patent through the manufacture, sale or use of the PRODUCT in the
TERRITORY, unless such claims, damages or losses arise from or otherwise relate
to SBCL's breach of its responsibilities under this Agreement or a negligent or
wrongful act or any misrepresentation or breach of warranty or covenant by SBCL
in which case BCL shall indemnify and hold harmless EXIGENT, its directors,
officers, employees, and representatives for any claims, damages, or losses,
including reasonable attorneys' fees, incurred by it as a result of SBCL's
negligent or wrongful acts.
13.03. Each party to this Agreement expects that all actions taken by the
parties in furtherance of this Agreement will be in compliance with a reasonable
standard of care and all requirements of the law.
13.04. Any party of this Agreement which believes it is entitled to
indemnity hereunder shall promptly notify the party from whom indemnity is
sought of any claim, lawsuit or proceeding believed to give rise to a duty to
indemnify. The party from whom indemnity is sought shall have the right to
assume and control the defense of said claim, lawsuit or proceeding (including
the right to designate attorneys); provided that the claim, lawsuit or
proceeding may not be settled without approval of the indemnitee but if not
settled because the indemnitee does not approve a proposed settlement, the
indemnitor's liability for cash damages shall be limited to the amount offered
to and declined by the indemnitee. Notwithstanding the foregoing, the party
seeking indemnification may participate in the defense or settlement of such
claim, lawsuit or proceeding with counsel of its choice and at its own expense.
The parties agree to cooperate fully with each other in connection with the
defense, negotiation or settlement of any claim,
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<PAGE>
lawsuit or proceeding. In the event the party from whom indemnity is sought
declines to accept control of the defense of the claim, lawsuit or proceeding,
the party seeking indemnity may retain counsel at the expense of the party owing
the indemnity and control the defense of the lawsuit, provided that the claim,
lawsuit or proceeding may not be settled without the approval of the party from
whom indemnity is sought.
SECTION 14. TERM AND TERMINATION
--------------------
14.01. Unless terminated earlier pursuant to this Section the TERM OF THIS
AGREEMENT shall be for five (5) years from the date of FDA APPROVAL.
14.02. Notwithstanding Section 14.01, a non-defaulting party shall have
the option, in addition to all other legal and equitable rights and remedies
available to it, to terminate this Agreement effective immediately, or upon the
expiration of any applicable cure period, in the event of a "default" by the
other party (as defined below) if written notice of the defaulting activity has
been given to the party in default. The term "default" shall mean any of the
following events:
(a) failure by SBCL or EXIGENT to comply with or perform any material
provision of this Agreement and such default remains uncured for sixty (60) days
following written notice of the defaulting activity (if the default is cured
within the sixty (60) day notice period, the notice shall become null and void
and of no further effect); provided that, if the defaulting party can establish
to the reasonable satisfaction of the other party that it is diligently and
actively pursuing a cure at the expiration of such 60 day period, then such
period shall be
-31-
<PAGE>
extended for so long as a cure is being diligently and actively pursued, not to
exceed 120 days in the aggregate; or
(b) a party becomes insolvent, is unable to pay its debts as they
mature, is the subject of a petition in bankruptcy whether voluntary or
involuntary or of any other proceeding under bankruptcy, insolvency or similar
laws, makes an assignment for the benefit of creditors, is named in, or its
property is subject to, a suit for the appointment of a receiver, or is
dissolved or oxidated.
14.03. In addition to the events of termination described above, SBCL
shall have the right to terminate this Agreement upon sixty (60) days written
notice to EXIGENT in the event that:
(a) EXIGENT shall not have received FDA APPROVAL for PRODUCT on
or before December 31, 2000;
(b) any of the PATENTS are declared invalid or otherwise
unenforceable by a final unappealable determination of a court of competent
jurisdiction and a THIRD PARTY has commenced selling PRODUCT in the U.S. which
is not covered by remaining PATENTS (if any) which have not been declared
invalid or unenforceable.
14.04. SBCL may, in its discretion, terminate this Agreement upon ninety
(90) days written notice to EXIGENT. In the event of termination under this
Section 14.04, SBCL shall remain liable to purchase all PRODUCTS ordered under
firm purchase orders and shall remain liable for all DISTRIBUTOR FEES past due
or for the current year to the extent not yet paid. If such termination is
prior to FDA APPROVAL, notwithstanding such termination SBCL shall remain
obligated to pay the initial DISTRIBUTOR FEE, if any, due upon such FDA
-32-
<PAGE>
APPROVAL; provided, however, that if such termination is prior to June 1, 1998,
SBCL's sole obligation on such termination shall be payment of $50,000 which
shall be due and payable at termination whether or not FDA APPROVAL is
ultimately obtained.
SECTION 15. EFFECT OF TERMINATION
---------------------
15.01. Upon expiration or termination of this Agreement for whatever
reason, SBCL shall cease use, in any manner or for any purpose, directly or
indirectly, of any trademark used to identify PRODUCT or any marks or symbols
deceptively similar thereto as well as of all advertising and promotional
labeling and materials relative to PRODUCT. SBCL shall fulfill its marketing,
promotional and other obligations hereunder up to the effective date of
expiration or termination and shall promptly after said date of expiration or
termination remove EXIGENT's name and any trademark used to identify PRODUCT
from any other materials it possesses or controls.
15.02. Expiration or termination of this Agreement shall not affect
EXIGENT's or SBCL's obligations to pay any amount accruing to EXIGENT or SBCL,
respectively, under the provisions of this Agreement while it was in effect.
Further, the expiration or termination of this Agreement shall not affect any
rights and obligations of the parties under this Agreement which are intended by
the parties to survive such termination. Without limiting the generality of the
foregoing, the following provisions of this Agreement shall survive expiration
or termination hereof Sections 9.02, 9.03., 9.04 and 9.05. Any such termination
shall not affect the parties' liabilities to each other for breach hereof.
-33-
<PAGE>
SECTION 16. FORCE MAJEURE
-------------
16.01. If any party is prevented from complying, either totally or in
part, with any of the terms or provisions of this Agreement, by reason of force
majeure, including, but not limited to fire, flood, explosion, storm, strike,
lockout or other labor trouble, riot, war, rebellion, accidents, acts of God
and/or any other cause or externally induced casualty beyond its reasonable
control, whether similar to the foregoing matters or not, then, upon written
notice by the party liable to perform to the other parties, the requirements of
this Agreement or such of its provisions as may be affected, and to the extent
so affected, shall be suspended during the period of such disability; provided
that the party asserting force majeure shall bear the burden of establishing the
existence of such force majeure by clear and convincing evidence; and provided
further, that the party prevented from complying shall use its best efforts to
remove such disability within thirty (30) days, and shall continue performance
with the utmost dispatch whenever such causes are removed, and shall notify the
other party of the event not more than five (5) working days from the time of
the event. When such circumstances arise, the parties shall discuss what, if
any, modification of the terms of this Agreement may be required in order to
arrive at an equitable solution.
SECTION 17. GOVERNING LAW
-------------
17.01. This Agreement shall be deemed to have been made in the
Commonwealth of Pennsylvania and its form, execution, validity, construction and
effect shall be determined in accordance with the laws of the Commonwealth of
Pennsylvania, U.S.A.
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<PAGE>
SECTION 18. WAIVER OF BREACH
----------------
18.01. The failure of either party at any time or times to require
performance of any provision hereof shall in no manner affect its rights at a
later time to enforce the same. No waiver by either party of any condition or
term in any one or more instances shall be construed as a further or continuing
waiver of such condition or term or of another condition or term. No term or
condition of this Agreement shall be considered waived unless reduced to writing
and duly executed by an officer of the waiving party.
SECTION 19. SEPARABILITY
------------
19.01. To the extent that any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remaining provisions of this Agreement.
19.02. If any of the terms or provisions of this Agreement are in conflict
with any applicable statute or rule of law, then such terms or provisions shall
be deemed inoperative to the extent that they may conflict therewith and shall
be deemed to be modified to conform with such statute or rule of law unless such
modification would render such provision inconsistent with the intent of the
parties. However, in the event that the terms and conditions of this Agreement
are materially altered as a result of this Section, the parties shall in good
faith attempt to renegotiate the terms and conditions of this Agreement to
resolve any inequities.
SECTION 20. ENTIRE AGREEMENT
----------------
20.01. This Agreement, entered into as of the date written above,
constitutes the entire agreement between the parties relating to the subject
matter hereof and supersedes all previous
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<PAGE>
writings and understandings. No terms or provisions of this Agreement shall be
varied or modified by any prior or subsequent statement, conduct or act of
either of the parties, except that the parties may amend this Agreement by
written instruments specifically referring to and executed in the same manner as
this Agreement.
SECTION 21. INDEPENDENT CONTRACTORS
-----------------------
21.01. This Agreement shall not constitute or give rise to an employer-
employee, AGENCY, partnership or joint venture relationship among the parties
and each party's performance hereunder is that of a separate, independent
entity.
21.02. Nothing in this Agreement shall be deemed or implied to be the
grant by any party to the other of any right, title or interest in any product,
intellectual property rights or intangibles, material or proprietary rights of
the other except as may be expressly provided for in this Agreement.
SECTION 22. NOTICES
-------
22.01. Any notice required or permitted under this Agreement shall be sent
by air mail, postage pre-paid, to the following addresses of the parties:
If to EXIGENT: Exigent Diagnostics Inc.
709 Swedeland Road (Mailcode UW2360)
King of Prussia, PA 19406
Attention: W. Vickery Stoughton, President
Copy to:
Pepper, Hamilton & Scheetz LLP
Two Logan Square
Philadelphia, PA 19103
Attention: Barry M. Abelson, Esquire
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<PAGE>
If to SBCL: SmithKline Beecham Clinical Laboratories, Inc.
1201 South Collegeville Road
Collegeville, PA 19426
Attention: John B. Okkerse, Jr., Ph.D.
President
Copy to:
SmithKline Beecham Corporation
One Franklin Plaza (Mail Code FP2230)
P.O. Box 7929
Philadelphia, Pennsylvania 19101, U.S.A.
Attention: Legal Operations - Healthcare Services
22.02. Any notice required or permitted to be given concerning this
Agreement shall be effective upon the earliest of (a) receipt by the party to
whom it is addressed, (b) the seventh day after dispatch or (c) the next
business day in the event a courier service is used which guarantees next
business day delivery.
SECTION 23. ASSIGNMENT
----------
23.01. This Agreement and the licenses herein granted shall be binding
upon and inure to the benefit of the successors in interest of the respective
parties. Neither party may assign this Agreement nor any interest hereunder
without the written consent of the other; provided, however, that either party
may assign this Agreement or any part of its rights and obligations hereunder,
or any PATENT owned by it, to any AFFILIATE or to any corporation with which
such party may merge or consolidate, or to which it may transfer all or
substantially all of its assets to which this Agreement relates, without
obtaining the consent of the other party.
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<PAGE>
SECTION 24. ARBITRATION
-----------
24.01. Any significant controversy, claim, or dispute arising out of or
relating to this Agreement or significant breach thereof, shall be settled, if
possible through good faith negotiations between the parties. Only if such
efforts are not successful shall such significant controversy, claim or dispute
be resolved by arbitration. Such arbitration shall take place in Philadelphia,
Pennsylvania and it shall proceed in accordance with the Commercial Arbitration
Rules of the American Arbitration Association. Within ten (10) days after the
filing of the Demand or Submission, or longer if the parties mutually agree,
EXIGENT and SBCL shall each select one arbitrator; the two arbitrators so
appointed shall select and appoint the third neutral arbitrator. Judgment upon
the award rendered by arbitrators may be entered in any court having
jurisdiction thereof. Costs of arbitration are to be divided by the parties in
the following manner: EXIGENT shall pay for the arbitrator it chooses, SBCL
shall pay for the arbitrator it chooses, and the costs of the third neutral
arbitrator shall be divided equally. All other costs shall be divided equally.
SECTION 25. RECORDING
---------
25.01. SBCL shall have the right, at any time, to record, register, or
otherwise notify this Agreement in appropriate governmental or regulatory
offices anywhere in the TERRITORY and as necessary or appropriate under the
laws, rules, regulations or customs thereof, and EXIGENT shall provide
reasonable assistance to SBCL in effecting such recording, registering or
notifying.
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<PAGE>
SECTION 26. EXECUTION IN COUNTERPARTS
-------------------------
26.01. This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties, through their duly authorized
officers, have executed this Agreement as of the date first written above.
EXIGENT DIAGNOSTICS INC.
By: /s/ W. Vickery Stoughton
---------------------------
Name: W. Vickery Stoughton
Title: President
SMITHKLINE BEECHAM CLINICAL LABORATORIES, INC.
By: /s/ John B. Okkerse
--------------------------
Name: John B. Okkerse, Jr., Ph.D.
Title: President
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<PAGE>
APPENDIX A
POCT TESTS
----------
TEST MENU 1- IST 0 1998
- -----------------------
Chemistry Menu
- --------------
Electrolytes:
1. Glucose *
2. Potassium *
3. Sodium *
4. Chloride *
5. Total Carbon Dioxide
Other Chemistry
6. Urea Nitrogen (BUN) *
7. Creatinine *
Coagulation Menu
- ----------------
8. PT *
9. PTT
Immunoassay Menu
- ----------------
10. Theophylline *
11. Digoxin *
12. Phenytoin *
TEST MENU 2-AUGUST/SEPTEMBER 1998 (Includes Test Menu 1 and the following:)
- ---------------------------------------------------------------------------
Chemistry Menu
- --------------
1. Hemoglobin *
2. Cholesterol
3. Triglycerides
4. HDL-Cholesterol
5. Bilirubin *
6. Ammonia
7. Calcium *
8. Phosphorous
<PAGE>
APPENDIX A
POCT TESTS
----------
9. Total Protein
10. Albumin *
11. Uric Acid *
12. Creatine Kinase *
13. Asparate Aminotransferase *
14. Alanine Aminotransferase
15. Alkaline Phosphatase *
16. Gamma Glutamultransferase *
17. Lactate Dehydrogenase *
18. Amylase *
19. Leucine Aminopeptidase
20. Magnesium
21. Ionized Calcium
Coagulation Menu
- ----------------
1. Activated Clotting Time
2. Fibrinogen
3. Thrombin Time
Immunoassay Menu
- ----------------
1. Phenobarbital *
2. Carbamazepine *
3. Valproic Acid *
4. Gentamicin *
5. Tobramycin *
6. Amikacin *
7. Vancomycin *
8. T4
9. Thyroid Uptake
TEST MENU 3-JANUARY 1999 includes Test Menus 1 & 2 and the following:)
- ----------------------------------------------------------------------
Immunoassay Menu
- ----------------
1. HCG
2. Rubella, IgG & IgM
3. CK-MB
<PAGE>
APPENDIX A
POCT TESTS
----------
4. Troponin
5. Myoglobin
6. PSA
7. Hemoglobin A1c
8. H. pylori, IgG
9. Microalbumin (U)
10. Transferrin (U)
11. TSH
<PAGE>
APPENDIX B
PATENTS
None
<PAGE>
EXHIBIT 10.24
ASSET PURCHASE AGREEMENT
AMONG
SMITHKLINE BEECHAM CLINICAL LABORATORIES, INC.,
SMITHKLINE BEECHAM DIAGNOSTIC SYSTEMS CO.,
AND
EXIGENT DIAGNOSTICS, INC.,
NOVEMBER 7, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - DEFINITIONS..................................................... 2
ARTICLE II - PURCHASE AND SALE OF ASSETS.................................... 7
2.1. Purchase and Sale of Assets................................. 7
2.2. Purchased Assets............................................ 7
2.3. Excluded Assets............................................. 8
ARTICLE III - ASSUMPTION OF LIABILITIES..................................... 9
3.1. Assumption of Assumed Liabilities........................... 9
3.2. Assumed Liabilities......................................... 9
3.3. No Other Liabilities Assumed................................ 10
ARTICLE IV - CLOSING........................................................ 10
4.1. Closing Date................................................ 10
4.2. Deliveries at the Closing................................... 10
ARTICLE V - PURCHASE PRICE AND PAYMENT...................................... 12
5.1. Purchase Price Payment...................................... 12
ARTICLE VI - REPRESENTATIONS AND WARRANTIES OF THE SELLER................... 12
6.1. Representations and Warranties of SBD....................... 13
(a) Due Incorporation........................................... 13
(b) Power and Authority of SBD.................................. 13
(c) Financial Statements........................................ 13
(d) Tax Matters................................................. 14
(e) Good Title Conveyed, Etc.................................... 15
(f) Consents and Approvals...................................... 16
(g) No Violation................................................ 16
(h) Absence of Certain Changes.................................. 17
6.2. Representations and Warranties of SBCL...................... 17
(a) Due Incorporation........................................... 18
(b) Power and Authority of SBCL................................. 18
(c) Good Title Conveyed, Etc.................................... 18
(d) Consents and Approvals...................................... 19
(e) No Violation................................................ 19
ARTICLE VII - REPRESENTATIONS AND WARRANTIES OF THE BUYER................... 20
7.1. Due Incorporation........................................... 20
7.2. Power and Authority of the Buyer............................ 20
7.3. Consents and Approvals...................................... 21
7.4. No Violation................................................ 21
</TABLE>
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<TABLE>
<S> <C>
7.5. Condition of Purchased Assets.............................. 21
7.6. Nonreliance................................................ 22
7.7. Interim Activities......................................... 22
7.8. Outstanding Securities..................................... 23
ARTICLE VIII - COVENANTS OF THE PARTIES.................................... 23
8.1. Antidilution of the Seller's Equity
in the Buyer............................................... 23
8.2. Tax Matters................................................ 24
8.3. Employee Matters........................................... 25
8.4. Pension and Section 401(k) Matters......................... 28
8.5. Employee Plan Obligations.................................. 29
8.6. Vesting of Employee Stock Options.......................... 32
8.7. Consummation of Transactions............................... 32
8.8. Cooperation................................................ 32
8.9. Books and Records.......................................... 32
8.10. Consents................................................... 33
8.11. The Seller's Agreement Regarding
Confidentiality............................................ 34
8.12. The Buyer's Agreement Regarding
Confidentiality............................................ 36
8.13. Public Announcements....................................... 38
8.14. Use of the Seller's Facilities............................. 38
8.15. Credit Facility............................................ 39
8.16. Funding of Operating Expenses.............................. 39
8.17. Payments to Immunomatrix................................... 40
8.18. Stockholders Agreement..................................... 40
8.19. Further Assurances......................................... 40
8.20. Notice of Financing........................................ 41
8.21. Use of Name................................................ 41
ARTICLE IX - SURVIVAL; INDEMNIFICATION..................................... 42
9.1. Survival of Representations and Warranties................. 42
9.2. Indemnification............................................ 43
9.3. Third-Party Claims......................................... 45
ARTICLE X - MISCELLANEOUS PROVISIONS....................................... 47
10.1. Expenses................................................... 47
10.2. Payment of Taxes Upon Transfer of
Purchased Assets........................................... 47
10.3. Execution in Counterparts.................................. 48
10.4. Notices.................................................... 48
10.5. Waivers.................................................... 49
10.6. Amendment.................................................. 49
10.7. Entire Agreement........................................... 49
10.8. Applicable Law............................................. 49
10.9. Relationship of the Parties................................ 50
10.10. Headings................................................... 50
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
10.11. Assignments................................................ 50
10.12. Binding Effect; Benefits................................... 50
</TABLE>
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<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("Agreement") dated as of the 7th day of
November, 1996, among SmithKline Beecham Clinical Laboratories, Inc., a company
organized under the laws of the Commonwealth of Pennsylvania, having a principal
place of business at 1201 South Collegeville Road, Collegeville, PA 19426
("SBCL"), SmithKline Beecham Diagnostic Systems Co., a limited liability company
organized under the laws of the Commonwealth of Pennsylvania, having a principal
place of business at 1201 South Collegeville Road, Collegeville, PA 19426
("SBD") (SBCL and SBD collectively, the "Seller"), and Exigent Diagnostics,
Inc., a company organized under the laws of the State of Delaware, having a
principal place of business at 6100 Bristol Parkway, Culver City, CA 90230 (the
"Buyer"),
WITNESSETH:
WHEREAS, SBD is engaged in the research and development of point-of-
care diagnostic tests, and owns certain assets for use in such business; and
WHEREAS, SBCL owns certain assets used by SBD in conducting such
business; and
WHEREAS, the Buyer desires to purchase and the Seller desires to sell,
on the terms and conditions set forth in this
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<PAGE>
Agreement, the assets used by SBD in conducting such business; and
WHEREAS, the Seller desires to assign and the Buyer desires to assume,
on the terms and conditions set forth in this Agreement, certain liabilities;
and
WHEREAS, the Buyer and the Seller agree to take certain other actions,
as set forth below, in light of the Seller's intended withdrawal from direct
involvement in the point-of-care diagnostic test business.
NOW, THEREFORE, in consideration of the mutual agreements contained
herein and for other good and valuable consideration described herein, the
Seller and the Buyer agree as follows:
ARTICLE I
DEFINITIONS
-----------
The following terms shall have the following respective meanings when
used in this Agreement, unless the context shall require otherwise:
1.1. "Affiliate" shall mean any corporation, firm, partnership or
other entity, whether de jure or de facto, which directly or indirectly owns, is
-- ---- -- -----
owned by or is under common ownership with a party to this Agreement to the
extent of at least fifty percent (50%) of the equity (or such lesser percentage
which is the maximum allowed to be owned by a foreign corporation in a
particular jurisdiction) having the power to
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<PAGE>
vote on or direct the affairs of the entity and any person, firm, partnership,
corporation or other entity actually controlled by, controlling or under common
control with a party to this Agreement.
1.2. "Agreement" shall have the meaning set forth in the preamble
hereof.
1.3. "Assigned Contracts" shall mean the contracts to be assigned
by the Seller to the Buyer pursuant to this Agreement, as listed in Schedule 1
hereto.
1.4. "Assumed Liabilities" shall have the meaning set forth in
Section 3.2 hereof.
1.5. "Assumption Agreement" shall have the meaning set forth in
Section 4.2(b)(I) hereof.
1.6. "Base Balance Sheet" shall have the meaning set forth in
Section 2.2(a) hereof.
1.7. "Base Date" shall have the meaning set forth in Section 2.2(a)
hereof.
1.8. "Bill of Sale" shall have the meaning set forth in Section
4.2(a)(I) hereof.
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<PAGE>
1.9. "Business" shall mean the business of research and development
of point-of-care diagnostic testing products conducted within SBD prior to the
Closing Date; provided, however, that the Business shall not include any
-------- -------
contractual relations or other dealings between SBD (or its Affiliates) and
Immunomatrix, Inc.
1.10. "Buyer" has the meaning set forth in the preamble hereof.
1.11. "Buyer Group" shall have the meaning set forth in Section
9.2(a) hereof.
1.12. "Claim" shall have the meaning set forth in Section 9.1
hereof.
1.13. "Closing" shall have the meaning set forth in Section 4.1
hereof.
1.14. "Closing Date" shall have the meaning set forth in Section 4.1
hereof.
1.15. "Code" shall have the meaning set forth in Section 6.1(d)(3)
hereof.
1.16. "Common Stock" shall mean the common stock of the Buyer, par
value $.01 per share.
1.17. "Consents" shall have the meaning set forth in Section 8.10
hereof.
1.18. "Damages" shall have the meaning set forth in Section 9.2(a)
hereof.
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<PAGE>
1.19. "Distribution and Supply Agreement" shall have the meaning set
forth in Section 4.2(a)(iii) hereof.
1.20. "Employees" shall have the meaning set forth in Section 8.3(a)
hereof.
1.21. "Excluded Assets" shall have the meaning set forth in Section
2.3 hereof.
1.22. "Financing" shall have the meaning set forth in Section
8.12(a) hereof.
1.23. "Immunomatrix License" shall have the meaning set forth in
Section 2.3(b) hereof.
1.24. "Indemnified Party" shall have the meaning set forth in
Section 9.3(a) hereof.
1.25. "Indemnifying Party" shall have the meaning set forth in
Section 9.3(a) hereof.
1.26. "Liens" shall have the meaning set forth in 6.1(h)(1) hereof.
1.27. "Loan Agreement" shall have the meaning set forth in Section
8.15 hereof.
1.28. "NASDAQ" shall mean the National Association of Securities
Dealers Automatic Quotation System.
1.29. "1934 Act" shall have the meaning set forth in Section 8.11(a)
hereof.
1.30. "Note" shall have the meaning set forth in Section 8.16
hereof.
