<PAGE>
As filed with the Securities and Exchange Commission on September 29, 1999
Registration No. 333-85481
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
eMed Technologies Corporation
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
Delaware 7374 04-3155965
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction Classification Code Number) Identification No.)
of Incorporation or
Organization)
</TABLE>
25 Hartwell Avenue, Lexington, MA 02421, (781) 862-0000
(Address, including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
----------------
Scott S. Sheldon, Chief Executive Officer
25 Hartwell Avenue, Lexington, MA 02421, (781) 862-0000
(Name, Address, including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
----------------
Copies To:
<TABLE>
<S> <C>
Joel F. Freedman, esq. Paul Model, esq. David J. Goldschmidt,
Ropes & Gray 477 Madison Avenue esq.
One International Place New York, New York 10022 Skadden, Arps, Slate,
Boston, Massachusetts (212) 751-8438 Meagher & Flom LLP
02110-2624 919 Third Avenue
(617) 951-7000 New York, New York 10022
(212) 735-3000
</TABLE>
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the 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 of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If 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,
please check the following box. [_]
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- --------------------------------------------------------------------------------
<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 SEPTEMBER 29, 1999
PROSPECTUS
3,100,000 Shares
eMed Technologies Corporation
Common Stock
-----------
We anticipate that the initial public offering price for our common stock will
be between $12.00 and $14.00 per share. We have applied to have our common
stock approved for quotation on the Nasdaq National Market System under the
symbol "EMDT."
Investing in our common stock involves a high degree of risk. See "Risk
Factors" beginning on page 5 to read about risks that you should consider
before buying shares of our common stock.
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved these securities or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a criminal
offense.
-----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public offering price........................................... $ $
Underwriting discount........................................... $ $
Proceeds, before expenses, to eMed.............................. $ $
</TABLE>
The underwriters may also purchase up to an additional 465,000 shares of common
stock from us to cover any over-allotment at the public offering price less the
underwriting discount. The underwriters expect to deliver the shares against
payment in New York, New York on , 1999.
-----------
Bear, Stearns & Co. Inc. Donaldson, Lufkin & Jenrette
Wit Capital Corporation
-----------
The date of this Prospectus is , 1999.
<PAGE>
[eMed LOGO]
"Our systems for electronically managing and distributing medical images are
installed in approximately one of four U.S. imaging facilities and radiologists'
homes."
[map of U.S. depicting postal code locations in which eMed has systems installed
in hospitals and imaging centers.]
"Represents postal code locations of installed systems."
<PAGE>
PROSPECTUS SUMMARY
The following summary contains basic information about eMed and this
offering. It may not contain all the information that may be important to you.
You should read the entire prospectus, including the financial statements and
related notes, before making an investment decision. Except as otherwise noted,
all information in this prospectus (1) assumes no exercise of the underwriters'
over-allotment option, (2) assumes the conversion of all outstanding classes of
preferred stock into common stock and (3) the effectiveness of a 2.4 for 1
reverse split of our common stock.
Overview
Our Company
We provide systems that improve the process of electronically managing and
distributing medical images and related patient information. Our products and
services are used by radiologists, technicians, referring physicians and other
health care professionals to improve the efficiency of the practice of medicine
by allowing them to access, transmit and review medical images and related
patient information quickly and easily. Our products capture, compress,
transmit, route, and store medical images, including x-rays, MRIs, CTs,
ultrasounds and others. Our offerings permit the coordinated transmission and
review of images and information over both proprietary networks and the
internet. Our customers are providers of radiology imaging and interpretive
services, including radiologists, hospitals and outpatient imaging facilities
and often operate as part of complex health care networks. With systems
installed in approximately one of four U.S. imaging facilities and
radiologists' homes, we believe that we have the largest installed user base of
any company in our business.
Our new internet-based offerings capitalize on the internet's universal
accessibility to enable our customers to reduce costs and improve their
service. We introduced FrameWave Web in June 1999 and intend to introduce
eMed_Web later this year. FrameWave Web permits our customers to manage and
distribute medical images and related information over the internet. eMed_Web
is a website development and hosting service through which we intend to
establish and manage individual websites for our customers. Through these
eMed_Web sites, our customers will have FrameWave Web's integrated image and
report management capabilities, as well as the opportunity to incorporate other
clinically relevant information and marketing information targeted at their
customers. In addition, we intend eMed_Web to serve as a platform for offering
products and services that further improve the workflow of medical imaging.
We provide our customers remote, comprehensive support services through our
network operations center, which is fully staffed 24 hours a day, seven days a
week. This level of service enables many customers to outsource the technical
management of their image distribution and management systems to us.
Our Strategy
Our objective is to become the leading supplier of comprehensive, medical
imaging workflow systems to health care providers by leveraging our advanced
technology and experience. Elements of our strategy to achieve this objective
include:
. Introducing our eMed_Web website development and hosting service.
. Bringing to market additional products and services for improving
medical imaging workflow.
. Leveraging our relationships with our significant base of installed
users to increase sales.
. Expanding our sales and marketing efforts.
. Engaging in strategic acquisitions and relationships to obtain
technology and expand our user base.
1
<PAGE>
Our Market Opportunity
Our market opportunity is characterized by several important elements:
. Based on historical data, we believe that more than 350 million
radiology studies are conducted annually.
. The number of studies has grown due to the increasing usefulness of
radiology as a non-invasive diagnostic technique and the general aging
of the U.S. population.
. Medical images and related information are utilized in forming patient
diagnosis and care judgments by a broad cross-section of health care
professionals at disparate locations.
. The current method for capturing, analyzing, distributing and storing
medical images and associated medical reports is inefficient and
represents a significant opportunity to offer improvements and cost
savings.
. Radiology providers are subject to increasing pressure from their
customers and health care payors to reduce costs and improve the
timeliness and availability of interpretations and related patient
images.
. The internet represents a significant advance in the technology
available to radiologists and other health care professionals to improve
the cost-effectiveness and efficiency of the services they provide.
eMed Solutions
Based on our extensive experience with and insight into the workflow of
medical imaging, we have been able to focus our efforts on products and
services that provide our customers with cost savings, increased efficiencies
and competitive advantages. Our products and services incorporate advanced
technology and offer our customers:
. Improved cost effectiveness.
. Enhanced ability to market their services and serve their customers.
. Solutions tailored to meet functionality and cost requirements.
. High quality, comprehensive customer support.
Corporation Information
Our headquarters are located at 25 Hartwell Avenue, Lexington, MA 02421.
Until August 1999, we were known as ACCESS Radiology Corporation. Our telephone
number is (781) 862-0000 and our internet website address on the Worldwide Web
is www.eMed.com. The contents of our website are not part of this prospectus.
eMed, FrameWave and PACSPro are trademarks of eMed Technologies Corporation.
AWARE is a trademark of AWARE, Inc. All other brand names or trademarks
appearing in this prospectus are the property of their respective owners.
2
<PAGE>
The Offering
<TABLE>
<S> <C>
Common Stock offered by eMed...... 3,100,000 shares
Common Stock outstanding after the
offering......................... 11,513,475 shares
Use of Proceeds................... We estimate that the net proceeds from this
offering, without exercise of the over-
allotment option, will be approximately
$36.6 million. We intend to use these net
proceeds to repay approximately
$3.0 million of indebtedness and for
general corporate purposes, including the
expansion of our sales, marketing and
development efforts and possibly
acquisitions and partnerships.
Risk Factors...................... See "Risk Factors" for a discussion of
factors you should carefully consider
before deciding to invest in shares of our
common stock.
Proposed Nasdaq National Market
symbol........................... "EMDT"
</TABLE>
The number of shares of common stock outstanding after the offering is based
on the number outstanding as of September 17, 1999, and excludes:
. 1,696,598 shares of our common stock subject to options outstanding as
of September 17, 1999 at a weighted average exercise price of $1.51 per
share;
. warrants to purchase 522,440 shares of common stock at exercise prices
from $0.02 to $1.20 per share and warrants to purchase 409,091 shares of
Series J preferred stock outstanding as of September 17, 1999 at an
exercise price of $1.10 per share. Upon completion of this offering, the
warrants to purchase Series J preferred stock will become warrants to
purchase 170,449 shares of common stock.
3
<PAGE>
SUMMARY FINANCIAL DATA
(in thousands, except per share data)
You should read the following summary financial data together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and notes thereto included elsewhere
in this prospectus.
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
------------------------------------------- ------------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- ------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue................. $ 139 $ 466 $ 1,009 $ 8,027 $12,594 $ 6,218 $ 11,369
Cost of revenue......... (141) (313) (1,404) (7,012) (8,976) (4,131) (6,351)
------- ------- ------- ------- ------- -------- --------
Gross margin............ (2) 153 (395) 1,015 3,618 2,087 5,018
------- ------- ------- ------- ------- -------- --------
Operating expenses:
Research and
development........... -- 239 610 1,300 2,362 1,031 1,655
Sales and marketing.... 423 571 1,319 2,912 3,498 1,764 2,519
General and
administrative........ 1,443 1,476 1,331 1,982 2,722 1,121 1,851
------- ------- ------- ------- ------- -------- --------
Total operating
expenses............. 1,866 2,286 3,260 6,194 8,582 3,916 6,025
------- ------- ------- ------- ------- -------- --------
Loss from operations.... (1,868) (2,133) (3,655) (5,179) (4,964) (1,829) (1,007)
Interest income
(expense), net......... (14) (119) (70) (204) (106) (19) (68)
Other income (expense).. (15) 218 (21) (242) (43) (6) (82)
------- ------- ------- ------- ------- -------- --------
Net loss................ $(1,897) $(2,034) $(3,746) $(5,625) $(5,113) $ (1,854) $ (1,157)
======= ======= ======= ======= ======= ======== ========
Basic and diluted net
loss per share......... $ (9.10) $ (5.08) $ (8.39) $(12.45) $(11.70) $ (4.30) $ (2.48)
Shares used in computing
basic and diluted net
loss per share......... 209 400 446 452 437 431 467
Unaudited proforma basic
and diluted net loss
per share.............. $ (0.78) $ (0.14)
Shares used in computing
unaudited proforma
basic and diluted net
loss per share......... 6,567 8,324
</TABLE>
<TABLE>
<CAPTION>
As of June 30, 1999
-------------------
Actual As Adjusted
------- -----------
(unaudited)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................................... $ 5,118 $41,697
Working capital............................................. 4,573 41,152
Total assets................................................ 13,559 50,138
Total long-term liabilities................................. 210 210
Total stockholders' equity.................................. 5,312 41,891
</TABLE>
The as adjusted balance sheet data and pro forma per share data reflects the
conversion of all preferred stock into common stock. The as adjusted balance
sheet data also reflects the sale by us of 3,100,000 shares of common stock at
an assumed public offering price of $13.00 per share in the offering, after
deducting the underwriters' discount and our estimated offering expenses.
4
<PAGE>
RISK FACTORS
Investing in our common stock will provide you with an equity ownership
interest in eMed. As an eMed stockholder, you will be subject to risks inherent
in our business. The value of your investment may increase or decline and could
result in a loss to you. You should carefully consider the following factors as
well as other information contained in this prospectus before deciding to
invest in shares of our common stock.
Risks Related to Our Company
We may not become profitable.
Since our inception, we have incurred significant losses from operations and
negative cash flow. In implementing our strategy, we will significantly
increase our operating expenses as we aggressively market our products and
services and develop new products and services. We are incurring these expenses
under the assumption that the sales we obtain from increased marketing and
developing efforts will permit us to earn revenue in excess of these additional
expenses. If we are unsuccessful in generating revenues to offset these
expenditures, we may continue to incur losses from operations and negative cash
flow. We cannot assure you that we will ever achieve or sustain profitability
or that our operating losses will not increase in the future.
We may be unable to manage growth effectively.
The implementation of our business strategy could result in a period of
rapid growth. This growth could place a strain on our managerial, operational
and financial resources and on our information systems. Our future operating
results will depend on the ability of our senior management to manage rapidly
changing business conditions, and to implement and improve our technical,
administrative, financial control and reporting systems. We may not succeed in
these efforts. The failure to effectively manage and improve these systems
could increase our costs and adversely affect our ability to sell and deliver
our products and services.
We may be unable to hire, retain, motivate or train the key personnel, upon
whom the success of our business will depend.
Our senior management team consists of only seven individuals. Loss of any
senior management or other key personnel could have a disruptive effect on the
implementation of our business strategy and the efficient running of our day-
to-day operations. Also, as we continue to grow, we will need to hire
additional personnel in all operational areas. In particular, we will need to
hire additional sales people and technical staff. Competition for personnel
throughout the health care, information technology and internet industries is
intense. We may be unable to retain our key employees or attract, assimilate,
retain or train other needed qualified employees in the future.
Our market is highly competitive, and we may not be able to compete effectively
because many of our competitors have greater resources and better recognition
in the marketplace.
We operate in a highly competitive environment and we may not be able to
compete effectively. Many of our competitors are larger than we are, have been
in business longer than we have, and have greater financial, technical,
research and development, and sales and marketing resources than we do.
Further, additional internet-based products and services providers may enter
into the market for products and services that improve the workflow of medical
imaging. Larger competitors may have the resources to offer competitive
products at greatly discounted prices or at no charge, sometimes in connection
with the sale of related or complementary products or systems. Customer
decisions to purchase our products are often influenced by the perceived
stability and market recognition of the vendor. We may be at a disadvantage
because many of our competitors are better known and may be perceived as less
risky than we are. For additional information, please see the section
"Business -- Competition."
5
<PAGE>
We may be unable to sell new products and services to our installed user base,
which is a key part of our growth strategy.
A key part of our strategy is to sell to our existing installed user base
additional products and services that we currently offer, as well as products
and services that we intend to develop. We expect that this effort will require
intensive marketing and sales efforts. Customers that have invested substantial
resources in other products may be reluctant to adopt a new product that may
replace or make redundant their existing systems. Because we acquired a large
portion of our installed user base when we acquired the medical imaging
business of E-Systems Medical Electronics, a division of Raytheon, in November
1998, we have limited experience with these users, and we cannot predict what
our success will be in selling new products and services to them.
Our future growth may suffer if we do not achieve broad acceptance of our
internet-based products and services by radiologists, technicians, referring
physicians and other health care professionals.
Our success, in part, depends upon our ability to gain acceptance of our
internet-based products and services by a large number of radiologists,
technicians, referring physicians and other health care professionals.
Achieving market acceptance for our internet-based applications will require
substantial marketing efforts and the expenditure of significant financial and
other resources to create brand awareness and demand by physicians and health
care organizations. In addition, the rate at which physicians and health care
organizations will replace existing medical imaging management products and
systems with more advanced technologies is uncertain. Failure to achieve broad
acceptance of our internet-based applications by physicians and health care
organizations as a preferred medium for medical imaging would have a material
adverse effect on our operating results.
We may be unable to sell our planned eMed_Web service if our target customers
do not accept our subscription fee pricing model.
Our new subscription fee pricing model for internet-based offerings is
untested and will require our target customers to make recurring subscription
fee payments. Currently, customers buy medical systems as a one-time capital
investment with a yearly fee for maintenance and support. Accepting our
subscription fee pricing model may be particularly difficult for larger health
care institutions. If we are unable to convince our existing base and new
target customers to accept this new pricing model, sales of our new internet-
based offerings could suffer.
Our business may be difficult for you to evaluate because the internet
component of our business model is evolving and is unproven.
We only began offering internet products in June 1999 with the introduction
of our FrameWave Web product. We intend to begin marketing our eMed_Web
internet-based service later this year. We have not yet offered or implemented
any of the subscription services we expect to include for use with the eMed_Web
offering. In extending our business into internet-based products and services,
we are significantly changing our business operations, sales and marketing
strategies, pricing models and management focus. We are also facing new risks
and challenges, including a lack of meaningful historical financial data upon
which to plan future budgets and the other risks described in this prospectus.
You must consider our prospects in light of the uncertainties encountered by
companies adopting a modified business strategy, particularly one that depends
on the internet.
Any future strategic acquisitions and partnerships may result in disruptions to
our business and/or the distraction of our management.
Engaging in strategic acquisitions and relationships is a key part of our
strategy. We cannot assure you that we will be able to identify suitable
acquisition candidates, or if we do identify suitable candidates, that we will
be able to make such acquisitions on commercially acceptable terms or at all.
If we acquire another company,
6
<PAGE>
we will only receive the anticipated benefits if we successfully integrate the
acquired business into our existing business in a timely and non-disruptive
manner. We may have to devote a significant amount of time and management and
financial resources to do so. Even with this investment of management and
financial resources, an acquisition may not produce the revenue, earnings or
business synergies that we anticipated. If we fail to integrate the acquired
business effectively or if key employees of that business leave, the
anticipated benefits of the acquisition would be jeopardized. The time,
capital, management and other resources spent on an acquisition that failed to
meet our expectations could cause our business and financial condition to be
materially and adversely affected. In addition, from an accounting perspective,
acquisitions can involve non-recurring charges and amortization of significant
amounts of goodwill that could adversely affect our results of operations.
If our strategic relationship with AWARE is disrupted, our ability to use
important technologies could be halted or delayed.
We currently have arrangements in place with AWARE, Inc. for elements of our
technology for compressing large data files and our web server technology.
These technologies are an integral component of our offerings. Any disruption
in our relationship with AWARE could limit our ability to use these
technologies and could increase our costs or have a material adverse effect on
our revenue. For more information about our relationship with AWARE, please see
the section entitled "Business--Production."
Technological change in medical imaging or internet communications may render
our products and services obsolete.
We expect that the market for our offerings and internet communication will
continue to be characterized by rapidly changing technology, evolving industry
standards, frequent new product announcements and enhancements and changing
customer demands. The introduction of new products and services embodying new
technologies and the emergence of new industry standards could render our
products and services obsolete. Our success depends on our ability to adapt to
rapidly changing technologies and to improve the performance, features and
reliability of our products and services in response to changing customer and
industry demands. Furthermore, we may experience difficulties that could delay
or prevent the successful design, development, testing, introduction or
marketing of our products and services. Our new products and services, or
enhancements to our existing products and services, may not adequately meet the
requirements of our current and prospective customers or achieve any degree of
significant market acceptance.
Concerns about integrating our products into their networks may cause customers
to decide not to buy our products or services.
We often must integrate our products with the networks that exist either at
a customer site or between customer sites. We do not control these proprietary
networks. Concerns about customers' uncertainty as to the compatability of our
products with existing networks may cause customers to decide not to buy our
products or services.
If our computer systems upon which we depend to provide our services fail or
overload, we could lose customers.