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<PAGE>
1.31. "Operating Expenses" shall have the meaning set forth in
Section 8.16 hereof.
1.32 "Principals" shall mean W. Vickery Stoughton and Thomas H.
Grove.
1.33. "Purchased Assets" shall have the meaning set forth in Section
2.2 hereof.
1.34. "Registration Rights Agreement" shall have the meaning set
forth in Section 4.2(a)(iv) hereof.
1.35. "SBCL" shall have the meaning set forth in the preamble
hereof.
1.36 "SBCL Assets" shall have the meaning set forth in Section 2.2
hereof.
1.37. "SBD" shall have the meaning set forth in the preamble hereof.
1.38. "SBD Assets" shall have the meaning set forth in Section 2.2
hereof.
1.39. "Seller" shall have the meaning set forth in the preamble
hereof.
1.40. "Seller Group" shall have the meaning set forth in Section
9.2(c) hereof.
1.41. "Services Agreement" shall have the meaning set forth in
Section 4.2(a)(vii) hereof.
1.42. "Shareholders Agreement" shall have the meaning set forth in
Section 4.2(a)(v) hereof.
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<PAGE>
1.43. "Taxes" shall have the meaning set forth in Section 6.1(d)(3)
hereof.
1.44. "Tax Return" shall have the meaning set forth in Section
6.1(d)(3) hereof.
1.45. "Termination Date" shall have the meaning set forth in Section
9.1 hereof.
1.46. "Third-Party Claims" shall have the meaning set forth in
Section 9.3 hereof.
ARTICLE II
PURCHASE AND SALE OF ASSETS
---------------------------
2.1. Purchase and Sale of Assets. Subject to the terms and
---------------------------
conditions of this Agreement, on the Closing Date, the Seller shall sell,
transfer, convey, assign and deliver (or will cause to be sold, transferred,
conveyed, assigned and delivered) to the Buyer and the Buyer shall purchase,
acquire and accept (or cause to be purchased, acquired and accepted) from the
Seller, the Purchased Assets.
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<PAGE>
2.2. Purchased Assets. The Purchased Assets shall mean the
----------------
following rights, properties, assets, claims, and contracts (but only, in the
case of the contracts, if the liabilities associated with such assets or under
such contracts are assumed by the Buyer in accordance with the provisions of
Article III hereof) of the Seller relating to the Business: (a) all fixed and
intangible assets that are reflected on the pro forma balance sheet of SBD dated
--- -----
as of June 27, 1996 (the "Base Date"), a copy of which is attached hereto as
Schedule 2 (the "Base Balance Sheet"); (b) such items of capital equipment owned
by SBD as are listed in Schedule 3 hereto, and such other assets, tangible or
intangible, as SBD shall have acquired in the ordinary course of business
between the Base Date and the Closing Date (collectively, the "SBD Assets"); (c)
the Assigned Contracts, subject to receipt by SBD of all third-party consents
and approvals required therefor; (d) computer hardware, other office equipment,
and other assets owned by SBCL and used by or for the benefit of SBD in the
Business as of the Base Date, as listed in Schedule 4 hereto (collectively, the
"SBCL Assets"); (e) all books and records currently in the possession or under
the control of the Seller relating exclusively to the research and development
activities conducted by the Seller in connection with the Business; and (f) the
Trademark Use Application filed by SmithKline Beecham Corporation and any
trademark registered
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<PAGE>
pursuant thereto, relating to the mark "Exigent Diagnostics"; provided, however,
-------- -------
that the Purchased Assets shall not include any Excluded Assets (as defined in
Section 2.3 hereof).
2.3. Excluded Assets. Notwithstanding anything contained in
---------------
Section 2.2 hereof, the Purchased Assets shall not include any of the following
assets (the "Excluded Assets"): (a) all proprietary software and related data,
as more specifically listed in Schedule 5 hereto, used in connection with the
computer hardware and equipment listed in Schedule 4 hereto; (b) that certain
Amended and Restated Distribution and Supply Agreement by and between the Seller
and Immunomatrix, Inc. (the "Immunomatrix License"); and (c) that certain
Amended and Restated Option Agreement, by and between the Seller and
Immunomatrix, Inc.
ARTICLE III
ASSUMPTION OF LIABILITIES
-------------------------
3.1. Assumption of Assumed Liabilities. Subject to the terms and
---------------------------------
conditions of this Agreement, on the Closing Date, the Seller shall assign to
the Buyer, and the Buyer shall assume, the Assumed Liabilities (as defined in
Section 3.2 hereof). The Buyer agrees that, from and after such assumption, the
Seller will be completely released and discharged from any and all obligations
of any kind whatsoever relating to or arising out of the Assumed Liabilities.
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<PAGE>
3.2. Assumed Liabilities. The liabilities of the Seller to be
-------------------
transferred and assumed (the "Assumed Liabilities") by the Buyer shall be: (a)
all liabilities that are reflected on the Base Balance Sheet, other than the
accrued liability for Employee vacation pay; (b) such obligations relating to
the Business as shall have been incurred by or behalf of the Seller between the
Base Date and the Closing Date in the ordinary course of the Business or with
the authorization (or under the supervision) of the Principals, and all
liabilities relating to or arising out of such obligations and out of any other
events that have occurred between the Base Date and the Closing Date; and (c)
certain obligations of the Seller relating to Employees, to the extent
specifically provided in Sections 8.3 and 8.4 hereof.
3.3. No Other Liabilities Assumed. Except as and to the extent
----------------------------
otherwise expressly provided in this Agreement, the Buyer has not agreed to pay,
shall not be required to assume and shall not have any liability or obligation,
direct or indirect, absolute or contingent, of the Seller or any other person,
including without limitation any intercompany obligations of SBD or SBCL to any
other entity in connection with taxes or otherwise.
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<PAGE>
ARTICLE IV
CLOSING
-------
4.1. Closing Date. Subject to the terms and conditions of this
------------
Agreement, the closing of the purchase and sale of the Purchased Assets and the
assumption of the Assumed Liabilities (the "Closing") shall be conducted at the
offices of Pepper, Hamilton & Scheetz, 3000 Two Logan Square, Philadelphia,
Pennsylvania 19103 at 10:00 A.M. on the date first above written (the "Closing
Date").
4.2. Deliveries at the Closing.
-------------------------
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<PAGE>
(a) At the Closing the Seller shall deliver or cause to be
delivered to the Buyer: (i) a duly- executed bill of sale for all personal
property that comprises part of the Purchased Assets (the "Bill of Sale"); (ii)
a duly-executed counterpart of an assignment and assumption agreement (the
"Undertaking and Assumption Agreement"); (iii) a duly-executed counterpart of a
distribution and supply agreement (the "Distribution and Supply Agreement");
(iv) a duly-executed counterpart of a registration rights agreement (the
"Registration Rights Agreement"); (v) a duly-executed counterpart of a trademark
assignment agreement (the "Trademark Assignment"); (vi) all such other deeds,
endorsements, assignments and other instruments as are necessary to transfer to
the Buyer good and marketable title to the Purchased Assets at the Closing;
(vii) any payments required to be made by the Seller to the Buyer at the Closing
pursuant to Sections 8.15 and 8.16 hereof; and (viii) all other previously
undelivered documents required hereby to be delivered by the Seller to the Buyer
at or prior to the Closing in connection with the transactions contemplated by
this Agreement.
(b) At the Closing, the Buyer shall deliver or cause to be
delivered to the Seller: (i) a duly- executed counterpart of the Undertaking and
Assumption Agreement; (ii) a certificate representing the shares of Common Stock
referred to
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<PAGE>
in Section 5.1 hereof; (iii) a duly-executed counterpart of the Distribution and
Supply Agreement; (iv) a duly-executed counterpart of the Registration Rights
Agreement; (v) a duly-executed counterpart of the Trademark Assignment; (vi) a
copy of a signed commitment letter, reasonably satisfactory to the Seller, with
respect to the Financing; (vii) a copy of a signed commitment letter, reasonably
satisfactory to the Seller, with respect to the $1 million bridge loan facility
provided to the Buyer by Exigent Partners, L.P. (the "Bridge Loan"); (viii) a
certificate signed by W. Vickery Stoughton stating that all conditions to
drawdown under the Bridge Loan have been met as of the Closing Date; and (ix)
all other previously undelivered documents required hereby to be delivered by
the Buyer to the Seller at or prior to the Closing in connection with the
transactions contemplated by this Agreement.
ARTICLE V
PURCHASE PRICE AND PAYMENT
--------------------------
5.1. Purchase Price Payment. On the Closing Date, the Buyer shall
----------------------
issue or cause to be issued to the Seller a certificate representing such number
of shares of Common Stock as will, after the issuance thereof, comprise five
percent (5%) of all issued and outstanding shares of Common Stock as
consideration (in addition to the Buyer's assumption of the Assumed Liabilities)
for the sale of the Purchased Assets.
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<PAGE>
ARTICLE VI
REPRESENTATIONS AND
WARRANTIES OF THE SELLER
------------------------
6.1. Representations and Warranties of SBD. SBD represents and
-------------------------------------
warrants to the Buyer as follows:
(a) Due Incorporation. SBD is a limited liability company
-----------------
duly organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania and has the full corporate power and lawful
authority to carry on its business as it is now being conducted and to own the
properties and assets it now owns.
(b) Power and Authority of SBD. SBD has the full legal right
--------------------------
and power and all authority and approval required to enter into, execute and
deliver this Agreement, and to perform fully its obligations under this
Agreement. This Agreement is a valid and binding agreement of SBD enforceable in
accordance with its terms, except that (I) such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights, and (ii) the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
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<PAGE>
(c) Financial Statements. SBD has delivered to the Buyer a
--------------------
copy of the Base Balance Sheet, which has been prepared from the books and
records of SBD in conformity with generally-accepted accounting principles and
SBD's accounting principles, which have been consistently applied, and fairly
presents as of the date thereof the results of operation of the Business for the
period then ended and the book value of the Purchased Assets and the Assumed
Liabilities reflected therein.
(d) Tax Matters.
-----------
(1) SBD has filed or caused to be filed with the appropriate
governmental agencies all Tax Returns (as hereinafter defined) and reports
required to be filed, and has maintained, or caused to be maintained, all
required records with respect to Taxes (as hereinafter defined), with respect to
or covering the Business and the Purchased Assets, and has paid in full all
Taxes, if any, shown to be due on such Tax Returns and reports, or otherwise due
or claimed to be due from them by any taxing authority for all periods up to and
including the date of this Agreement.
(2) All Taxes that SBD is required by law to withhold or collect
in connection with, or related to, the Purchased Assets or the Business through
the Closing Date have been or will be duly withheld or collected and, to the
extent
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<PAGE>
required, have been or will be paid to the proper governmental authorities or
properly deposited as required by applicable laws.
(3) "Taxes" shall mean all taxes, charges, fees, levies or other
assessments, including, without limitation, income, excise, property, sale and
franchise taxes (including any interest, penalties or additions attributable to
or imposed on or with respect to any such assessment) imposed by the United
States or any other jurisdiction in which SBD conducts activities with respect
to the Purchased Assets and the Business or is subject to taxing jurisdiction
with respect to the Purchased Assets and the Business, and any state, province,
county, local or other government, taxing authority, or subdivision thereof.
"Code" shall mean the United States Internal Revenue Code of 1986, as amended.
"Tax Return" shall mean any return, report, information return or other document
(including any related or supporting information) filed or required to be filed
with any governmental entity or other authority in connection with the
determination, assessment or collection of any Tax (whether or not such Tax is
imposed on SBD) or the administration of any laws, regulations or administrative
requirements relating to any Tax.
(e) Good Title Conveyed, Etc. SBD has complete and unrestricted
------------------------
power and the unqualified right to sell, assign, transfer and deliver to the
Buyer, and upon consummation of the transactions contemplated by this Agreement,
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<PAGE>
the Buyer will acquire, good, valid and marketable title to, the SBD Assets,
free and clear of all Liens, except for (I) Liens which, either individually or
in the aggregate, are not material to the Business or the Purchased Assets, or
(ii) those Liens listed in Schedule 6 hereto. The Bill of Sale and the deeds,
endorsements, assignments and other instruments to be executed and delivered to
the Buyer by SBD at the Closing will be valid and binding obligations of the
Seller enforceable in accordance with their terms, and will effectively vest in
the Buyer good, valid and marketable title to the SBD Assets.
(f) Consents and Approvals. Except with respect to the Assigned
----------------------
Contracts, no material consent, approval, license, permit or authorization of,
or material declaration, filing or registration with, any third party or any
governmental or regulatory authority is required in connection with the
execution and delivery of this Agreement by SBD, or the consummation by SBD of
the transactions contemplated hereby.
(g) No Violation. Neither the execution and delivery of this
------------
Agreement nor the consummation of the transactions contemplated hereby will
violate any provisions of the certificate of incorporation or by-laws of SBD, or
violate any statute or law or any judgment, decree, order, regulation or rule of
any court or governmental authority, or result in a breach of the terms,
conditions or provisions of, or constitute a
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<PAGE>
default under, any instrument, agreement, mortgage, judgment, order, award,
decree, or other restriction to which it is a party or by which it is bound.
(h) Absence of Certain Changes. The officers of SBD (other
--------------------------
than the Principals) have not, with respect to the operation of the Business
since the Base Date:
(1) Permitted or allowed any of the Purchased Assets (real or
personal, tangible or intangible) to be subjected to any mortgage, pledge, lien,
security interest, encumbrance, restriction or charge of any kind ("Liens"),
except for Liens for current taxes not yet due and Liens that have arisen by
operation of law for amounts not yet payable;
(2) Sold, transferred, or otherwise disposed of any of its
properties or assets (real or personal, tangible or intangible) used or useful
in the Business, except in the ordinary course of the Business and consistent
with past practice;
(3) Incurred any liability in connection with the Business other
than in the ordinary course of the Business consistent with past practice;
(4) Conducted the Business other than in the ordinary course and
consistent with past practice, except as disclosed in this Agreement; or
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<PAGE>
(5) Agreed, whether in writing or otherwise, to take any action
described in this Section 6.1(h).
6.2. Representations and Warranties of SBCL. SBCL represents and
--------------------------------------
warrants to the Buyer as follows:
(a) Due Incorporation. SBCL is a corporation duly organized,
-----------------
validly existing and in good standing under the laws of the Commonwealth of
Pennsylvania and has the full corporate power and lawful authority to carry on
its business as it is now being conducted and to own the properties and assets
it now owns.
(b) Power and Authority of SBCL. SBCL has the full legal right
---------------------------
and power and all authority and approval required to enter into, execute and
deliver this Agreement, and to perform fully its obligations under this
Agreement. This Agreement is a valid and binding agreement of SBCL enforceable
in accordance with its terms, except that (I) such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights, and (ii) the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
(c) Good Title Conveyed, Etc. SBCL has complete and
------------------------
unrestricted power and the unqualified right to
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<PAGE>
sell, assign, transfer and deliver to the Buyer, and upon consummation of the
transactions contemplated by this Agreement, the Buyer will acquire, good, valid
and marketable title to, the SBCL Assets, free and clear of all Liens, except
for (I) Liens which, either individually or in the aggregate, are not material
to the Business or the SBCL Assets, or (ii) those Liens listed in Schedule 6
hereto. The Bill of Sale and the deeds, endorsements, assignments and other
instruments to be executed and delivered to the Buyer by SBCL at the Closing
will be valid and binding obligations of the Seller enforceable in accordance
with their terms, and will effectively vest in the Buyer good, valid and
marketable title to the SBCL Assets.
(d) Consents and Approvals. Except with respect to the Assigned
----------------------
Contracts, no material consent, approval, license, permit or authorization of,
or material declaration, filing or registration with, any third party or any
governmental or regulatory authority is required in connection with the
execution and delivery of this Agreement by SBCL, or the consummation by SBCL of
the transactions contemplated hereby.
(e) No Violation. Neither the execution and delivery of this
------------
Agreement nor the consummation of the transactions contemplated hereby will
violate any provisions of the certificate of incorporation or by-laws of SBCL,
or violate any statute or law or any judgment, decree, order, regulation or
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<PAGE>
rule of any court or governmental authority, or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any instrument,
agreement, mortgage, judgment, order, award, decree, or other restriction to
which it is a party or by which it is bound.
ARTICLE VII
REPRESENTATIONS AND
WARRANTIES OF THE BUYER
-----------------------
The Buyer represents and warrants to the Seller as follows :
7.1. Due Incorporation. The Buyer is a corporation duly
-----------------
organized, validly existing and in good standing under the laws of the State of
Delaware and has the full corporate power and lawful authority to carry on its
business as it is now being conducted and to own the properties and assets it
now owns.
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<PAGE>
7.2. Power and Authority of the Buyer. The Buyer has the full
--------------------------------
legal right and power and all authority and approval required to enter into,
execute and deliver this Agreement, and to perform fully its obligations under
this Agreement. This Agreement is a valid and binding agreement of the Buyer
enforceable in accordance with its terms, except that (I) such enforcement may
be subject to bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights, and (ii)
the remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
7.3. Consents and Approvals. Except with respect to the Assigned
----------------------
Contracts, no material consent, approval, license, permit or authorization of,
or material declaration, filing or registration with, any third party or any
governmental or regulatory authority is required in connection with the
execution and delivery of this Agreement by the Buyer, or the consummation by
the Buyer of the transactions contemplated hereby.
7.4. No Violation. Neither the execution and delivery of this
------------
Agreement nor the consummation of the transactions contemplated hereby will
violate any provisions of the certificate of incorporation or by-laws of the
Buyer, or
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<PAGE>
violate any statute or law or any judgment, decree, order, regulation or rule of
any court or governmental authority, or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any instrument,
agreement, mortgage, judgment, order, award, decree, or other restriction to
which it is a party or by which it is bound.
7.5. Condition of Purchased Assets. EXCEPT AS OTHERWISE
----------------------------- -------------------
EXPRESSLY STATED HEREIN, THE BUYER UNDERSTANDS AND AGREES THAT THE PURCHASED
- ----------------------------------------------------------------------------
ASSETS WILL BE SOLD, ASSIGNED, CONVEYED, TRANSFERRED AND DELIVERED TO THE
- -------------------------------------------------------------------------
BUYER IN AN "AS IS" CONDITION ON A "WHERE IS" BASIS, WITHOUT ANY WARRANTY OF
- ----------------------------------------------------------------------------
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER WARRANTY,
- --------------------------------------------------------------------------
EXPRESS OR IMPLIED.
- ------------------
7.6. Nonreliance. In connection with its decision to acquire the
-----------
Purchased Assets, the Buyer acknowledges that it is not relying upon any
financial projections, budgets or other forward-looking financial data with
respect to the Purchased Assets or the Business prepared by or furnished to it
by or on behalf of the Seller and that the Seller is making no representation or
warranty with respect thereto.
7.7. Interim Activities. Except as otherwise expressly provided
------------------
in this Agreement, between the Base Date and the Closing Date, the Buyer has
used its best efforts to cause the Principals to cause the Employees to conduct
the Business in
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<PAGE>
the ordinary course consistent with past practice, subject to the terms and
conditions of this Agreement, and not to enter into any third-party contracts
relating to the Business, or make any capital expenditures or incur or assume
any liabilities, in the name of or on behalf of SBD or SBCL, other than (i)
expenditures for the capital equipment listed in Schedule 3 hereto and (ii) such
other contracts incidental to the conduct of the Business as the Seller has
approved in writing. To the best knowledge of the Buyer, during such period, the
Employees have conducted the Business and refrained from entering into third-
party contracts, in conformity with the preceding sentence.
7.8. Outstanding Securities. As of the Closing, the Buyer has
----------------------
issued and outstanding the number of shares of Common Stock and other
securities, including without limitation, options, warrants, notes, bonds or
other equity or debt securities, listed in Annex E hereto. The beneficial owners
of such securities as of the Closing are as listed in Annex E.
ARTICLE VIII
COVENANTS OF THE PARTIES
------------------------
The Seller and the Buyer hereby covenant and agree as follows:
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<PAGE>
8.1. Antidilution of the Seller's Equity in the Buyer. In the
------------------------------------------------
event that, after the Closing, the Buyer shall issue additional shares of Common
Stock (including without limitation any shares issued upon the exercise of
warrants held by Spencer Trask Securities Incorporated), securities exercisable
or convertible into shares of Common Stock or any other form of equity security
with voting rights to any third party in consideration or for capital
contributions, then in connection with such issuances, until such contributions
equal cumulatively Seven Million Dollars (US $7,000,000) (or, in the event that
the outstanding balance under the Loan Agreement and the Note is not converted
(mandatorily or otherwise) into Common Stock as contemplated therein, Five
Million Dollars (US $5,000,000))(the applicable dollar amount being herein
referred to as the "Financing Threshold"), the Buyer shall issue additional
shares of Common Stock to the Seller, without payment of additional
consideration (or for payment of $.01 per share of Common Share if required for
such shares to be deemed to be fully paid and non-assessable), as necessary in
order to avoid dilution of the Seller's percentage equity interest in the Buyer.
Thereafter, the Buyer may dilute the Seller's percentage equity interest in the
Buyer only on a pro rata basis, as the equity interests in the Buyer of other
--- ----
investors are diluted. Notwithstanding the foregoing, prior to achieving the
Financing Threshold the Buyer
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<PAGE>
may issue stock options to key employees (with or without consideration), in a
total amount to be mutually agreed by the Buyer and the Seller, which agreement
shall not be unreasonably withheld, delayed or conditioned, without triggering
the Seller's right to receive additional shares of Common Stock pursuant to this
Section 8.1; provided, however, that any consideration paid by such key with
-------- -------
employees respect to such stock options shall not be credited toward the
achievement of the Financing Threshold.
8.2. Tax Matters. The Seller shall be liable for all Taxes payable
-----------
with respect to the operations of the Business and the Purchased Assets through
the Closing Date, and the Seller shall be responsible for timely filing the
appropriate Tax Returns and reports with respect to the operations of the
Business and the Purchased Assets through and including the Closing Date. The
Buyer shall be liable for all Taxes payable with respect to the operations of
the Business and the Purchased Assets after the Closing Date, and the Buyer
shall be responsible for filing the necessary Tax Returns and reports with
respect to the operations of the Business after that date.
8.3. Employee Matters. The Buyer shall offer to hire substantially
----------------
all Employees as of the Closing Date, each at a rate of base salary or pay at
least equal to the rate of base salary or pay of such Employee immediately prior
to the Closing
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<PAGE>
Date, and with employee benefits comparable to the employee benefits provided to
such Employee immediately prior to the Closing Date. The Buyer shall not be
obligated to maintain a defined benefit pension plan or to provide any other
particular benefit, whether in nature or amount, as long as the total benefit
package that the Buyer provides to each Employee is comparable to the benefit
package provided to such Employee immediately prior to the Closing Date. Such
employment by the Buyer of individuals who are employed in the Business shall
occur on the terms and conditions provided herein.
(a) Schedule 7 hereto sets forth a list of the employees of
SBD who are employed in connection with the Business ("Employees"), together
with their respective titles and dates of employment.
(b) The Employees shall cease to be employees of SBD on the
Closing Date. The Buyer acknowledges the Seller's position that the Employees
shall not be entitled to any termination or severance pay as a result of the
termination of their employment with SBD, and the Buyer will cooperate with the
Seller to provide continuity of employment by providing the current compensation
and benefits described in this Section 8.3. The Seller will provide termination
or severance pay, in accordance with and subject to the terms of the Seller's
severance pay plan as in effect on the Closing Date, to any
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Employee who does not receive an offer of employment from the Buyer, and to any
Employee who declines the Buyer's offer of employment (provided that, in the
case of an Employee who declines the Buyer's offer of employment, the Seller
shall provide termination or severance pay to the Employee only if the Buyer
agrees in writing not to hire the Employee during the twelve-month period
following the Closing Date).
(c) Except as otherwise expressly provided in this Section 8.3,
the Buyer shall have no obligation or liability with respect to any claims by
any Employees or former employees of SBD arising by reason of the sale or
purchase of the Purchased Assets pursuant to this Agreement or by reason of
their employment, or the termination of such employment, with SBD on or prior to
the Closing Date. Without limitation of the foregoing, the Buyer shall not
assume any obligation or liability with respect to, or receive any assets from,
any employee benefit plan with respect to the Employees, or with respect to any
employment practices or policies maintained by SBD with respect to the
Employees, to the extent that such obligations, liabilities, or assets relate to
the Employees' employment with SBD on or prior to the Closing Date.
(d) The Seller shall be responsible for all wages, salaries,
employee benefit plan costs and claims, vacation pay, workers' compensation
claims, and all other employment
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benefits and costs incurred as a result of events occurring prior to and
including the Closing Date with respect to the Employees and their dependents
and related to their employment by SBD, except to the extent that such items are
reflected on the Base Balance Sheet as Assumed Liabilities or Section 8.5 hereof
otherwise provides. The Seller shall remain liable for retiree medical and life
insurance benefits, if any, with respect to all Employees retiring on or prior
to the Closing Date, in accordance with and subject to the terms of any retiree
medical or retiree life insurance plan maintained by the Seller that is
applicable to such Employee.
(e) With respect to those Employees who become employees of the
Buyer, the Buyer shall be responsible for (i) all wages, salaries, employee
benefit plan costs and claims, earned sales bonuses or management bonuses,
workers' compensation claims, and all other employment benefits and costs
incurred as a result of events occurring prior to and including the Closing Date
with respect to the Employees and their dependents and related to their
employment by SBD, to the extent that such items are reflected on the Base
Balance Sheet as Assumed Liabilities, and (ii) all wages, salaries, employee
benefit plan costs and claims, vacation pay, earned sales bonuses or management
bonuses, workers' compensation claims, severance or other termination
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benefits, and all other employment benefits and costs incurred as a result of
events occurring after the Closing Date.
(f) After the Closing Date, the Seller agrees to cooperate
with the Buyer to enable the Buyer to have successorship status with respect to
the Business for the limited purpose of qualifying as a successor corporation
under the applicable provisions of the Federal Insurance Contributions Act, the
Federal Unemployment Tax Act, state unemployment insurance acts, and state
temporary disability acts. The Seller agrees to cooperate with the Buyer in all
filings necessary to obtain such successorship status.
8.4. Pension and Section 401(k) Matters. Effective as of the
----------------------------------
Closing Date, the Seller shall treat the Employees as fully vested in their
accrued pension benefits, and in their employee- and employer-derived account
balances under the Seller's section 401(k) plan, irrespective of whether they
were fully vested immediately prior to the Closing Date. No provision of this
Agreement shall require the Seller to treat the termination of the Employees'
employment with SBD on the Closing Date as a "separation from service" or as a
"termination of employment" for purposes of any pension plan, retirement savings
plan, or other retirement arrangement maintained by the Seller. Except as
provided above with respect to vesting, the Employees' rights under any
retirement arrangement maintained by the Seller
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(including, but not limited to, any right to distributions) shall be determined
solely by the applicable provisions of the retirement arrangement, as in effect
on the Closing Date and as amended from time to time thereafter.
8.5. Employee Plan Obligations.
-------------------------
(a) With respect to Employees who are covered by the
Seller's health and dental insurance plans, and who become employees of the
Buyer as of the Closing Date, the Seller shall:
(I) at all times prior to the Closing Date and, if
requested in writing by the Buyer, for a period up to eighteen (18)
months from the Closing Date, maintain insurance coverage levels as in
effect under such plans on the date of this Agreement, and as amended
from time to time thereafter to comply with changes in applicable law,
with respect to such Employees and their beneficiaries; and
(ii) be responsible for any payments required by such
coverage with respect to claims incurred while such coverage remains
in effect and submitted by Employees or their beneficiaries within the
claims filing period provided under such plans.
The Seller's obligation to maintain the health and dental insurance coverage
described in this Section 8.5(a) shall
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terminate as soon as the Buyer establishes the equivalent insurance coverage
described below in Section 8.5(b).
(b) With respect to Employees who are covered by the Seller's
health and dental insurance plans and who become employees of the Buyer as of
the Closing Date, the Buyer shall:
(I) Within eighteen (18) months of the Closing Date,
provide insurance coverage that is substantially equivalent to the
coverage provided by the plans identified in Section 8.5(a); and
(ii) be responsible for any payments required by such
substantially equivalent coverage with respect to claims incurred by
such Employees or their beneficiaries after the Buyer's insurance
coverage is established; and
(iii) reimburse the Seller for the cost of providing such
health and dental insurance following the Closing Date at a rate equal
to the cost charged by the Seller to the Business for active employee
coverage as of the Closing Date.
(c) If an Employee becomes an employee of the Buyer as of the
Closing Date, and the Employee (or a beneficiary of the Employee) incurs a
"qualifying event" after the Closing Date that entitles such individual to
health care
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continuation ("COBRA") coverage under the Seller's plan, the following rules
shall apply:
(I) the Buyer shall use its best efforts to assume
the obligation to provide COBRA coverage to such individual under the
Buyer's plan on and after the date on which the Buyer establishes the
substantially equivalent coverage described in Section 8.5(b); and
(ii) to the extent that the Buyer is not able to
provide COBRA coverage to such individual, the Seller shall continue
to provide the coverage under the Seller's plan for the remainder of
the eighteen-month continuation coverage period; and
(iii) during any period in which an individual
receives COBRA coverage under the Seller's plan as a result of a
qualifying event described in this Section 8.5(c), the Seller may
charge the individual the full amount of the applicable COBRA premium.
8.6. Vesting of Employee Stock Options. The Seller agrees to treat
---------------------------------
as vested as of the Closing Date any and all stock options issued by the Seller
or one of its Affiliates pursuant to an Employee Stock Option Plan that are held
by
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Employees who shall be terminated by SBD as of the Closing Date and shall enter
the employ of the Buyer as of such date.
8.7. Consummation of Transactions. Each party shall use its
----------------------------
commercially reasonable efforts to cause all conditions precedent to its
obligations to consummate the transactions contemplated by this Agreement to be
satisfied.
8.8. Cooperation. Each party shall cooperate fully with the
-----------
other in preparing and filing all notices, applications, reports and other
instruments and documents which are required by any statute, rule, regulation or
order in connection with the consummation of the transactions contemplated by
this Agreement.
8.9. Books and Records. The Seller agrees to permit the Buyer
-----------------
and its authorized representatives, including legal counsel and independent
accountants, upon reasonable notice, to have full access at reasonable business
hours to the books and records of the Seller relating to the Business and the
Purchased Assets (other than the books and records comprising part of the
Purchased Assets). The Buyer and the Seller each agree to preserve until
December 31, 2006, all records in their possession relating to any of the
Purchased Assets, Assumed Liabilities or the Business or the transactions
contemplated herein. In the event that any party hereto needs access to records
in the possession of another party hereto relating to any
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of the Purchased Assets, Assumed Liabilities or the Business or the transactions
contemplated herein for any legitimate purpose, it will allow representatives of
such other party access to such records during regular business hours at its
place of business for the sole purpose of obtaining information for such use and
will permit such other party to make extracts and copies thereof (at their
expense) as may be necessary or convenient.
8.10. Consents. From and after the Closing Date, the Seller shall
--------
use its best reasonable efforts to obtain at the earliest practicable date all
consents or waivers of third parties to the Assigned Contracts and other
instruments (collectively, "Consents") necessary to the consummation of the
transactions contemplated hereby or to assign or transfer effectively to the
Buyer the Purchased Assets and will provide the Buyer with copies of each such
Consent after it is obtained. Anything contained in this Section 8.10 to the
contrary notwithstanding, this Agreement shall not constitute an agreement to
assign any contract, including without limitation the Assigned Contracts, if an
attempted assignment thereof without the consent of the other party thereto
would constitute a breach thereof. In the event that the Seller shall be unable
to secure any such Consent, then the Seller shall use reasonable efforts to make
available to the Buyer the economic benefits of the relevant Assigned Contract.
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8.11. The Seller's Agreement Regarding Confidentiality. (a) The
------------------------------------------------
Seller covenants that, after the Closing, it will not, without the prior written
consent of the Buyer, disclose to any person confidential information relating
to or concerning the Purchased Assets, the Business, or the Buyer, except to its
officers, directors, employees and representatives who need to know such
information for purposes of taxes, accounting, pending litigation and other
matters necessary in respect of the Seller's ownership, prior to the Closing
Date, of the Purchased Assets or the Business, unless, in the unqualified
opinion of counsel to the Seller, disclosure is required to be made under the
Securities Act of 1933, the Securities Exchange Act of 1934, as amended (the
"1934 Act"), or other applicable law or the regulations of the New York Stock
Exchange. In the event that the Seller is requested or required by documents
subpoena, civil investigative demand, interrogatories, requests for information,
or other similar process to disclose any information supplied to the Seller in
the course of its ownership of the Purchased Assets, the Seller shall provide
the Buyer with prompt notice of such request or demands or other similar process
so that the Buyer may seek an appropriate protective order or, if such request,
demand or other similar process is not mandatory, waive the Seller's compliance
with the provisions of this Section 8.12(a) as appropriate.
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(b) The term confidential information as used in this Section 8.11
does not include information which (I) becomes generally available to the public
other than as a result of disclosure by the Seller, (ii) was available on a non-
confidential basis prior to its disclosure by the Seller, or (iii) becomes
available to the Seller on a non-confidential basis from a source other than the
Buyer, provided that such source is not bound by a confidentiality agreement
with the Buyer or its representatives.
(c) For purposes of this Section 8.11, the Seller shall include
the Seller, its Affiliates, and any of their respective directors, officers,
employees and representatives.
(d) No failure or delay by the Buyer in exercising any right,
power or privilege under this Section 8.11 shall operate as a waiver thereof,
nor shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege
hereunder.
8.12. The Buyer's Agreement Regarding Confidentiality. (a) The
-----------------------------------------------
Buyer covenants that, after the Closing, it will not, without the prior written
consent of the Seller, disclose to any person confidential information relating
to the Seller and its Affiliates which was acquired by the Buyer
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in connection with the transaction contemplated herein, except to its officers,
directors, employees and representatives who need to know such information for
purposes of taxes, accounting, pending litigation and other matters, unless, in
the unqualified opinion of counsel to the Buyer, disclosure is required to be
made under the Securities Act of 1933, the 1934 Act, or other applicable law or
the regulations of a national securities exchange or NASDAQ, including without
limitation any disclosure required to be made in connection with the $7.5
million private placement of Common Stock to be underwritten by Spencer Trask
Securities Incorporated (the "Financing"). The Seller acknowledges having
received a copy of selected pages from the private placement memorandum draft
(the "PPM") prepared by the Buyer in connection with the Financing, attached
hereto as Annex D, and approves the disclosure therein of any Seller-related
information for purposes of the Financing. In the event that the Buyer is
requested or required by documents subpoena, civil investigative demand,
interrogatories, requests for information, or other similar process to disclose
any of such information supplied to the Buyer, the Buyer shall provide the
Seller with prompt notice of such request or demands or other similar process so
that the Seller may seek an appropriate protective order or, if such request,
demand or other similar process is not
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<PAGE>
mandatory, waive the Buyer's compliance with the provisions of this Section
8.12, as appropriate.
(b) The term confidential information as used in this Section 8.12
does not include information which (I) becomes generally available to the public
other than as a result of disclosure by the Buyer, (ii) was available on a non-
confidential basis prior to its disclosure by the Buyer, or (iii) becomes
available to the Buyer on a non-confidential basis from a source other than the
Seller, provided that such source is not bound by a confidentiality agreement
with the Seller or its representatives.
(c) For purposes of this Section 8.12 the Buyer shall include the
Buyer, its Affiliates, and any of their respective directors, officers,
employees and representatives.
(d) No failure or delay by the Seller in exercising any right,
power or privilege under this Section 8.12 shall operate as a waiver thereof,
nor shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege
hereunder.
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<PAGE>
8.13. Public Announcements. The Buyer and the Seller agree not to,
--------------------
without the other's prior written consent (which consent shall not be
unreasonably withheld or delayed), issue any press releases or otherwise make
any public statements with respect to the transactions contemplated herein.
Each party agrees to furnish to the other at least three (3) business days in
advance of any public announcement drafts of any such disclosures which are in
written form and written statements of the substance of any disclosures which
are verbally communicated. Failure by the recipient party to provide the
furnishing party with written objections within three (3) business days after
receipt of any such draft shall constitute consent thereto. Notwithstanding
anything to the contrary in this Section 8.13, (I) the Buyer may distribute the
PPM in connection with the Financing without obtaining the Seller's prior
written approval and (ii) either party may issue any press release or make any
public statement without the approval of the other as may be required by law.
8.14. Use of the Seller's Facilities. From the date of this
------------------------------
Agreement through December 31, 1996, the Seller shall permit the Employees
(other than W. Vickery Stoughton) who become employees of the Buyer to maintain
their offices at the Seller's facility located in Van Nuys, California, and
shall permit W. Vickery Stoughton to maintain an office at the Seller's
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<PAGE>
facility located in King of Prussia, Pennsylvania, in each case at no charge to
the Buyer. The Buyer agrees to provide suitable offices for the Employees from
and after January 1, 1997, and agrees to use its best efforts to cause the
Employees to vacate the Seller's facilities not later than December 31, 1996
(except in the case of W. Vickery Stoughton, who may remain at the Seller's King
of Prussia facility until April 1, 1997).
8.15. Credit Facility. SmithKline Beecham Corporation and the
---------------
Buyer have executed and delivered a loan and security agreement in the form of
Annex A hereto (the "Loan Agreement") and the Buyer has executed and delivered a
promissory note in the form of Annex B hereto (the "Note"). At the Closing, and
notwithstanding the terms and conditions of the Loan Agreement setting forth
conditions to drawdowns of funds thereunder, the Seller shall cause SmithKline
Beecham Corporation to disburse to the Buyer any amounts undisbursed as of the
Closing Date under the Loan Agreement. The parties hereby acknowledge and agree
that the Loan Agreement shall be deemed amended in accordance with this Section
8.16, as of the date hereof.
8.16. Funding of Operating Expenses. At the Closing, the Seller
-----------------------------
shall disburse to the Buyer any amounts undisbursed as of the Closing Date of
the aggregate amount of One Million Eight Hundred Thousand Dollars (US
$1,800,000) of
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Operating Expenses of SBD that the Seller agreed to fund during the months of
July through October, 1996. For purposes of this Agreement, "Operating
Expenses" shall mean expenses and costs incurred in the ordinary course in
conducting the Business, consistent with past practice.
8.17. Payments to Immunomatrix. In the event that the Buyer shall
------------------------
enter into an agreement with Immunomatrix, Inc., after the Closing Date, for the
commercialization of certain point-of-care diagnostic testing products, then the
Buyer shall notify the Seller thereof and provide the Seller with a summary of
the financial terms thereof, within five (5) business days after execution
thereof.
8.18. Stockholders Agreement. The parties agree to enter into a
----------------------
Stockholders Agreement substantially in the form of Annex A hereto prior to the
initial closing of the Financing (or such later date as the parties may mutually
agree), and to use their best efforts to cause the other prospective parties
thereto to do so.
8.19. Further Assurances. The Seller agrees to do, execute and
------------------
deliver, or cause to be done, executed and delivered, all such further acts and
instruments as the Buyer may reasonably request in order more fully to
effectuate the sale and assignment provided for in this Agreement. The Buyer
agrees to do, execute and deliver, or cause to be done, executed and delivered,
all
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such further acts and instruments as the Seller may reasonably request in order
more fully to effectuate the purchase and assumption provided for in this
Agreement.
8.20. Notice of Financing. The Buyer agrees to give the Seller
-------------------
notice of the closing of the Financing in an aggregate amount of not less than
Four Million Dollars (U.S. $4,000,000), within five business days thereafter.
8.21. Use of Name. The Buyer agrees not to use or cause other to
-----------
use, or to make reference to for any purpose after the Closing in any publicly
disseminated document, the names "SmithKline Beecham," "SmithKline Beecham
Clinical Laboratories," "SmithKline Beecham Diagnostic Systems" or any variant
thereof. Exept as expressly set forth elsewhere in this Agreement, the Seller
does not grant to the Buyer any trademark license of any kind whatsoever.
ARTICLE IX
SURVIVAL; INDEMNIFICATION
-------------------------
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9.1. Survival of Representations and Warranties. All representations
------------------------------------------
and warranties made in Articles VI and VII hereof shall survive the Closing and
continue for two (2) years from the Closing Date; provided, however, that those
-------- -------
representations and warranties made by SBD in Section 6.1(e) hereof and those
representations and warranties made by SBCL in Section 6.2(c) hereof shall
survive the Closing and continue for a period of twenty (20) years from the
Closing Date. Any right of indemnification pursuant to this Section 9.1 with
respect to a claimed breach of a representation or warranty shall expire at the
date of termination of the representation or warranty claimed to be breached
(the "Termination Date"), unless on or prior to the Termination Date a Claim (as
defined herein) has been made to the party from whom indemnification is sought.
Provided that a Claim is timely made, it may continue to be asserted beyond the
Termination Date of the representation and warranty to which such Claim relates.
As used in this Agreement, a Claim means a written notice asserting a breach of
a representation, warranty, covenant, agreement or obligation specified in this
Agreement, which shall reasonably set forth, in light of the information then
known to the party giving such notice, a description of and estimate (if then
reasonable to make) of the amount of damages involved in such breach.
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9.2. Indemnification. (a) After the Closing Date, SBD hereby agrees
---------------
to defend and, promptly upon the determination of the Damages (as defined below)
arising from or relating to any Claim, to indemnify and hold harmless the Buyer,
its Affiliates, and their respective directors, officers, shareholders and
employees (collectively, the "Buyer Group"), as the case may be, from and
against all demands, claims, actions or causes of action, assessments, losses,
damages, liabilities, costs and expenses, including, without limitation,
interest, penalties and attorneys' fees, disbursements and expenses
(collectively, the "Damages") asserted against, resulting to, or imposed upon or
incurred by any member of the Buyer Group, directly or indirectly, (I) by reason
of, or resulting from, or which constitutes, a breach of any representation,
warranty, covenant, agreement or other obligation of the Seller or SBD contained
in or made pursuant to this Agreement or (ii) by reason of, or resulting from,
any occurrence relating to the Excluded Assets.
(b) After the Closing Date, SBCL hereby agrees to defend and,
promptly upon the determination of the Damages arising from or relating to any
Claim, to indemnify and hold harmless the Buyer Group from and against all
Damages asserted against, resulting to, or imposed upon or incurred by any
member of the Buyer Group, directly or indirectly, by reason
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of, or resulting from, or which constitutes, a breach of any representation or
warranty of SBCL contained in or made pursuant to this Agreement.
(c) After the Closing Date, the Buyer hereby agrees to defend
and, promptly upon the determination of the Damages arising from or relating to
any Claim, to indemnify and hold harmless the Seller, its Affiliates, and each
of their respective directors, officers, shareholders, and employees
(collectively, the "Seller Group"), as the case may be, from and against all
Damages asserted against, resulting to, or imposed upon or incurred by any
member of the Seller Group, directly or indirectly, (I) by reason of, or
resulting from, or which constitutes a breach of any representation, warranty,
covenant, agreement or other obligation of the Buyer contained in or made
pursuant to this Agreement or (ii) by reason of, or resulting from the operation
of the Business or the Purchased Assets after the Closing Date.
(d) Nothing in this Article IX shall be construed to affect
the rights to reimbursement or indemnification under other provisions of this
Agreement, notwithstanding that the matter for which reimbursement or indemnity
is sought also constitutes a matter for which an indemnity could be sought under
this Article IX; provided,
--------
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however, that there shall not be any duplication or reimbursement or
- -------
indemnification with respect to any such matter.
9.3. Third-Party Claims. The obligations and liabilities of any of
------------------
the parties to this Agreement under Section 9.2 hereof with respect to all items
indemnified against in Section 9.2 hereof and which are initiated by third
parties (the "Third-Party Claims") shall be subject to the following terms and
conditions:
(a) Upon receipt of written notice of any Third-Party Claim
asserted against, resulting to, imposed upon or incurred by any member of the
Buyer Group or the Seller Group, as the case may be (the "Indemnified Party"),
the party receiving such written notice (the "Indemnifying Party") will
undertake the defense thereof by counsel of its own choosing, which counsel
shall be reasonably satisfactory to the Indemnified Party, provided that if in
--------
the Indemnified Party's reasonable judgment a conflict of interest may exist
between such Indemnified Party and the Indemnifying Party with respect to such
Third-Party Claim, such Indemnified Party shall be entitled to select counsel of
its own choosing, in which event the Indemnified Party shall be obligated to pay
the fees and expenses of such counsel.
(b) If within a reasonable time after written notice of any
Third-Party Claim, the Indemnifying Party fails to defend the Indemnified Party
against whom such Third-
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Party Claim has been asserted, the Indemnified Party shall have the right to
undertake the defense, compromise or settlement of such Third-Party Claim on
behalf of and for the account and at the risk of the Indemnifying Party.
(c) Anything in this Section 9.3 to the contrary
notwithstanding, (I) if there is a reasonable probability in the Indemnified
Party's judgment that a claim may materially and adversely affect the
Indemnified Party or any of its Affiliates, directors, officers, shareholders or
employees against whom a Third-Party Claim is asserted other than as a result of
money damages or other money payments, the person against whom such Third-Party
Claim is asserted shall have the right to defend, co-defend, compromise or
settle such Third-Party Claim and (ii) the prior written consent of such person
against whom such Third-Party Claim is asserted, shall be required in connection
with the settlement or compromise of any claim or the entry of any judgment
relating to any such Third-Party Claim, only if such settlement, compromise or
judgment does not include as an unconditional term thereof the giving by the
claimant or the plaintiff to such person against whom such Third-Party Claim is
asserted, of a release from all liabilities in respect of such Third-Party
Claim.
(d) The Indemnifying Party shall provide the Indemnified Party
or any of its Affiliates, directors, officers,
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shareholders or employees against whom a Third-Party Claim is asserted with
access to all records and documents of the Indemnified Party relating to any
Third-Party Claim. The Indemnified Party will provide the Indemnifying Party
with access to all records and documents of the Indemnified party relating to
any Third-Party Claim.
ARTICLE X
MISCELLANEOUS PROVISIONS
------------------------
10.1. Expenses. Except as otherwise provided in this Agreement,
--------
whether or not the transactions contemplated hereby are consummated, all
expenses in connection with such transactions will be paid by the party
incurring said expenses.
10.2. Payment of Taxes Upon Transfer of Purchased Assets. The Buyer
--------------------------------------------------
agrees to bear all sales, use, transfer, recording and other similar taxes and
fees (but excluding any income, capital gains or similar taxes imposed on the
income or gain of the Seller, which will be borne solely by the Seller) arising
out of or in connection with the transactions contemplated by this Agreement,
without regard to whether such taxes and fees would otherwise be imposed on the
Seller. Each party shall use its best efforts to avail itself of any available
exemptions from any such taxes or fees, and shall cooperate with the other in
providing any information and documentation that may be necessary to obtain such
exemptions.
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10.3. Execution in Counterparts. This Agreement may be executed in
-------------------------
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same document.
10.4. Notices. All notices, requests, demands and other
-------
communications which are required or may be given pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered by hand,
mailed by registered mail, postage prepaid, return receipt requested, or
transmitted by facsimile, as follows:
If to the Buyer:
Exigent Diagnostics, Incorporated
Seven Harford Lane
Radnor, Pennsylvania 19087
Attention: W. Vickery Stoughton
With a copy to:
Barry Abelson, Esquire
Pepper, Hamilton & Scheetz
3000 Two Logan Square
Philadelphia, Pennsylvania 19103-2799
If to the Seller:
SmithKline Beecham Corporation
One Franklin Plaza (Mail Code FP 2225)
P. O. Box 7929
Philadelphia, Pennsylvania 19101
Attention: Chief Operating Officer
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<PAGE>
With a copy to:
SmithKline Beecham Corporation
One Franklin Plaza (Mail Code FP 2225)
P.O. Box 7929
Philadelphia, Pennsylvania 19101
Attention: General Counsel,
Corporate Law-U.S.
or to such other address as any party shall have designated by notice in writing
to the other parties.
10.5. Waivers. No waiver of any provision of this Agreement shall be
-------
effective as against the waiving party unless such waiver is in writing signed
by the waiving party. Waiver by a party as provided in this Section shall not be
construed as, or constitute either a continuing waiver or a waiver of any other
matter.
10.6. Amendment. This Agreement may only be modified, supplemented
---------
or amended by a written instrument executed by all of the parties to it.
10.7. Entire Agreement. This Agreement (together with the Schedules
----------------
and Annexes hereto and the other agreements expressly identified in this
Agreement) constitutes the entire agreement of the parties with respect to its
subject matter, and supersedes all prior agreements and understandings of the
parties, oral and written, with respect to its subject matter.