The success of our network-based comprehensive customer service depends on
the uninterrupted, efficient operation of our computer network. The servers
that will host eMed_Web sites will be located at customer sites and supported
by us at our headquarters. The occurrence of fires, floods, earthquakes, power
losses and similar events could cause damage or cause interruptions in these
systems. Computer viruses, worms, electronic break ins or similar disruptions
could also adversely affect our network and, if highly publicized, could
materially damage our reputation and efforts to build brand awareness. If our
systems are affected by any of these occurrences, we may not be able to provide
customer support on which our users depend, and as a result our business could
be materially and adversely affected. Our insurance policies may not adequately
cover any losses.
7
<PAGE>
A variety of factors including our plans to expand our business may cause our
quarterly and annual results to vary and our stock price to fluctuate.
Our operating results may fluctuate significantly on a quarterly basis due
to a variety of factors, including our plans to devote significant additional
financial resources to expand our business and to introduce our new eMed_Web
service. Other factors which may cause our operating results to fluctuate
include the size and timing of significant orders, the demand for and market
acceptance of our products and services, and the length of our sales cycles.
Our revenue is not predictable and is difficult to forecast because, among
other things, the market for our products is rapidly evolving, sales cycles are
long and vary substantially from customer to customer and we are initiating a
new subscription fee pricing model for our eMed_Web service. The sales cycle is
subject to a number of factors over which we have little or no control,
including customers' budgetary constraints, the timing of budget cycles,
concerns about the introduction of new products by us or our competitors.
Potential downturns in general economic conditions may cause reductions in
demand for medical imaging workflow management systems. Our revenue and other
financial and operating results may not meet the expectations of securities
analysts and our stockholders. As a result of such fluctuation or failure to
meet expectations, the price of our common stock could be materially adversely
affected.
We may need additional capital in the future to support our growth and such
additional financing may not be available to us.
We expect that the net proceeds from this offering, combined with our
current cash resources, will be sufficient to meet our funding requirements for
at least the next 12 months. However, as we continue our efforts to grow our
business in a rapidly changing and highly competitive market, we may need to
raise additional financing to support expansion, develop new or enhanced
products and services, respond to competitive pressures, acquire complementary
businesses or technologies or take advantage of unanticipated business
opportunities. We may need to raise additional funds by selling debt or equity
securities, by entering into strategic relationships or through other
arrangements. We may be unable to raise any additional amounts on reasonable
terms when they are needed. Any additional equity financing may cause investors
to experience dilution, and any additional debt financing may result in
restrictions on our operations or our ability to pay dividends in the future.
Any disruption of our relations with our suppliers could increase our costs and
adversely affect our assembling process.
We purchase a number of the proprietary software and hardware components of
our offerings from limited sources. Any disruption of our relationships with
any of our suppliers of these components could increase our costs and adversely
affect our assembling operations and delay or halt our filling customer orders.
We have substantial product liability risk and our insurance coverage may not
be adequate to cover any claims.
Our business entails significant risks of product liability claims. Although
no such claims have ever been asserted against us, we cannot assure you that
our insurance coverage limits would be adequate to protect us against any
product liability claims that may arise. We may require additional product
liability insurance coverage as we commercialize new or improved products. This
insurance is expensive and may not be available on acceptable terms, or at all.
Uninsured product liability claims could have a material adverse effect on our
business, results of operations and financial condition.
Our business may suffer if we are not able to successfully protect our
intellectual property rights which are important elements of our products and
services.
We cannot assure you that the steps we have taken to protect our
intellectual property rights will prevent misappropriation of our technology.
These intellectual property rights, which we rely upon to develop and
8
<PAGE>
maintain our competitive position, are important elements of our products and
services. We rely partly on unpatented trade secrets and know-how to protect
our intellectual property. We cannot be sure that others will not independently
develop or otherwise acquire comparable trade secrets or know-how or otherwise
gain access to our proprietary technology or disclose such technology or that
we can meaningfully protect our rights to such unpatented proprietary
technology. Although we generally require our employees, contractors and
consultants who may have access to our confidential information, and parties to
collaboration agreements to execute confidentiality agreements to protect our
unpatented trade secrets and other know-how, these agreements may be breached
by the other party to the agreement or may otherwise be of limited
effectiveness. Misappropriation of our intellectual property could have a
material adverse effect on our business, financial condition, results of
operations and prospects. In addition, we may have to engage in litigation in
the future to enforce or protect our intellectual property rights or to defend
against claims of invalidity, and we may incur substantial costs as a result.
For more information, please see the section "Business -- Intellectual
Property."
If we are forced to defend against intellectual property infringement claims,
we could incur significant expenses and our business could be adversely
affected.
Our products include our proprietary intellectual property and intellectual
property rights licensed from others. We may become subject to claims alleging
that we infringe the proprietary rights of others. In the United States, a
significant number of software and business method patents have been issued
over the past decade and the holders of these patents have been actively
seeking out potential infringers. If any element of our products or services
violates third party proprietary rights, we might not be able to obtain
licenses on commercially reasonable terms to continue offering our products or
services without substantial reengineering and any effort to undertake such
reengineering might not be successful. In addition, any claim of infringement
could cause us to incur substantial costs defending against the claim, even if
the claim is invalid, and could distract our management from our business. Any
judgment against us could require us to pay substantial damages and could also
include an injunction or other court order that could prevent us from offering
our products and services.
We may be liable for information retrieved from or transmitted over the
internet using our products and services.
We may be sued for defamation, negligence, personal injury or other legal
claims relating to information that is published or made available on our
websites. These types of claims have been brought against providers of
internet-based services in the past. We could also be sued for the content that
is accessible from our websites through links to other internet websites. We
could incur significant costs in investigating and defending such claims, even
if we ultimately are not found liable. Our insurance coverage limits may not be
adequate to protect us against liability.
Our business is highly dependent on the proper and continual functioning of our
computer systems and therefore may be adversely affected by Year 2000 problems.
We rely on computer systems to manage our business and to service our
customers. Further, all of our products include computer hardware and/or
software components. Among other things, Year 2000 problems could cause us to:
. fail to fulfill our contractual obligations with our customers;
. face substantial claims by such customers and loss of revenue;
. fail to bill our customers accurately and on a timely basis; and
. be subject to the inability by customers and others to pay, on a timely
basis or at all, obligations owed to us.
A significant Year 2000 related disruption could cause our customers to be
dissatisfied with our products and services or could impose an unmanageable
burden on our technical support staff. Although the effects of any or all of
these events are not quantifiable at this time, any of these events could have
a material adverse effect on our business and operating results.
9
<PAGE>
Risks Related to Our Industry
If the internet is not accepted as a medium for medical imaging, our sales will
suffer.
Our future success depends upon the acceptance of the internet as a medium
for medical imaging. Because the internet-based medical imaging market is new,
we cannot yet gauge its effectiveness as compared to current electronic medical
imaging distribution methods. Most physicians and health care organizations
have little or no experience using the internet for medical imaging
transmission and distribution. The adoption of internet-based medical imaging
systems requires radiologists and other health care professionals to accept a
new way of conducting business and exchanging information. If these users
believe that internet-based medical imaging systems are less effective than
traditional medical imaging distribution methods, our sales will suffer.
Security concerns may keep physicians and health care organizations from
allowing confidential patient information to be made available on the internet.
Internet security remains a critical concern to many consumers. Physicians
and health care organizations may be reluctant to allow confidential medical
images and related patient information to be made available to healthcare
professionals through the eMed_Web sites. Any well publicized compromise of
security on the internet, or on any of the eMed_Web sites in particular, could
deter people from using the internet or from using the eMed_Web sites. Any
reluctance for security reasons on the part of physicians or health care
organizations to use the internet or the eMed_Web sites for internet-based
medical imaging would adversely affect our business.
Uncertainty associated with the regulation of the health care industry may
cause our target customers to curtail or delay purchases of our products.
The health care industry is highly regulated and is subject to changing
political, economic and regulatory influences that may affect the procurement
practices and operation of health care organizations. Changes in current health
care financing and reimbursement systems could result in delays or
cancellations of orders. Federal and state legislatures have periodically
considered programs to reform or amend the U.S. health care system at both the
federal and state level. These programs may contain proposals to increase
governmental involvement in health care, lower reimbursement rates or otherwise
change the environment in which the health care industry participants operate.
Health care industry participants may react to these proposals and the
uncertainty surrounding such proposals by curtailing or deferring investments,
including investments in our products and services. We cannot predict what
impact, if any, such proposals or health care reforms might have on us.
We may be unable to introduce new products or services if we fail to obtain
regulatory clearances and approvals.
Because our products and services are subject to regulation as Class II
medical devices in the United States by the Food and Drug Administration and in
other countries by corresponding regulatory authorities, our ability to market
new products and improvements to existing products will depend upon when we
receive premarket clearance or approval from the Food and Drug Administration
or any foreign counterparts. Failure to comply with applicable domestic or
foreign regulatory requirements at any time during the production, marketing or
distribution of products regulated by the Food and Drug Administration or its
foreign counterparts could result in, among other things, warning letters,
seizures of products, total or partial suspension of production, refusal of the
Food and Drug Administration to grant clearances or approvals, withdrawal of
existing clearances or approvals, or criminal prosecution. See "Business --
Government Regulation."
10
<PAGE>
Government regulation of the internet could limit our operations or increase
our costs.
Laws and regulations directly applicable to internet communications,
commerce and advertising are becoming prevalent, but the legislative and
regulatory treatment of the internet remains largely unsettled. The U.S.
Congress recently adopted internet laws regarding copyrights, taxation and the
protection of children. In addition, a number of other legislative and
regulatory proposals under consideration by federal, state, local and foreign
governments could lead to additional laws and regulations affecting the right
to collect and use personally identifiable information, internet-based content,
user privacy, taxation, access charges and liability for third party
activities, among other things. For example, the growth and development of the
market for internet commerce may prompt calls for more stringent consumer
protection laws, both in the United States and abroad, that may impose
additional burdens on companies conducting business over the internet. These
measures could decelerate the growth in use of the internet and could reduce
the demand for our services or increase our cost of doing business.
State governments or foreign countries might attempt to regulate the content
of our websites or levy sales or other taxes relating to our activities. The
European Union recently enacted its own privacy regulations that may result in
limits on the collection and use of user information. Courts may seek to apply
existing laws not explicitly relating to the internet in ways that could impact
the internet, and it may take years to determine whether and how laws such as
those governing intellectual property, privacy, libel and taxation will affect
the internet and the internet-based medical imaging workflow management
industry.
Risks Related to This Offering
We may allocate the proceeds of this offering in ways with which you may not
agree.
Our management will have significant flexibility in applying the net
proceeds of this offering, including ways with which you may disagree. You will
not have the opportunity to evaluate the economic, financial or other
information on which we base our decisions on how to use the proceeds.
Our stock price is likely to be highly volatile and could drop unexpectedly and
investors may not be able to resell their shares at or above the offering
price.
Following this offering, the price at which our common stock will trade is
likely to be highly volatile and may fluctuate substantially. We cannot predict
the extent to which investors' interest in us will lead to the development of a
trading market or how liquid the market might become. If you purchase shares of
our common stock in this offering, you will pay a price that was not
established in a competitive market, but was negotiated between us and the
underwriters. The price of the common stock that will prevail in the market
after the offering may be higher or lower than the price you pay, depending on
several factors, including our quarterly variations in results of operations,
estimates of securities analysts, competitive developments and general economic
conditions. In addition, the stock market has from time to time experienced
significant price and volume fluctuations that have affected the market prices
for the securities of health care and technology companies, particularly
internet companies. As a result, investors in our common stock may experience a
decrease in the value of their common stock regardless of our operating
performance or prospects. Fluctuations in our common stock price may affect our
visibility and credibility in our market and may affect our ability to secure
additional financing on acceptable terms, if at all.
Shares eligible for public sale after this offering could adversely affect our
stock price.
The market price of our common stock could decline as a result of sales of
shares by our existing stockholders after this offering, or the perception that
such sales will occur. These sales also might make it difficult for us to sell
equity securities in the future at a time and at a price that we deem
appropriate. Approximately 93.5% of our total outstanding shares of common
stock will be freely tradable, subject to Securities Act rules, 180 days after
the date of this prospectus. You should refer to the information in the section
entitled "Shares Eligible for Future Sale" for more information.
11
<PAGE>
Our charter documents and Delaware law may inhibit a takeover that stockholders
may consider favorable.
The health care industry has recently experienced significant consolidation.
There are provisions in our charter and by-laws that may have the effect of
delaying or preventing a change of control or changes in our management that
stockholders consider favorable or beneficial. You should refer to the
information in the section entitled "Description of Capital Stock" for more
information. If a change of control or change in management is delayed or
prevented, the market price of our common stock could suffer.
A small group of existing stockholders, whose interests may differ from other
stockholders, will be able to exert significant influence over us.
After this offering, our officers and directors and parties related to them
will own approximately 22.2% of the outstanding shares of our common stock.
Accordingly, they will have significant influence in determining the outcome of
any corporate transaction or other matter submitted to the stockholders for
approval, including mergers, consolidations and the sale of all or
substantially all of our assets, and also the power to prevent or cause a
change in control. The interests of these stockholders may differ from the
interests of the other stockholders.
Forward-looking statements are inherently uncertain.
Certain statements about us and our industry under the captions "Prospectus
Summary," "Risk Factors," "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business" and
elsewhere in this prospectus are "forward-looking statements." These forward-
looking statements include, but are not limited to, statements about our plans,
objectives, expectations, intentions and assumptions, the industry in which we
operate and other statements in this prospectus that are not historical facts.
When we use the words "estimate," "project," "believe," "anticipate," "intend,"
"plan," "expect" and similar expressions in this prospectus, we generally
intend to identify forward-looking
statements. Because these forward-looking statements involve risks and
uncertainties, including those described in this "Risk Factors" section, actual
results could differ materially from those expressed or implied by these
forward-looking statements. We caution you not to place undue reliance on these
forward-looking statements. These forward-looking statements speak only as of
the date of this prospectus. We do not undertake any obligation to publicly
release any revisions to these forward-looking statements to reflect new
information, future events or otherwise.
12
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from our sale of the 3,100,000 shares of
common stock we are offering will be approximately $36.6 million, assuming an
initial public offering price of $13.00 per share and after deducting estimated
underwriting discounts and our estimated offering expenses. If the underwriters
exercise their over-allotment option in full, we estimate that the net proceeds
would be approximately $42.2 million. Our principal reasons for this offering
are to provide us working capital, to create a public market for our common
stock and to facilitate our future access to public capital markets.
We intend to use approximately $3.0 million of the net proceeds of this
offering to repay indebtedness outstanding under our credit facility. We have
used borrowings incurred under this facility within the past 12 months to fund
our working capital requirements as well as a portion of the purchase price for
the medical imaging business of E-Systems Medical Electronics, a division of
Raytheon, that we acquired in November 1998. As of June 30, 1999, the interest
rate on the working capital portion of this facility was 9.75% and the interest
rate on the equipment line portion was 8.75%.
We intend to use the remaining net proceeds from this offering for general
corporate purposes, including the expansion of our sales, marketing and
development efforts, and for potential acquisitions and partnerships. We are
not currently participating in any active negotiations and have no commitments
or agreements with respect to any acquisition, partnership or investment. We
have not determined the amount of net proceeds to be used for each of the
specific purposes indicated. Accordingly, our management will have significant
flexibility in applying the net proceeds of the offering. Pending any use, we
plan to invest the net proceeds of this offering in short-term, investment-
grade interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid a cash dividend on our common stock and we do
not intend to do so in the foreseeable future. We currently intend to retain
earnings to finance future operations.
13
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999 on an
actual basis and as adjusted to reflect (1) the conversion of all of our
outstanding classes of preferred stock into common stock, and (2) the sale of
the shares of common stock offered by us at an assumed initial public offering
price of $13.00 per share, after deducting the estimated underwriting discount
and our estimated offering expenses. The following table assumes (1) no
exercise of the underwriters' over-allotment option and (2) the effectiveness
of a 2.4 for 1 reverse split of our common stock. This table contains unaudited
information and should be read in conjunction with the financial statements and
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
June 30, 1999
--------------------------
Actual As Adjusted
----------- -------------
(dollars in thousands)
<S> <C> <C>
Long-term debt..................................... $ 210 $ 210
----------- -----------
Stockholders' equity:
Convertible preferred stock, $0.01 par value,
15,000,000 shares authorized; 11,877,492
shares issued and outstanding; no shares issued
and outstanding as adjusted ...................... 119 --
Common stock, $0.01 par value, 35,000,000 shares
authorized; 480,488 shares issued and outstanding;
11,436,638 shares issued and outstanding as
adjusted.......................................... 5 114
Additional paid-in capital......................... 28,803 65,392
Deferred compensation.............................. (2,598) (2,598)
Treasury stock .................................... (50) (50)
Accumulated deficit................................ (20,967) (20,967)
----------- -----------
Total stockholders' equity....................... 5,312 41,891
----------- -----------
Total capitalization............................. $ 5,522 $ 42,101
=========== ===========
</TABLE>
The share information in the table is based on our shares of common stock
outstanding as of June 30, 1999. This table excludes:
. 1,654,455 shares of our common stock subject to options outstanding as
of June 30, 1999 at a weighted average exercise price of $1.46 per
share; and
. warrants to purchase 573,624 shares of common stock at exercise prices
from $0.02 to $1.20 and warrants to purchase 409,091 shares of Series J
preferred stock outstanding as of June 30, 1999 at an exercise price of
$1.10 per share. Upon completion of this offering, the warrants to
purchase Series J preferred stock will become warrants to purchase
170,449 shares of common stock.
14
<PAGE>
DILUTION
Our pro forma net tangible book value as of June 30, 1999 was approximately
$5.2 million or $0.63 per share of common stock. Our pro forma net tangible
book value per share represents our total tangible assets less total
liabilities divided by the pro forma total number of shares of common stock
outstanding at such date, assuming the conversion of all outstanding classes of
our preferred stock into an aggregate of 7,856,150 shares of common stock.