10.8. Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the laws of the
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Commonwealth of Pennsylvania without giving effect to any of the choice of law
rules thereof.
10.9. Relationship of the Parties. The relationship between the
---------------------------
Seller and the Buyer established by this Agreement is solely that of vendor and
vendee and nothing contained herein shall be deemed to create a joint venture
among the Buyer and the Seller.
10.10. Headings. The headings contained in this Agreement are for
--------
the sole purpose of convenience of reference, and shall not in any way limit or
affect the meaning or interpretation of any of the terms or provisions of this
Agreement.
10.11. Assignments. This Agreement may not be assigned or delegated
-----------
by either party without the prior written consent of the other party.
10.12. Binding Effect; Benefits. This Agreement shall inure to the
------------------------
benefit of, and be binding upon, the parties to it and their respective
successors, permitted assigns and other transferees. Nothing contained in this
Agreement, express or implied, is intended to confer upon any person other than
the parties to it and their respective successors, permitted assigns and other
transferees, any rights or remedies under or by reason of this Agreement.
-52-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by duly
authorized officers of each of the parties and the Secretary of each such party
has caused its corporate seal to be affixed, all as of the date first above
written.
SMITHKLINE BEECHAM CLINICAL EXIGENT DIAGNOSTICS, INC.
LABORATORIES, INC.
By: /s/ Edward J. Buthusiem By: /s/ W. Vickery Stoughton
--------------------------- ----------------------------
Edward J. Buthusiem W. Vickery Stoughton
Attorney-in-Fact Chairman and Chief
Executive Officer
[EXECUTIONS CONTINUED]
-53-
<PAGE>
SMITHKLINE BEECHAM DIAGNOSTIC
SYSTEMS CO.
By: /s/ Edward J. Buthusiem
--------------------------
Edward J. Buthusiem
Attorney-in-Fact
-54-
<PAGE>
DISCLOSURE SCHEDULE
DATED AS OF NOVEMBER 7, 1996
PURSUANT TO THE
ASSET PURCHASE AGREEMENT
DATED AS OF NOVEMBER 7, 1996
AMONG
SMITHKLINE BEECHAM CLINICAL LABORATORIES, INC.,
SMITHKLINE BEECHAM DIAGNOSTIC SYSTEMS CO.,
AND
EXIGENT DIAGNOSTICS, INC.,
-55-
<PAGE>
CONTENTS
--------
<TABLE>
<CAPTION>
Schedule
--------
<S> <C>
Assigned Contracts.................................................... 1
Base Balance Sheet.................................................... 2
Capital Equipment..................................................... 3
Computer Hardware and Office Equipment................................ 4
Proprietary Software and Date......................................... 5
Liens................................................................. 6
Employees............................................................. 7
</TABLE>
-56-
<PAGE>
SCHEDULE 1
ASSIGNED CONTRACTS
------------------
I. SELLER:
------
(I) Agreement Number CPO28255 Cost Type Agreement between Battelle
Memorial Institute through its Battelle Columbus Operations and
SmithKline Beecham Corporation, dated as of November 14, 1995.
(ii) Agreement between Hauser, Inc. and SmithKline Beecham
Corporation, dated as of February 28, 1996.
(iii) Preliminary Agreement between United Medical Manufacturing
Company and SmithKline Beecham Corporation, dated as of May 10,
1995.
All of the Assigned Contracts were assigned by SmithKline Beecham
Corporation to SBD as of November 5, 1996.
-57-
<PAGE>
SCHEDULE 2
BASE BALANCE SHEET
------------------
See Attached
-58-
<PAGE>
SCHEDULE 3
CAPITAL EQUIPMENT
-----------------
See Attached
-59-
<PAGE>
SCHEDULE 4
COMPUTER HARDWARE AND OFFICE EQUIPMENT
--------------------------------------
Description Serial #
- ----------- --------
Compaq DeskPro 590 #6552-HSX2-Q610
with NEC MultiSync XE15 monitor
*Compaq DeskPro 590 #CNT-75MD-B6NJ
with NEC MultiSync XE15 monitor
Compaq Smart Station #6550-HFP2-F281
Murata F-75 plain paper fax machine FCC Reg. # EDUJPN-18639-FA-E
HP LaserJet 5MP USFB-068-260
Sony Computer Display #5504160
Compaq Series 3030 Deskpro 50M #6225-HBP3-0065
Keyboard #2201-146C-E165
-60-
<PAGE>
SCHEDULE 5
PROPRIETARY SOFTWARE AND DATA
-----------------------------
None
-61-
<PAGE>
SCHEDULE 6
LIENS
-----
1. SmithKline Beecham Diagnostic Systems Co.:
. There are no Federal or state tax liens of record at the Montgomery
County, Pennsylvania Prothonotary's office through October 8, 1996.
2. SmithKline Beecham Clinical Laboratories, Inc.:
. There are no Federal tax liens of record at the Montgomery County,
Pennsylvania Prothonotary's office through October 8, 1996, and there
are no state tax liens of record at the Montgomery County,
Pennsylvania Prothonotary's office through October 24, 1996.
-62-
<PAGE>
SCHEDULE 7
EMPLOYEES
---------
See Attached
-63-
<PAGE>
ANNEXES
-------
Stockholders Agreement................................................. A
Loan Agreement......................................................... B
Note................................................................... C
Private Placement Memorandum Excerpt................................... D
Outstanding Securities................................................. E
-64-
<PAGE>
EXHIBIT 10.27
PLACEMENT AGENCY AGREEMENT
--------------------------
January 29, 1998
Spencer Trask Securities Incorporated
535 Madison Avenue
18th Floor
New York, New York 10022
Ladies and Gentlemen:
Exigent Diagnostics, Inc., a Delaware corporation (the "Company"), hereby
confirms its agreement with Spencer Trask Securities Incorporated, a Delaware
corporation (the "Placement Agent"), as follows:
1. Offering. (a) The Company will offer (the "Offering") for sale through
--------
the Placement Agent and its selected dealers, as exclusive agent for the
Company, up to 60 units (the "Units"), plus an additional 9 Units to cover
oversubscriptions, if any. Each Unit will consist of 76,923 shares (the
"Shares") of the Company's common stock, $.01 par value per share (the "Common
Stock").
(b) Placement of the Units will be made on a "best efforts--all or none"
basis with respect to the first 30 Units (the "Minimum Amount") and on a "best
efforts" basis as to the remaining Units. The minimum subscription for Units
shall be one Unit, however, the Placement Agent may, in its discretion, offer
fractional Units. The Units will be offered commencing on the date of the
Memorandum (as defined below) for a period of 90 days, unless extended by the
Placement Agent and the Company for an additional 90 days or terminated earlier
as provided herein (the "Offering Period"). The date on which the Offering shall
terminate shall be referred to as the "Termination Date."
(c) Subscriptions for the Units will be accepted by the Company at a price
of $100,000 per Unit (the "Offering Price"); provided, however, that the Company
shall not accept subscriptions for, or sell Units to, any persons or entities
who do not qualify as "accredited investors," as such term is defined in Rule
501 of Regulation D promulgated under the Securities Act of 1933 (the "Act").
(d) The offering of the Units will be made by the Placement Agent on
behalf of the Company solely pursuant to the Memorandum, which at all times will
be in form and substance acceptable to the Placement Agent and its counsel and
contain such legends and other information as the Placement Agent and its
counsel may, from time to time, deem necessary and desirable to be set forth
therein. "Memorandum" as used in this Agreement means the Company's Confidential
Private Placement Memorandum dated January 29, 1998, inclusive of all exhibits,
and all amendments, supplements and appendices thereto. Unless otherwise
defined, each term used in this Agreement will have the same meaning as set
forth in the Memorandum.
2. Representations and Warranties. The Company hereby represents and warrants
------------------------------
to the Placement Agent that:
<PAGE>
(a) The Memorandum has been diligently prepared by the Company, in
conjunction with its legal counsel and independent accountants, in conformity
with all applicable law, including the Act and the requirements of all other
applicable rules and regulations of the Securities and Exchange Commission (the
"SEC") relating to offerings of the type contemplated by the Offering (the
"Regulations"), and the applicable securities laws and the rules and regulations
of those jurisdictions wherein the Units are to be offered and sold. The Units
will be offered and sold pursuant to the registration exemption provided by
Regulation D as promulgated under Section 4(2) of the Act or otherwise under
Section 4(2) of the Act as a transaction not involving a public offering and the
requirements of any other applicable state securities laws and the respective
rules and regulations thereunder in those jurisdictions in which the Placement
Agent notifies the Company that the Units are being offered for sale. The
Company has not taken nor will it take any action which conflicts with the
conditions and requirements of, or which would make unavailable with respect to
the Offering, the exemption(s) from registration available pursuant to
Regulation D or Section 4(2) of the Act and knows of no reason why any such
exemption would be otherwise unavailable to it. None of the Company, its
affiliates or, to its knowledge, its predecessors has been subject to any order,
judgment or decree of any court of competent jurisdiction temporarily,
preliminarily or permanently enjoining such person for failing to comply with
Section 503 of Regulation D.
(b) The Memorandum does not include 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. None of the statements, documents,
certificates or other items prepared or supplied by the Company with respect to
the transactions contemplated hereby contains an untrue statement of a material
fact or omits a material fact necessary to make the statements contained therein
not misleading. There is no fact which the Company has not disclosed to the
Placement Agent and its counsel and of which the Company is aware which
materially and adversely affects or could materially and adversely affect the
business prospects, financial condition, operations, property or affairs of the
Company or any of its subsidiaries.
(c) The Company and each of its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation. Except as set forth in the Memorandum, the
Company has no subsidiaries and does not have an equity interest in any other
firm, partnership, association or other entity. The Company and each of its
subsidiaries is duly qualified to transact business as a foreign corporation and
is in good standing under the laws of each jurisdiction where the location of
its properties or the conduct of its business makes such qualification
necessary.
(d) The Company has all requisite power and authority (corporate and
other) to conduct its business as presently conducted and as proposed to be
conducted (as described in the Memorandum), to enter into and perform its
obligations under this Agreement and the other agreements contemplated hereby
and by the Memorandum (collectively, the "Transaction Documents") and to issue,
sell and deliver the Shares. Each of the Transaction Documents has been duly
authorized. This Agreement has been duly executed and delivered and constitutes,
and each of the other Transaction Documents, upon due execution and delivery,
will constitute, valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms.
2
<PAGE>
(e) None of the execution and delivery of, or performance by the Company
under any of the Transaction Documents or the consummation of the transactions
herein or therein contemplated conflicts with or violates, or will result in the
creation or imposition of, any lien, charge or other encumbrance upon any of the
assets of the Company under any agreement or other instrument to which the
Company is a party or by which the Company or its assets may be bound, or any
term of the charter or by-laws of the Company, or any license, permit, judgment,
decree, order, statute, rule or regulation applicable to the Company or any of
its assets.
(f) The Company has authorized and outstanding capital stock as set forth
under the heading "Capitalization" in the Memorandum. All outstanding shares of
capital stock of the Company are duly authorized, validly issued and
outstanding, fully paid and nonassessable. Except as set forth in the
Memorandum: (i) there are no outstanding options, stock subscription agreements,
warrants or other rights permitting or requiring the Company or others to
purchase or acquire any shares of capital stock or other equity securities of
the Company or to pay any dividend or make any other distribution in respect
thereof; (ii) there are no securities issued or outstanding which are
convertible into or exchangeable for any of the foregoing and there are no
contracts, commitments or understandings, whether or not in writing, to issue or
grant any such option, warrant, right or convertible or exchangeable security;
(iii) no shares of stock or other securities of the Company are reserved for
issuance for any purpose; (iv) there are no voting trusts or other contracts,
commitments, understandings, arrangements or restrictions of any kind with
respect to the ownership, voting or transfer of shares of stock or other
securities of the Company, including without limitation, any preemptive rights,
rights of first refusal, proxies or similar rights and (v) no person holds a
right to require the Company to register any securities of the Company under the
Act or to participate in any such registration. The issued and outstanding
shares of capital stock of the Company conform in all material respects to all
statements in relation thereto contained in the Memorandum and the Memorandum
describes all material terms and conditions thereof. All issuances by the
Company of its securities were exempt from registration under the Act and any
applicable state securities laws.
(g) The Shares and the Agent's Shares (as defined below) have been duly
authorized and, when issued and delivered against payment therefor as provided
in the Transaction Documents, will be validly issued, fully paid and
nonassessable, will be free and clear of all liens, charges, restrictions,
claims and encumbrances imposed by or through the Company other than as provided
in the Transaction Documents and no holder of any of the Shares or the Agent's
Securities (as defined below) will be subject to personal liability solely by
reason of being such a holder, and none of the Shares or the Agent's Securities
are subject to preemptive or similar rights of any stockholder or securityholder
of the Company or, other than as described in the Memorandum, an adjustment
under the antidilution or exercise rights of any holders of any outstanding
shares of capital stock, options, warrants or other rights to acquire any
securities of the Company. A sufficient number of authorized but unissued shares
of Common Stock have been reserved for issuance upon the exercise of the Agent's
Warrants (as defined below).
(h) No consent, authorization or filing of or with any court or
governmental authority is required in connection with the issuance or the
consummation of the transactions contemplated herein or in the other Transaction
Documents, except for required filings with the SEC and applicable "Blue Sky" or
state securities commissions relating specifically to the Offering (all of which
filings have been made by, or on behalf of, the Company, other than those which
are
3
<PAGE>
required to be made after the First Closing (as defined below), and which will
be duly made on a timely basis).
(i) The financial statements, together with the related notes, of the
Company included in the Memorandum present fairly in all material respects the
financial position of the Company as of the respective dates specified and the
results of its operations and changes in financial position for the respective
periods covered thereby. Such financial statements and related notes were
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods indicated. Except as set forth in such
financial statements or in the Memorandum, the Company has incurred no material
liabilities of any kind, whether accrued, absolute, contingent or otherwise or
entered into any material transactions. The other financial and statistical
information with respect to the Company and any pro forma information and
related notes included in the Memorandum or otherwise provided to the Placement
Agent present fairly the information shown therein on a basis consistent with
the audited and unaudited financial statements of the Company included in the
Memorandum.
(j) The conduct of business by the Company as presently and proposed to be
conducted (as described in the Memorandum) is not subject to continuing
oversight, supervision, regulation or examination by any governmental official
or body of the United States or any other jurisdiction wherein the Company
conducts or proposes to conduct such business, except as described in the
Memorandum and except such regulation as is applicable to commercial enterprises
generally. The Memorandum accurately describes, in all material respects, all
requisite licenses, permits and other governmental authorization to conduct its
business as presently, and as proposed to be, conducted (as described in the
Memorandum).
(k) No default by the Company or, to the best knowledge of the Company,
any other party exists in the due performance under any of the agreements
referred to in the Memorandum to which the Company is a party or to which any of
its assets is subject (collectively, the "Company Agreements") where such
default would have a material adverse effect upon the business, results of
operations or financial condition of the Company (a "Material Adverse Effect").
The Company Agreements are the only material agreements to which the Company is
bound or by which its assets are subject, are accurately and fairly described in
all material respects in the Memorandum and are in full force and effect in
accordance with their respective terms.
(l) Except as set forth in the Memorandum, there are no actions,
proceedings, claims or investigations, before or by any court or governmental
authority (or any state of facts which management of the Company has concluded
could give rise thereto) pending or, to the best knowledge of the Company,
threatened, against the Company, or involving its assets or any of its officers
or directors which, if determined adversely to the Company or such officer or
director, could result in any Material Adverse Effect or adversely affect the
transactions contemplated by this Agreement or the other Transaction Documents
or the enforceability thereof.
(m) The Company is not in violation of: (i) its charter or by-laws; (ii)
any indenture, mortgage, deed of trust, note or other agreement or instrument to
which the Company is a party or by which it is or may be bound or to which any
of its assets may be subject; (iii) any statute, rule or regulation; or (iv) any
judgment, decree or order applicable to the Company, which violation or
violations individually, or in the aggregate, might result in any Material
Adverse Effect.
4
<PAGE>
(n) The Company does not own any real property in fee simple except as
disclosed in the Memorandum, and the Company has good and marketable title to
all property (real and personal, tangible and intangible) owned by it, free and
clear of all security interests, liens and encumbrances, except such as are
described in the Memorandum.
(o) Except as otherwise described in the Memorandum (collectively, the
"Intangibles"), the Company owns all right, title and interest in, or possesses
adequate and enforceable rights to use, all patents, patent applications,
trademarks, trade names, service marks, copyrights, rights, licenses,
franchises, trade secrets, confidential information, processes and formulations
described as owned by it in the Memorandum. Except as set forth in the
Memorandum, to the best knowledge of the Company it has not infringed upon the
rights of others with respect to the Intangibles and the Company has not
received notice that it has or may have infringed or is infringing upon the
rights of others with respect to the Intangibles, or any notice of conflict with
the asserted rights of others with respect to the Intangibles which could,
individually or in the aggregate, have a Material Adverse Effect. Except as set
forth in the Memorandum, to the best knowledge of the Company, no others have
infringed upon the Intangibles.
(p) Subsequent to the respective dates as of which information is given in
the Memorandum, the Company has operated its business diligently and only in the
ordinary course as theretofore conducted and, except as may otherwise be set
forth in the Memorandum, there has been no: (i) Material Adverse Effect; (ii)
transaction otherwise than in the ordinary course of business; (iii) issuance of
any securities (debt or equity) or any rights to acquire any such securities;
(iv) damage, loss or destruction, whether or not covered by insurance, with
respect to any asset or property of the Company; or (v) agreement to permit any
of the foregoing.
(q) The Company has filed, on a timely basis, each Federal, state, local
and foreign tax return which is required to be filed, or has requested an
extension therefor and has paid all taxes and all related assessments, penalties
and interest to the extent that the same have become due.
(r) The Company is not obligated to pay, and has not obligated the
Placement Agent to pay, a finder's or origination fee in connection with the
Offering and agrees to indemnify the Placement Agent from any such claim made by
any other person. The Company has not offered for sale or solicited offers to
purchase the Units except for negotiations with the Placement Agent. No other
person has any right, based upon acts of the Company, its officers, directors or
representatives, to participate in any offer, sale or distribution of the
Company's securities to which the Placement Agent's rights, described herein,
shall apply.
(s) The Company has and will maintain appropriate casualty and liability
insurance coverage, in scope and amounts reasonable and customary for similar
businesses.
3. Placement Agent Appointment and Compensation. (a) The Company hereby
--------------------------------------------
appoints the Placement Agent and its selected dealers as its exclusive agent in
connection with the Offering. The Company has not and will not make, or permit
to be made, any offers or sales of the Units other than through the Placement
Agent without its prior written consent. The Placement Agent has no obligation
to purchase any of the Units. The agency of the Placement Agent hereunder shall
continue until the later of the Termination Date or the Final Closing (as
defined below).
5
<PAGE>
(b) The Company has caused to be delivered to the Placement Agent copies
of the Memorandum and has consented, and hereby consents, to the use of such
copies for the purposes permitted by the Act and applicable securities laws, and
hereby authorizes the Placement Agent and its agents, employees and selected
dealers to use the Memorandum in connection with the sale of the Units until the
Termination Date, and no other person or entity is or will be authorized to give
any information or make any representations other than those contained in the
Memorandum or to use any offering materials other than those contained in the
Memorandum in connection with the sale of the Units.
(c) The Company will cooperate with the Placement Agent by making
available to its representatives such information as may be requested in making
a reasonable investigation of the Company and its affairs and shall provide
access to such employees as shall be reasonably requested. Prior to the First
Closing, the Company shall provide, at its own expense, credit or similar
reports on such key management persons as the Placement Agent shall reasonably
request.
(d) The Company shall pay to the Placement Agent at each closing a
placement fee equal to ten percent (10%) of the Offering Price of all the Units
sold at such Closing, which shall be distributed from escrow (the "Placement
Agent's Fee"), and all reasonable out-of-pocket expenses incurred by the
Placement Agent on the Company's behalf including mailing, telephone, travel
costs and legal fees ("Expenses"), to be paid from the gross proceeds of the
Units sold at each Closing up to a maximum of $65,000 for the Offering (the
"Expense Allowance"), a non-refundable $35,000 portion of which has been paid to
the Placement Agent. Payment of the proportional amount of the Placement Agent's
Fee and payment of Expenses will be made out of the proceeds of subscriptions
for the Units sold at each Closing.
(e) As additional compensation hereunder, at each Closing (as defined
below), the Company shall sell to the Placement Agent or its designees for an
aggregate purchase price of $1, warrants (the "Agent's Warrants") to purchase,
at an exercise price of $1.30 per share, a number of Shares equal to twenty
percent (20%) of the aggregate number of Shares contained in the Units sold in
the Offering (the "Agent's Shares"; and, collectively with the Agent's Warrants,
the "Agent's Securities"). The Agent's Warrants shall be exercisable until the
later of the date seven (7) years after the date of the Final Closing or the
date which is three (3) years after the closing date of the initial public
offering of the Company's securities within such seven year period, whichever is
later (the "Warrant Exercise Term"). If the Company at any time has any
securities registered under the Act or the Securities Exchange Act of 1934 (the
"1934 Act"), the Company agrees to register the Agent's Securities promptly on
two (2) separate occasions, at the request of the holders of a majority of the
Agent's Securities made at any time during the Warrant Exercise Term. The
Company shall pay all expenses, other than underwriters' discounts and
commissions, relating to registering the Agent's Securities covered by the first
request, and the holder(s) of such Agent's Securities shall pay all expenses
arising from the second registration. Prior to the First Closing, the Company
and Placement Agent shall enter into a warrant agreement (the "Warrant
Agreement") which shall contain such terms and other customary provisions
including piggyback registration rights for a period of nine (9) years from the
Final Closing, or for the Warrant Exercise Term, whichever is longer, and anti-
dilution protections (including, but not limited to, stock splits,
reclassifications, mergers or acquisitions, or the sale of substantially all of
the Company's stock) applicable to the issuance of additional securities at a
price below the exercise or market price of the Agent's Warrants, other than the
shares existing on the date
6
<PAGE>
hereof issued to SmithKline Beecham Corporation, and the Placement Agent and the
Shares underlying the Consulting Agreement with Cedar Capital and the 1996
Incentive and Non-Qualified Stock Option Plan and the 1996 Key Executive Stock
Option Plan.
(f) The Company shall also pay to the Placement Agent the Placement
Agent's Fee and Agent's Warrants with respect to, and based on, any investment
by any party ("Post Closing Investor") with which the Placement Agent has had
substantive discussions in connection with their investing in the Offering which
invests in the Company at any time on or before the first anniversary of the
later of the Termination Date or Final Closing.
(g) [Intentionally Omitted].
(h) If the Company completes an initial public offering of its Common
Stock with Fahnestock & Co. Inc., the Company will pay the Placement Agent, as
full payment under the current Investment Banking Agreement between the Company
and the Placement Agent, a fee equal to $100,000.
4. Subscription and Closing Procedures. (a) Each prospective purchaser will
-----------------------------------
be required to complete and execute one original signature page of each of the
Subscription Agreement and Registration Rights Agreement and Shareholder's
Agreement in the forms annexed to the Memorandum ("Subscription Documents"),
which will be forwarded or delivered to the Placement Agent at the Placement
Agent's offices at the address set forth in Section 11 hereof, together with the
subscriber's check or good funds in the full amount of the Offering Price for
the number of Units desired to be purchased.
(b) All funds for subscriptions received from the offering of the Units
will be promptly forwarded by the Placement Agent or the Company, if received by
it, to and deposited into the escrow account (the "Escrow Account") established
for such purpose with United States Trust Company of New York (the "Escrow
Agent"). All such funds for subscriptions will be held in the Escrow Account
pursuant to the terms of the Escrow Agreement among the Company, the Placement
Agent and the Escrow Agent. The Company will pay all fees related to the
establishment and maintenance of the Escrow Account. Any interest accruing on
funds in the Escrow Account shall be utilized first to reimburse the Company for
such fees and the balance shall be distributed one-half to the Company and one-
half to the Placement Agent. Subject to the receipt of such subscriptions for
the Minimum Amount, the Company will either accept or reject the Subscription
Documents in a timely fashion and at each Closing will countersign the
Subscription Documents and provide duplicate copies of such Agreements to the
Placement Agent for distribution to the subscribers. The Company will give
notice to the Placement Agent of its acceptance of each subscription. The
Company will promptly return to subscribers incomplete, improperly completed,
improperly executed and rejected subscriptions and give written notice thereof
to the Placement Agent upon such return.