After giving effect to the sale of the shares of common stock offered by us
at an assumed initial public offering price of $13.00 per share, after
deducting the estimated underwriting discount and our estimated offering
expenses, our pro forma net tangible book value as of June 30, 1999 would have
been approximately $41.8 million or $3.66 per share. This amount represents an
immediate increase in pro forma net tangible book value of $3.03 per share to
the existing stockholders and an immediate dilution in pro forma net tangible
book value of $9.34 per share to new investors purchasing shares in this
offering. If the initial public offering price is higher or lower, the dilution
to new investors will be greater or less. The following table illustrates the
dilution in pro forma net tangible book value per share to new investors.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $13.00
Pro forma net tangible book value per share as of June 30,
1999....................................................... $0.63
Increase in net tangible book value per share attributable
to new investors........................................... 3.03
-----
Pro forma net tangible book value per share after the
offering..................................................... 3.66
------
Dilution per share to new investors........................... $ 9.34
======
</TABLE>
The following table summarizes on a pro forma basis, as of June 30, 1999,
the number of shares of common stock purchased from us, the aggregate cash
consideration paid to us and the average price per share paid by existing
stockholders and to be paid by new investors purchasing the shares of common
stock in this offering at an assumed initial public offering price of $13.00
per share, before deducting estimated underwriting discounts and our estimated
offering expenses.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.. 8,336,638 72.9% $25,685,000 38.9% $3.08
New investors.......... 3,100,000 27.1% 40,300,000 61.1 13.00
---------- ----- ----------- ----- -----
Total................ 11,436,638 100.0% $65,985,000 100.0% $5.77
========== ===== =========== ===== =====
</TABLE>
The above information assumes no exercise of (1) the underwriters' over-
allotment option and (2) stock options or warrants after June 30, 1999. As of
June 30, 1999, we had reserved 1,654,455 shares of our common stock for
issuance upon exercise of outstanding options at a weighted average exercise
price of $1.46 per share and 744,073 shares of common stock for issuance upon
exercise of warrants to purchase 573,624 shares of common stock at exercise
prices from $0.02 to $1.20 per share and warrants to purchase Series J
preferred stock at an exercise price of $1.10 per share. Upon completion of
this offering, the warrants to purchase Series J preferred stock will become
warrants to purchase 170,449 shares of common stock. To the extent any of those
options or warrants are exercised, there will be further dilution to new
investors.
15
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with our financial statements and notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this prospectus. The statement of operations data for the years
ended December 31, 1996, 1997 and 1998, and the balance sheet data as of
December 31, 1997 and 1998, are derived from and are qualified by reference to
the audited financial statements included elsewhere in this prospectus. The
statement of operations data for the two years ended December 31, 1994 and
1995, and the balance sheet data as of December 31, 1994, 1995 and 1996, have
been derived from audited financial statements of eMed that do not appear in
this prospectus. The statement of operations data for the six months ended June
30, 1998 and 1999 and the balance sheet data as of June 30, 1999 are derived
from unaudited financial statements included elsewhere in this prospectus. The
unaudited financial statements have been prepared on the same basis as the
audited financial statements and, in the opinion of our management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the information set forth therein. The historical results
are not necessarily indicative of the operating results to be expected in the
future.
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
------------------------------------------- ----------------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- ------- ------ -------
(in thousands, except per share data) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data
Revenue................. $ 139 $ 466 $ 1,009 $ 8,027 $12,594 $ 6,218 $11,369
Cost of revenue......... (141) (313) (1,404) (7,012) (8,976) (4,131) (6,351)
------- ------- ------- ------- ------- ------- -------
Gross margin............ (2) 153 (395) 1,015 3,618 2,087 5,018
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and
development........... -- 239 610 1,300 2,362 1,031 1,655
Sales and marketing.... 423 571 1,319 2,912 3,498 1,764 2,519
General and
administrative........ 1,443 1,476 1,331 1,982 2,722 1,121 1,851
------- ------- ------- ------- ------- ------- -------
Total operating
expenses............. 1,866 2,286 3,260 6,194 8,582 3,916 6,025
------- ------- ------- ------- ------- ------- -------
Loss from operations.... (1,868) (2,133) (3,655) (5,179) (4,964) (1,829) (1,007)
Interest income
(expense), net......... (14) (119) (70) (204) (106) (19) (68)
Other income (expense).. (15) 218 (21) (242) (43) (6) (82)
------- ------- ------- ------- ------- ------- -------
Net loss................ $(1,897) $(2,034) $(3,746) $(5,625) $(5,113) $(1,854) $(1,157)
======= ======= ======= ======= ======= ======= =======
Basic and diluted net
loss per share......... $ (9.10) $ (5.08) $ (8.39) $(12.45) $(11.70) $ (4.30) $ (2.48)
Shares used in computing
basic and diluted net
loss per share......... 209 400 446 452 437 431 467
Unaudited pro forma
basic and diluted net
loss per share......... $ (0.78) $ (0.14)
Shares used in computing
unaudited pro forma
basic and diluted net
loss per share......... 6,567 8,324
<CAPTION>
As of June 30,
As of December 31, 1999
------------------------------------------- --------------
1994 1995 1996 1997 1998
------- ------- ------- ------- ------- (unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $ 326 $ 42 $ 2,201 $ 4,421 $ 2,259 $ 5,118
Working capital
(deficit).............. 193 (124) 1,889 5,541 (1,248) 4,573
Total assets............ 1,057 1,022 3,978 9,890 11,506 13,559
Total long-term
liabilities............ 961 1,278 177 963 342 210
Total stockholders'
equity (deficit)....... (343) (810) 2,549 5,503 388 5,312
</TABLE>
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial
statements and notes thereto. The following discussion contains forward-looking
statements. Our actual results could differ materially from those discussed in
forward-looking statements. See "Risk Factors."
Overview
We are a leading provider of workflow solutions that improve the process of
electronically managing medical images and related patient information. Our
products permit the capture, compression, transmission, routing, review and
storage of medical images and the coordinated transmission and review of
related patient information over both proprietary networks and the internet.
Prior to 1996, our business consisted primarily of providing network management
services for systems that permit healthcare professionals to access, transmit
and review medical images at remote locations. We began selling FrameWave
products in late 1996.
Product sales currently constitute a substantial portion of our revenue. We
recognize revenue from the sale of our products upon shipment to the customer.
Revenue from our recently introduced FrameWave Web product has not been
material to date. We also derive revenue from installing our products at
customer sites. Our standard installation fee is based on a percentage of the
product sales price. We provide a one year warranty on all products. We
generate recurring revenue from contracts to provide network-based
comprehensive support and post-warranty product maintenance to customers. We
recognize revenue from these contracts ratably over their lives. Recurring fees
constituted approximately 10% of revenue for the year ended December 31, 1998
and 14% of revenue for the six months ended June 30, 1999. As our customer base
grows, we expect recurring fees from service contracts to increase more quickly
than our product sales.
Most of our products are sold under written contracts with our customers.
These contracts generally provide for payment of a portion of the purchase
price upon signing, an additional installment upon shipment, and a final
payment, generally 10% of the purchase price, upon acceptance. Sales to
independent sales and service organizations require payment in full upon
delivery.
We intend to offer our eMed_Web service, which we expect to introduce later
this year, on a subscription fee basis to our current installed base and to new
customers. The result, we believe, will be the gradual decrease of non-
recurring revenue from system sales as a percentage of revenue and the gradual
increase of recurring subscription fees derived from our eMed_Web service as a
percentage of revenue. However, we expect to continue to generate a material
portion of revenue from sales of FrameWave products and our support and other
services, which we anticipate will be used with our internet products.
Customers using our internet services will continue to need products like our
image acquisition devices, servers, workstations and archive products. We
believe we will ultimately derive additional revenue from expanding the medical
imaging workflow management capabilities of our eMed_Web sites.
Costs of product revenue consist primarily of costs of purchased material
and license fees. Costs of service revenue consist primarily of employee-
related costs and the cost of outsourcing services. Historically, our operating
expenses have consisted principally of employee-related costs associated with
the sales, marketing, and research and development of our FrameWave products.
As we seek to increase our customer base and implement our internet strategy,
we expect our operating expenses to increase significantly.
We have incurred net operating losses and negative cash flows since our
inception. As a result, we have recorded no income tax expense or benefit to
date. We expect to continue to incur net losses and negative cash flows as we
seek to rapidly grow our business and continue to implement our internet-based
strategy. We cannot assure you that our customer base or revenue will grow or
that we will achieve or sustain net operating income or positive cash flow.
17
<PAGE>
During the six-month period ended June 30, 1999, we issued stock options to
non-employees and to employees which are exercisable at less than the fair
market value on the date of grant. The issuance of these stock options results
in non-cash compensation charges in the period that the options were granted
and will result in additional non-cash charges over future periods as the
options vest. These charges will be allocated across the various expense
categories as appropriate.
In November 1998, we acquired the assets of the medical imaging business of
E-Systems Medical Electronics, a division of the Raytheon Company, for an
aggregate purchase price of $3.2 million. E-Systems Medical Electronics and its
predecessors have been providing medical imaging products since 1985. The E-
Systems Medical Electronics installed base primarily consists of users who
capture and transmit medical images from an imaging facility to a radiologist's
home for off-hours review. The acquisition was accounted for using the purchase
method of accounting. In February 1999, we sold non-core assets which we
acquired as part of the transaction for $861,000. The E-Systems Medical
Electronics business, excluding the non-core assets we sold, had net sales of
approximately $8.1 million and a net loss of approximately $6.0 million for the
period from January 1, 1998 to November 23, 1998. Since acquiring E-Systems
Medical Electronics, we have integrated its operations into our existing
business and have eliminated redundant functions. In connection with this
action, we established a reserve of approximately $412,000, of which we have
utilized approximately $331,000 as of June 30, 1999. In addition, we have
discontinued the practice of selling the PACSPro product line at margins below
levels acceptable to us. We generally provide PACSPro products only to existing
users that wish to expand their systems. We did not acquire the E-Systems
Medical Electronics business with the intent to continue their method of
operations. Rather, the main purpose of the acquisition was to obtain easier
access to the E-Systems installed user base and to acquire certain of its
technology and employees. Therefore, the revenue of E-Systems Medical
Electronics prior to acquisition is not indicative of the incremental revenue
to be generated by us as a result of this acquisition.
Results of Operations
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Revenue. Revenue increased by 83% to $11.4 million for the six months ended
June 30, 1999 from $6.2 million for the six months ended June 30, 1998. Product
revenue increased by 71% to $9.8 million for the six months ended June 30, 1999
from $5.7 million for the six months ended June 30, 1998. This increase was
attributable to the increased sale of our FrameWave products as well as $2.9
million of revenue from the sale of PACSPro products, a product line that we
acquired in the E-Systems Medical Electronics transaction described above.
Service revenue increased by 223% to $1.6 million for the six months ended June
30, 1999 from $487,000 for the six months ended June 30, 1998. This increase
was primarily due to the growth in our installed user base. Approximately
$840,000, or 77% of the service revenue increase is due to increased sales of
service to users of our FrameWave products.
Gross Margin. Gross margin increased to $5.0 million, or 44% of revenue, for
the period ended June 30, 1999 from $2.1 million, or 34% of revenue, for the
period ended June 30, 1998. Gross margin from product revenue increased to $5.1
million, or 52% of product revenue, for the period ended June 30, 1999 from
$2.3 million, or 41% of product revenue, for the period ended June 30, 1998.
The increase in gross margin is attributable to a reduction in the material
cost of products sold and an increase in the selling price of products sold. We
achieved material cost reductions through our negotiations with suppliers and
by re-engineering our products to incorporate better and less expensive
components and sub-assemblies. Gross margin from service revenue improved to a
loss of $76,000 for the period ended June 30, 1999 from a loss of $242,000 for
the period ended June 30, 1998. This improvement is primarily the result of an
increase in the volume of products sold, which resulted in an increase in
recurring revenue generated from service contracts.
Research and Development Expense. Research and development expense increased
by 61% to $1.7 million for the six months ended June 30, 1999 from $1.0 million
for the six months ended June 30, 1998. This
18
<PAGE>
increase was primarily the result of personnel added to expand our internet-
based product and service offerings. As a percentage of revenue, research and
development expense decreased to 15% of revenue for the six months ended June
30, 1999 from 17% of revenue for the six months ended June 30, 1998.
Sales and Marketing Expense. Sales and marketing expense increased by 43% to
$2.5 million for the six months ended June 30, 1999 from $1.8 million for the
six months ended June 30, 1998. This increase was primarily the result of the
expansion of our sales force and related support staff. As a percentage of
revenue, sales and marketing expense decreased to 22% for the six months ended
June 30, 1999 from 28% of revenue for the six months ended June 30, 1998.
General and Administrative Expense. General and administrative expense
increased by 65% to $1.8 million for the six months ended June 30, 1999 from
$1.1 million for the six months ended June 30, 1998. Approximately $240,000, or
33%, of this increase is due to a non-cash compensation charge relating
primarily to the issuance of stock options to employees and non-employees
exercisable at less than the fair market value on the date of grant. The
remainder of this increase results primarily from an expansion of our work
force, recruiting expense and facilities expense. As a percentage of revenue,
general and administrative expense decreased to 16% for the six months ended
June 30, 1999 from 18% of revenue for the six months ended June 30, 1998.
Interest Expense -- Net. Interest expense, net, increased to $69,000 for the
six months ended June 30, 1999 from $19,000 for the six months ended June 30,
1998. This increase was primarily a result of increased borrowing under lines
of credit, which was partially offset by interest earned on short-term
investments.
Year Ended December 31, 1998 Compared with Year Ended December 31, 1997
Revenue. Revenue increased by 57% to $12.6 million for the year ended
December 31, 1998 from $8.0 million for the year ended December 31, 1997.
Product revenue increased by 58% to $11.3 million for the year ended December
31, 1998 from $7.2 million for the year ended December 31, 1997. This increase
was a result of continued growth in shipments of our FrameWave products.
Service revenue increased by 50% to $1.3 million for the year ended December
31, 1998 from $863,000 for the year ended December 31, 1997. This increase was
primarily due to the growth in our installed user base.
Gross Margin. Gross margin increased to $3.6 million, or 29% of revenue, for
the period ended December 31, 1998 from $1.0 million, or 13% of revenue, for
the period ended December 31, 1997. Gross margin from product revenue increased
to $4.1 million, or 36% of product revenue, for the year ended December 31,
1998 from $1.6 million, or 22% of product revenue for the year ended December
31, 1997. The increase in gross margin was attributable to an increase in the
volume of products sold. Gross margin from service revenue improved to a loss
of $458,000 for the year ended December 31, 1998 from a loss of $596,000 for
the year ended December 31, 1997. This improvement was primarily the result of
an increase in the volume of products sold which resulted in an increase in
recurring revenue generated from service contracts.
Research and Development Expense. Research and development expense increased
by 82% to $2.4 million for the year ended December 31, 1998 from $1.3 million
for the year ended December 31, 1997. This increase was primarily the result of
personnel added to continue the development of our FrameWave products. As a
percentage of revenue, research and development expense increased to 19% for
the year ended December 31, 1998 from 16% of revenue for the year ended
December 31, 1997.
Sales and Marketing Expense. Sales and marketing expense increased by 20% to
$3.5 million for the year ended December 31, 1998 from $2.9 million for the
year ended December 31, 1997. This increase was primarily the result of our
sales force expansion. As a percentage of revenue, sales and marketing expense
decreased to 28% for the year ended December 31, 1998 from 36% of revenue for
the year ended December 31, 1997.
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General and Administrative Expense. General and administrative expense
increased by 37% to $2.7 million for the year ended December 31, 1998 from $2.0
million for the year ended December 31, 1997. This increase was primarily the
result of an increase in personnel and increased expenses related to additional
leased facilities space. As a percentage of revenue, general and administrative
expense decreased to 22% for the year ended December 31, 1998 from 25% of
revenue for the year ended December 31, 1997.
Interest Expense -- Net. Interest expense, net, decreased to $106,000 for
the year ended December 31, 1998 from $204,000 for the year ended December 31,
1997. This decrease was primarily a result of an increase in interest earned on
short-term investments, which was partially offset by increased borrowing under
lines of credit.
Year Ended December 31, 1997 Compared with Year Ended December 31, 1996
Revenue. Revenue increased to $8.0 million for the year ended December 31,
1997 from $1.0 million for the year ended December 31, 1996. Product revenue
increased to $7.2 million for the year ended December 31, 1997 from $570,000
for the year ended December 31, 1996. This increase was primarily the result of
the successful launch of our FrameWave products. Service revenue increased by
96% to $863,000 for the year ended December 31, 1997 from $439,000 for the year
ended December 31, 1996. This increase was primarily due to the growth in our
installed user base.
Gross margin. Gross margin increased to $1.0 million or 13% of revenue for
the period ended December 31, 1997 from a loss of $394,000 for the period ended
December 31, 1996. Gross margin from product revenue increased to $1.6 million
for the year ended December 31, 1997 from $198,000 for the year ended December
31, 1996. As a percentage of product revenue, gross margin decreased to 22% for
the year ended December 31, 1997 from 35% for the year ended December 31, 1996.
The increase in gross margin was attributable to an increase in the volume of
products sold. The decrease in gross margin as a percentage of revenue was
attributable to the fixed costs of establishing and operating a full-scale
assembly and test operation. Gross margin from service revenue decreased to a
loss of $596,000 for the year ended December 31, 1997 from a loss of $592,000
for the year ended December 31, 1996. The incremental revenue generated from
service activities was offset by an increase in personnel related costs.
Research and Development Expense. Research and development expense increased
by 113% to $1.3 million for the year ended December 31, 1997 from $610,000 for
the year ended December 31, 1996. This increase was primarily the result of
personnel added to continue the development of our FrameWave products. As a
percentage of revenue, research and development expense decreased to 16% for
the year ended December 31, 1997 from 60% of revenue for the year ended
December 31, 1996.
Sales and Marketing Expense. Sales and marketing expense increased by 121%
to $2.9 million for the year ended December 31, 1997 from $1.3 million for the
year ended December 31, 1996. This increase was primarily the result of our
sales force expansion. As a percentage of revenue, sales and marketing expense
decreased to 36% for the year ended December 31, 1997 from 131% of revenue for
the year ended December 31, 1996.
General and Administrative Expense. General and administrative expense
increased by 49% to $2.0 million for the year ended December 31, 1997 from $1.3
million for the year ended December 31, 1996. This increase was primarily the
result of an increase in personnel. As a percentage of revenue, general and
administrative expense decreased to 25% for the year ended December 31,1997
from 132% of revenue for the year ended December 31, 1996.
Interest Expense -- Net. Interest expense, net, increased to $204,000 for
the year ended December 31, 1997 from $70,000 for the year ended December 31,
1996. This increase was primarily a result of increased borrowing under lines
of credit, which was partially offset by interest earned on short-term
investments.
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Liquidity and Capital Resources
Since inception, we have financed our operations primarily through private
equity and debt financings. During the period from inception through June 30,
1999, we received net proceeds from the sale of our capital stock and
convertible notes of $25.7 million. None of the convertible notes remain
outstanding. As of June 30, 1999, we had $5.1 million of cash and cash
equivalents and approximately $674,000 was available under our credit facility.
Cash used in operating activities for the six months ended June 30, 1999 of
$1.2 million consisted primarily of net operating losses of $1.2 million and an
increase in accounts receivable of $1.3 million, offset in part by a decrease
in inventories. The increase in accounts receivable is attributable to the
increase in revenue and the decrease in inventory resulted from our ability to
liquidate inventory acquired as part of our acquisition of E-Systems Medical
Electronics. Cash used in operating activities for the six months ended
June 30, 1998 of $1.9 million was due primarily to net operating losses of $1.9
million and an increase in accounts receivable of $853,000, offset by a
decrease in prepaid expenses and other current assets of $513,000. The increase
in accounts receivable is attributable to the increase in revenue, and the
decrease in prepaid expenses and other current assets is attributable to a
reduction in prepaid software licenses. Cash used in operating activities for
the year ended December 31, 1998 of $2.7 million was due primarily to net
operating losses of $5.1 million offset by a decrease in inventories and
prepaid expenses of $638,000 and $554,000, respectively, and an increase in
deferred revenue of $690,000. The decrease in inventory is attributable to
improvements in the materials purchasing process and the decrease in other
current assets is attributable to a reduction in prepaid software licenses. The
increase in deferred revenue is primarily due to an increase in customer
deposits related to a single customer order. Cash used in operating activities
for the year ended December 31, 1997 of $6.1 million was due primarily to net
operating losses of $5.6 million and an increase in accounts receivable,
prepaid expenses and inventories of $2.5 million, $715,000, and $399,000,
respectively, offset by increases in accounts payable, accrued expenses and
deferred revenue of $1.3 million, $677,000 and $284,000, respectively. These
increases are the result of the increased sales activity during the period. The
level of operating losses incurred in the first three quarters of 1997 caused
our debt to equity ratios to be non-compliant with the ratios required under
our credit facility as then in effect. We cured this non-compliance on
September 30, 1997 when we completed the Series J preferred stock offering
described below. The completion of our acquisition of the E-Systems Medical
Electronics business caused us to be non-compliant with our credit facility
covenants. This was discussed with our bank prior to the acquisition. After
these discussions, our bank permitted us to borrow under the credit facility to
pay a portion of the cost of the acquisition of E-Systems Medical Electronics.
We amended the credit facility in April 1999 pursuant to a term sheet agreed
upon prior to the acquisition. This amendment included waivers of our previous
non-compliance.
Cash provided by investing activities for the six months ended June 30, 1999
of $569,000 consisted primarily of proceeds from the sale of non-core assets
that we acquired as part of the acquisition of E-Systems Medical Electronics,
offset in part by capital expenditures for computer equipment and other fixed
assets. Cash used in investing activities for the six months ended June 30,
1998 of $315,000 consisted primarily of capital expenditures for computer
equipment and other fixed assets. Cash used in investing activities for the
year ended December 31, 1998 of $1.5 million consisted primarily of $999,000
used for the acquisition of E-Systems Medical Electronics and $465,000 used to
fund capital expenditures for computer equipment and other fixed assets. Cash
used in investing activities for the year ended December 31, 1997 of $841,000
consisted primarily of capital expenditures for computer equipment and other
fixed assets.
Cash provided by financing activities for the six months ended June 30, 1999
of $3.5 million consisted primarily of $5.8 million received from the issuance
of 4,142,857 shares of Series K preferred stock and warrants to purchase
467,186 shares of common stock. This amount was offset in part by $2.2 million
payment of the remaining purchase price owed to Raytheon for our purchase of
E-Systems Medical Electronics. The Series K preferred stock will be converted
into 1,726,152 shares of common stock upon the closing of this offering. Cash
provided by financing activities of $1.1 million for the six months ended June
30, 1998 consisted primarily of
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$1.2 million received from additional bank borrowing from lines of credit,
offset by debt repayment. Cash provided by financing activities of $2.1 million
for the year ended December 31, 1998 consisted primarily of $2.4 million
received from additional bank borrowing from lines of credit. Cash provided by
financing activities for the year ended December 31, 1997 of $9.2 million
consisted primarily of $8.4 million received from the issuance of 7,730,909
shares of Series J preferred stock and warrants to purchase 409,091 shares of
Series J preferred stock and $885,000 from additional bank borrowings from
lines of credit. The Series J preferred stock will be converted into 3,221,179
shares of common stock and the Series J warrants will become warrants to
purchase 170,449 shares of common stock upon the closing of this offering.
During 1996, we received $5.8 million from the issuance of 2,216 shares of
preferred stock and warrants to purchase 64,774 shares of common stock, all of
which preferred stock will be converted into 2,522,001 shares of common stock
upon the closing of this offering.
We currently anticipate that our available cash resources combined with the
net proceeds from this offering will be sufficient to meet our anticipated
working capital and capital expenditure requirements for at least 12 months
after the date of this prospectus. We may require additional capital in the
future. Our capital requirements are expected to include the funding of
operating losses, working capital requirements and other general corporate
purposes, including expansion of our network, advertising and content
development. We intend to repay our current credit facility and may pursue one
or more strategic alliances, partnerships, or acquisition transactions,
although, as of the date of this prospectus, we have no agreement to enter into
any material investment or acquisition transaction. We may need to raise
additional funds, however, to respond to business contingencies which may
include the need to:
. fund more rapid expansion;
. fund additional marketing expenditures;
. develop or acquire content, technology or services;
. enhance our operating infrastructure;
. respond to competitive pressures; or
. acquire complementary businesses.
Inflation
We do not believe that inflation has had a material adverse impact on our
business or operating results during the periods reflected above.
Year 2000 Disclosure
Many existing computer programs use only two digits, rather than four, to
represent a year. Accordingly, date-sensitive software or hardware written or
developed in this fashion may not be able to distinguish between 1900 and 2000,
and programs written in this manner that perform arithmetic operations,
comparisons or sorting of date fields may yield incorrect results when
processing a Year 2000 date. This Year 2000 problem could potentially cause
system failures or miscalculations that could disrupt operations.
Our State of Readiness
We have completed an initial analysis and risk assessment aimed at
identifying Year 2000 issues. Though it is impossible to be certain, we believe
that our mission critical systems and equipment are Year 2000 compliant.
Financial, Information Technology and Non-Information Technology Systems. We
have assessed all of our key financial, information technology and non-
information technology systems, and we believe that the actions required to
correct any non-compliant financial, information technology and non-information
technology
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systems have been completed. We may not have identified all system components
that could be affected by Year 2000 problems or all noncompliant components.
Therefore, we cannot be sure that we have identified all Year 2000 problems in
these systems or that any necessary corrective actions have been successfully
completed.
Third Party Vendors, Suppliers and Customers. We continue to contact all of
our significant suppliers and customers to determine the extent to which our
networks and systems are vulnerable to the failure of those
third parties to resolve their own Year 2000 issues. We have not received any
responses that indicate our networks and systems are vulnerable to such
failures. We are continuing to comply with federal guidelines related to the
registration and availability of Year 2000 status information for our products.
We have completed and made available all planned software and system upgrades
related to Year 2000 readiness for fielded products. We believe that all of our
current products are Year 2000 compliant and we have available upgrades for our
fielded legacy systems that represent the highest risk for Year 2000 non-
compliance. We have sent notices to known customers with appropriate
information relative to Year 2000 non-compliance of these legacy systems, and
instructions on how to contact us. We have not and do not plan to evaluate the
risks to us presented by noncompliant fielded products. We have not undertaken,
and will not undertake, an in-depth evaluation of the Year 2000 preparedness of
our suppliers and customers or such other third parties, as their ability to
adequately address Year 2000 issues is outside our control. There can be no
guarantee that their systems will be timely converted, or that any such
converted systems will interact properly with our systems, or that such
conversions, if not completed or improperly implemented, would not have a
material adverse effect on our systems.
Our Year 2000 Risk
Based on the efforts described above, we currently believe that our systems
are Year 2000 compliant. If our systems or those of our suppliers, vendors or
other third parties on which we rely are not Year 2000 compliant, we could,
among other things, fail to fulfill our contractual obligations with customers
in new or existing markets, face substantial claims by such customers and loss
of revenue, fail to bill our customers accurately and on a timely basis,
experience increased expenses associated with litigation, stabilization of
operations after critical systems failures and execution of contingency plans,
and be subject to the inability by customers and others to pay, on a timely
basis or at all, obligations owed to us. Although the adverse effects of any or
all of these events are not quantifiable at this time, any of these events
could have a material adverse effect on our business and operating results.
Our Contingency Plans
We have begun to develop contingency plans which anticipate our most likely
worst case Year 2000 scenarios, which have not yet been identified fully. We
intend to take appropriate actions to mitigate the effects of Year 2000 issues.
Such actions may include having arrangements for alternate suppliers and using
manual intervention where necessary. If it becomes necessary for us to take
these corrective actions, it is uncertain whether this would result in
significant interruptions in service or delays in business operations or
whether it would have a material adverse effect on our results of operations,
financial position or cash flow.
Our Year 2000 Remediation Costs
Our costs incurred to date in addressing the Year 2000 problem have not been
material. We have not deferred information technology projects due to Year 2000
expenses, and we do not expect our costs associated with remediating any Year
2000 problems to have a material adverse impact on our business. However, there
can be no assurance that the costs associated with the Year 2000 problem will
not be material.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board, or FASB, issued a
Statement of Financial Accounting Standards, or SFAS, No. 133, "Accounting for
Derivative Instruments and Hedging Activities."
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The new standard establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments imbedded in other
contracts (collectively referred to as derivatives), and for hedging
activities. In June 1999, the FASB issued SFAS No. 137 which deferred the
effective date of SFAS No. 133 for one year. SFAS No. 133 is now effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. We do not
expect SFAS No. 133 to have a material effect on our financial position or
results of operations.
In February 1998, the Accounting Standards Executive Committee (AcSEC)
issued Statement of Position (SoP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SoP 98-1 establishes the
accounting for costs of software products developed or purchased for internal
use, including when such costs should be capitalized. SoP 98-1 will be
effective for us beginning in fiscal 1999, and we do not expect adoption of
this SoP to have a material effect on our financial position or results of
operations.
In April 1998, the AcSEC issued SoP 98-5, "Reporting on the Costs of Start-
Up Activities." Start-up activities are defined broadly as those one-time
activities related to the opening of a new facility, introducing a new product
or service, conducting business in a new territory, conducting business with a
new class of customer, commencing some new operation or organizing a new
entity. SoP 98-5 requires that the cost of start-up activities be expensed as
incurred. SoP 98-5 is effective for us beginning in 1999, and we do not expect
adoption of this SoP to have a material effect on our financial position or
results of operations.
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BUSINESS
Overview
We provide workflow solutions for electronically managing and distributing
medical images and related patient information. Our products capture, compress,
transmit, route and store medical images, including x-rays, MRIs, CTs and
ultrasounds. Our offerings also permit the coordinated transmission and review
of images and related patient information over both proprietary networks and
the internet. Our customers are providers of radiology imaging and interpretive
services, including radiologists, hospitals and outpatient imaging facilities,
and often operate as part of complex health care networks. We believe that we
have the largest installed user base of any company in our business. Our
products are installed in approximately one of four U.S. imaging facilities and
provide image viewing capabilities in one of four U.S. radiologists' homes.
Our FrameWave products are modular in design and allow us to tailor
solutions to our customers' needs. This could entail providing an entire image
management workflow solution or individual applications that can be integrated
with the customer's existing products. FrameWave incorporates our advanced
proprietary software including our compression technology. We believe our
FrameWave technology provides us with a significant competitive advantage.
Building from this FrameWave technology, we have developed internet-based
offerings that provide secure access to images and other medical information
quickly and easily using any commercially available internet browser. We
believe this universal accessibility will expand the use of electronic image
management tools.
FrameWave Web and eMed_Web, which we intend to introduce later this year,
enable our customers to reduce costs and improve their service. Through the
individual eMed_Web sites we intend to establish and manage for our customers,
our customers will have FrameWave Web's integrated image and report management
capabilities as well as the opportunity to incorporate other clinical and
marketing information.
As part of our solutions, we provide our customers remote comprehensive
support services through our network operations center, which is fully staffed
24 hours a day, seven days a week. Because medical imaging is critical to
patient diagnosis and care, we believe that our customers highly value
comprehensive support services that increase the reliability of their medical
image management systems. Our network operations center personnel are able to
remotely monitor and manage customer systems in order to identify and resolve
system problems. These support services include the ability to remotely
diagnose problems related to portions of a customer's system provided by third
parties. The level of service we provide enables many customers to outsource
the technical management of their image distribution and management systems to
us.
Strategy
Our objective is to become the leading supplier of comprehensive, medical
imaging workflow solutions to health care providers by leveraging our advanced
technology and experience. Elements of our strategy to achieve this objective
include:
. Introducing eMed_Web websites. We intend to introduce our eMed_Web
website development and hosting service later this year. We believe that
eMed_Web will increase our market penetration, build a recurring revenue
base and generate other sources of revenue. We believe that offering the
ability to cost-effectively manage the accessibility and distribution of
imaging, marketing and other information over the internet will drive
the adoption of our eMed_Web sites.
. Expanding our sales by continuing to develop additional medical imaging
workflow solutions. We intend to expand our suite of medical imaging
workflow products and services. For example, the reports that accompany
medical images are generally prepared and stored through inefficient
dictation and transcription procedures. To address this inefficiency, we
intend to incorporate a speech-to-text transcription capability into our
workflow solutions. Also, reporting, scheduling and billing are
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currently maintained on separate information systems from medical
images. We believe that efficiencies can be achieved by eliminating the
need for redundant information systems. We intend eMed_Web to serve as a
platform for offering these additional workflow solutions.
. Leveraging our relationships with our installed users to increase
sales. We recently acquired E-Systems Medical Electronics in order to
access a significant installed user base which we believe is ripe for
upgrade. We will continue to aggressively market our internet-based and
other products to our installed user base. We believe that our installed
base of over 1,800 hospitals and outpatient imaging centers and over
7,000 radiologists provides us with a significant advantage in gaining
acceptance of and selling our current products and services, the
eMed_Web service and planned enhancements to our current workflow
solutions.
. Expanding our sales and marketing efforts. We believe there is a
significant opportunity for us to increase our revenues through expanded
sales and marketing efforts. Our success to date has been achieved with
modest sales and marketing efforts and we believe that by investing
additional resources, we can increase sales significantly. We intend to
devote significant additional resources to market and sell our products
and services to both new customers and our installed user base. We also
intend to expand the scope of our sales and marketing efforts into
promising international markets.
. Engaging in strategic acquisitions and relationships. We intend to
engage in acquisitions and enter into strategic relationships to
accelerate the implementation of elements of our strategy. We may pursue
acquisitions, partnerships or licensing arrangements to obtain
technology if we determine that to do so would be more cost effective or
timely than developing our own. We also may selectively continue to
broaden our user base through acquisitions to improve our economies of
scale.
Market Opportunity
Growing Market for Radiology Services. According to the Health Care
Financing Administration, or HCFA, total expenditures on health care services
in the United States were approximately $1.1 trillion in 1997 and are expected
to reach approximately $2.1 trillion by the year 2007. Based on historical
data, we believe that over 350 million radiology studies are conducted
annually, with an average per study cost of approximately $200. The number of
studies has grown due to the increasing usefulness of radiology as a non-
invasive diagnostic technique and the general aging of the U.S. population.
Medical imaging is critical to patient diagnosis and care across a broad
spectrum of health care procedures and disease states. Moreover, an increasing
proportion of these studies is produced in digital format from devices such as
MRIs and CTs. All states have record retention regulations which require
radiology images to be stored for several years.
Fragmented Industry Complicates Communications and Transactions. Radiology
images and information are used by a broad cross-section of industry
participants including radiologists, referring physicians, hospitals and
outpatient imaging centers. Today there are over 29,000 radiologists organized
into approximately 3,200 radiology practice groups serving approximately 2,350
imaging centers and over 5,000 hospitals. Referring physicians are a
particularly disparate group. Of the 740,000 physicians in the United States,
60% of them are either sole practitioners or practice in partnerships of only
two physicians. Efficient systems for the distribution, management and storage
of radiology images and information is critical to all of these constituencies.
The inability to easily access and the failure to appropriately manage this
information can result in unnecessary expense. HCFA estimates that
approximately 10% of all health care expenditures are the result of a
duplication of care due to missing patient information.
Inefficiencies in Workflow and Information Technology. Radiology images,
even those generated in a digital format, are typically printed to film for the
radiologist's interpretation. The current paradigm for a typical radiology
procedure is as follows: a technician produces the radiology images; the images
are printed to film and copies of the images are provided to the radiologist
for review and diagnosis; the radiologist dictates a report into a recorder; a
clerk transcribes the oral report into a first draft written report for the
radiologist's review; a final report is generated and distributed to the
referring physician and any consulting specialist; duplicate copies of the
images are produced and are delivered by courier to the referring physician and
any
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consulting specialist. Under this paradigm, it often takes 2 to 3 days to
produce a final report and to deliver the images and related report to the
referring physician. The significant costs associated with creating duplicate
film images for multiple users, delivering images to remote locations by
courier, creating reports using conventional transcription services, storing
reports and storing images on film represent inefficiencies in medical imaging
workflow which can be rectified with improved use of information and workflow
technology. Based on a 1996 Mayo Clinic report, for radiology images generated
each year, more than $5.6 billion is spent on radiology film and processing
costs and costs associated with the handling and storing of these films over
their lifetime. We estimate that the cost of conventional transcription of
dictated reports is approximately $950 million annually.
Competitive Pressure on Radiology Providers. Radiology, like other medical
specialties, has been fundamentally affected by change in the structure and
economics of U.S. health care. Health care payors and providers are forcing
radiologists and imaging facilities to reduce unit fees, improve the timeliness
and availability of interpretations and related patient images, and ensure the
availability of sub-specialist radiologists. This pressure has driven radiology
providers to look for ways to enhance their efficiency and to provide better
service to referring physicians and other constituencies. Many of these
improvements can be achieved through the use of electronic medical imaging
workflow solutions.
Growth of the Internet. The internet's open architecture, universal
accessibility and growing acceptance make it an increasingly important
environment for business-to-business and business-to-consumer interaction. Use
of the internet is rapidly expanding from simple information publishing,
messaging, and data gathering to critical business transactions and
confidential communications. The power and ability of the internet to connect
various participants in the health care industry, from physicians, to
hospitals, to patients, creates an opportunity to advance the state of
information technology in the health care industry. Internet-based workflow
solutions permit more efficient distribution of information over a broader
range of remote locations than proprietary dedicated networks. We believe that
physicians are increasingly using internet-based medical applications. We
believe that medical imaging workflow management is uniquely suited to benefit
from internet-based tools, given the fragmentation of the health care industry,
the amount and complexity of the data produced and the need for timely access
to medical imaging information.
eMed Solutions
We have worked with providers of radiology imaging and interpretive services
since 1992 to understand the inefficiencies in medical imaging workflow and to
design cost-effective solutions. Based on this insight, we have been able to
focus our efforts on solutions that provide our customers with cost savings,
increased efficiencies and competitive advantages. Our products and services
incorporate advanced technology and offer our customers the following
advantages:
Our advanced technology improves our customers' cost effectiveness. Our
advanced proprietary technology allows our customers to reduce their costs. For
example, we have pioneered the utilization in medical imaging of a file
compression technology known as "wavelet." This compression technology permits
users to compress very large data files required for film images like x-rays
into files as small as one-fiftieth the original size, without visible loss of
image quality. Other compression technologies typically achieve compression
ratios of one-half or one-third of their original size. Our compression
technology significantly reduces our customers' network transmission and data
storage costs. Using our FrameWave products, a medical image transmission which
would otherwise take up to 27 minutes in uncompressed form can be completed in
as little as 30 seconds.