(c) If subscriptions for at least the Minimum Amount have been accepted
prior to the Termination Date, the funds therefor have been collected by the
Escrow Agent and all of the conditions set forth elsewhere in this Agreement are
fulfilled, a closing shall be held promptly with respect to the Units sold (the
"First Closing"). Thereafter, the remaining Units will continue to be offered
and sold until the Termination Date. Additional closings ("Closings") may from
time to time be conducted at times mutually agreeable with respect to additional
Units sold with
7
<PAGE>
the final closing ("Final Closing") to occur approximately 10 days from the
earlier of the Termination Date or the sale of all Units offered. Delivery of
payment for the accepted subscriptions for Units from the funds held in the
Escrow Account will be made at each Closing at the Placement Agent's offices
against delivery of the Units by the Company at the address set forth in Section
11 hereof (or at such other place as may be mutually agreed upon between the
Company and the Placement Agent). Executed certificates for the Shares
constituting the Units and the Agent's Warrants will be in such authorized
denominations and registered in such names as the Placement Agent may reasonably
request on or before the second (2nd) full business day prior to the date of
each Closing ("Closing Date"), and will be made available to the Placement Agent
for checking and packaging at the Placement Agent's office at least one (1) full
business day prior thereto.
(d) If Subscription Documents for the Minimum Amount have not been
received and accepted by the Company on or before the Termination Date for any
reason, the Offering will be terminated, no Units will be sold, and the Escrow
Agent will, at the request of the Placement Agent, cause all monies received
from subscribers for the Units to be promptly returned to such subscribers
without interest, penalty, expense or deduction.
5A. Further Covenants. The Company hereby covenants and agrees that:
-----------------
(a) Except with the prior written consent of the Placement Agent, the
Company shall not, at any time prior to the Final Closing, take any action which
would cause any of the representations and warranties made by it in this
Agreement not to be complete and correct on and as of each Closing Date with the
same force and effect as if such representations and warranties had been made on
and as of each such date, including, without limitation, incurring any material
indebtedness, disposing of any material assets or making any material
acquisition or change in its business or operations.
(b) If, at any time prior to the Final Closing, any event shall occur
which does or may materially affect the Company or as a result of which it might
become necessary to amend or supplement the Memorandum so that the
representations and warranties herein remain true, or in case it shall, in the
opinion of counsel to the Placement Agent, be necessary to amend or supplement
the Memorandum to comply with Regulation D or any other applicable securities
laws or regulations, the Company will promptly notify the Placement Agent and
shall, at its sole cost, prepare and furnish to the Placement Agent copies of
appropriate amendments and/or supplements in such quantities as the Placement
Agent may reasonably request. The Company will not at any time, whether before
or after the Final Closing, prepare or use any amendment or supplement to the
Memorandum of which the Placement Agent will not previously have been advised
and furnished with a copy, or to which the Placement Agent or its counsel will
have objected in writing or orally (confirmed in writing within 24 hours), or
which is not in compliance with the Act, the Regulations and other applicable
securities laws. As soon as the Company is advised thereof, the Company will
advise the Placement Agent and its counsel, and confirm the advice in writing,
of any order preventing or suspending the use of the Memorandum, or the
suspension of the qualification or registration of the Shares for offering or
the suspension of any exemption for such qualification or registration of the
Shares for offering in any jurisdiction, or of the institution or threatened
institution of any proceedings for any of such purposes, and the Company will
use commercially reasonably efforts (i) to prevent the
8
<PAGE>
issuance of any such order and, (ii) if issued, to obtain as soon as reasonably
possible the lifting thereof.
(c) The Company shall comply with the Act and the Regulations so as to
permit the continuance of the sales of the Units, and will file with the SEC,
and shall promptly thereafter forward to the Placement Agent, any and all
reports on Form D as are required.
(d) The Company shall use its reasonable best efforts to qualify the Units
for sale under the securities laws of such jurisdictions as may be mutually
agreed to by the Company and the Placement Agent, and the Company will make such
applications and furnish information as may be required for such purposes,
provided that the Company will not be required to qualify as a foreign
corporation in any jurisdiction. The Company will, from time to time, prepare
and file such statements and reports as are or may be required to continue such
qualifications in effect for so long a period as the Placement Agent may
reasonably request.
(e) The Company shall place a legend on the certificates representing the
Shares issued to subscribers stating that the securities evidenced thereby have
not been registered under the Act or applicable state securities laws, setting
forth or referring to the applicable restrictions on transferability and sale of
such securities under the Act and applicable state laws.
(f) The Company shall apply the net proceeds from the sale of the Units to
fund its working capital requirements and for such other purposes as
specifically described under "Use of Proceeds" in the Memorandum. Except as
specifically set forth in the Memorandum, the net proceeds of the Offering shall
not be used to repay indebtedness to officers, directors or stockholders of the
Company without the prior written consent of the Placement Agent.
(g) During the Offering Period, the Company shall make available for
review by prospective purchasers of the Units during normal business hours at
the Company's offices, upon their request, copies of the Company Agreements to
the extent that such shall not violate any obligation on the part of the Company
to maintain the confidentiality thereof and shall afford each prospective
purchaser of Units the opportunity to ask questions of and receive answers from
an officer of the Company concerning the terms and conditions of the Offering
and the opportunity to obtain such other additional information necessary to
verify the accuracy of the Memorandum to the extent it possesses such
information or can acquire it without unreasonable expense.
(h) Except with the prior written consent of the Placement Agent, the
Company shall not, at any time prior to the Final Closing, engage in or commits
to engage in any transaction outside the scope of its business as described in
the Memorandum, agree to issue or set aside for issuance any securities (debt or
equity) or any rights to acquire any such securities except as contemplated by
the Memorandum.
(i) For a period of five years from the Final Closing, the Company shall
deliver (i) to the Placement Agent and the Company's stockholders annual audited
financial statements setting forth fairly the financial position of the Company,
(ii) to the Placement Agent quarterly unaudited financial statements including
both a balance sheet and statement of income, (iii) to the Company's
stockholders a quarterly report, reviewed by the Placement Agent, of the
progress and status of the Company and an annual report setting forth fairly the
financial position of the
9
<PAGE>
Company, (iv) to the Placement Agent a copy of a list of its stockholders as and
when so requested and (v) to the Placement Agent such additional information and
documents concerning the business and financial condition of the Company as the
Placement Agent may from time to time reasonably request, subject to such
confidentiality agreements as the Company may reasonably request.
(j) The Company shall pay all reasonable expenses incurred in connection with
the preparation and printing of all necessary offering documents and instruments
related to the Offering and the issuance of the Shares, the Agent's Shares and
the Agent's Warrants and will also pay the Company's own expenses for accounting
fees, legal fees and other costs involved with the Offering. The Company will
provide at its own expense such quantities of the Memorandum and other documents
and instruments relating to the Offering as the Placement Agent may reasonably
request. In addition, the Company will pay all reasonable filing fees, costs and
legal fees for Blue Sky services and related filings and expenses of counsel
with respect to Blue Sky qualifications. The Blue Sky filings shall be prepared
by the Placement Agent's counsel on behalf of the Company and all Blue Sky
filing fees shall be paid by the Company prior to any filing. At each Closing,
the Placement Agent may deduct from the proceeds of subscriptions for Units sold
at such Closing, all other fees and expenses of Blue Sky counsel outstanding as
of such date, and pay such amount directly to such counsel.
(k) Except as permitted by the Stockholder Agreement attached as Annex C to the
Memorandum, (i) until the Termination Date, neither the Company nor any person
or entity acting on its behalf will negotiate with any other placement agent or
underwriter with respect to a private or public offering of the Company's or any
subsidiary's debt or equity securities, (ii) until the Termination Date, neither
the Company nor anyone acting on its behalf will, without the prior written
consent of the Placement Agent, offer for sale to, or solicit offers to
subscribe for Units or other securities of the Company from, or otherwise
approach or negotiate in respect thereof with, any other person and (iii) prior
to the second anniversary of the Final Closing, the Company will not, without
the Placement Agent's prior written consent sell any securities, or any rights
to acquire any securities, of the Company or create any additional classes or
series of capital stock; provided, however, this agreement and the provisions of
section 5A(k) of the placement agreement for the Prior Offering shall terminate
upon the Company's completion of an initial public offering.
(l) The following officers of the Company will continue in their current
positions following the Offering: W. Vickery Stoughton and Thomas H. Grove.
(m) [Intentionally Omitted].
(n) In accordance with Section 8 of the Stockholders Agreement attached as
Annex C to the Memorandum (the "Stockholders Agreement"), the Company shall
cause its Board of Directors to have at least three "independent" members who
are reasonably acceptable to the Placement Agent and who are unaffiliated with
the Placement Agent or the Company. In addition, the Placement Agent shall have
the right, as more particularly set forth in the Stockholders Agreement, for a
period ending on the earlier of the effective date or five (5) years from the
Final Closing, to designate up to two (2) persons reasonably acceptable to the
Company to be, at the Placement Agent's sole discretion, either nominees for
director of the Company or advisors to the Board of Directors of the Company. W.
Vickery Stoughton shall be entitled to designate such
10
<PAGE>
nominees for election to the board of directors as provided in Section 8 of the
Stockholders Agreement. All such nominees for director shall be elected in
accordance with Section 8 of the Stockholders Agreement and the Company shall
use its best efforts (which shall include, without limitation, the solicitation
of proxies on behalf of such nominees) to cause the election of such nominees.
In the event such persons nominated by the Placement Agent are designated by the
Placement Agent to be advisors, such persons shall receive notice of and have
the right to attend all regular and special meetings of the Board of Directors
and shall be advised of all actions which the Board intends to adopt by written
consent, reasonably prior to the adoption thereof. Such advisors will receive
reimbursement of reasonable expenses and such compensation for attending
meetings equal to the compensation received by any outside director, but will
have no power to vote. The Company further agrees that it shall hold "in person"
directors' meetings no less frequently than quarterly. Thirty (30) days' advance
notice of regular meetings and such notice of special meetings as may be
required to be given to directors by statute or the Company's bylaws shall be
given to the Placement Agent. The Company agrees to indemnify and hold the
Placement Agent harmless against any and all claims, actions, awards and
judgments arising solely out of the attendance and participation of the
Placement Agent and its designated nominees or advisors at any such meeting
described herein. In the event the Company maintains a liability insurance
policy affording coverage for the acts of its officers and directors, it agrees,
if possible, to include the Placement Agent's designated advisors as insured
under such policy.
5B. Covenants of the Placement Agent. The Placement Agent hereby covenants
--------------------------------
and agrees that in connection with the making of offers to sell the Units:
(a) It will use only the Memorandum and such other written information as is
approved or supplied by the Company;
(b) It will not make any representation or warranty to any respective purchaser
of Units which is inconsistent with the Memorandum;
(c) It will not take any action which would constitute a general solicitation
or general advertising within the meaning of Rule 502 of Regulation D; and
(d) It will make offers only to those potential purchasers which it reasonably
believes are "accredited investors" under Regulation D.
6. Conditions of Placement Agent's Obligations. The obligations of the
-------------------------------------------
Placement Agent hereunder are subject to the fulfillment, at or before each
Closing, of the following additional conditions:
(a) Each of the representations and warranties of the Company shall be true and
correct in all material respects when made on the date hereof and on and as of
each Closing Date as though made on and as of each Closing Date.
(b) The Company shall have performed and complied with all agreements,
covenants and conditions required to be performed and complied with by it under
the Transaction Documents at or before each Closing.
11
<PAGE>
(c) No order suspending the use of the Memorandum or enjoining the offering or
sale of the Units shall have been issued, and no proceedings for that purpose or
a similar purpose shall have been initiated or pending, or, to the best of the
Company's knowledge, are contemplated or threatened.
(d) As of the First Closing, the Company will have an authorized capitalization
as described in the Memorandum, of which not more than 17,500,000 shares of
Common Stock shall be issued and outstanding, not including any options,
warrants or similar rights outstanding or reserved for issuance as described in
the Memorandum.
(e) The Placement Agent shall have received a certificate of the Chief
Executive Officer of the Company, dated as of each Closing Date, certifying, in
such detail as Placement Agent may reasonably request, as to the fulfillment of
the conditions set forth in subparagraphs (a), (b), (c) and (d) above.
(f) The Company shall have delivered to the Placement Agent (i) a currently
dated good standing certificate from the secretary of state of its jurisdiction
of incorporation and each jurisdiction in which the Company is qualified to do
business as a foreign corporation, and (ii) certified resolutions of the
Company's Board of Directors approving this Agreement and the other Transaction
Documents, and the transactions and agreements contemplated by this Agreement
and the other Transaction Documents.
(g) Intentionally Omitted.
(h) At each Closing, the Company shall have (i) paid to the Placement Agent,
the Placement Agent's Fee and its Expenses actually incurred as set forth in
Section 3(d) hereof and (iii) executed and delivered to the Placement Agent the
Agent's Warrants in an amount proportional to the Units sold.
(i) On or prior to the First Closing the Company shall have received a term
sheet from Fahnestock & Co. Inc. relating to an initial public offering of the
Company's Common Stock acceptable to the Company.
(j) [Intentionally Omitted].
(k) There shall have been delivered to the Placement Agent a signed opinion of
counsel to the Company ("Company Counsel"), dated as of each Closing Date,
substantially in the form of Exhibit A hereto and otherwise in form and
substance reasonably satisfactory to counsel to the Placement Agent.
(l) All proceedings taken at or prior to each Closing in connection with the
authorization, issuance and sale of the Units and the Agent's Warrants will be
reasonably satisfactory in form and substance to the Placement Agent and its
counsel, and such counsel shall have been furnished with all such documents,
certificates and opinions as they may reasonably request upon reasonable prior
notice in connection with the transactions contemplated hereby.
7. Indemnification. (a) The Company will (i) indemnify and hold harmless the
---------------
Placement Agent, its selected dealers and their respective officers, directors,
employees and each person, if
12
<PAGE>
any, who controls the Placement Agent within the meaning of the Act and such
selected dealers (each an "Indemnitee") against, and pay or reimburse each
Indemnitee for, any and all losses, claims, damages, liabilities or expenses
whatsoever (or actions or proceedings or investigations in respect thereof),
joint or several (which will, for all purposes of this Agreement, include, but
not be limited to, all costs of defense and investigation and all reasonable
attorneys' fees, including appeals), to which any Indemnitee may become subject,
under the Act or otherwise, in connection with the offer and sale of the Units,
whether such losses, claims, damages, liabilities or expenses shall result from
any claim of any Indemnitee or any third party; and (ii) reimburse each
Indemnitee for any legal or other expenses reasonably incurred in connection
with investigating or defending against any such loss, claim, action, proceeding
or investigation; provided, however, that the Company will not be liable in any
such case to the extent that any such claim, damage or liability results from
(A) an untrue statement or alleged untrue statement of a material fact made in
the Memorandum, or an omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in reliance upon and in conformity with written information
furnished to the Company by the Placement Agent or any such controlling persons
specifically for use in the preparation thereof, or (B) any violations by the
Placement Agent of the Act or state securities laws which does not result from a
violation thereof by the Company or any of its affiliates. In addition to the
foregoing agreement to indemnify and reimburse, the Company will indemnify and
hold harmless each Indemnitee against any and all losses, claims, damages,
liabilities or expenses whatsoever (or actions or proceedings or investigations
in respect thereof), joint or several (which shall for all purposes of this
Agreement, include, but not be limited to, all costs of defense and
investigation and all reasonable attorneys' fees, including appeals) to which
any Indemnitee may become subject insofar as such costs, expenses, losses,
claims, damages or liabilities arise out of or are based upon the claim of any
person or entity that he or it is entitled to broker's or finder's fees from any
Indemnitee in connection with the Offering. The foregoing indemnity agreements
will be in addition to any liability which the Company may otherwise have.
(b) The Placement Agent will indemnify and hold harmless the Company, its
officers, directors, employees and each person, if any, who controls the Company
within the meaning of the Act against, and pay or reimburse any such person for,
any and all losses, claims, damages or liabilities or expenses whatsoever (or
actions, proceedings or investigations in respect thereof) to which the Company
or any such person may become subject under the Act or otherwise, whether such
losses, claims, damages, liabilities or expenses shall result from (A) any claim
of the Company, any of its officers, directors, employees, any person who
controls the Company within the meaning of the Act or any third party, insofar
as such losses, claims, damages or liabilities are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Memorandum but only with reference to information contained in the Memorandum
relating to the Placement Agent furnished in writing to the Company by the
Placement Agent, specifically for use in the preparation thereof or (B) any
violations by the Placement Agent of the Act or state securities laws. The
Placement Agent will reimburse the Company or any such person for any legal or
other expenses reasonably incurred in connection with investigating or defending
against any such loss, claim, damage, liability or action, proceeding or
investigation to which such indemnity obligation applies. The foregoing
indemnity agreements will be in addition to any liability which the Placement
Agent may otherwise have.
13
<PAGE>
(c) Promptly after receipt by an indemnified party under this Section 7 of
notice of the commencement of any action, claim, proceeding or investigation
("Action"), such indemnified party, if a claim in respect thereof is to be made
against the indemnifying party under this Section 7, will notify the
indemnifying party of the commencement thereof, but the omission to so notify
the indemnifying party will not relieve it from any liability which it may have
to any indemnified party under this Section 7 unless the indemnifying party has
been substantially prejudiced by such omission. The indemnifying party will be
entitled to participate in, and, to the extent that it may wish, jointly with
any other indemnifying party, to assume the defense thereof subject to the
provisions herein stated, with counsel reasonably satisfactory to such
indemnified party. The indemnified party will have the right to employ separate
counsel in any such Action and to participate in the defense thereof, but the
fees and expenses of such counsel will not be at the expense of the indemnifying
party if the indemnifying party has assumed the defense of the Action with
counsel reasonably satisfactory to the indemnified party, provided, however,
that if the indemnified party shall be requested by the indemnifying party to
participate in the defense thereof or shall have concluded in good faith and
specifically notified the indemnifying party either that there may be an actual
or potential conflict of interest for one counsel to represent both the
indemnified and the indemnifying party, then the counsel representing it, to the
extent made necessary by such defenses, shall have the right to direct such
defenses of such Action on its behalf but not on behalf of the indemnifying
party and in such case the fees and expenses of such counsel in connection with
any such participation or defenses shall be paid by the indemnifying party. No
settlement of any Action against an indemnified party will be made without the
consent of the indemnifying party and the indemnified party, which consent shall
not be unreasonably withheld or delayed in light of all factors of importance to
such party and no indemnifying party shall be liable to indemnify any person for
any settlement of any such claim effected without such indemnifying party's
consent.
8. Contribution. To provide for just and equitable contribution, if (i) an
------------
indemnified party makes a claim for indemnification pursuant to Section 7 hereof
and it is finally determined, by a judgment, order or decree not subject to
further appeal that such claims for indemnification may not be enforced, even
though this Agreement expressly provides for indemnification in such case; or
(ii) any indemnified or indemnifying party seeks contribution under the Act, the
1934 Act, or otherwise, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Placement Agent on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses (or actions in respect thereof), as
well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Placement Agent on the other
shall be deemed to be in the same proportion as the total net proceeds from the
Offering (before deducting expenses) received by the Company bear to the total
commissions and fees received by the Placement Agent. The relative fault, in
the case of an untrue statement, alleged untrue statement, omission or alleged
omission will be determined by, among other things, whether such statement,
alleged statement, omission or alleged omission relates to information supplied
by the Company or by the Placement Agent, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement, alleged statement, omission or alleged omission. The Company and the
Placement Agent agree that it would be unjust and inequitable if the respective
obligations of the Company and the Placement Agent for contribution were
determined by pro rata allocation of the aggregate losses, liabilities, claims,
--- ----
damages and expenses or by any other method or allocation
14
<PAGE>
that does not reflect the equitable considerations referred to in this Section
8. No person guilty of a fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) will be entitled to contribution from any person who
is not guilty of such fraudulent misrepresentation. For purposes of this Section
8, each person, if any, who controls the Placement Agent within the meaning of
the Act will have the same rights to contribution as the Placement Agent, and
each person, if any, who controls the Company within the meaning of the Act will
have the same rights to contribution as the Company, subject in each case to the
provisions of this Section 8. Anything in this Section 8 to the contrary
notwithstanding, no party will be liable for contribution with respect to the
settlement of any claim or action effected without its written consent. This
Section 8 is intended to supersede, to the extent permitted by law, any right to
contribution under the Act, the 1934 Act or otherwise available.
9. Termination. (a) The Offering may be terminated by the Placement Agent at
-----------
any time prior to the expiration of the Offering Period as contemplated in
Section 1(b) hereof ("Expiration Date") in the event that (i) any of the
representations or warranties of the Company contained herein, in the Memorandum
or in any other Transaction Document shall prove to have been false or
misleading in any material respect when made or deemed made, (ii) the Company
shall have failed to perform any of its material obligations hereunder, or (iii)
the Placement Agent shall determine that it is reasonably likely that any of the
conditions to Closing set forth herein will not, or cannot, be satisfied. In
the event of any such termination occasioned by or arising out of or in
connection with any breach or failure hereunder on the part of the Company, the
Placement Agent shall be entitled to receive, in addition to other rights and
remedies it may have hereunder, at law or otherwise, an amount equal to the sum
of: (A) all Placement Agent's Fees earned through the Termination Date, (B)
reimbursement of all Expenses actually incurred through the Termination Date
(without regard to any limitation on the amount of Expenses set forth in Section
3(d) hereof), including any non-refundable amounts referred to in Section 3(d)
hereof, (C) all amounts which may become payable in respect of Post-Closing
Investors pursuant to Section 3(f) hereof and (D) in the event that the Company
is sold, merged or otherwise acquired, or the Company enters into a letter of
intent or completes a public or private offering of its securities within one
(1) year from the Termination Date, an investment banking fee equal to five
percent (5%) of the total consideration received by the Company and/or its
stockholders in connection with such sale, merger, acquisition or sale of
securities. In the event of any such termination by the Placement Agent as a
result of any event described in clause (iii) or (iv) above, or pursuant to
Section 4(d) hereof, not occasioned by or arising out of or in connection with
any breach or failure hereunder by the Company, the Placement Agent will be
entitled to receive the sum of all Placement Agent's Fees earned through the
Termination Date, reimbursement for the amount of all Expenses actually incurred
through the Termination Date up to the maximum amount set forth herein.
(b) This Offering may be terminated by the Company at any time prior to the
Expiration Date in the event that the Placement Agent shall have failed to
perform any of its material obligations hereunder. In the event of any such
termination by the Company, the Placement Agent shall be entitled to
reimbursement for the amount of the Expenses actually incurred through the
Termination Date, and may retain any non-refundable portions thereof, but shall
be entitled to no other amounts whatsoever except as may be due under any
indemnity or contribution obligation provided herein or any other Transaction
Document, at law or otherwise.
15
<PAGE>
(c) Upon any such termination, the Escrow Agent will, at the request of the
Placement Agent, cause all monies received in respect of subscriptions for Units
not accepted by the Company to be promptly returned to such subscribers without
interest, penalty, expense or deduction. Any interest earned thereon shall be
applied first to the payment of amounts, if any, due to the Escrow Agent and
next to the payment of Expenses incurred by the Placement Agent hereunder which
remain unpaid.
10. Survival. (a) The obligations of the parties to pay any costs and
--------
expenses hereunder and to provide indemnification and contribution as provided
herein shall survive any termination hereunder.
(b) The respective indemnities, agreements, representations, warranties and
other statements of the Company set forth in or made pursuant to this Agreement
will remain in full force and effect, regardless of any investigation made by or
on behalf of, and regardless of any access to information by, the Company or the
Placement Agent, or any of their officers or directors or any controlling person
thereof, and will survive the sale of the Units.
11. Notices. All communications hereunder will be in writing and, except as
-------
otherwise expressly provided herein or after notice by one party to the other of
a change of address, if sent to the Placement Agent, will be mailed, delivered
or telefaxed and confirmed to Spencer Trask Securities Incorporated, 535 Madison
Avenue, 18th Floor, New York, New York 10022, Attention: A. Emerson Martin, II,
Telefax number (212) 751-3483, with a copy to Hertzog, Calamari & Gleason, 100
Park Avenue, New York, NY 10017, Attn: John D. Vaughan, Esq., Telefax number
(212) 213-1199 and if sent to the Company, will be mailed, delivered or
telefaxed and confirmed to Exigent Diagnostics, Inc., 6100 Bristol Parkway,
Culver City, CA 90230, Attn: W. Vickery Stoughton, Telefax number (610) 971-
9814, with a copy to Pepper Hamilton LLP, 3000 Two Logan Square, Philadelphia,
Pennsylvania 19103-2799, Attn: James D. Epstein, Esq., Telefax number (215) 981-
4750.