Our products and services enable our customers to enhance their
competitiveness. Our products and services are designed to enhance our
customers' ability to market their services and to serve their customer base of
referring physicians. By designing our products to operate over the internet
with any commercially available internet browser, we enable our customers to
quickly and easily:
. provide remote access to medical images and related information; and
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. communicate medical and marketing information to their referring
physicians and other constituencies.
We believe this enhanced access to images and information will allow our
customers to provide faster, higher quality and more responsive service to
their referring physicians and other constituencies.
The modularity of our products and services permits us to tailor solutions
to our customers' needs. Our FrameWave products and eMed_Web are modular in
design and allow us to conform our products and services to our customers'
functionality and budget requirements. We can provide an entire image
management workflow solution. Alternatively, customers can integrate our
products and services on an application-by-application basis with systems
previously acquired from other vendors. For example, customers can obtain the
benefits of our internet offerings without replacing their existing medical
imaging management systems, modalities, or film printer networks.
We provide our customers with comprehensive support. Our comprehensive
support services increase the cost effectiveness and reliability of our
customers' medical imaging information systems. Because medical imaging is
critical to patient diagnosis and care, we believe that our customers highly
value comprehensive support services that increase the reliability of their
medical image management systems. Our network operations center personnel are
able to remotely monitor and manage customers' systems and identify and resolve
system problems. These services include the ability to remotely diagnose
problems throughout a customer's image distribution and management system,
including components of a system provided by the customer or other third party
vendors. Our comprehensive support service enables many customers to outsource
the technical management of their image distribution and management systems to
us.
Products and Services
Our products and services are sold as solutions tailored to the specific
needs of our customers. Our products generally consist of industry standard,
third-party hardware, elements of third party software and our proprietary
software. Our flagship products and services described below are currently
marketed and sold under the FrameWave brand name. In addition, we market
PACSPro image acquisition devices which we acquired through the E-Systems
Medical Electronics acquisition. Our internet-based offerings are designed to
enhance our customers' image management systems. Image management systems are
typically comprised of image acquisition devices, image management servers,
image review workstations and electronic image archives, all of which can be
purchased from us individually or in larger configurations.
FrameWave Products
FrameWave Web. Our FrameWave Web product is an internet-based image and
report distribution system which enables access to images, together with
reports about the images, in an integrated presentation. FrameWave Web also
includes multiple security features for protection of the confidentiality of
patient information, including access control, information control and
transaction logging.
Image Acquisition Devices. Our image acquisition devices that convert hard-
copy x-rays into digital form include high-resolution scanners and our
proprietary software. Others use our proprietary software to directly obtain
images from equipment that creates them in electronic format. These images can
then be electronically distributed and managed in compliance with industry
standards. All of our image acquisition products feature graphical user
interfaces for ease of use.
Servers. We offer a variety of servers with advanced proprietary software
that compress, decompress, store and manage medical images and interface with
different medical information systems to provide an integrated view of related
patient information over a variety of networks. Our servers can be configured
in a variety of ways to meet the workflow and budget requirements of our
customers.
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<PAGE>
Clinical Image Viewers. Our viewers are self-installable software products
that permit users to view medical images on personal computers while at home or
in the office through a telephone connection to a hospital. This product
includes both our proprietary software and software licensed from third
parties. FrameWave viewers support direct telephone connections to our network
operations center enabling remote support service.
Diagnostic Workstations. We offer high performance image display
workstations suitable for primary diagnostic use. Diagnostic workstations
consist of two or more high resolution, grayscale monitors and a workstation
running proprietary image manipulation and display software. Our workstations
offer a wide variety of image manipulation tools and are designed to comply
with the American College of Radiology Standards for Teleradiology. Our
workstation products are intended for use in a hospital, imaging center or
similar facility where patient diagnosis is performed.
Archives. We offer archives that provide cost-effective storage of digital
images. An archive includes our proprietary database management application for
the organization and retrieval of medical images. An archive permits short-term
and long-term storage capacity, both of which may be expanded through upgrades
following an initial purchase. The archives serve as economical alternatives to
the storage of hard copy films that health care professionals are required by
law to retain for several years.
Services
eMed_Web. eMed_Web is a website development and hosting service which
incorporates our FrameWave Web image and report management technology. With our
eMed_Web service, we intend to establish and manage individual customer
websites. Through these eMed_Web sites, our customers will be able to make
available images and related patient information remotely over the internet.
Health care professionals, including radiologists, will be able to access these
images and information with authorizing passwords. Also, eMed_Web sites will
provide customers the opportunity to incorporate other clinically relevant
information and marketing information targeted at their customers. In addition,
we intend eMed_Web to serve as a platform from which we can offer additional
workflow solutions and other information of interest to health care
professionals. The servers that will host the eMed_Web sites will be located at
customer sites and supported from our headquarters in Lexington, Massachusetts.
Customer Service and Training. Comprehensive, system-wide support is an
integral part of the solutions we offer our customers. Our network operations
center is staffed 24 hours a day, 7 days a week with engineers, application
specialists and clinical coordinators. Our products include remote diagnostics
technology which permits our network operations center to remotely assume
operation of a customer's equipment. This permits us to offer a high level of
support at relatively low cost. We market this comprehensive network-based
support service as a separate, purchasable offering, not included in the
customer's first-year warranty. Approximately 85% of our FrameWave customers
have purchased this enhanced service offering.
Our products are typically sold with a one year warranty. After the
expiration of the warranty, we encourage our customers to purchase annual
service contracts. Approximately 75% of our customers with FrameWave
applications have purchased post-warranty annual service contracts.
We sell installation services in connection with the sale of our products.
Upon completion of installation, we conduct formal training at the customer's
site in group settings and teach our customers through "hands on" instruction
on our products. We are certified by the American Association of Radiology
Technologists to train customer technologists in the use of our medical imaging
management systems. Because of this certification, training provided by our
employees satisfies three hours of required continuing education certification.
The average time from the beginning of installation through acceptance testing
is less than two weeks.
We outsource a portion of the on-site installation, training and repair
services described above to third party contractors as well as our independent
sales and service organizations.
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Sales and Marketing
We employ a direct sales force and we utilize independent sales and service
organizations. We manage our independent sales and service organizations to
complement our direct sales force. Members of our direct sales force are
assigned to regional territories and are responsible for customer activity
within their regions.
The independent sales and service organizations purchase products from us
and resell to their customers at prices they determine. Their customers execute
contracts directly with us covering warranty and other service and support. We
have also begun to train and engage a few of these organizations to provide on-
site service to customers under our supervision. These services include
installation, training and on-site repair.
Our marketing activities include telemarketing, advertisements in trade
journals and news releases to the trade press. The focus of our telemarketing
efforts is our installed user base. We also present our products at multiple
trade shows throughout the year. The most significant of these trade shows is
the Radiological Society of North America meeting held in late November of each
year.
Technology
We have historically developed products and services through our own
research and development, acquisitions and strategic relationships. As of
August 1, 1999, our engineering group included approximately one-fourth of our
employees. We will continue to pursue product and service development
internally as well as through strategic relationships.
The core technology employed in our internet application is what is referred
to as dynamic HTML, which is integrated with our compression technology. This
technology, which we license from AWARE, Inc., differs from typical HTML-based
applications due to the number, size, and grayscale characteristics of the
images. For example, one 14"X17" film, digitized at the resolution standard
adopted by the American College of Radiology Standards for Teleradiology,
results in excess of ten megabytes of data. Our internet server technology
delivers images, text, and voice over any internet connection, including dial-
up modem connections, with acceptable clinical performance. Our internet server
technology is browser-independent and employs layered security defenses against
unauthorized access, as well as secure socket layers, to ensure secure transfer
of information over the internet. Our internet server technology has been
jointly developed under an exclusive relationship with AWARE.
All of our products except our archive products operate on computers with
Intel Pentium processors that run the Microsoft Windows NT or Windows SQL
Server operating systems. Our archive products are built on the Sun Sparc
platform. We believe that the use of a well known and highly developed hardware
and operating system platform simplifies manufacturing and support, encourages
customer acceptance, and reduces the risks of technological obsolescence.
All of our FrameWave products are fully DICOM-compliant and all of our
current PACSPro products can be upgraded to be DICOM-compliant. DICOM, or
Digital Imaging Communications for Medicine, is an industry standard network
communications protocol that allows DICOM-compliant imaging modalities and
other image-related devices to directly communicate with each other without
proprietary interfaces or translations. In addition, our products comply with
the benchmarks for quality and professional practice established by the
American College of Radiology Standards for Teleradiology. Our comprehensive
support services facilitate our customers' quality assurance requirements
within these standards.
Production
Most of our products include some hardware components, our proprietary
software, and software licensed from others. All of the hardware components of
our products are acquired from third parties. We assemble and test components
and sub-assemblies acquired from vendors, and integrate our proprietary and
licensed application software programs. We operate under FDA Good Manufacturing
Practices rules, and we have
30
<PAGE>
registered with the FDA as a medical device manufacturer. We have elected to
rely on a limited number of suppliers for most of our components in order to
achieve more advantageous pricing through increased volume. However, we believe
that additional suppliers are available for our hardware components.
Our licensing agreement with AWARE regarding jointly developed web server
technology provides that we will have exclusive rights to this technology for
medical use through its termination on December 31, 2005 and have non-exclusive
rights for a period following termination. This agreement also provides that,
until the same date, AWARE will be our exclusive supplier of web-based image
viewing and distribution software for use in our products. We have agreed to
pay license fees to AWARE based upon the sales we make to our customers. We
have agreed to devote resources to marketing, support and further development
of our web product, and AWARE has agreed to devote engineering resources to
develop new features, applications and technology at our request. The web
server technology agreement provides that AWARE will have exclusive rights to
this technology for non-medical use, and will make royalty payments to us for
any licenses granted by AWARE to customers for non-medical use.
We license compression technology from AWARE under a separate agreement that
provides that we will have rights to this technology for medical use on a non-
exclusive basis through December 31, 2004. We have agreed to pay license fees
for compression technology to AWARE based upon the sales we make to our
customers.
Our licensing agreement for our image viewing software expires on March 31,
2000. Other software included in our products is licensed under a long-term
agreement which terminates on December 31, 2004. Both of these agreements
provide for payment of license fees based upon the number of copies of the
software we use, and require us to obtain signed agreements from our customers
containing specified software licensing provisions. In some cases we have
prepaid, or committed to pay, license fees for software not yet utilized in
order to obtain improved pricing or other benefits. If any of these agreements
expire or are terminated, we believe we would be able to obtain suitable
replacement vendors or internally develop substitute software.
Intellectual Property
We generally do not rely on patent protection for our products and services.
Instead, we rely on a combination of copyright and trade secret law, employee
and third party nondisclosure agreements, and other protective measures to
protect our intellectual property rights. Our policy is to require our
employees, contractors and consultants who may have access to our confidential
information, and parties to collaboration agreements to execute confidentiality
agreements upon the commencement of employment, consulting relationships or
collaborations. We also seek to continuously develop and improve our products
and services in order to offer features not available from our competitors. We
also rely on licensing opportunities to develop and maintain our competitive
positions.
We have registered the names "eMed," "FrameWave" and "PACSPro" as trademarks
with the United States Patent and Trademark Office and have reserved the
internet address: www.eMed.com.
We own three issued U.S. patents covering automated distribution of medical
images over data processing networks. Since this functionality is not yet
necessary in the way medical imaging applications are currently utilized, we
have not yet incorporated these into our products and services.
Competition
Competition in the medical image management market is intense. Competition
in our markets is based on price, functionality, reliability, reputation of the
vendor, and service. Our ability to maintain our competitive position will
depend on our ability to continue to innovate while maintaining quality and
customer satisfaction.
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A large number of companies offer medical imaging management and
distribution products that are competitive with ours, including internet-based
products. A number of smaller vendors offer products which compete with a
portion of our current product line. In addition, many of our competitors are
larger than we are, have been in business longer than we have, and have greater
financial, technical, research and development and sales and marketing
resources than we do. Several large multinational corporations, including Agfa,
Siemens, General Electric Medical Systems and Kodak compete in our market. Many
of our competitors have the resources to offer their products at greatly
discounted prices, or to offer functionality competitive with our products at
no charge in connection with the sale of related or complementary products or
systems. Customer decisions to purchase our products are often influenced by
the perceived stability and market recognition of the vendor. We may be at a
disadvantage because many of our competitors are better known and perceived as
less risky than we are.
Our current and future internet-based products and services will compete in
a market that is rapidly growing and not yet fully defined. A number of
companies have recently entered the field of medically related internet
services including Healtheon, CareInsite, and Medscape. We expect this trend to
continue. We also expect our business plan and the business plans of these
companies to overlap in time, creating both increased competition and
opportunities for strategic relationships.
Government Regulation
The manufacturing and marketing of our products are subject to FDA medical
device regulations in the United States and to similar regulations in other
countries by corresponding regulatory authorities. The FDA regulations govern
the testing, manufacture, labeling, record keeping, approval, advertising and
promotion of our products and services. The process of obtaining and
maintaining required regulatory clearances and approvals is lengthy, expensive
and uncertain. Our ability to market new products and improvements to existing
products will depend on obtaining new clearances and approvals in the future.
The FDA requires that a manufacturer seeking to market a new medical device
or an existing medical device for a new indication obtain either a premarket
notification clearance under section 510(k) of the Federal Food, Drug and
Cosmetic Act or the approval of a premarket approval application under this Act
prior to the marketing of the new device or commercializing the new indication.
Material changes to existing medical devices are also subject to FDA review and
clearance or approval prior to commercialization in the United States. Although
it is believed to be a shorter, less costly regulatory path than the process to
obtain approval of a premarket approval application, the process of obtaining a
510(k) clearance generally requires supporting data, which can be extensive and
can extend the regulatory review process for a considerable length of time. All
of our commercially available products have received 510(k) clearance from the
FDA.
We are also required to register as a medical device manufacturer with the
FDA and as a medical device distributor with the Texas Department of Health.
The FDA requires us to maintain detailed manufacturing records, device history
records and complaint logs. We are subject to inspection and audit by the FDA
for compliance with Good Manufacturing Practices (as defined by FDA rules) and
other applicable regulations. Our most recent FDA inspection and audit was
completed in the second quarter of 1999 and did not identify material problems.
Even after market introduction, the FDA continues to regulate the design,
manufacture and labeling of our medical products. Failure to comply with
applicable regulatory requirements could result in, among other things, warning
letters, seizures of products, total or partial suspension of production,
refusal of the FDA to grant clearances or approvals, withdrawal of existing
clearances or approvals, or criminal prosecution.
Sales of our products and services outside of the United States, which has
been minimal to date, are subject to foreign regulatory requirements that vary
widely from country to country. In Europe, we will be required to obtain the
certificates necessary to enable the CE Mark, an international symbol of
adherence to quality assurance standards and compliance with applicable
European Union Medical Device Directives, to be affixed to our products for
sales in member countries.
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Employees
As of September 17, 1999, we employed 110 persons. None of our employees
are represented by unions.
Properties
We maintain our headquarters and assembling facility in approximately
25,500 square feet of leased space in Lexington, Massachusetts. We also
maintain a sales and service facility in approximately 8,000 square feet of
leased space in San Antonio, Texas. We can provide all of our support services
from either our Lexington or San Antonio location. We believe that our
properties are adequate and suitable for their intended purposes.
Litigation
We are party to suits and regulatory proceedings arising in the ordinary
course of our business, none of which we believe are material.
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<PAGE>
MANAGEMENT
The following table sets forth information concerning our executive officers
and directors.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Chief Executive Officer, President and
Scott S. Sheldon.......... 38 Director
Christine L. Chung........ Vice President -- Business Operations,
32 Corporate Secretary
Jerry Froelich, M.D....... 47 Chief Medical Officer
Gary A. Lortie............ Chief Financial Officer, Vice President --
40 Finance and Administration
David J. Mahoney.......... 36 Vice President -- Sales
Howard Pinsky............. 45 Chief Technology Officer
John Strauss.............. 44 Vice President -- Marketing
James J. Bochnowski....... 56 Director, Chairman of the Board
Thomas B. Neff............ 45 Director
Thomas O. Pyle............ 59 Director
Michael Schmertzler....... 47 Director
Donald E. Strange......... 55 Director
</TABLE>
Scott S. Sheldon has served as our President, Chief Executive Officer, and a
Director since he co-founded eMed in March 1992. From 1987 through 1992, he
held various positions in the Mergers and Acquisitions and Corporate Finance
Departments at Morgan Stanley.
Christine L. Chung has served in various senior capacities since joining
eMed in September 1992. She currently serves as Vice President of Business
Operations and Corporate Secretary. Prior to joining eMed, she served as a
strategy consultant for Monitor Company.
Jerry Froelich, M.D. has served as our Chief Medical Officer since August
1999. From 1990 until joining eMed, Dr. Froelich had been a partner in
Radiology Imaging Associates in Denver, Colorado. Radiology Imaging Associates
is a group of 42 sub-specialty radiologists which provides radiology service to
10 hospitals and 15 clinics. He was Medical Director of Radiology at the
Columbia Swedish Medical Center in Englewood, Colorado, and a Clinical
Associate Professor of Medicine at the University of Colorado.
Gary A. Lortie has served as our Chief Financial Officer and Vice President
of Finance and Administration since May 1998. From 1997 until joining eMed, Mr.
Lortie served as the Director of Corporate Development for the Biomedical
Division of Thermo Electron Corporation. From 1996 to 1997, Mr. Lortie served
as President for the Moisture Systems Division of Thermo Electron. From 1993 to
1995, he served as Director of Finance and Administration for Thermedics
Detection, a subsidiary of Thermo Electron. Mr. Lortie is a certified public
accountant.
David J. Mahoney has served as our Vice President of Sales since February
1998. Since 1988, Mr. Mahoney has held various sales and sales management
positions in the electronic medical imaging management industry. From 1997
until joining eMed, Mr. Mahoney was America's Sales Manager for General
Electric's Medical Systems Integrated Imaging Solutions Division. From 1996 to
1997, Mr. Mahoney held the position of Vice President of Sales for Lockheed
Martin's Medical Systems business until it was acquired by General Electric.
From 1995 to 1996, Mr. Mahoney held the position of National Sales Manager with
Loral's Medical Imaging Systems business until it was acquired by Lockheed
Martin. From 1988 until 1995, Mr. Mahoney held various positions with Advanced
Video Products/E-Systems, a predecessor company to eMed.
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<PAGE>
Howard Pinsky has served as our Chief Technology Officer since January 1993.
From 1992 until joining eMed, Mr. Pinsky was Vice President of Customer Service
for RSTAR, Inc., an electronic medical imaging management technology spin-off
of the Massachusetts General Hospital Department of Radiology. From 1987 to
1992, Mr. Pinsky was Senior Systems Consultant for Digital Equipment
Corporation's health care group.
John Strauss has served as our Vice President of Marketing since May 1999.
From 1990 until joining eMed, Mr. Strauss was Director of Marketing, Imaging
and Information Networks for Fuji Medical Systems U.S.A., Inc. and was
responsible for the electronic medical imaging and computed radiography product
lines.
James J. Bochnowski has served as one of our directors since July 1996 and
currently serves as our Chairman. Mr. Bochnowski has been a General Partner
with Delphi Ventures, a private venture capital firm providing financing and
supportive business expertise to young biomedical and health care companies,
since he co-founded Delphi Ventures in 1988.
Thomas B. Neff has served as one of our directors since November 1995. Mr.
Neff has been Chairman and Chief Executive Officer of FibroGen, Inc. which
produces recombinant collagen and gelatin and develops anti-fibrosis therapies,
since 1993. Mr. Neff has also been General Partner of Three Arch Bay Health
Sciences Fund, a private investment fund focused on emerging biomedical
companies, since 1993. Mr. Neff has also been General Partner of Pharmaceutical
Partners I and Pharmaceutical Partners II since 1993 and 1994.
Thomas O. Pyle has served as one of our directors since June 1993. He has
been the Chairman of Interstudy, a leading health policy organization, and
Chairman of its affiliate, The Jackson Hole Group. From 1972 to 1991, Mr. Pyle
held various senior management positions at Harvard Community Health Plan,
becoming its President, Chief Executive Officer and a member of its Board of
Directors in 1978. From October 1993 to September 1994, Mr. Pyle served as
Chief Executive Officer of MetLife HealthCare Management Corp., Inc. He serves
as a director of Millipore Corporation, Lincare Holdings Inc. and various other
private companies.
Michael Schmertzler has served as a director since he co-founded eMed in
March 1992. Since 1997, Mr. Schmertzler has served as a Managing Director of
Credit Suisse First Boston and co-head of the United States and Canadian
investment activities of its Private Equity Division. From 1992 to 1994, Mr.
Schmertzler was a Managing Director of MS Partners Inc., a general partner of
MSX Public Life Sciences Fund. Prior to that, he was a Managing Director of
Morgan Stanley and Lehman Brothers Kuhn Loeb.
Donald E. Strange has served as one of our directors since June 1993. From
1996 until 1998, Mr. Strange served as Chief Executive Officer, President and
Chairman of the Board of First New England Dental Centers, Inc. Prior thereto,
Mr. Strange served as Chairman and Chief Executive Officer of TRANSCare, a
leading provider of patient transportation services. Since 1974, Mr. Strange
has served in various senior management capacities at Hospital Corporation of
America, Avon's Health Care Group, and EPIC Health Care Group. He currently
serves on the Board of Directors of Bon Secours Health System Inc. First New
England Dental Centers, Inc. filed for bankruptcy in February 1998.
Board of Directors
Upon consummation of this offering, our board of directors will be divided
into three classes, with each class of directors to serve three-year staggered
terms (after their initial terms), subject to election and qualification of
their successors or their earlier death, resignation or removal. Messrs.
Sheldon and Schmertzler will serve for an initial one-year term expiring at our
annual meeting in 2000. Messrs. Bochnowski and Pyle will serve for an initial
two-year term expiring at our annual meeting in 2001. Messrs. Neff and Strange
will serve for an initial three-year term expiring in 2002. Our executive
officers are elected by the board of directors and serve at the discretion of
the Board.
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<PAGE>
Committees
The board of directors has established a compensation committee and an audit
committee. The compensation committee, consisting of Messrs. Bochnowski, Neff
and Strange recommends salaries and bonuses and other compensation matters for
our officers and makes recommendations regarding our stock plans. None of these
members has served as an officer of eMed. The audit committee, consisting of
Messrs. Pyle and Schmertzler, has the authority to recommend the appointment of
our independent auditors and to review the results and scope of audits,
internal accounting controls and tax and other accounting-related matters.
Director Compensation
Non-employee directors are reimbursed for their expenses of attending
meetings, but currently do not receive any cash compensation for their
services. We expect, however, that in the future, non-employee directors will
be paid an annual cash retainer in addition to being reimbursed for all
reasonable expenses incurred in attending meetings. On February 4, 1999, we
granted Messrs. Bochnowski, Neff, Pyle, Schmertzler and Strange options to
purchase 6,250 shares of our common stock at a purchase price of $1.20 per
share. On June 30, 1999, we granted Messrs. Bochnowski, Neff, Pyle, Schmertzler
and Strange options to purchase 6,250 shares of our common stock at a purchase
price of $2.04 per share.
Executive Compensation
The following table shows the cash compensation paid or accrued for the year
ended December 31, 1998, to our Chief Executive Officer and to each of our
three highest paid executive officers other than the Chief Executive Officer
who received more than $100,000 in salary and bonus during the year ended
December 31, 1998 (the "Named Executive Officers"). No other executive officer
received more than $100,000 in salary and bonus during this period.
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
------------ ----------------
Shares of Common
Stock Underlying All Other
Name and Principal Position Salary($) Options (#) Compensation ($)
- --------------------------- ------------ ---------------- ----------------
<S> <C> <C> <C>
Scott S. Sheldon................ $160,500 166,666 $ 1,538(3)
Chief Executive Officer and
President
Howard Pinsky................... $136,800 125,000 $ 8,656(4)
Chief Technology Officer
David J. Mahoney(1)............. $107,100 25,000 $12,880(5)
Vice-President -- Sales
Howard B. Kaufman(2)............ $106,700 4,166 $ 1,143(3)
Vice-President -- Operations
</TABLE>
- --------
(1) Mr. Mahoney joined eMed in February 1999.
(2) Mr. Kaufman resigned his position as an officer of eMed in March 1999.
(3) Represents premiums paid on term life insurance policies.
(4) Represents an annual car allowance of $7,200 and premiums of $1,456 paid on
a term life insurance policy.
(5) Represents commissions of $11,747 and premiums of $1,133 paid on a term
life insurance policy.
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<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth grants of stock options to the Named
Executive Officers for the year ended December 31, 1998. We have not granted
any stock appreciation rights during 1998. The potential realizable value is
calculated based on the term of the option at its date of grant. It is
calculated assuming that the fair market value of our common stock on the date
of grant appreciates at the indicated annual rates compounded annually for the
entire term of the option and that the option is exercised and sold on the last
day of its term for the appreciated stock price. These numbers are calculated
based on the requirements of the Securities and Exchange Commission and do not
reflect our estimate of future stock price growth. The percentage of total
options granted to employees in the last fiscal year is based on options to
purchase an aggregate of shares of common stock granted to employees for the
year ended December 31, 1998. All options were granted at fair market value on
the date of grant as determined by the board of directors, unless otherwise
indicated.
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term
----------------------------------------------- ------------------
Shares of
Common Percent of
Stock Total Options
Underlying Granted to Exercise
Options Employees in Price Per Expiration
Name Granted Fiscal Year Share Date 5% 10%
- ---- ---------- ------------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Scott S. Sheldon........ 166,666(1) 30% $1.20 3/31/08 124,000 320,000
Howard Pinsky........... 125,000(1) 22% $1.20 3/31/08 93,000 240,000
David J. Mahoney........ 25,000(2) 5% $1.20 1/1/06 14,400 34,200
Howard B. Kaufman....... 4,166(3) 1% $1.20 3/31/08 3,100 8,000
</TABLE>
- --------
(1) Options vest 6.25% each fiscal quarter following the date of grant.
(2) Options vest 100% on the fourth anniversary of the date of grant, provided
that, if Mr. Mahoney is terminated without cause, a portion of the options
will vest equal to 6.25% multiplied by the number of fiscal quarters since
the date of grant to termination.
(3) 1,302 of the options vested and were exercised by Mr. Kaufman. The
remaining 2,864 options were canceled on March 31, 1999.
Fiscal Year-End Option Values
The table below sets forth information for the Named Executive Officers with
respect to options exercised during the fiscal year ended December 31, 1998 and
options held as of December 31, 1998. There was no public trading market for
our common stock as of December 31, 1998. Accordingly, the values in the table
have been calculated on the basis of an assumed initial public offering price
of $13.00 per share less the applicable exercise price.
<TABLE>
<CAPTION>
Number of Shares of
Common Stock Underlying Value of Unexercised
Common Unexercised Options In-the-Money Options at
Stock at Fiscal Year End (#) Fiscal Year End
Acquired on Value ------------------------- -------------------------
Name Exercise (#) Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Scott S. Sheldon........ 0 -- 84,604 129,909 1,532,926 998,327
Howard Pinsky........... 0 -- 74,971 116,015 886,194 1,369,036
David J. Mahoney........ 0 -- 0 25,000 0 295,000
Howard B. Kaufman....... 0 -- 4,686 7,814 55,295 92,205
</TABLE>
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<PAGE>
Compensation Committee Interlocks and Insider Participation
Series G Preferred Stock From March through June 1996, we sold an aggregate
of 771 shares of Series G preferred stock for net proceeds of $3,848,000
including $217,000 in face amounts of convertible debt and redeemable preferred
stock that were exchanged for shares of Series G preferred stock. On the
closing of this offering, each share of Series G preferred stock will convert
into 1,388.89 shares of common stock. The early investors in the Series G
financing also received warrants to purchase an aggregate of 64,774 shares of
common stock at an exercise price of $1.20 per share. Three Arch Bay Health
Sciences Fund, which holds more than 5% of our common stock and for which
Thomas Neff, our director, has management authority, and related persons
purchased an aggregate of 540 shares of Series G preferred stock, together with
warrants to purchase 50,000 shares of common stock.
1997 Convertible Note Transaction, Series J Preferred Stock In June 1997, we
sold $1.5 million in principal amount of convertible subordinated notes for
aggregate proceeds of $1.5 million. These notes were automatically convertible,
upon our sale of new equity securities for gross proceeds of at least $1.5
million, into securities having the same price and terms as the new equity
securities. Purchasers of the notes also received warrants to purchase an
additional amount of the new equity securities having an aggregate purchase
price of 30% of the amount of the purchaser's note, in exchange for their
commitments to purchase the notes, at the same price that such new equity
securities were issued to other investors. The notes had a maturity date of
October 31, 1997 and bore interest at the rate of 6.0% per annum. Accrued
interest converted on the same terms as the principal amount of the notes. In
September 1997, these notes were automatically converted into 1,384,460 shares
of our Series J preferred stock at a conversion price of $1.10 per share of
Series J preferred stock. The warrants issued with the notes became warrants to
purchase 409,091 shares of Series J preferred stock at an exercise price of
$1.10 per share. On the closing of this offering, each share of Series J
preferred stock will convert into 0.42 share of common stock and the Series J
warrants will become rights to purchase 170,449 shares of common stock.
Three Arch Bay and related persons received warrants to purchase 204,545
shares of Series J preferred stock at an exercise price of $1.10 per share in
connection with their commitment to purchase $750,000 in principal amount of
the convertible subordinated notes. These convertible notes were converted into
691,240 shares of Series J preferred stock. Delphi Ventures III, L.P. and
Delphi Bioinvestments III, L.P., which collectively hold more than 5% of our
common stock and for each of which James Bochnowski, our director, has
management authority, purchased an aggregate of $525,000 in principal amount of
convertible subordinated notes, which were converted into 477,273 shares of
Series J preferred stock, and received warrants exercisable for 143,182 shares
of Series J preferred stock at an exercise price of $1.10 per share.
Series K Preferred Stock In July 1998, various investors entered into
commitments with us to purchase shares of our Series K preferred stock for an
aggregate price of $2.5 million if we notified them of our election to sell the
shares. These commitments provided that the Series K preferred stock would be
issued at a price per share of either $1.40 or $1.50 per share depending on
when we delivered notice of our election to sell. On the closing of this
offering, each share of Series K preferred stock will convert into one share of
our common stock. The investors who made these commitments were eligible to
receive warrants at the time of their commitments to purchase in the aggregate
201,388 shares of our common stock at an exercise price of $0.02 per share as
consideration for their commitments. The exercisability of the warrants was
made subject to satisfaction of the Series K preferred stock purchase
commitment if we elected to sell the shares. Three Arch Bay committed to
purchase shares of Series K preferred stock for an aggregate of $500,000 and
was eligible to receive as consideration warrants to purchase 40,277 shares of
common stock.
In January 1999, we elected to draw upon the initial investors' commitments
to purchase Series K preferred stock. We sold additional shares of Series K
preferred stock together with warrants to purchase additional shares of our
common stock at an exercise price of $0.02 per share to other investors. In
January we sold, in the aggregate, 2,500,000 shares of Series K preferred stock
together with warrants to purchase 281,916 shares of common stock. Delphi
Ventures and Delphi Bioinvestments purchased 178,571 shares of Series K
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<PAGE>
preferred stock and warrants to purchase 20,138 shares of common stock for
aggregate consideration of $250,000. We and Three Arch Bay amended Three Arch
Bay's commitment to purchase Series K preferred stock to release Three Arch Bay
from its obligation to purchase Series K preferred stock and to void the
warrants previously issued to it.
Employment Contracts
Scott S. Sheldon. We are a party to an employment agreement with Scott S.
Sheldon. The term of the agreement is until December 31, 2000, although we may,
by mutual agreement, extend the agreement for successive one-year terms.
Pursuant to the agreement, we are obligated to pay Mr. Sheldon an annual salary
of at least $175,000 beginning in April 1999. Mr. Sheldon is eligible to earn
incentive compensation in an amount and on terms mutually agreed upon. In the
event that we elect not to renew Mr. Sheldon's agreement or he is terminated
without cause or other events which would constitute a constructive termination
without cause, he would receive a severance payment of $95,000. However, if
that termination occurs within 12 months after a change in control, he would
receive 12 monthly installments of his base salary. If Mr. Sheldon's employment
terminates due to his death, his beneficiaries would receive six monthly
installments of his base salary after his death. If Mr. Sheldon's employment is
terminated for any of the foregoing reasons, or if his employment is terminated
due to disability, then he or his legal representative would maintain the right
to exercise any stock option which is then exercisable, other than an incentive
stock option, for the remainder of its term. On a change of control of eMed,
all of Mr. Sheldon's stock options will vest and become exercisable.
Howard Pinsky. We are a party to an employment agreement with Howard Pinsky.
The term of the agreement is until December 31, 2000, although we may, by
mutual agreement, extend the agreement for successive one-year terms. Pursuant
to the agreement, we are obligated to pay Mr. Pinsky an annual salary of at
least $160,000 beginning in April 1999. Mr. Pinsky is eligible to earn
incentive compensation in an amount and on terms mutually agreed upon. In the
event that we elect not to renew Mr. Pinsky's agreement or he is terminated
without cause or other events which would constitute a constructive termination
without cause, he would receive a severance payment of $86,000. However, if
that termination occurs within 12 months after a change in control, he would
receive 12 monthly installments of his base salary. If Mr. Pinsky's employment
terminates due to his death, his beneficiaries would receive six monthly
installments of his base salary after his death. If Mr. Pinsky's employment is
terminated for any of the foregoing reasons, or if his employment is terminated
due to disability, then he or his legal representative would maintain the right
to exercise any stock option which is then exercisable, other than an incentive
stock option, for the remainder of its term. On a change of control of eMed,
all of Mr. Pinsky's stock options will vest and become exercisable.
1994 Stock Plan
Our 1994 Stock Plan provides for the grant of incentive stock options and
non-qualified stock options, stock awards and stock purchase rights for the
purchase of shares of our common stock. The number of shares issuable pursuant
to the 1994 Stock Plan is 2,062,500. Our board of directors is responsible for
the administration of the plan and determines the term of each option, the
option exercise price, the number of shares for which each option may be
granted and the rate at which each option is exercisable. The board may grant
incentive stock options only to employees, at an exercise price per share of
not less than the fair market value per share on the date of grant and not less
than 110% of fair market value in the case of holders of more than 10% of our
voting stock. Non-qualified stock options, awards and stock purchase rights may
be granted to any officer, employee, consultant or director. Grants under the
1994 Stock Plan cannot be made after August 10, 2004. As of September 17, 1999,
279,283 options are available for grant under the 1994 Stock Plan.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of September 17, 1999 and as adjusted to
reflect the sale of the shares offered by us in this offering for (1) each
person who is known by us to own beneficially more than five percent (5%) of
our outstanding shares of common stock, (2) each director and Named Executive
Officer, and (3) all directors and executive officers as a group. As of
September 17, 1999, there were 8,413,475 shares of outstanding common stock.
The table assumes the conversion of all outstanding preferred stock into common
stock. Unless otherwise indicated below, to our knowledge, all persons listed
below have sole voting and investment power with respect to their shares of
common stock, except to the extent authority is shared by spouses under
applicable law. Unless otherwise indicated, each entity or person listed below
maintains a mailing address of c/o eMed Technologies, 25 Hartwell Avenue,
Lexington, MA 02421.
<TABLE>
<CAPTION>
Percentage of
Common Stock
Beneficially Owned
Shares ------------------
Beneficially Prior to After the
Name of Beneficial Owner Owned Offering Offering
- ------------------------ ------------ -------- ---------
<S> <C> <C> <C>
Scott S. Sheldon(1)........................... 261,488 3.1% 2.2%
Howard Pinsky(2).............................. 114,811 1.3% 1.0%
Howard B. Kaufman............................. 0 * *
David J. Mahoney.............................. 0 * *
James J. Bochnowski........................... 936,393 11.0% 8.1%
Delphi Ventures III, L.P. and affiliated
entities(3)
3000 Sand Hill Road
Building 1, Suite 135
Menlo Park, CA 94025
Thomas B. Neff................................ 920,480 10.9% 8.0%
Three Arch Bay Health Sciences Fund and
affiliated entities(4)
c/o FibroGen, Inc.
225 Gateway Blvd.
South San Francisco, CA 94080
Thomas O. Pyle(5)............................. 31,570 * *
Michael Schmertzler(6)........................ 319,721 3.8% 2.8%
Donald E. Strange(7).......................... 33,556 * *
Bedrock Capital Partners I, L.P. and affili- 861,492 10.2% 7.5%
ated entities(8).............................
One Maritime Plaza, Suite 500
San Francisco, CA 94111
Bessemer Venture Partners IV L.P. and related 700,604 8.3% 6.1%
entities(9)..................................