12. APPLICABLE LAW, COSTS, ETC. THIS AGREEMENT WILL BE GOVERNED BY, CONSTRUED
---------------------------
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE. THE COMPANY HEREBY
IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE OR UNITED STATES
FEDERAL COURT SITTING IN NEW YORK COUNTY OVER ANY ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR ANY AGREEMENT CONTEMPLATED HEREBY, AND
THE COMPANY HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION
OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE OR FEDERAL
COURT. THE COMPANY FURTHER WAIVES ANY OBJECTION TO VENUE IN SUCH STATE AND ANY
OBJECTION TO AN ACTION OR PROCEEDING IN SUCH STATE ON THE BASIS OF A NON-
CONVENIENT FORUM. THE COMPANY FURTHER AGREES THAT ANY ACTION OR PROCEEDING
BROUGHT AGAINST THE PLACEMENT AGENT SHALL BE BROUGHT ONLY IN NEW YORK STATE OR
UNITED STATES FEDERAL COURTS SITTING IN NEW YORK COUNTY. SERVICE OF PROCESS MAY
BE MADE UPON THE COMPANY BY MAILING A COPY THEREOF TO IT, BY CERTIFIED OR
REGISTERED MAIL, AT ITS ADDRESS TO BE USED FOR THE GIVING OF NOTICES UNDER THIS
AGREEMENT. THE COMPANY AND THE PLACEMENT AGENT EACH HEREBY WAIVES ITS RIGHT TO
A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT OR ANY DOCUMENT OR AGREEMENT CONTEMPLATED HEREBY.
16
<PAGE>
THE PLACEMENT AGENT OR THE COMPANY, AS THE CASE MAY BE, SHALL BE ENTITLED TO
COSTS AND REASONABLE ATTORNEY'S FEES IN THE EVENT IT PREVAILS IN ANY CLAIMS,
ACTIONS, AWARDS OR JUDGMENT UNDER THIS AGREEMENT.
13. Miscellaneous. No provision of this Agreement may be changed or
-------------
terminated except by a writing signed by the party or parties to be charged
therewith. Unless expressly so provided, no party to this Agreement will be
liable for the performance of any other party's obligations hereunder. Any
party hereto may waive compliance by the other with any of the terms, provisions
and conditions set forth herein; provided, however that any such waiver shall be
in writing specifically setting forth those provisions waived thereby. No such
waiver shall be deemed to constitute or imply waiver of any other term,
provision or condition of this Agreement. This Agreement contains the entire
agreement between the parties hereto and is intended to supersede any and all
prior agreements between the parties relating to the same subject matter. This
Agreement may be executed in counterparts, each of which shall be deemed an
original and all of which shall constitute a single agreement.
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return this Agreement, whereupon it will become a binding
agreement between the Company and the Placement Agent in accordance with its
terms.
Very truly yours,
EXIGENT DIAGNOSTICS, INC.
By: /s/ W. Vickery Stoughton
--------------------------------------
W. Vickery Stoughton
Chairman and CEO
Accepted and agreed to this
____ day of _______________, 199__.
SPENCER TRASK SECURITIES INCORPORATED
By: /s/ William P. Dioguardi
----------------------------------
Its: President
----------------------------------
17
<PAGE>
EXHIBIT 10.30
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
STANDARDIZED
401(k) SALARY REDUCTION PLAN AND TRUST PROTOTYPE PLAN
ADOPTION AGREEMENT
PLAN #008
IRS SERIAL #D259972a Date APRIL 30, 1992
The Careside Inc.
----------------------------------------------------------------------------
(exact legal name of Employer)
(hereinafter referred to as the Employer), having its principal place of
business in Exton Pennsylvania
---------------------------------------------------------------------
(City) (State)
hereby adopts the The Lincoln National Life Insurance Company Standardized
401(k) Salary Reduction Plan and Trust Prototype Plan, and further appoints as:
Trustee(s), W. Vickery Stroughton, Thomas H. Grove
--------------------------------------------------------------------
;
--------------------------------------------------------------------
Named Fiduciary*, Same ;
--------------------------------------------------------------
Plan Administrator*, Same ; and
-----------------------------------------------------------
Agent for Legal Service of Process*, Same .
-------------------------------------------
*If same as Employer, write 'Same'.
The Employer's Tax Year begins January 1 and ends December 31.
--------- -----------
Employer Telephone Number (610) 270-6100.
--------------
Business Code Number (same as shown on 1120) 3815.
----
Date Business Commenced November 1, 1996.
----------------
In connection herewith, the Employer makes the following statements and
selections:
This Plan shall be known as Careside Inc.
------------------------------------------------
(name of Employer)
401(k) Salary Reduction Plan and
--------------------------------------
Trust which shall be identified by Employer I.D. # 23-2863507
----------------------
and Plan Serial # 001 (001, 002, etc.- assign sequentially).
----------
<PAGE>
The employer maintains, or has maintained, the following qualified plans: (List
all plans, including this Plan, ever maintained by the Employer starting with
Plan Serial #001.)
Status
Plan ----------------------
Serial # Type of Plan In Force Terminated
- ------------ ------------------------- -------- ----------
001 Salary Reduction [X] [_]
002 [_] [_]
003 [_] [_]
004 [_] [_]
005 [_] [_]
This Employer is: Sole Proprietor
-----
Partnership
-----
X Corporation
-----
S Corporation
-----
Professional Corporation
-----
Non Profit Corporation
-----
[_] Yes [X] No Is the Employer a member of a Controlled Group of
Corporations, a group of businesses under common control, or
an Affiliated Service Group as defined below. This question
must be answered "yes" or "no". If yes, complete the rest of
this section.
In the case of a group of employers which constitutes a Controlled Group of
Corporations, or an Affiliated Service Group [as defined in Sections 414(b) and
414(m), respectively, of the Internal Revenue Code], or which constitutes one or
more trades or businesses whether or not incorporated which are under common
control [as defined in Section 414(c)], all such employers shall be considered a
single employer for purposes of determining plan qualification, minimum
participation, benefit accrual, vesting standards, and limitations on benefits
and contributions. The employers listed below are required to be aggregated
with the adopting employer under Code Sections 414(b), (c), (m) or (o), and
shall participate in this Plan to the extent indicated as evidenced by written
resolution adopting this Plan. (If there are no affiliated employers, indicate
None.)
- ----
Employer Employer Participating Participation
Name I.D. # Employer Effective Date
- ----------- -------- ------------- ---------------
[_] Yes [_] No
[_] Yes [_] No
[_] Yes [_] No
[_] Yes [_] No
[_] Yes [_] No
If this Plan and Trust is adopted by more than one member of the aggregation
group, this Plan
[_] (a) shall be administered as one plan (i.e., contributions, and
forfeitures shall not be separated for each participating Employer).
[_] (b) shall be administered as a single employer plan for each
participating Employer [i.e., contributions shall be made by each
Employer only for those Participants employed by such Employer and
forfeitures shall be used to reduce the contribution made by the
applicable Employer - each asset pool shall be considered a separate
plan which must independently satisfy Code Section 401(a)(26)].
[X] (c) N/A
Any Employee of a participating Employer must receive credit for service while
employed by any member of the aggregation group (including non-participating
employers) for purposes of vesting and eligibility under this Plan from the date
such Employer became a member of the aggregation group.
A-1.22 The adoption of this Plan constitutes: (check appropriate statement and
provide information)
2
<PAGE>
[X] (a) The initial adoption of this Plan and Trust by the
Employer. The Effective Date of this Plan is _______________
January 1, 1997 .
----------------------------------------
(month/day/year)
[_] (b) An [_] amendment and restatement, or [_] merger of the
following Plan(s) known as _________________________________,
---------------------------------------------------------------
---------------------------------------------------------------
(name of Plans and Trusts)
with the original effective date(s) of
---------------------------------------------------------------
(month/day/year)
The effective date of this amendment and restatement is
---------------------------------------------------------------
(month/day/year)
I. DEFINITIONS
A-1.38 Hours of Service: Hours of Service shall be determined on the basis
of the method selected below. The method selected shall be applied to
all Employees. If the Elapsed Time Method is selected in A-1.74,
Hours of Service as designated below shall be applicable for
eligibility purposes only. (Select one)
[X] (a) On the basis of actual hours for which an Employee is paid
or entitled to payment.
[_] (b) On the basis of days worked. An Employee shall be credited with
ten (10) Hours of Service if, under Section 1.38 of the Plan,
such Employee would be credited with at least one (1) Hour of
Service during such day.
[_] (c) On the basis of weeks worked. An Employee shall be credited
with 45 Hours of Service if, under Section 1.38 of the Plan,
such Employee would be credited with at least one (1) Hour of
Service during such week.
[_] (d) On the basis of semi-monthly payroll periods. An Employee shall
be credited with 95 Hours of Service if, under Section 1.38 of
the Plan, such Employee would be credited with at least one (1)
Hour of Service during such semi-monthly period.
[_] (e) On the basis of months worked. An Employee shall be credited
with 190 Hours of Service if under Section 1.38 of the Plan
such Employee would be credited with at least one (1) Hour of
Service during such month.
A-1.54 Plan Year: (select one and complete)
[X] (a) Shall be the consecutive 12 month period for which records
for this Plan shall be maintained beginning each
January 1 and ending each December 31.
--------- -----------
3
<PAGE>
[_] (b) There shall be a short Plan Year beginning and
------------
ending . (The Plan must retain its qualified status
--------
during this period.)
All subsequent Plan Years shall begin each and end
------
each .
------
The previous Plan Year prior to this amendment began
and ended each .
--------------- --------------
Adjustments for eligibility and vesting shall be made as
required by Section 11.04 if the Plan Year is changed.
A-1.55 For purposes of establishing Present Value to compute the Top-Heavy
Ratio, any benefit (under a Defined Benefit plan) shall be discounted
for mortality and interest based on the following: (If the Employer
maintains a Defined Benefit plan, this section must be completed.)
Interest Rate ____% Mortality Table _____
[X] N/A The Employer has no Defined Benefit plan.
A-1.64 Years of Service with a predecessor employer:
Years of Service with ____________________________________ , for whom
this Employer does not maintain a predecessor plan shall be considered
under the Plan for purposes of: (select as desired)
[_] (a) Vesting
[_] (b) Eligibility
[X] (c) None of the above
A-1.71 For purposes of computing the Top-Heavy Ratio, the Valuation Date
shall be December 31 of each year.
---------------
4
<PAGE>
A-1.73 Vesting Years of Service: Years of Service credited for vesting shall
exclude the years checked below subject to Section 11.03: (select as
desired)
[X] (a) Years of Service before the Employee's 18th (cannot exceed 18)
birthday. (If Regular Method is used, the Plan Year in which
the Employee attains age 18 shall not be excluded.)
[X] (b) Years of Service prior to the original Effective Date of this
Plan or a predecessor plan.
[_] (c) Years of Service prior to __________________. (Date selected
may not be later than the original effective date of this Plan
or a predecessor plan.)
[_] (d) Years of Service during a period for which the Employee
declined to contribute to a plan requiring Employee
Contributions. In the case of a plan using the elapsed time
method, the Service which shall be disregarded is the period
with respect to which the mandatory contribution is not made.
[_] (e) No exclusions.
Note: In general, a predecessor plan is a plan which terminates
within the five (5) year period immediately preceding or
following the establishment of this Plan.
A-1.74 Years of Service shall be computed under the following method: (select
one)
[X] (a) Regular Method--based on Hours of Service credited under the
method selected in A-1.38.
[_] (b) Elapsed Time Method--based on total time an Employee is
employed without regard to actual hours credited as explained
in Section 1.74 of this Plan.
II. ELIGIBILITY
A-2.01 (a) All Employees of the Employer shall be eligible to participate in
the Plan except the following:
[X] (1) Non-resident aliens [within the meaning of Section
7701(b)(1)(B)] who receive no earned income [within the
meaning of Section 911(d)(2)] from the Employer which
constitutes income from sources within the United States
[within the meaning of Section 861(a)(3)].
[X] (2) Employees included in a unit of Employees covered by a
collective bargaining agreement between the Employer and
Employee representatives, if retirement benefits were the
subject of good faith bargaining and if two percent or
less of the Employees of the Employer who are covered
pursuant to that agreement are professionals as defined
in Section 1.410(b)-9 of the Regulations. For this
purpose, the term "employee than half of whose members
are Employees who are representatives" does not include
any organization more owners, officers, or executives of
the Employer.
For purposes of this Section, the term "Employee" shall include all
employees of this Employer or any employer aggregated with this Employer
under Code Section 414(b), (c), (m) or (o) and individuals required to be
considered employees of any such employer under Code Section 414(n) or
(o). If the Employer is part of an aggregation group, all affiliated
employers must be listed as participating Employers on page 2 of this
Adoption Agreement.
5
<PAGE>
(b) Minimum age and service requirements: (select one)
[X] (1) An Employee shall become a Participant on the Entry Date
coincident with or next following Age 21 (cannot exceed
21) and the completion of 1 (cannot exceed 1 year)
Eligibility Year of Service. MUST HAVE AT LEAST 2 ENTRY
DATES, I.E., CANNOT ELECT (d)(1) BELOW.
If the Eligibility Year of Service includes a fractional
year, an Employee shall not be required to complete any
specified number of Hours of Service to receive credit
for such fractional year.
[_] (2) An Employee shall become a Participant on the Entry Date
coincident with or next following Age ___ (cannot exceed
20 1/2) and the completion of ___ [cannot exceed 1/2 year
(6 months)] Eligibility Year of Service. USE THIS
PROVISION ONLY WHEN (d)(1) (ONE ENTRY DATE) IS ELECTED
BELOW.
If the Eligibility Year of Service includes a fractional
year, an Employee shall not be required to complete any
specified number of Hours of Service to receive credit
for such fractional year.
(c) The preceding election in A-2.01(b) notwithstanding, Employees who
are actively employed on November 1, 1996 shall be deemed to have
----------------
satisfied the
[_] (1) Age requirement as of the Effective Date.
[X] (2) Service requirement as of the Effective Date.
[_] (3) Age and service requirements as of the Effective Date.
[_] (4) N/A (Age and Service requirements in A-2.01(b) apply
to all Employees.)
(d) Entry Date: Shall mean: (select one)
[_] (1) First day of Plan Year.
[X] (2) First day of Plan Year and the date 6 months after the
first day of the Plan Year.
[_] (3) The first day of the Plan Year and the dates which are 3,
6 and 9 months after the first day of the Plan Year. (Not
recommended.)
[_] (4) First day of each month. (Not recommended.)
III. PROFIT SHARING CONTRIBUTIONS AND ALLOCATIONS
A-3.01 Contributions
(a) The Employer shall contribute [select (1), (2) or (3)]
[_] (1) out of current or accumulated profits.
[_] (2) without regard to current or accumulated profits.
[X] (3) N/A [A-3.01(a)(6) is elected]
The amount of such contribution shall be: [select (4) (5) or (6)]
[_] (4) As determined by the Board of Directors each year.
6
<PAGE>
[_] (5) Other
---------------------------------------------------
---------------------------------------------------
[X] (6) The Employer will make no contribution under this Section
A-3.01(a). [Do not complete Sections A-3.01(b), (d) and
(e). A-3.01(c) must still be completed.]
(b) Allocation of contributions under A-3.01(a), above, shall be made
for all Participants who are credited with at least [select (1),
(2), or (3)]
[_] (1) 1,000 Hours of Service
[_] (2) 500 Hours of Service
[_] (3) one Hour of Service
during the Plan Year and [select (4) or (5)]
[_] (4) regardless of employment on the last day of the Plan
Year.
[_] (5) who is employed with the Employer on the last day of
the Plan Year.
The preceding notwithstanding, effective for Plan Years commencing
on and after January 1, 1990, contributions shall be allocated to
all Participants who are credited with more than 500 Hours of
Service during the Plan Year, or who are employed on the last day of
the Plan Year.
Note: Employer includes all employers which are required to be
aggregated with the Employer under Code Sections 414(b),
(c), (m) or (o).
7
<PAGE>
(c) If a Participant dies, retires, or becomes disabled during the Plan
Year and does not complete the hours requirement for a contribution,
an allocation
[_] (1) shall not be made on such Participant's behalf for such
Plan Year.
[X] (2) shall be made on such Participant's behalf for such Plan
Year regardless of any last day requirement elected under
A-3.01(b)(5).
Note: The above election applies to Profit Sharing
Contributions under Section A-3.01(a), Matching
Contributions under A-4.02 and Qualified Non-elective
Contributions under A-4.03.
(d) Employer contributions under this Section and forfeitures, if
applicable, shall be allocated to Participant's Accounts as
follows:
[_] (1) NON-INTEGRATED FORMULA
On a pro-rata basis to all Participants in the proportion
that a Participant's Compensation bears to the total of
all Participants' Compensation.
[_] (2) INTEGRATED FORMULA (INTEGRATED WITH SOCIAL SECURITY)
Note: This Plan may not provide for permitted disparity
(integration with Social Security) if the Employer
maintains any other plan that provides for permitted
disparity and benefits any of the same Participants.
STEP ONE: In any Plan Year the Plan is Top-Heavy
---- ---
contributions and forfeitures (if applicable) shall be
allocated to all Participants in the ratio that each
Participant's Compensation bears to all Participant's
Compensation, but not in excess of 3% of such
Compensation.
(If the plan is not top-heavy, proceed to step two.)
STEP TWO: Any contributions and forfeitures not
---- ---
allocated in STEP ONE shall be allocated to each
Participant's Account in the ratio that the sum of each
Participant's total Compensation plus Compensation in
excess of the integration level bears to the sum of all
Participants total Compensation plus Compensation in
excess of the integration level, but not in excess of the
maximum disparity rate.
STEP THREE: Any remaining Employer contributions or
---- ------
forfeitures shall be allocated to each Participant's
Account in the ratio that each Participant's total
Compensation for the Plan Year bears to all Participants'
total Compensation for that year.
For the purpose of this Section, Compensation shall mean
Compensation as defined in Section 1.13 of the Plan.
The integration level shall be:
[_] (i) The Taxable Wage Base [The maximum amount of
earnings which may be considered wages for a
year under Section 3121(a)(1) of the Code in
effect as of the first day of the Plan Year.]
8
<PAGE>
[_] (ii) $_________ (Must be less than the Taxable Wage
Base.)
The maximum profit sharing disparity rate is equal to
the lesser of:
(a) 5.7%, or
(b) The applicable percentage determined in accordance
with the table below:
If the integration level:
Is more But not more The applicable
than than percentage is
----------------- ------------- --------------
$0.00 $X* 5.7%
X* 80% of TWB*** 4.3%
80% of TWB*** Y** 5.4%
* X = the greater of $10,000 or 20% of the TWB.
** Y = any amount more than 80% of the TWB but
less than 100% of the TWB.
***TWB = Taxable Wage Base at the beginning of
the Plan Year. The TWB for 1989 is
$48,000. The TWB for 1990 is $51,300.
Note: Pursuant to Section 16.03, only one
paired plan adopted by the Employer may
be integrated with Social Security.
(e) Is any Employee who is eligible to participate under this Plan
covered by any other plan [including plans of non-participating
employers required to be aggregated under Section 414(b), (c),
(m) or (o) of the Code] which is integrated with Social Security?
[_] (1) No
[_] (2) Yes [may not elect A-3.01(d)(2)]
A-3.03 (a) Rollover contributions:
[_] (1) shall not be permitted under this Plan.
[X] (2) shall be permitted under this Plan.
(b) Rollover contributions shall be accepted from:
[_] (1) Participants only.
[X] (2) Participants and non-Participants (otherwise eligible Employees
who have not yet satisfied the age and/or service requirements
for participation).
A-3.07 ALLOCATION OF EARNINGS shall be based on the Account balance as of the
beginning of the allocation period plus 1/2 of the contribution
allocated at the end of the allocation period, less all withdrawals,
plus investment transfers in, and less investment transfers out,
unless otherwise specified.
This plan utilizes daily accounting.
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
A-3.08 ALL FORFEITURES occurring at the end of Plan Year: (select one)
9
<PAGE>
[X] (a) shall be used to reduce the Employer's contribution for the
current Plan Year. If the Employer does not make a contribution
for a Plan Year, any available forfeitures shall be treated as
Employer Contributions.
[_] (b) shall be allocated in the same manner as Employer contributions
under Section 3.01 for the current Plan Year. However,
forfeitures shall not be allocated to Participants who are not
employed on the last day of the Plan Year unless such
allocation is required to satisfy the requirements of Code
Sections 401(a)(26) and/or 410(b). (Do not elect if no Profit
Sharing contribution is specified in A-3.01).
IV. CASH OR DEFERRED ARRANGEMENT (CODA)
A-4.01 ELECTIVE DEFERRALS
(a) An eligible Employee may elect to have his or her annual
Compensation reduced by
[X] (1) from 1 % to 15%
------ ---
[_] (2) (Specify)
Such election shall be in writing and in a form and manner
specified by the Plan Administrator.
(b) A Participant may elect to commence, or to modify the amount of,
Elective Deferrals as of:
[_] (1) the first day of each Plan Year.
[X] (2) the first day of each Plan Year and the date 6 months
after the first day of each Plan Year.
[_] (3) the first day of each Plan Year quarter.
The Plan Administrator may permit an additional election in the
event an Actual Deferral Percentage Test, performed during the
Plan Year, permits or requires an adjustment in the deferral
percentages.
A-4.02 MATCHING CONTRIBUTIONS
(a) The Employer [select (1) or (2)]
[X] (1) shall
[_] (2) shall not
make Matching Contributions to the Plan on behalf of all
Participants who elect to have Elective Deferrals made under the
Plan and who are credited with at least [select (3), (4) or (5)]
[_] (3) 1,000 Hours of Service
[_] (4) 500 Hours of Service
[X] (5) one Hour of Service
during the Plan Year and [select (6) or (7)]
[X] (6) regardless of employment on the last day of the Plan
Year.
[_] (7) who is employed with the Employer on the last day of
10
<PAGE>
the Plan Year.
The preceding notwithstanding, effective for Plan Years commencing
on and after January 1, 1990, matching contributions shall be
allocated to all Participants who elect to have Elective Deferrals
made under the Plan and who are credited with more than 500 Hours of
Service during the Plan Year, or who are employed on the last day of
the Plan Year.
Note: Employer includes all employers which are required to be
aggregated with the Employer under Code Sections 414(b),
(c), (m) or (o).
(b) The Employer shall contribute and allocate to each Participant's
Matching Contribution Account:
[X] (1) an amount equal to 50 percent of the Participant's
--
Elective Deferrals.
[_] (2) a discretionary matching contribution equal to a
percentage (to be determined each year by the Employer)
of each Participant's Elective Deferrals.
(c) The Employer shall not match Elective Deferrals in excess of
8 percent of a Participant's
-------
[X] (1) compensation per pay period.
[_] (2) annual compensation.
(d) The Matching Contribution allocated to any Participant's account
for the Plan Year shall not exceed
[_] (1) $
[X] (2) N/A
(e) Matching Contributions shall be vested in accordance with the
following schedule:
[_] (1) 100% vested at all times.
[X] (2) The vesting schedule as elected in A-11.02 of the
Adoption Agreement.
(f) Matching contributions shall be made
[_] (1) only from current or accumulated profits.
[X] (2) without regard to current or accumulated profits.
A-4.03 (a) Qualified Non-elective Contributions shall be allocated to the
accounts of Non-highly Compensated Participants who are credited
with at least [select (1), (2) or (3)]
[_] (1) 1,000 Hours of Service
[_] (2) 500 Hours of Service
[X] (3) one Hour of Service
during the Plan Year and [select (4) or (5)]
[X] (4) regardless of employment on the last day of the Plan
Year.
[_] (5) who is employed with the Employer on the last day of
the Plan Year.
11
<PAGE>
The preceding notwithstanding, effective for Plan Years commencing
on and after January 1, 1990, Qualified Non-elective Contributions
shall be allocated to all Participants who are credited with more
than 500 Hours of Service during the Plan Year, or who are employed
on the last day of the Plan Year.
Note: Employer includes all employers required to be aggregated
with the Employer under Code Sections 414(b), (c), (m) or
(o).