83 Walnut Street
Wellesley Hills, MA 02481
Pacific Venture Group, L.P. and an affiliated 1,325,449 15.8% 11.5%
entity(10)...................................
15635 Alton Parkway, Suite 230
Irvine, CA 92618
Seaflower BioVenture Fund II, LLC and an af- 606,560 7.1% 5.2%
filiated entity(11)..........................
1000 Winter Street, Suite 1000
Waltham, MA 02451
All directors and executive officers as a
group (12 persons)(12)....................... 2,692,691 30.0% 22.2%
</TABLE>
- --------
* Less than one percent
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The number of shares beneficially owned by each stockholder is determined
in accordance with the rules of the Securities and Exchange Commission and
are not necessarily indicative of beneficial ownership for any other
purpose. Under these rules, beneficial ownership includes those shares of
common stock that the stockholder has sole or shared voting or investment
power and any shares of common stock that the stockholder has right to
acquire within 60 days after September 17, 1999 through the exercise of
any option, warrant or other right. The percentage ownership of the
outstanding common stock, however, is based on the assumption, expressly
required by the rules of the Securities and Exchange Commission, that only
the person or entity whose ownership is being reported has converted
options or warrants into shares of common stock.
(1) Represents 147,947 shares issuable to Mr. Sheldon upon the exercise of
options exercisable within 60 days of September 17, 1999, 83,333 shares
held by Scott Sheldon and Kimberly Howard-Sheldon as joint tenants with
right of survivorship and 30,208 shares held by the Sheldon Children's
1999 Irrevocable Trust.
(2) Represents 114,811 shares issuable to Mr. Pinsky upon the exercise of
options exercisable within 60 days of September 17, 1999.
(3) Represents:
. 22,917 shares held by Mr. Bochnowski.
. 1,562 shares issuable to Mr. Bochnowski upon the exercise of options
exercisable within 60 days of September 17, 1999.
. 817,406 shares held by Delphi Ventures III, L.P. and 78,386 shares
issuable to Delphi Ventures III, L.P. upon the exercise of warrants
exercisable within 60 days of September 17, 1999.
. 14,711 shares held by Delphi Bioinvestments III, L.P. and 1,411 shares
issuable to Delphi Bioinvestments III, L.P. upon the exercise of
warrants exercisable within 60 days of September 17, 1999.
Mr. Bochnowski, a director of eMed and a managing member of Delphi
Management Partners III, L.L.C., which is the general partner of the
partnerships listed above, may be deemed to share voting and dispositive
power with respect to the shares listed above and not held by him
individually, and disclaims beneficial ownership of such shares.
(4) Represents:
. 51,468 shares held by Mr. Neff.
. 25,520 shares issuable to Mr. Neff upon the exercise of options
exercisable within 60 days of September 17, 1999.
. 710,802 shares held by Three Arch Bay Health Sciences Fund.
. 99,922 shares held by Thomas B. Neff Family Partnership and 32,768
shares issuable to Thomas B. Neff Family Partnership upon the exercise
of warrants exercisable within 60 days of September 17, 1999.
Mr. Neff is a director of eMed and general partner of Three Arch Bay
Health Sciences Fund and Thomas B. Neff Family Partnership.
(5) Represents 31,570 shares issuable to Mr. Pyle upon the exercise of options
exercisable within 60 days of September 17, 1999.
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<PAGE>
(6) Includes 54,010 shares issuable to Mr. Schmertzler upon the exercise of
options and warrants exercisable within 60 days of September 17, 1999.
(7) Includes 31,570 shares issuable to Mr. Strange upon the exercise of
options exercisable within 60 days of September 17, 1999.
(8) Represents:
. 751,220 shares held by Bedrock Capital Partners I, L.P. and 18,784
shares issuable to Bedrock Capital Partners I, L.P. upon the exercise of
warrants exercisable within 60 days of September 17, 1999.
. 40,786 shares held by Credit Suisse First Boston Bedrock Fund, L.P. and
787 shares issuable to Credit Suisse First Boston Bedrock Fund, L.P.
upon the exercise of warrants exercisable within 60 days of September
17, 1999.
. 39,973 shares held by VBW Employee Bedrock Fund, L.P. and 567 shares
issuable to VBW Employee Bedrock Fund, L.P. upon the exercise of
warrants exercisable within 60 days of September 17, 1999.
. 9,375 shares issuable to Jason Rosenbluth upon the exercise of options
exercisable within 60 days of September 17, 1999.
All of the partnerships listed above are managed by Bedrock General Partner
I, LLC. Bedrock Capital Partners I shares voting and dispositive power over
the shares held by Mr. Rosenbluth pursuant to contractual arrangements and
therefore may be considered the beneficial owner of these shares.
(9) Represents:
. 239,129 shares held by Bessemer Venture Partners IV L.P. and 7,134
shares issuable to Bessemer Venture Partners IV L.P. upon the exercise
of warrants exercisable within 60 days of September 17, 1999.
. 238,687 shares held by Bessec Ventures IV L.P. and 7,195 shares
issuable to Bessec Ventures IV L.P. upon the exercise of warrants
exercisable within 60 days of September 17, 1999.
. 68,047 shares held by Bessemer Venture Investors L.P. and 2,014 shares
issuable to Bessemer Venture Investors L.P. upon the exercise of
warrants exercisable within 60 days of September 17, 1999.
. 28,546 shares held by BVP IV Special Situations L.P. and 845 shares
issuable to BVP IV Special Situations L.P. upon the exercise of warrants
exercisable within 60 days of September 17, 1999.
. An aggregate of 106,056 shares held by, and 2,771 shares issuable upon
the exercise of warrants exercisable within 60 days of September 17,
1999 to William T. Burgin, Neill H. Brownstein, Robert H. Buescher, G.
Felda Hardymon, Christopher Gabrieli, the Gabrieli Family Foundation,
Michael I. Barach, David J. Cowan, Bruce K. Graham, Ravi B. Mhatre,
Gautam A. Prakash, Robi L. Soni, Joanna A. Strober, Craighall
Corporation, Richard R. Davis, Conaly Partners, Lindsay 1994 Family
Partnership, L.P., Rothfeld 1994 Family Partnership, L.P., John G.
MacDonald, Howard S. Markowitz, Edward Park, Robert J.S. Roriston,
Steven L. Williamson, and Woods 1994 Family Partnership, L.P.
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<PAGE>
Deer IV & Co. LLC is the general partner of each of the partnerships listed
in the first four paragraphs of this footnote. The individuals and entities
listed in the fifth paragraph of this footnote are managers, members,
former members or employees of, or otherwise associated with, Deer IV &
Co., Deer II & Co. LLC (a company engaging in activities similar to those
of Deer IV & Co.) or Bessemer Securities Corporation, or entities in which
such persons hold beneficial interests. Bessemer Securities Corporation and
its related entities comprise the limited partners of Bessemer Venture
Partners IV and Bessec Ventures IV. The limited partners of BVP IV Special
Situations are non-employee directors of Bessemer Securities Corporation.
Pursuant to the rules of the Securities and Exchange Commission, each of
the above individuals and entities may be deemed to be members of a group.
(10) Represents:
. 1,227,620 shares held by Pacific Venture Group, L.P. and 38,473 shares
issuable to Pacific Venture Group, L.P. upon the exercise of warrants
exercisable within 60 days of September 17, 1999.
. 57,552 shares held by PVG Associates, L.P. and 1,804 shares issuable to
PVG Associates, L.P. upon the exercise of warrants exercisable within 60
days of September 17, 1999.
PVG Equity Partners, L.L.C. is the general partner of both of the
partnerships listed above.
(11) Represents:
. 290,178 shares held by Seaflower BioVenture Fund II, LLC and 78,541
shares issuable to Seaflower BioVenture Fund II, LLC upon the exercise
of warrants exercisable within 60 days of September 17, 1999.
. 210,657 shares held by Seaflower Health and Technology Fund, LLC and
27,184 shares issuable to Seaflower Health and Technology Fund, LLC upon
the exercise of warrants exercisable within 60 days of September 17,
1999.
James Sherblom is the general manager of both of the limited liability
companies listed above.
(12) Represents:
. Shares described in notes 1, 2, 3, 4, 5, 6 and 7 above.
. 21,960 shares held by, and 50,613 shares issuable to, executive officers
not listed in the notes above upon exercise of options exercisable
within 60 days of September 17, 1999, officers of eMed not listed in the
table above.
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<PAGE>
CERTAIN TRANSACTIONS
In addition to the transactions described under "Compensation Committee
Interlocks and Insider Participation" the following describes transactions in
which our directors and principal shareholders have participated.
Series G Preferred Stock
In 1996, Michael Schmertzler received 23.3 shares of Series G preferred
stock and warrants to purchase 1,944 shares of common stock in exchange for
$117,000 in face amount of our Series A redeemable preferred stock then held by
Mr. Schmertzler.
Series K Preferred Stock
Pursuant to their July 1998 commitments, in January 1999 Bedrock Capital
Partners I, L.P., VBW Employee Bedrock Fund, L.P. and Credit Suisse First
Boston Bedrock Fund L.P., which collectively own more than 5% of our common
stock and for each of which Jason Rosenbluth, who was at the time a director,
has management authority, purchased 178,571 shares of Series K preferred stock
and warrants to purchase 20,138 shares of common stock for aggregate
consideration of $250,000. Pacific Venture Group, L.P. and PVG Associates,
L.P., which collectively hold more than 5% of our common stock, purchased
357,142 shares of Series K preferred stock and warrants to purchase 40,277
shares of common stock for aggregate consideration of $500,000. Bessemer
Venture Partners IV, L.P., Bessec Ventures IV, L.P., and associated investors,
who collectively hold more than 5% of our common stock, purchased 178,571
shares of Series K preferred stock and warrants to purchase 20,138 shares of
common stock for aggregate consideration of $250,000.
44
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Our amended and restated certificate of incorporation, which will become
effective upon the closing of this offering, authorizes the issuance of up to
35,000,000 shares of common stock, par value $0.01 per share and 15,000,000
shares of preferred stock, par value $0.01 per share, the rights and
preferences of which may be established from time to time by our board of
directors. As of September 17, 1999, 8,413,475 shares of common stock were
outstanding, held of record by 161 stockholders. As of September 17, 1999,
options were outstanding which are exercisable for 1,696,598 shares of common
stock at a weighted average exercise price of $1.51 per share. Also as of
September 17, 1999, there were warrants to purchase 522,440 shares of common
stock at exercise prices from $0.02 to $1.20 per share and warrants to purchase
409,091 shares of Series J preferred stock at an exercise price of $1.10 per
share. Upon the closing of this offering, the warrants to purchase Series J
preferred stock will become warrants to purchase 170,449 shares of common
stock. Also, as of September 17, 1999, 279,283 additional shares of our common
stock had been reserved for issuance under our stock plans.
Common Stock
Under our amended and restated certificate of incorporation, holders of our
common stock are entitled to one vote for each share held of record on all
matters submitted to a vote of the stockholders, including the election of
directors. They do not have cumulative voting rights. Subject to preferences
that may be applicable to any outstanding series of preferred stock, holders of
our common stock are entitled to share ratably in any dividends that may be
declared by the board of directors out of legally available funds. In case of a
liquidation, dissolution or winding up of eMed, the holders of common stock
will be entitled to share ratably in the net assets legally available for
distribution to shareholders, in each case after payment of all of our
liabilities and subject to preferences that may be applicable to any series of
preferred stock then outstanding. The holders of common stock have no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the common stock. The
rights, preferences and privileges of holders of common stock are subject to
the rights of the holders of shares of any series of preferred stock that we
may designate and issue in the future. After the closing of this offering,
there will be no shares of preferred stock outstanding.
Preferred Stock
Under our amended and restated certificate of incorporation, our board of
directors has the authority, without further action by the stockholders, to
issue from time to time, shares of preferred stock in one or more series. The
board of directors may fix the number of shares, designations, preferences,
powers and other special rights of the preferred stock. The preferences,
powers, rights and restrictions of different series of preferred stock may
differ. The issuance of preferred stock could decrease the amount of earnings
and assets available for distribution to holders of common stock or affect
adversely the rights and powers, including voting rights, of the holders of
common stock. The issuance may also have the effect of discouraging, delaying
or preventing a change in control of eMed, regardless of whether the
transaction may be beneficial to stockholders. We have no current plans to
issue any additional shares of preferred stock.
Liability of Directors
Our amended and restated certificate of incorporation provides that our
directors shall not be liable to eMed or its stockholders for monetary damages
for any breach of fiduciary duty, except to the extent otherwise required by
the Delaware General Corporation Law. This provision will not prevent our
stockholders from obtaining injunctive or other relief against our directors.
This provision also does not shield our directors from liability under federal
or state securities laws.
45
<PAGE>
Antitakeover Effects of Delaware Law and Our Amended and Restated Certificate
of Incorporation and By-laws
Certain provisions of the Delaware General Corporation Law and our amended
and restated certificate of incorporation and amended and restated by-laws may
be deemed to have an antitakeover effect and may discourage, delay or prevent a
tender offer or takeover attempt that a stockholder might consider to be in its
best interest, including those attempts that might result in a premium over the
market price for the shares held by stockholders. These provisions are
summarized in the following paragraphs.
Delaware Anti-Takeover Laws. We will be subject to Section 203 of the
Delaware General Corporation Law. This statute will prohibit us from engaging
in a "business combination" with an "interested stockholder" for a period of
three years after the time of the transaction in which one person became an
interested stockholder, unless:
. the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder was approved by our board
of directors before the stockholder became an interested stockholder,
. upon consummation of the transaction that made the stockholder an
interested stockholder, the interested stockholder owns at least 85% of
the voting stock of the corporation outstanding at the time the
transaction commenced, excluding shares owned by directors who are also
officers or held in employee benefit plans in which the employees do not
have a confidential right to tender stock held by the plan in a tender
or exchange offer, or
. the business combination is approved by the board of directors of the
corporation and authorized at a meeting by two-thirds of the voting
stock, other than voting stock owned by the interested stockholder.
A "business combination" generally includes mergers or consolidations
between us and an interested stockholder, transactions with an interested
stockholder involving our assets or stock or assets or stock of our majority-
owned subsidiaries, if any, and transactions which increase an interested
stockholder's percentage ownership of stock.
An "interested stockholder" generally includes those stockholders who become
beneficial owners of 15% or more of our voting stock, together with affiliates
or associates of that stockholder.
Cumulative Voting. Our amended and restated certificate of incorporation
does not provide stockholders the right to cumulate votes in the election of
directors.
Stockholder Action; Special Meeting of Stockholders. Our amended and
restated certificate of incorporation eliminates the ability of stockholders to
act by written consent. Our by-laws provide that special meetings of our
stockholders may be called only by the chairman of the board of directors, the
chief executive officer or a majority of the board of directors or at the
direction of stockholders holding in the aggregate at least 20% of our common
stock. These provisions could have the effect of delaying for 90 days or until
the next annual meeting of stockholders those actions which are favored by the
holders of a majority of our outstanding voting securities. These provisions
may also discourage another person from making a tender offer for our common
stock, because that person, even if it acquired a majority of our outstanding
voting securities, would be able to take action as a stockholder, such as
electing new directors or approving a merger, only at a duly called meeting of
stockholders and not by written consent.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. Our amended and restated by-laws provide that stockholders seeking
to bring business before an annual meeting of stockholders, or to nominate
candidates for election as directors at an annual meeting of stockholders, must
provide timely notice thereof in writing. To be timely, a stockholder's notice
must be received at our principal executive
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<PAGE>
offices not less than (1) 60 days in advance of the meeting if it is held
within 30 days before the anniversary of the previous year's annual meeting or
(2) 90 days in advance of the meeting if it is held on or after the anniversary
of the previous year's annual meeting. In any other event, in order to be
timely, notice from the stockholder must be received no later than the
fifteenth day following the date on which notice of the annual meeting was
mailed to stockholders or made public, whichever occurred earlier. Our amended
and restated by-laws also specify requirements as to the form and content of a
stockholder's notice. These provisions may preclude stockholders from bringing
matters before an annual meeting of stockholders or from making nominations for
directors at an annual meeting of stockholders. However, in the case of any
meeting called at the direction of stockholders, the stockholders requesting
the meeting be called must give us at least 90 days notice of any matter to be
presented at that meeting.
Authorized but Unissued Shares. The authorized but unissued shares of common
stock and preferred stock are available for future issuance without stockholder
approval. These additional shares may be utilized for a variety of corporate
purposes, including future public offerings to raise additional capital,
corporate acquisitions and employee benefit plans. The existence of authorized
but unissued shares of common stock and preferred stock could render more
difficult or discourage an attempt to obtain control of us by means of a proxy
contest, tender offer, merger or otherwise.
Classified Board of Directors. Our amended and restated certificate of
incorporation provides that our board of directors shall be divided into three
classes which serve staggered three-year terms (after their initial terms). As
a result of this classification, no more than one third of the board of
directors will be elected each year. This may make it more difficult for an
acquiring party to take control of the board of directors.
Removal of Directors. Our by-laws provide that any director, or the entire
board, may be removed, only with cause, by the holders of two-thirds of the
shares then entitled to vote in an election of directors, unless otherwise
specified by law.
Amendments; Supermajority Vote Requirements. The Delaware General
Corporation Law provides generally that the affirmative vote of a majority of
the shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or by-laws, unless a corporation's certificate of
incorporation or by-laws, as the case may be, requires a greater percentage.
Our amended and restated certificate of incorporation imposes supermajority
vote requirements in connection with the amendment of provisions of our amended
and restated certificate of incorporation relating to the classification of our
board of directors. Our by-laws impose supermajority vote requirements in
connection with the amendment of the following provisions of our by-laws
related to our corporate structure:
. provisions regarding the location of stockholder meetings, quorums at
stockholder meetings, voting power, proxies, shareholder actions without
meetings and annual meetings,
. provisions regarding the number of directors, the filling of vacancies,
resignations and removals, and quorums and adjournments of director
meetings, and
. amendments of the provision governing amendments.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is expected to be
American Stock Transfer & Trust Company.
Listing
We have applied to list our common stock on the Nasdaq National Market under
the trading symbol "EMDT."
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
The sale of a substantial amount of our common stock in the public market
after this offering could adversely affect the prevailing market price of our
common stock. Furthermore, because few shares will be available for sale
shortly after this offering due to the contractual and legal restrictions on
resale described below, the sale of a substantial amount of common stock in the
public market after these restrictions lapse could adversely affect the
prevailing market price of our common stock and our ability to raise equity
capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of
11,513,475 shares of our common stock, assuming no exercise of the
underwriters' overallotment option and no exercise of outstanding options or
warrants. Of these shares, all of the shares sold in this offering will be
freely tradable without restriction or further registration under the
Securities Act, unless the shares are purchased by "affiliates" as that term is
defined in Rule 144 under the Securities Act. Any shares purchased by an
affiliate may not be resold except pursuant to an effective registration
statement or an applicable exemption from registration, including an exemption
under Rule 144 of the Securities Act. The remaining shares of common stock held
by existing stockholders are "restricted securities" as that term is defined in
Rule 144 under the Securities Act. These restricted securities may be sold in
the public market only if they are registered or if they qualify for an
exemption from registration under Rule 144 or Rule 701 under the Securities
Act. These rules are summarized below.