A-4.13 Pre-retirement distributions of a Participant's entire Account balance,
including Elective Deferrals and Qualified Non-elective Contributions,
upon attainment of age 59 1/2 (may not be less than 59 1/2)
------
[X] (a) shall
[_] (b) shall not
be permitted provided the Participant is 100% vested, and the balance
in the Participant's Account has accumulated for at least two (2)
years or the Participant has completed five (5) years of participation
in the Plan.
12
<PAGE>
A-4.14 Distributions on account of financial hardship
[X] (a) shall
[_] (b) shall not
be permitted to the extent provided in Section 4.14, and subject to
applicable regulations.
Distributions on account of financial hardship shall be made only
from:
[X] (c) Elective Deferrals (and any earnings credited to a
Participant's Elective Deferral account as of the end of the
last Plan Year ending before July 1, 1989.) The amount
available for distribution shall include the amount credited to
the Participant's Qualified Matching Contribution and Qualified
Non-elective Contribution accounts as of the end of the last
Plan Year ending before July 1, 1989.
[_] (d) Account balances which are not subject to the withdrawal
restrictions of Section 4.13 provided the Participant is 100%
vested, and the funds have accumulated for at least two (2)
years or the Participant has completed five (5) years of
participation in the Plan.
Note: Hardship withdrawal provisions for funds described in (d)
above, are protected benefits under Code Section 411(d)(6). If
the conditions described in Section 4.14 are more restrictive
than those in effect immediately prior to the adoption of this
Plan, the prior conditions shall continue to apply to all such
funds including those which have accrued after the date this
Plan is adopted, and the Employer should attach to this
Adoption Agreement a hardship withdrawal policy statement fully
describing the objective and nondiscriminatory conditions
applicable to such withdrawals.
V. LIMITATIONS ON ALLOCATIONS
If the Employer maintains or ever maintained another qualified plan in which any
Participant in this Plan is (or was) a Participant or could become a
Participant, the Employer must complete this Section. The Employer must also
complete this Section if it maintains a welfare benefit fund, as defined in
Section 419(e) of the Code, or an individual medical account, as defined in
Section 415(1)(2) of the Code, under which amounts are treated as Annual
Additions with respect to any Participant in this Plan.
A-5.11 If the Participant is covered under another qualified Defined
Contribution plan maintained by the Employer, other than a Master or
Prototype plan:
[_] (a) The provisions of Sections 5.05 through 5.10 of Article V
shall apply as if the other plan were a Master or Prototype
plan.
13
<PAGE>
[_] (b) Provide the method under which the plans shall limit total
Annual Additions to the Maximum Permissible Amount, and shall
properly reduce any excess amounts, in a manner that precludes
Employer discretion.
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
[X] (c) N/A The Employer maintains no other plan which provides an
Annual Addition as defined under Section 5.13(a).
A-5.12 If the participant is or has ever been a participant in a Defined Benefit
plan maintained by the Employer:
[_] (a) The Annual Additions which may be credited to the Participant's
Account under this Plan shall not be limited other than by the
Maximum Permissible Amount as defined in Section 5.13(k). If
the sum of the Defined Benefit Fraction and the Defined
Contribution Fraction would otherwise exceed 1.0, such sum
shall be reduced to not exceed 1.0 by adjusting the
Participant's Projected Annual Benefit under the Defined
Benefit plan.
[_] (b) Provide language which shall satisfy the 1.0 limitation of
Section 415(e) of the Code. Such language must preclude
Employer discretion.
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
[X] (c) N/A The Employer does not and has never maintained a
Defined Benefit plan.
VI. INVESTMENT OF CONTRIBUTIONS
A-6.02 Life Insurance: The Trustee may, at the direction of the Participant
and subject to the requirements of Section 6.02, use a portion of each
contribution to purchase life insurance.
[_] (a) Yes, subject to the guidelines outlined below, if any.
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
[X] (b) No
A-6.03 Participants may direct the Trustee as to the investment of their
individual Account balances which are attributable to: (check all which
apply)
[_] (a) Elective Deferrals
[_] (b) Employer Matching Contributions
14
<PAGE>
[_] (c) Rollovers
[X] (d) All contributions regardless of source
[_] (e) None of the above--Participants may not direct the investment
of their accounts
A-6.05 Participant Loans
[X] (a) shall be permitted in accordance with the Employer's written
loan policy.
[_] (b) shall not be permitted.
VIII. BENEFITS
A-8.01 Normal Retirement Date: (select one)
[X] (a) The later of the first day of the month (select one)
[_] nearest
[X] on or following
a Participant's 65th (cannot be less than 55) birthday or the
----
first day of the month on or following the N/A 1st - 7th or
---
N/A) anniversary in which (select one)
[_] participation commenced
[_] the Employee first performed an Hour of Service
but in no event later than the first day of the month on or
following a Participant's ________ birthday.
[_] (b) The later of the first day of the Plan Year nearest a
Participant's _______________ (cannot be less than 55)
birthday, or the first day of the Plan Year nearest the
_______________ (1st-7th or N/A) anniversary in which (select
one)
[_] participation commenced
[_] the Employee first performed an Hour of Service
but in no event later than the first day of the Plan Year
nearest a Participant's _______________ birthday.
15
<PAGE>
A-8.02 (a) Early Retirement Date: Shall mean: (select one)
[_] (1) None--no Early Retirement Date.
[X] (2) First day of any [X] month [_] Plan Year on or following a
Participant's 55th (cannot be less than 55) birthday or
after N/A (1-7 or N/A) [_] Vesting Years of Service [_]
---
years of participation in the Plan, whichever date is
later.
(b) Early Retirement Benefit: Upon satisfaction of the age and service
requirements for Early Retirement, a (select one) Participant shall:
[X] (1) automatically become 100% vested in the Account.
[_] (2) be entitled to the vested Account based on the vesting
schedule designated in the Adoption Agreement.
A-8.04 Disability Retirement Benefit:
(a) In the event of total and permanent disability, a Participant shall:
(select one)
[X] (1) automatically become 100% Vested in the Account.
[_] (2) be entitled to the vested Account based on the vesting
schedule designated in the Adoption Agreement.
(b) Disability shall mean a physical or mental impairment which is
expected to result in death or blindness or which can be expected to
last for a continuous period of not less than 12 months resulting
in: (select one)
[_] (1) an inability to engage in any substantial gainful activity
for which the Participant is reasonably suited by reason
of training, education and experience as determined by the
Plan Administrator. The Plan Administrator may require
that the Participant be examined by physician(s) selected
by the Plan Administrator.
[X] (2) the Participant being entitled to Social Security
Disability Benefits. In the event a Participant has
applied for Social Security Disability Benefits, the
disability benefits provided by this Plan shall commence
upon qualifying for Social Security Disability Benefits.
[_] (3) an inability to perform the normal duties for the Employer
as determined by the Plan Administrator. The Plan
Administrator may require that the Participant be examined
by physician(s) selected by the Plan Administrator.
16
<PAGE>
A-8.09 Benefits shall be distributed:
[X] (a) only in the form of a single lump-sum payment. (May not
elect if other forms were available immediately preceding
the adoption of this Plan.)
[_] (b) in accordance with the provisions of Section 8.08.
XI. TERMINATION OF SERVICE
A-11.02 The vesting schedule for benefits (derived from the Employer's
contributions pursuant to Article III) upon termination of employment
shall be determined according to the selection based on Vesting Years
of Service as credited in accordance with A-1.73: (select one)
[_] (a) 100% vested at all times
[X] (b) 100% vested after 3 (not to exceed 5) years of service.
-
[_] (c) 20% vested after 2 years of service
40% vested after 3 years of service
60% vested after 4 years of service
80% vested after 5 years of service
100% vested after 6 years of service
[_] (d) 20% vested after 3 years of service
40% vested after 4 years of service
60% vested after 5 years of service
80% vested after 6 years of service
100% vested after 7 years of service
[_] (e) Specify: (Must in all years be as favorable as the schedule in
(b) above, or as favorable as the schedule in (d) above.)
_____% vested after _____ years of service
_____% vested after _____ years of service
_____% vested after _____ years of service
_____% vested after _____ years of service
_____% vested after _____ years of service
_____% vested after _____ years of service
_____% vested after _____ years of service
Note: If this is a restated plan and the vesting schedule has been
amended, enter the pre-amended schedule below:
[_] (f) _____% vested after _____ years of service
_____% vested after _____ years of service
_____% vested after _____ years of service
_____% vested after _____ years of service
_____% vested after _____ years of service
_____% vested after _____ years of service
_____% vested after _____ years of service
[_] (g) Vesting schedule has not been amended.
17
<PAGE>
A-11.05 Distributions upon termination of Service shall be made as soon as
administratively feasible following:
[X] (a) Termination of employment.
[_] (b) The end of the Plan Year following termination of employment.
[_] (c) The end of the Plan Year during which a One-Year Break in
Service occurs.
[_] (d) Early or Normal Retirement Date, Death, or Disability.
Note: May not be more restrictive than the provision in effect
immediately preceding the adoption of this Plan.
A-11.09 Benefits which are no longer immediately distributable
[_] (a) shall not be distributed without the consent of the
Participant and/or Beneficiary prior to the time required by
Article X.
[X] (b) shall, subject to the requirements of Article IX, be
distributed as soon as administratively feasible following
the date on which they cease to be immediately distributable.
Note: An Account balance is immediately distributable if any part
of the Account balance could be distributed to the
Participant (or Surviving Spouse) before the Participant
attains (or would have attained if not deceased) the later of
Normal Retirement Age or age 62.
XV. TOP-HEAVY
Before completing this Section of the Adoption Agreement, the Employer should
carefully read Article XV of the Basic Plan Document paying particular attention
to Sections 15.03 thru 15.05.
A-15.02 Minimum Top-heavy Allocations: The purpose of this Section A-15.02 is
to coordinate Top-Heavy minimum contributions or benefits when two or
more plans of the Employer are involved. If the Employer maintains only
this plan, and has never maintained a Defined Benefit plan, the
Employer is required to complete only Section (d). If the Employer
maintains (or has maintained) a Defined Benefit plan, this Section
should be completed only with the advice of that plan's actuary. If the
Employer maintains two Defined Contribution plans, and has never
maintained a Defined Benefit plan, the Employer is required to complete
only Sections (c) or (d).
(a) If the Employer maintains a Defined Benefit plan, this Section or
--------- - ------- -------
Section (d) below must be completed.
If a non-key Employee participates in both a Defined Benefit plan
and a Defined Contribution plan which are part of a Required
Aggregation Group or a Permissive Aggregation Group and the Top-
Heavy Ratio exceeds 60% (but does not exceed 90%), Top-Heavy
minimum benefits shall be provided as follows:
18
<PAGE>
[_] (1) In the Defined Contribution Plan, with a minimum
allocation of:
[_] (i) 5% of total compensation (Defined Benefit
and Defined Contribution Fractions
computed using 100% of the dollar
limitation)
[_] (ii) 7.5% of total compensation (Defined Benefit
and Defined Contribution Fractions
computed using 125% of the dollar
limitation)
[_] (2) In the Defined Benefit Plan, with a minimum annual
accrual of:
[_] (i) 2% of the highest 5 consecutive year average
compensation (Defined Benefit and Defined
Contribution fractions computed using
100% of the dollar limitation)
[_] (ii) 3% of the highest 5 consecutive year average
compensation (Defined Benefit and Defined
Contribution Fractions computed using
125% of the dollar limitation)
If the Top-Heavy Ratio exceeds 90%, the minimum benefit shall be
provided in:
[_] (3) the Defined Contribution plan with a minimum allocation
of 5% of total compensation
[_] (4) the Defined Benefit plan with a minimum accrual of 2% of
the highest 5 consecutive year average compensation
Note: When the Top-Heavy Ratio exceeds 90%, the Defined Benefit
and Defined Contribution Fractions shall be computed
using 100% of the dollar limitation.
(b) If the Employer maintains (or has maintained) a Defined Benefit
--------- -- --- ---------- - ------- -------
plan, this Section or Section (d) below must be completed.
If the Employer maintains both a Defined Benefit plan and a Defined
Contribution plan which are part of a Required Top-Heavy Ratio
exceeds 60% (but does not exceed 90%), a non-key Employee who
participates only in the Defined Contribution plan shall receive a
minimum allocation of:
[_] (1) 3% of total compensation (Defined Benefit and Defined
Contribution Fractions computed using 100% of the
dollar limitation)
[_] (2) 4% of total compensation (Defined Benefit and Defined
Contribution Fractions computed using 125% of the
dollar limitation)
If the Top-Heavy Ratio exceeds 90% each non-key Employee who
participates only in the Defined Contribution plan shall receive
19
<PAGE>
a minimum allocation of 3% of total compensation.
(c) If the Employer maintains two Defined Contribution plans, this
--------- --- ------- ------------
Section or Section (d) below must be completed.
If a non-key Employee participates in two Defined Contribution
plans maintained by the Employer, the Defined Contribution
minimum allocation requirement shall be met
[_] (1) in this plan.
[_] (2) in the other plan._______________________________________
(Name of Plan)
(d) Complete this Section only if (a), (b) and/or (c) have not been
-------- ---- ------- ---- -- --- --- ------ --- ---- --- ----
completed.
---------
[_] (1) Specify how the plans shall provide Top-Heavy minimum
benefits for non-key Employees precluding Employer
discretion and avoiding inadvertent omissions.
_________________________________________________________
_________________________________________________________
_________________________________________________________
[X] (2) The Employer maintains only this Plan and has never
maintained a Defined Benefit Plan.
A-15.06 TOP HEAVY VESTING...If this Plan becomes a Top-Heavy Plan, the
following vesting schedule for such Plan Year and each succeeding Plan
Year, whether or not Top-Heavy, shall be effective and shall be treated
as a Plan amendment pursuant to this Agreement.
[_] (a) 100% vested after ___ (not to exceed 3) years of service.
[_] (b) 20% vested after 2 years of service
40% vested after 3 years of service
60% vested after 4 years of service
80% vested after 5 years of service
100% vested after 6 years of service
[_] (c) Specify: (Must in all years be as favorable as the schedule
in (a) above, or as favorable as the schedule in (b) above.)
_____% vested after _____ years of service
_____% vested after _____ years of service
_____% vested after _____ years of service
_____% vested after _____ years of service
_____% vested after _____ years of service
_____% vested after _____ years of service
[X] (d) N/A, Vesting schedule in A-11.02 is equal to or more
favorable than (a) or (b) above.
However, this Section does not apply to the Account balances of any
Participant who does not have an Hour of Service after the Plan has
initially become Top-Heavy. Such Participant's Account balance
attributable to Employer contributions and forfeitures shall be
determined without regard to this Section.
An Employer who has ever maintained or who later adopts any plan [including a
welfare benefit fund, as defined in Section 419(e) of the Code, which provides
post-retirement medical benefits allocated to separate accounts for Key
Employees, as defined in Section 419A(d)(3) of the Code, or an individual
medical account, as defined in Section 415(1)(2) of the Code] in addition to
this Plan other than paired plans #00201 or #00401 may not rely on the Opinion
Letter issued by the National Office of the Internal Revenue Service as evidence
that this Plan is qualified under Section 401 of the Internal Revenue Code. If
20
<PAGE>
the Employer who adopts or maintains multiple plans wishes to obtain reliance
that his or her plan(s) are qualified, application for a determination letter
should be made to the appropriate Key District Director of Internal Revenue.
This adoption agreement may be used only in conjunction with basic plan document
#01.
Provided the adoption of this Plan is properly registered with the Prototype
Sponsor, the Prototype Sponsor shall inform the adopting Employer of any
amendments made to the Plan or of the discontinuance or abandonment of the Plan.
The adoption of the Plan is not properly registered unless the attached
registration form along with the applicable registration fee is returned to:
Lincoln National Life Insurance Company
1300 South Clinton Street
P.O. Box #2248
Ft. Wayne, IN 46801-2248
Inquiries by adopting Employers regarding the adoption of this Plan, the
intended meaning of any Plan provisions, or the effect of the Opinion Letter
may be directed to the Prototype Sponsor at the above address or phone
(219) 455-4940.
21
<PAGE>
Use of this Plan Document without proper registration and payment of the
applicable registration fee constitutes an unauthorized use.
The Employer represents that it has consulted with its attorney with respect to
its adoption of this Plan, and agrees to the provisions of the Plan and Trust.
IN WITNESS HEREOF, the Employer has caused this Agreement to be signed by its
duly authorized Officer and the Trustee(s) have accepted the appointment and
signed this Agreement.
Exigent Diagnostics, Inc.
-----------------------------------------
(Legal Name of Employer)
BY:
-----------------------------------------
(Signature of Officer)
- ------------------------------- -----------------------------------------
(Date) (Typed or Printed Name
and Title of Officer)
Accepted By:
- ------------------------------- -----------------------------------------
(Date) (Signature of Trustee)
- ------------------------------- -----------------------------------------
(Date) (Signature of Trustee)
- ------------------------------- -----------------------------------------
(Date) (Signature of Trustee)
Participating Employer Authorized Signature Date
- ---------------------- -------------------- ----
- --------------------------- ------------------------- --------------------
- --------------------------- ------------------------- --------------------
- --------------------------- ------------------------- --------------------
- --------------------------- ------------------------- --------------------
Failure to properly complete this Adoption Agreement may result in
disqualification of the Plan.
22
<PAGE>
R E G I S T R A T I O N
-----------------------
OF
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
STANDARDIZED
401(k) SALARY REDUCTION PLAN AND TRUST PROTOTYPE PLAN
PLAN #008 IRS SERIAL #D259972a
Adopting Employer: Careside Inc.
------------------------------------------------------------
Address: PO Box 353
------------------------------------------------------------
Exton, PA 19341
------------------------------------------------------------
------------------------------------------------------------
Telephone: (610) 363-4002
------------------------------------
List all investment contract and plan numbers assigned by Lincoln, if any:
PS-51187
- --------------------------------------------------------------------------------
The Adopting Employer agrees to provide Lincoln with any changes to its current
mailing address and to give Lincoln written notification of any plan amendment
(as outlined in Section 12.02 of the Defined Contribution Prototype Plan Basic
Plan #01), restatement or termination.
In consideration of the above, Lincoln agrees to:
* provide the Adopting Employer with a copy of the current Defined
Contribution Prototype Plan Basic Plan #01 and Adoption Agreement; and
* advise the Adopting Employer of any amendments made to the Prototype Plan;
and
* inform the Adopting Employer of any changes in the Prototype Plan's
qualified status; and
* inform the Adopting Employer of any discontinuance or abandonment of the
Prototype Plan.
This registration does not effect the rights and obligations of Lincoln or the
Adopting Employer under any other arrangement, including (but not limited to)
Lincoln's right to charge an additional fee for providing an updated Prototype
Plan and/or Adoption Agreement.
Continued reliance by the Adopting Employer upon the Prototype Plan's favorable
Opinion Letter from the IRS is dependant upon the Adopting Employer adopting the
current version of the Prototype Plan.
Please sign and return this registration form to:
Lincoln National Life Insurance Company
1300 South Clinton Street
P.O. Box 2248
Fort Wayne, IN 46801-2248
Attention: Kathy Spillson
- --------------------------------------------------------------------------------
(Signature of Adopting Employer) (Title) (Date)
23
<PAGE>
EXHIBIT 10.31
CARESIDE, INC.
EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE.
-------
The CARESIDE, Inc. Employee Stock Purchase Plan (the "Plan") is
intended to encourage and facilitate the purchase of Shares of the Common Stock
of CARESIDE, Inc. (the "Company"), by employees of the Company and any
Participating Companies, thereby providing employees with a personal stake in
the Company and a long range inducement to remain in the employ of the Company
and Participating Companies. It is the intention of the Company that the Plan
qualify as an "employee stock purchase plan" within the meaning of Section 423
of the Code.
2. DEFINITIONS.
-----------
(a) "Account" means a bookkeeping account established by the Committee on
-------
behalf of a Participant to hold Payroll Deductions.
(b) "Approved Leave of Absence" means a leave of absence that has been
-------------------------
approved by the applicable Participating Company in such a manner as the Board
may determine from time to time.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means the Committee appointed pursuant to section 14 of
---------
the Plan.
(f) "Company" means CARESIDE, Inc.
-------
(g) "Compensation" means an Employee's cash compensation payable for
------------
services to a Participating Company.
(h) "Election Form" means the form acceptable to the Committee which an
-------------
Employee shall use to make an election to purchase Shares through Payroll
Deductions pursuant to the Plan.
(i) "Eligible Employee" means an Employee who meets the requirements for
-----------------
eligibility under section 3 of the Plan.
(j) "Employee" means a person who is an employee of a Participating
--------
Company.
<PAGE>
(k) "Fair Market Value" means the closing price per Share on the principal
-----------------
national securities exchange on which the shares are listed or admitted to
trading or, if not listed or traded on any such exchange, on the National Market
System of the National Association of Securities Dealers Automated Quotation
System ("NASDAQ"), or if not listed or traded on any such exchange or system,
the fair market value as reasonably determined by the Board, which determination
shall be conclusive.
(l) "Five Percent Owner" means an Employee who, with respect to a
------------------
Participating Company, is described in section 423(b) of the Code.
(m) "Offering" means an offering of Shares to Eligible Employees pursuant
--------
to the Plan.
(n) "Offering Commencement Date" means the first day of each January 1,
--------------------------
April 1, July 1 and October 1 beginning on or after Offerings are authorized by
the Committee, until the Plan Termination Date, provided that the first Offering
Commencement Date may be delayed until the first day of the second month after
adoption of the Plan, if necessary to permit Participants to make elections in
accordance with section 3(e) of the Plan.
(o) "Offering Period" means the period extending from an Offering
---------------
Commencement Date through the following Offering Termination Date.
(p) "Offering Termination Date" means the last day of each March, June,
-------------------------
September and December following an Offering Commencement Date.
(q) "Option Price" means 85 percent of the lesser of: (1) the Fair Market
------------
Value per Share on the Offering Commencement Date, or if such date is not a
trading day, then on the next trading day thereafter or (2) the Fair Market
Value per Share on the Offering Termination Date, or if such date is not a
trading day, then on the next trading day thereafter.
(r) "Participant" means an Employee who meets the requirements for
-----------
eligibility under section 3 of the Plan and who has timely delivered an Election
Form to the Committee.
(s) "Participating Company" means, as provided in Schedule A, the Company
---------------------
and subsidiaries of the Company, within the meaning of section 424(f) of the
Code, if any, that are approved by the Board from time to time and whose
employees are designated as Employees by the Board.
(t) "Payroll Deductions" means amounts withheld from a Participant's
------------------
Compensation pursuant to the Plan, as described in section 5 of the Plan.
(u) "Plan" means CARESIDE, Inc. Employee Stock Purchase Plan, as set forth
----
in this document, and as may be amended from time to time.
-2-
<PAGE>
(v) "Plan Termination Date" means the earlier of:
---------------------
(1) The Offering Termination Date for the Offering in which the
maximum number of Shares specified in section 5 of the Plan have been issued
pursuant to the Plan; or
(2) The date as of which the Board chooses to terminate the Plan as
provided in section 15 of the Plan.
(w) "Shares" means shares of Common Stock of the Company.
------
(x) "Successor-in-Interest" means the Participant's executor or
---------------------
administrator, or such other person or entity to whom the Participant's rights
under the Plan shall have passed by will or the laws of descent and
distribution.
(y) "Termination Form" means the form acceptable to the Committee which an
----------------
Employee shall use to withdraw from an Offering pursuant to section 8 of the
Plan.
3. ELIGIBILITY AND PARTICIPATION.
-----------------------------
(a) Initial Eligibility. Except as provided in section 3(b) of the Plan,
-------------------
each Employee shall be eligible to participate in the Plan.
(b) Ineligibility. An Employee shall not be eligible to participate in
-------------
the Plan if such Employee:
(1) Is a Five Percent Owner;
(2) Has been employed by a Participating Company on a full-time basis
for less than one full calendar quarter immediately preceding the effective date
of an election to purchase Shares pursuant to the Plan;
(3) Has not customarily worked more than 20 hours per week during a
24-consecutive-month period ending on the last day of the month immediately
preceding the effective date of an election to purchase Shares pursuant to the
Plan; or
(4) Is restricted from participating under section 3(d) of the Plan.
(c) Leave of Absence. For purposes of participation in the Plan, an
----------------
Employee on an Approved Leave of Absence shall be deemed to be an Employee for
the first 90 days of such Approved Leave of Absence and such Employee's
employment shall be deemed to have terminated for purposes of participation
under the Plan at the close of business on the 90th day of such Approved Leave
of Absence unless such Employee shall have returned to regular non-
-3-
<PAGE>
temporary employment before the close of business on such 90th day. Termination
by the Participating Company of an Employee's Approved Leave of Absence, other
than termination or return to non-temporary employment, shall terminate an
Employee's employment for all purposes of the Plan and shall terminate such
Employee's participation in the Plan and the right to exercise any option. An
Approved Leave of Absence shall be considered active employment for purposes of
sections 3(b)(3) and 3(b)(4) of the Plan.
(d) Restrictions on Participation. Notwithstanding any provisions of the
-----------------------------
Plan to the contrary, no Employee shall be granted an option to participate in
the Plan if:
(1) Immediately after the grant, such Employee would be a Five
Percent Owner; or
(2) Such option would permit such Employee's rights to purchase stock
under all employee stock purchase plans of the Participating Companies which
meet the requirements of section 423(b) of the Code to accrue at a rate which
exceeds $25,000 in fair market value (as determined pursuant to section
423(b)(8) of the Code) for each calendar year in which such option is
outstanding.
(e) Commencement of Participation. An Employee who meets the
-----------------------------
eligibility requirements of sections 3(a) and 3(b) of the Plan and whose
participation is not restricted under section 3(d) of the Plan shall become a
Participant by completing an Election Form and filing it with the Committee on
or before the 15th day of the month immediately preceding the Offering
Commencement Date for the first Offering to which such Election Form applies.
Payroll Deductions for a Participant shall commence on the applicable Offering
Commencement Date when his or her authorization for Payroll Deductions becomes
effective, and shall end on the Plan Termination Date, unless sooner terminated
by the Participant pursuant to section 8 of the Plan.
4. SHARES PER OFFERING.
-------------------
The Plan shall be implemented by a series of Offerings that shall terminate
on the Plan Termination Date. Offerings shall be made with respect to
Compensation payable for each calendar month of the Company's fiscal year for
the period commencing with the first day of the month first occurring on or
after adoption of the Plan by the Board and ending with the Plan Termination
Date. Shares available for any Offering shall be the difference between the
maximum number of Shares that may be issued under the Plan, as determined
pursuant to section 10(a) of the Plan, for all of the Offerings, less the actual
number of Shares purchased by Participants pursuant to prior Offerings. If the
total number of Shares for which options are exercised on any Offering
Termination Date exceeds the maximum number of Shares available, the Committee
shall make a pro rata allocation of Shares available for delivery and
distribution in as nearly a uniform manner as practicable, and as it shall
determine to be fair and equitable,
-4-
<PAGE>
and the unapplied Account balances shall be returned to Participants as soon as
practicable following the Offering Termination Date.
5. PAYROLL DEDUCTIONS.
------------------
(a) Amount of Payroll Deductions. An Eligible Employee who wishes to
----------------------------
participate in the Plan shall file an Election Form with the Committee at least
15 days before the Offering Commencement Date for the first Offering for which
such Election Form is effective on which he or she may elect to have Payroll
Deductions of such amounts designated by the Committee on the Election Form from
time to time made from his or her Compensation on each regular payday during the
time he or she is a Participant in the Plan, provided that the rules established
by the Committee shall be consistent with section 423(b)(5) of the Code.
(b) Participants' Accounts. All Payroll Deductions with respect to a
----------------------
Participant pursuant to section 5(a) of the Plan shall be credited to the
Participant's Account under the Plan.
(c) Changes in Payroll Deductions. A Participant may discontinue his
-----------------------------
participation in the Plan as provided in section 8(a) of the Plan, but no other
change can be made during an Offering, including, but not limited to, changes in
the amount of Payroll Deductions for such Offering. A Participant may change
the amount of Payroll Deductions for subsequent Offerings by giving written
notice of such change to the Committee on or before the 15th day of the month
immediately preceding the Offering Commencement Date for the Offering for which
such change is effective.
(d) Leave of Absence. A Participant who goes on an Approved Leave of
----------------
Absence before the Offering Termination Date after having filed an Election Form
with respect to such Offering may:
(1) Withdraw the balance credited to his or her Account pursuant to
section 8(b) of the Plan;
(2) Discontinue contributions to the Plan but remain a Participant in
the Plan through the Offering Termination Date;
(3) Remain a Participant in the Plan during such Approved Leave of
Absence through the Offering Termination Date and continue the authorization for
the Participating Company to make Payroll Deductions for each payroll period out
of continuing payments to such Participant, if any.
6. GRANTING OF OPTIONS.
-------------------
On each Offering Termination Date, each Participant shall be deemed to have
been granted an option to purchase a minimum of one (1) Share and a maximum
number of Shares
-5-
<PAGE>
that shall be a number of whole Shares equal to the quotient obtained by
dividing the balance credited to the Participant's Account as of the Offering
Termination Date, by the Option Price.
7. EXERCISE OF OPTIONS.
-------------------
(a) Automatic Exercise. With respect to each Offering, a Participant's
------------------
option for the purchase of Shares granted pursuant to section 6 of the Plan
shall be deemed to have been exercised automatically on the Offering Termination
Date applicable to such Offering.
(b) Fractional Shares and Minimum Number of Shares. Fractional Shares
----------------------------------------------
shall not be issued under the Plan. Amounts credited to an Account remaining
after the application of such Account to the exercise of options for a minimum
of one (1) full Share shall be credited to the Participant's Account for the
next succeeding Offering, or, at the Participant's election, returned to the
Participant as soon as practicable following the Offering Termination Date,
without interest.
(c) Transferability of Option. No option granted to a Participant
-------------------------
pursuant to the Plan shall be transferable other than by will or by the laws of
descent and distribution, and no such option shall be exercisable during the
Participant's lifetime other than by the Participant.
(d) Delivery of Certificates for Shares. The Company shall deliver
-----------------------------------
certificates for Shares acquired on the exercise of options during an Offering
Period as soon as practicable following the Offering Termination Date.
8. WITHDRAWALS.
-----------
(a) Withdrawal of Account. A Participant may elect to withdraw the
---------------------
balance credited to the Participant's Account by providing a Termination Form to
the Committee at any time before the Offering Termination Date applicable to any
Offering.
(b) Amount of Withdrawal. A Participant may withdraw all, but not less
--------------------
than all, of the amounts credited to the Participant's Account by giving a
Termination Form to the Committee. All amounts credited to such Participant's
Account shall be paid as soon as practicable following the Committee's receipt
of the Participant's Termination Form, and no further Payroll Deductions will be
made with respect to the Participant.
(c) Effect of Withdrawal on Subsequent Participation. A Participant who
------------------------------------------------
elects to withdraw from an Offering pursuant to section 8(a) of the Plan shall
be deemed to have elected not to participate in each of the four succeeding
Offerings following the date on which the Participant gives a Termination Form
to the Committee.
(d) Termination of Employment. Upon termination of a Participant's
-------------------------
employment for any reason other than death, including termination due to
disability or continuation of a leave of
-6-
<PAGE>
absence beyond 90 days, all amounts credited to such Participant's Account shall
be returned to the Participant. In the event of a Participant's (1) termination
of employment due to death or (2) death after termination of employment but
before the Participant's Account has been returned, all amounts credited to such
Participant's Account shall be returned to the Participant's Successor-in-
Interest.
(e) Leave of Absence. A Participant who is on an Approved Leave of
----------------
Absence shall, subject to the Participant's election pursuant to section 5(d) of
the Plan, continue to be a Participant in the Plan until the end of the first
Offering ending after commencement of such Approved Leave of Absence. A
Participant who has been on an Approved Leave of Absence for more than 90 days
shall not be eligible to participate in any Offering that begins on or after the
commencement of such Approved Leave of Absence so long as such leave of absence
continues.
9. INTEREST.
--------
No interest shall be paid or allowed with respect to amounts paid into the
Plan or credited to any Participant's Account.
10. SHARES.
------
(a) Maximum Number of Shares. No more than [____________] Shares may be
------------------------
issued under the Plan. Such Shares may be unissued shares or treasury shares of
the Company. The number of Shares available for any Offering and all Offerings
shall be adjusted if the number of outstanding Shares of the Company is
increased or reduced by split-up, reclassification, stock dividend or the like.
All Shares issued pursuant to the Plan shall be validly issued, fully paid and
nonassessable.
(b) Participant's Interest in Shares. A Participant shall have no
--------------------------------
interest in Shares subject to an option until such option has been exercised.
(c) Registration of Shares. Shares to be delivered to a Participant under
----------------------
the Plan shall be registered in the name of the Participant.
(d) Restrictions on Exercise. The Board may, in its discretion, require
------------------------
as conditions to the exercise of any option such conditions as it may deem
necessary to assure that the exercise of options is in compliance with
applicable securities laws.
11. EXPENSES.
--------
The Participating Companies shall pay all fees and expenses incurred
(excluding individual Federal, state, local or other taxes) in connection with
the Plan. No charge or deduction for any such expenses will be made to a
Participant upon the termination of his or her
-7-
<PAGE>
participation under the Plan or upon the distribution of certificates
representing Shares purchased with his or her contributions.
12. TAXES.
-----
The Participating Companies shall have the right to withhold from each
Participant's Compensation an amount equal to all Federal, state, city or other
taxes as the Participating Companies shall determine are required to be withheld
by them. In connection with such withholding, the Participating Companies may
make any such arrangements as are consistent with the Plan as it may deem
appropriate, including the right to withhold from Compensation paid to a
Participant other than in connection with the Plan.
13. PLAN AND CONTRIBUTIONS NOT TO AFFECT EMPLOYMENT.
-----------------------------------------------
The Plan shall not confer upon any Eligible Employee any right to continue
in the employ of the Participating Companies.
14. ADMINISTRATION.
--------------
The Plan shall be administered by the Board, which may delegate
responsibility for such administration to a committee of the Board (the
"Committee"). If the Board fails to appoint the Committee, any references in
the Plan to the Committee shall be treated as references to the Board. The
Board, or the Committee, shall have authority to interpret the Plan, to
prescribe, amend and rescind rules and regulations relating to it, and to make
all other determinations deemed necessary or advisable in administering the
Plan, with or without the advice of counsel. The determinations of the Board or
the Committee on the matters referred to in this paragraph shall be conclusive
and binding upon all persons in interest.
15. AMENDMENT AND TERMINATION.
-------------------------
The Board may terminate the Plan at any time and may amend the Plan from
time to time in any respect; provided, however, that upon any termination of the
Plan, all Shares or Payroll Deductions (to the extent not yet applied to the
purchase of Shares) under the Plan shall be distributed to the Participants,
provided further, that no amendment to the Plan shall affect the right of a
Participant to receive his or her proportionate interest in the Shares or his or
her Payroll Deductions (to the extent not yet applied to the purchase of Shares)
under the Plan, and provided further that the Company may seek shareholder
approval of an amendment to the Plan if such approval is determined to be
required by or advisable under the regulations of the Securities or Exchange
Commission or the Internal Revenue Service, the rules of any stock exchange or
system on which the Shares are listed or other applicable law or regulation.
16. EFFECTIVE DATE.
--------------
-8-
<PAGE>
The Plan shall be effective on the date it is adopted by the Board, subject
to approval by the Company's shareholders within one year of the adoption of the
Plan by the Board. Any option granted before the approval of the Plan by the
Company's shareholders shall be expressly conditioned upon such approval, and no
Share certificates shall be issued until such approval. If shareholder approval
is not received within 12 months before or after the date of the initial
adoption of the Plan by the Board, no Share certificates shall be issued with
respect to any automatic exercises which may have occurred pursuant to section 7
of the Plan, and all amounts credited to Participants' Accounts with respect to
such Shares shall be returned to Participants as soon as administratively
practicable.
17. GOVERNMENT AND OTHER REGULATIONS.
--------------------------------
(a) In General. The purchase of Shares under the Plan shall be subject to
----------
all applicable laws, rules and regulations, and to such approvals by any
governmental agencies as may be required.
(b) Securities Law. The Committee shall have the power to make each grant
--------------
under the Plan subject to such conditions as it deems necessary or appropriate
to comply with the then-existing requirements of the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended, including Rule
16b-3 (or any similar rule) of the Securities and Exchange Commission.
18. NON-ALIENATION.
--------------
No Participant shall be permitted to assign, alienate, sell, transfer,
pledge or otherwise encumber his interest under the Plan prior to the
distribution to him of Share certificates. Any attempt at assignment,
alienation, sale, transfer, pledge or other encumbrance shall be void and of no
effect.
19. NOTICES.
-------
Any notice required or permitted hereunder shall be sufficiently given only
if delivered personally, telecopied, or sent by first class mail, postage
prepaid, and addressed:
If to the Company:
-----------------
Secretary
CARESIDE, Inc.
6100 Bristol Parkway
Culver City, CA 90230
Or any other address provided pursuant to written notice.
-9-
<PAGE>
If to the Participant:
---------------------
At the address on file with the Company from time to time, or to such other
address as either party may hereafter designate in writing by notice
similarly given by one party to the other.
20. SUCCESSORS.
----------
The Plan shall be binding upon and inure to the benefit of any successor,
successors or assigns of the Company.
21. SEVERABILITY.
------------
If any part of this Plan shall be determined to be invalid or void in any
respect, such determination shall not affect, impair, invalidate or nullify the
remaining provisions of this Plan which shall continue in full force and effect.
22. ACCEPTANCE.
----------
The election by any Eligible Employee to participate in this Plan
constitutes his or her acceptance of the terms of the Plan and his or her
agreement to be bound hereby.
23. APPLICABLE LAW.
--------------
This Plan shall be construed in accordance with the laws of the State of
Delaware, to the extent not preempted by applicable Federal law.
-10-
<PAGE>
SCHEDULE A
PARTICIPATING COMPANIES
-----------------------
CARESIDE, Inc.
-11-
<PAGE>
EXHIBIT 10.35
CARESIDE, INC.
6100 Bristol Parkway
Culver City, CA 90230
December 8, 1998
Spencer Trask Securities Incorporated
535 Madison Avenue
18th Floor
New York, New York 10022
Ladies and Gentlemen:
Reference is made to that certain Placement Agency Agreement
(the "1996 Placement Agreement"), dated December 10, 1996, by and between
Careside, Inc. (formerly known as Exigent Diagnostics, Inc.) (the "Company") and
Spencer Trask Securities Incorporated ("Spencer Trask"), that certain letter
agreement (the "Investment Banking Agreement"), dated January 31, 1997, by and
between the Company and Spencer Trask, that certain Lock-Up and Right of First
Offer Agreement (the "Lock-Up Agreement"), dated January 31, 1997, by and among
the Company, W. Vickery Stoughton, Thomas H. Grove, Exigent Partners, L.P. and
Spencer Trask and that certain Placement Agency Agreement (the "1998 Placement
Agreement"), dated January 29, 1998, by and between the Company and Spencer
Trask entered into in connection with the 1998 private placement of common stock
by the Company (the "1998 Private Placement"). As set forth in Section 5(l) of
the 1996 Placement Agreement, the Company agreed to enter into an employment
agreement with Kenneth Asarch. As set forth in the Investment Banking Agreement,
the Company agreed for a period of five years from the date thereof to use the
investment banking services of Spencer Trask in connection with any sale or
exchange of the Company's stock or assets, merger, consolidation, acquisition,
financing, joint venture or other arrangement with certain parties and to pay
Spencer Trask certain fees, as set forth in the Investment Banking Agreement, at
the closing of any such transaction. As set forth in Section 3(h) of the 1998
Placement Agreement, the Company agreed to pay Spencer Trask a fee upon the
completion of an initial public offering of the Company's common stock which
utilized the investment banking services of Fahnestock & Co. Inc.
("Fahnestock").
At present, the Company (i) is not a party to an employment
agreement with Kenneth Asarch, (ii) intends to undertake an initial public
offering of the Company's common stock utilizing the investment banking services
of Fahnestock (the "IPO") and (iii) prior to the consummation of the IPO,
expects to undertake transactions involving private investments in the equity or
debt of the Company by persons who currently are stockholders of the Company or
entities or affiliates under the direct or indirect control of such persons, as
well as an equipment lease financing with Finova Technology Finance, Inc.
("Finova").
<PAGE>
To induce the Company to proceed with the IPO, and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, and intending to be legally bound, the Company and Spencer Trask
hereby agree as follows:
1. Spencer Trask hereby (a) waives the requirement set forth
in Section 5(l) of the 1996 Placement Agreement that the Company enter into an
employment agreement with Kenneth Asarch and (b) agrees that Spencer Trask will
not seek, undertake or institute any judgment, decision, arbitration, suit,
proceeding or action against or involving the Company or any other party for not
complying with the covenant set forth in Section 5(l) of the 1996 Placement
Agreement requiring the Company to enter into an employment agreement with
Kenneth Asarch.
2. Spencer Trask hereby waives its (i) irrevocable
preferential right of first offer and any rights associated therewith set forth
in Section 2 of the Lock-Up Agreement and (ii) right to provide the Company with
investment banking services in or after the IPO, including in connection with
any other public or private offering of the Company's securities following the
IPO. Further, Spencer Trask hereby consents to the Company utilizing the
investment banking services of Fahnestock and the other underwriters named in
the Company's registration statement filed with the Securities Exchange
Commission in and after the IPO.
3. Spencer Trask hereby waives any right to receive the
Placement Agent's Fee and the Agent's Warrants (as each such term is defined in
the 1996 and the 1998 Placement Agreements) pursuant to Section 3(f) of the 1996
and the 1998 Placement Agreements with respect to any person or entity which may
invest in the Company pursuant to the IPO.
4. Spencer Trask acknowledges and agrees that (i) any right of
Spencer Trask to receive, or any obligation of the Company to pay or grant, the
Placement Agent's Fee and the Agent's Warrants (as each such term is defined in
the 1996 Placement Agreement) pursuant to Section 3(f) of the 1996 Placement
Agreement has either been fulfilled or has expired and (ii) no Placement Agent's
Fee or Agent's Warrants are owed or due Spencer Trask from the Company pursuant
to such provision.
5. Spencer Trask acknowledges and agrees that any right of
Spencer Trask to receive, or any obligation of the Company to pay or grant, the
Placement Agent's Fee and the Agent's Warrants (as each such term is defined in
the 1998 Placement Agreement), to the extent accruing prior to the date hereof,
has been fulfilled.
6. Spencer Trask hereby waives the application of Section 3(f)
of the 1998 Placement Agreement with respect to any and all payments (whether
the Placement Agent's Fee, the Agent's Warrants (each as defined therein) or
otherwise) which may be owed or due it for the purchase by any investor of the
Company's common stock or debt securities contemplated by that certain side
letter attached hereto as Exhibit A so long as the execution of definitive
---------
documents
-2-
<PAGE>
with such investor occurs prior to June 30, 1999 and regardless of the term of
any debt securities sold to such investor.
7. Spencer Trask and the Company hereby acknowledge and agree
that the term `SmithKline' as used in the Investment Banking Agreement means any
subsidiary, affiliate or entity directly or indirectly controlled by SmithKline
or its executive officers or directors, including but not limited to SR-One.
8. Spencer Trask hereby acknowledges and agrees that the
consummation of a private investment in the Company's equity or debt securities
by any of SmithKline (or any affiliate thereof including without limitation
SR-One), Mr. Peter Friedli, or an affiliated entity controlled directly or
indirectly by him, or Finova, shall not result in either (i) the Company owing
to Spencer Trask any Placement Agent's Fee or Agent's Warrants (as such terms
are defined in both the 1996 and the 1998 Private Placement Agreements) or any
other fee under the 1996 or the 1998 Private Placement Agreements or the
Investment Banking Agreement or (ii) any obligation on the part of the Company
to utilize the investment banking or other transactional support services of
Spencer Trask in connection therewith.
9. Spencer Trask hereby acknowledges and agrees that any
amounts payable by the Company to Spencer Trask pursuant to the Investment
Banking Agreement shall become due as and when the funds triggering the fees due
to Spencer Trask are received by the Company.
10. Spencer Trask and the Company hereby acknowledge and
confirm that the Company shall pay Spencer Trask $100,000 upon the consummation
of the IPO pursuant to Section 3(h) of the 1998 Placement Agreement.
[The rest of this page is intentionally left blank.]
-3-
<PAGE>
11. This letter represents our entire agreement with respect
to the subject matter hereof, superseding all prior agreements and
understandings, written or oral. It may not be modified or amended except in a
writing signed by both parties. This letter agreement may be signed in
counterparts (including by facsimile signature) and shall be governed by and
construed in accordance with the laws of the State of New York without reference
to the choice of law doctrine thereof.
Very truly yours,
CARESIDE, INC.
By: /s/ W. Vickery Stoughton
-------------------------------------
Name: W. Vickery Stoughton
Title: Chairman of the Board of Directors and
Chief Executive Officer
Acknowledged and Agreed:
SPENCER TRASK SECURITIES INCORPORATED
By: /s/ William P. Dioguardi
-------------------------------------
Name: William P. Dioguardi
Title: President
/s/ W. Vickery Stoughton
- -----------------------------------------
W. Vickery Stoughton
/s/ Thomas H. Grove
- -----------------------------------------
Thomas H. Grove
-4-
<PAGE>
Exhibit A
-5-
<PAGE>
CARESIDE, INC.
6100 Bristol Parkway
Culver City, California 90230
(310) 338-6767
Kevin Kimberlin
Spencer Trask Securities Incorporated
535 Madison Avenue
18th Floor
New York, New York 10022
Dear Mr. Kevin:
Careside has a unique opportunity to pursue an investment from
Mr. Peter Friedli or one of his investment funds. We have negotiated the
proposed transaction in the past few weeks and he is prepared to go forward. The
security to be purchased will be a debt instrument repayable within one year
unless the holder opts to convert it to equity. The Debt will be mandatorily
convertible to equity upon an IPO. The other terms of the investment are
outlined in the attached term sheet.
One hitch remains in our way. Mr. Friedli has refused to make
an investment if it would result in dilution of his investment for warrant and
fees paid to Spencer Trask Securities. As you know, I pursued this opportunity
with Mr. Friedli on my own, although he was one of the original investors in
both the 1997 and 1998 private placements conducted through Spencer Trask.
Accordingly, Careside requests that you waive any and all fees
due under Section 3(j) of the Placement Agency Agreements executed with Spencer
Trask or under the so-called investment banking side letter dated January 31,
1997, in order to allow Careside to pursue this investment.
-6-
<PAGE>
I assume you will call Mr. Frieli to confirm his position and
have alerted him to expect your call. It is my certain hope Spencer Trask will
see the value of this investment in Careside and allow it to proceed unfettered.
Your signing below will constitute your waiver, for purposes of this investment
only by Mr. Friedli or one of his funds, of my obligation Careside may have
pursuant to Section 3(f) or this investment banking letter.
Sincerely,
CARESIDE, INC.
By: /s/ W. Vickery Stoughton
---------------------------
W. Vickery Stoughton
Acknowledged and agreed for
Spencer Trask Securities, Incorporated
By: /s/ William Dioguardi
---------------------------------
Title: President
-7-
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this S-
1 Registration Statement.
Arthur Andersen llp
Philadelphia, Pa.,
January 29, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF PATENT COUNSEL
We hereby consent to the reference to our firm under the caption "Experts"
regarding patents matters, as set forth in this Amendment No. 1 to Form S-1
Registration Statement of Careside, Inc., and the prospectus which forms a part
thereof.
/s/ OPPENHEIMER WOLFF & DONNELLY LLP
Oppenheimer Wolff & Donnelly LLP
Los Angeles, California
January 29, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM CARESIDE, INC.'S
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 DEC-31-1998
<CASH> 1,237,149 3,926,603
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,463,729 4,178,301
<PP&E> 1,736,860 3,742,323
<DEPRECIATION> 158,133 525,364
<TOTAL-ASSETS> 3,140,223 7,911,403
<CURRENT-LIABILITIES> 702,616 1,717,326
<BONDS> 0 0
0 0
0 0
<COMMON> 33,654 50,843
<OTHER-SE> 2,403,953 4,098,302
<TOTAL-LIABILITY-AND-EQUITY> 3,140,223 7,911,403
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 6,536,039 9,148,103
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 8,329 22,275
<INCOME-PRETAX> (6,330,783) (8,936,289)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (6,330,783) (8,936,289)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (6,330,783) (8,936,289)
<EPS-PRIMARY> (2.04) (1.93)
<EPS-DILUTED> (2.04) (1.93)
</TABLE>