Upon the expiration of the lock-up agreements described under "Underwriting"
and subject to the provisions of Rule 144 and Rule 701, restricted shares
totaling 7,677,987 will be available for sale in the public market 180 days
after the date of this prospectus. Of those shares, 2,684,169 will be available
pursuant to Rule 144(k) and 92,140 will be available pursuant to Section 701.
The sale of restricted securities under those rules, is subject to volume
limitations for one year following a one year holding period, unless the shares
are held by affiliates, in which case the sale continues to be subject to
volume limitatons until the holder is no longer an affiliate.
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 shares of our
common stock for at least one year from the later of the date those shares of
common stock were acquired from us or from an affiliate of ours would be
entitled to sell within any three month period a number of shares that does not
exceed the greater of:
(1) one percent of the number of shares of common stock then
outstanding, which will equal approximately shares immediately after this
offering; or
(2) the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale of any shares of common stock.
The sales of any shares of common stock under Rule 144 are also subject to
manner of sale provisions and notice requirements and to the availability of
current public information about us. Affiliates may sell shares not
constituting restricted securities in accordance with the foregoing volume
limitations and other restrictions, but without regard to the one-year holding
period.
Rule 144(k)
Under Rule 144(k), a person who is not one of our affiliates at any time
during the three months preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years from the later of the date
such shares of common stock were acquired from us or from an affiliate of ours,
including the holding period of any prior owner other than an affiliate, is
entitled to sell those shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted pursuant to the lock-up agreements or otherwise,
those shares may be sold immediately upon the completion of this offering.
48
<PAGE>
Rule 701
In general, under Rule 701 of the Securities Act as currently in effect,
each of our employees, consultants or advisors who purchased shares from us in
connection with a compensatory stock plan or other written agreement is
eligible to resell those shares 90 days after the effective date of this
offering in reliance on Rule 144, but without compliance with the holding
period contained in Rule 144. In addition, these shareholders who are not our
affiliates can resell without compliance with the volume limitations and notice
requirements of Rule 144.
No precise prediction can be made as to the effect, if any, that market
sales of shares or the availability of shares for sale will have on the market
price of our common stock prevailing from time to time. We are unable to
estimate the number of our shares that may be sold in the public market
pursuant to Rule 144 or Rule 701 because this will depend on the market price
of our common stock, the personal circumstances of the sellers and other
factors. Nevertheless, sales of significant amounts of our common stock in the
public market could adversely affect the market price of our common stock.
Stock Plans
We intend to file a registration statement under the Securities Act covering
2,062,500 shares of common stock reserved for issuance under the eMed 1994
Stock Plan. This registration statement is expected to be filed as soon as
practicable after the effective date of this offering.
At September 17, 1999, there were options to purchase 1,696,598 shares
outstanding under our stock option plans and otherwise. All of these shares
will be eligible for sale in the public market from time to time, subject to
vesting provisions, Rule 144 volume limitations applicable to our affiliates
and, in the case of options held by shareholders who are subject to lock-up
agreements, the expiration of those agreements.
Registration Rights
We have entered into two agreements with groups of holders of approximately
7,691,702 shares of our common stock that entitle those holders to require us
to register their shares for resale under the Securities Act of 1933.
Under the agreement with holders of our Series J preferred stock, holders of
at least 30% of the common stock issued on conversion of the Series J preferred
stock can require us to register the sale of their common stock two separate
times. We only must register those shares if they would have an aggregate
offering price of at least $15 million and if the request is made after 180
days following the effective date of this prospectus. After we have satisfied
the requirements for using the shorter S-3 registration form, holders offering
to sell at least $500,000 of common stock can require us to register their
common stock on that form. We would not be required to file more than two of
these registrations in any 12 month period. These holders also have the right
to require us to include their shares in any future registered offering of
securities by us, subject to market conditions.
Under our other registration rights agreement, other holders of our equity
securities have rights similar to those described in the previous paragraph.
However, this agreement provides that if in any registered offering, shares
must be excluded from the offering because of marketing factors, shares covered
by this agreement will be excluded before any shares issuable on conversion of
the Series J preferred stock are excluded.
49
<PAGE>
UNDERWRITING
General
Subject to the terms and conditions set forth in an underwriting agreement
among us and Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette Securities
Corporation and Wit Capital Corporation, the underwriters, we have agreed to
sell to the underwriters, and each of the underwriters severally and not
jointly has agreed to purchase from us the number of shares of common stock set
forth opposite its name below.
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Bear, Stearns & Co. Inc............................................
Donaldson, Lufkin & Jenrette Securities Corporation................
Wit Capital Corporation............................................
----
Total..........................................................
====
</TABLE>
In the underwriting agreement, the several underwriters have agreed, subject
to the terms and conditions set forth in the underwriting agreement, to
purchase all of the shares of common stock being sold under the terms of the
underwriting agreement if any of the shares of common stock being sold under
the terms of the agreement are purchased. In the event of a default by an
underwriter, the underwriting agreement provides that, the purchase commitments
of the nondefaulting underwriters may be increased or the underwriting
agreement may be terminated.
We have agreed to indemnify the underwriters against some liabilities,
including liabilities under the Securities Act, or to contribute to payments
the underwriters may be required to make in respect of those liabilities.
The shares of common stock are being offered by the several underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of agreed upon legal matters by counsel for the underwriters and
other conditions. The underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part.
Commissions and Discounts and Public Offering Price
The underwriters have advised us that they propose initially to offer the
shares of common stock to the public at the initial public offering price set
forth on the cover page of this prospectus, and to dealers at such price less a
concession not in excess of $ per share of common stock. The underwriters may
allow, and such dealers may reallow, a discount not in excess of $ per share
of common stock to other dealers. After the initial public offering, the public
offering price, concession and discount may change.
The following table shows the per share and total public offering price,
underwriting discount to be paid by us to the underwriters and the proceeds
before expenses to us. This information is presented assuming either no
exercise or full exercise by the underwriters of their over-allotment options.
<TABLE>
<CAPTION>
Per Share Without Option With Option
--------- -------------- -----------
<S> <C> <C> <C>
Public offering price.................. $ $ $
Underwriting discount.................. $ $ $
Proceeds, before expenses, to eMed..... $ $ $
</TABLE>
We estimate our offering expenses, exclusive of the underwriting discount,
will be $ .
50
<PAGE>
Before this offering, there has been no public market for our common stock.
The initial public offering price will be determined through negotiations
between us and the underwriters. The factors to be considered in determining
the initial public offering price, in addition to prevailing market conditions,
are the valuation multiples of publicly traded companies that the underwriters
believe to be comparable to us, our financial information, the history, of, and
the prospects for, our company and the industry in which we compete, and an
assessment of our management, its past and present operations, the prospects
for, and timing of, future revenues of our company, the present state of our
development, and the above factors in relation to market values and various
valuation measures of other companies engaged in activities similar to ours.
There can be no assurance that an active trading market will develop for our
common stock or that our common stock will trade in the public market
subsequent to the offering at or above the initial public offering price.
The underwriters do not expect sales of the common stock to any accounts
over which they exercise discretionary authority to exceed five percent of the
number of shares being offered in this offering.
Over-allotment Option
We have granted an option to the underwriters, exercisable for 30 days after
the date of this prospectus, to purchase up to an aggregate of 465,000
additional shares of our common stock at the public offering price set forth on
the cover page of this prospectus, less the underwriting discount. The
underwriters may exercise this option solely to cover over-allotments, if any,
made on the sale of our common stock offered hereby. To the extent that the
underwriters exercise this option, each underwriter will be obligated, subject
to conditions, to purchase a number of additional shares of our common stock
proportionate to such underwriter's initial amount reflected in the foregoing
table.
Lock-up Agreements
We, our directors and executive officers and most of our other stockholders
will enter into lock-up agreements with the underwriters. Under those
agreements, neither we nor any of our directors or executive officers nor any
of those stockholders may dispose of or hedge any shares of common stock or
securities convertible into or exchangeable for shares of common stock. These
restrictions will be in effect for a period of 180 days after the date of this
prospectus, subject to limited exceptions. At any time and without notice,
Bear, Stearns & Co. Inc. may, in its sole discretion, release all or some of
the securities from these lock-up agreements.
Price Stabilization, Short Positions and Penalty Bids
In order to facilitate this offering, persons participating in this offering
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock during and after this offering. Specifically, the
underwriters may over-allot or otherwise create a short position in the common
stock for their own account by selling more shares of common stock than we have
sold to them. The underwriters may elect to cover any such short position by
purchasing shares of common stock in the open market or by exercising the over-
allotment option granted to the underwriters. In addition, the underwriters may
stabilize or maintain the price of the common stock by bidding for or
purchasing shares of common stock in the open market and may impose penalty
bids, under which selling concessions allowed to syndicate members or other
broker-dealers participating in this offering are reclaimed if shares of common
stock previously distributed in this offering are repurchased in connection
with stabilization transactions or otherwise. The effect of these transactions
may be to stabilize or maintain the market price at a level above that which
might otherwise prevail in the open market. The imposition of a penalty bid may
also affect the price of the common stock to the extent that it discourages
resales thereof. No representation is made as to the magnitude or effect of any
such stabilization or other transactions. Such transactions may be effected on
the Nasdaq National Market or otherwise and, if commenced, may be discontinued
at any time.
51
<PAGE>
Internet Distribution
A prospectus in electronic format is being made available on an internet
website maintained by Wit Capital Corporation. In addition, all dealers
purchasing shares from Wit Capital in this offering have agreed to make a
prospectus in electronic format available on websites maintained by each of
these dealers. Purchases of shares from Wit Capital are to be made through an
account at Wit Capital in accordance with Wit Capital's procedures for opening
an account and transacting in securities.
Wit Capital, a member of the National Association of Securities Dealers,
Inc., will participate in the offering as one of the underwriters. The National
Association of Securities Dealers, Inc., approved the membership of Wit Capital
on September 4, 1997. Since that time, Wit Capital has acted as an underwriter,
e-Manager or selected dealer in over 120 public offerings. Except for its
participation as a manager in this offering, Wit Capital has no relationship
with us, or any of its founders or significant stockholders.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for eMed
by Ropes & Gray, Boston, Massachusetts. Various legal matters in connection
with this offering will be passed upon for the underwriters by Skadden, Arps,
Slate, Meagher & Flom LLP, New York, New York.
EXPERTS
The financial statements of eMed at December 31, 1997 and 1998 and for the
three years in the period ended December 31, 1998, included in this prospectus,
and the financial statements of E-Systems Medical Electronics, a division of
Raytheon, at December 31, 1997 and November 23, 1998 and for the year ended
December 31, 1997 and the period from January 1, 1998 through November 23,
1998, included in this prospectus, have been so included in reliance on the
reports of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-1, including exhibits and schedules, under the Securities
Act with respect to the common stock to be sold in this offering. This
prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement or the
exhibits and schedules which are part of the registration statement. Any
statements made in this prospectus as to the contents of any contract,
agreement or other document are not necessarily complete. With respect to each
such contract, agreement or other document filed as an exhibit to the
Registration Statement, we refer you to the exhibit for a more complete
description of the matter involved, and each statement in this prospectus shall
be deemed qualified in its entirety by this reference.
You may read and copy all or any portion of the Registration Statement or
any reports, statements or other information in the files at the public
reference facilities of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C., 20549 and at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You can
request copies of these documents upon payment of a duplicating fee by writing
to the Commission. You may call the Commission at 1-800-SEC-0330 for further
information on the operation of its public reference rooms. Our filings,
including the Registration Statement, will also be available to you on the
internet website maintained by the Commission at http://www.sec.gov.
52
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
eMed Technologies Corporation
Report of Independent Accountants....................................... F-2
Balance Sheet as of December 31, 1997 and 1998 and as of June 30, 1999
(unaudited)............................................................ F-3
Statement of Operations for the years ended December 31, 1996, 1997 and
1998 and the six months ended June 30, 1998 (unaudited) and June 30,
1999 (unaudited)....................................................... F-4
Statement of Changes in Stockholders' Equity for the years ended
December 31, 1996, 1997 and 1998 and the six months ended June 30, 1999
(unaudited)............................................................ F-5
Statement of Cash Flows for the years ended December 31, 1996, 1997 and
1998 and the six months ended June 30, 1998 (unaudited) and June 30,
1999 (unaudited)....................................................... F-6
Notes to Financial Statements........................................... F-7
E-Systems Medical Electronics (a division of Raytheon E-Systems, Inc.)
Report of Independent Accountants....................................... F-17
Balance Sheet as of December 31, 1997 and November 23, 1998............. F-18
Statement of Operations and Accumulated Deficit for the year ended
December 31, 1997 and for the period from January 1, 1998 through
November 23, 1998...................................................... F-19
Statement of Cash Flows for the year ended December 31, 1997 and for the
period from January 1, 1998 through November 23, 1998.................. F-20
Notes to Financial Statements........................................... F-21
Unaudited Pro Forma Combined Statement of Operations
Unaudited Pro Forma Combined Statement of Operations for the year ended
December 31, 1998...................................................... F-25
Notes to Unaudited Pro Forma Combined Statement of Operations........... F-26
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of
eMed Technologies Corporation:
The reverse common stock split described in Note 8 to the financial
statements has not been consummated at September 17, 1999. When it has been
consummated, we will be in a position to furnish the following report.
"In our opinion, the accompanying balance sheet and the related statements
of operations, of changes in stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of eMed Technologies
Corporation at December 31, 1997 and 1998 and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above."
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 22, 1999, except for the last paragraphs of
Notes 7 and 8, as to which the date is September 16, 1999
F-2
<PAGE>
eMed Technologies Corporation
Balance Sheet
<TABLE>
<CAPTION>
Pro Forma
December 31, June 30, June 30,
-------------------------- ------------ ------------
1997 1998 1999 1999
------------ ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash
equivalents........... $ 4,420,714 $ 2,259,052 $ 5,117,591
Accounts receivable,
net of allowance for
doubtful accounts of
$35,000 and $487,073
at December 31, 1997
and 1998,
respectively, and
$422,461 at June 30,
1999 (unaudited)...... 2,665,415 4,926,216 6,217,453
Inventories............ 1,080,264 2,011,410 961,823
Prepaid expenses and
other current assets.. 798,442 330,641 313,134
------------ ------------ ------------
Total current assets... 8,964,835 9,527,319 12,610,001
Fixed assets, net....... 892,450 991,181 816,027
Goodwill................ -- 77,016 72,523
Other assets............ 32,756 49,810 60,888
Assets held for sale.... -- 861,000 --
------------ ------------ ------------
Total assets........... $ 9,890,041 $ 11,506,326 $ 13,559,439
============ ============ ============
Liabilities and
Stockholders' Equity
Current liabilities:
Current portion of
capital lease
obligations........... $ 153,356 $ 45,796 $ 12,347
Short-term debt........ -- 2,797,359 2,797,359
Note payable to
Raytheon.............. -- 2,200,000 --
Accounts payable....... 1,971,964 2,372,307 1,815,838
Accrued employee
benefits.............. 244,871 351,150 542,978
Accrued warranty
expenses.............. 100,657 478,888 629,112
Other accrued
expenses.............. 668,413 811,470 900,983
Accrued acquisition
reserves.............. -- 335,842 81,136
Deferred revenue....... 284,375 1,382,887 1,257,464
------------ ------------ ------------
Total current
liabilities........... 3,423,636 10,775,699 8,037,217
Capital lease
obligations............ 78,707 6,521 --
Long-term debt.......... 884,527 335,893 210,164
------------ ------------ ------------
Total liabilities...... 4,386,870 11,118,113 8,247,381
------------ ------------ ------------
Commitments (Note 12)
Stockholders' equity:
Convertible preferred
stock, $0.01 par
value.................. 77,346 77,346 118,775 $ --
Common stock, $0.01 par
value; Authorized:
35,000,000 shares;
Issued: 452,314 and
485,640 shares at
December 31, 1997 and
1998, respectively, and
522,154 shares at June
30, 1999 actual
(unaudited): 8,378,304
shares issued at June
30, 1999 pro forma
(unaudited);
Outstanding: 452,314
and 443,974 shares at
December 31, 1997 and
1998, respectively,
480,488 shares at June
30, 1999 actual
(unaudited): 8,336,638
shares outstanding at
June 30, 1999 pro forma
(unaudited)............ 4,524 4,857 5,222 83,783
Additional paid-in
capital................ 20,126,414 20,166,075 28,803,798 28,844,012
Deferred compensation... (8,002) -- (2,598,296) (2,598,296)
Treasury stock.......... -- (50,000) (50,000) (50,000)
Accumulated deficit..... (14,697,111) (19,810,065) (20,967,441) (20,967,441)
------------ ------------ ------------ ------------
Total stockholders'
equity................ 5,503,171 388,213 5,312,058 5,312,058
------------ ------------ ------------ ------------
Total liabilities and
stockholders' equity.. $ 9,890,041 $ 11,506,326 $ 13,559,439 $ 13,559,439
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
eMed Technologies Corporation
Statement of Operations
<TABLE>
<CAPTION>
Year ended Six months ended
December 31, June 30,
------------------------------------- ------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
Product............... $ 570,273 $ 7,164,242 $11,299,756 $ 5,730,260 $ 9,793,624
Service............... 439,182 862,762 1,294,411 487,242 1,575,777
----------- ----------- ----------- ----------- -----------
Total revenue....... 1,009,455 8,027,004 12,594,167 6,217,502 11,369,401
----------- ----------- ----------- ----------- -----------
Cost of revenue:
Product............... 372,681 5,553,543 7,223,230 3,401,750 4,698,982
Service............... 1,031,107 1,458,579 1,752,909 729,125 1,652,093
----------- ----------- ----------- ----------- -----------
Total cost of
revenue............ 1,403,788 7,012,122 8,976,139 4,130,875 6,351,075
----------- ----------- ----------- ----------- -----------
Gross margin........ (394,333) 1,014,882 3,618,028 2,086,627 5,018,326
----------- ----------- ----------- ----------- -----------
Operating expenses:
Research and
development.......... 610,189 1,300,360 2,361,430 1,030,630 1,654,635
Sales and marketing... 1,318,696 2,912,125 3,498,169 1,763,734 2,519,051
General and
administrative....... 1,331,297 1,981,861 2,722,340 1,120,800 1,851,731
----------- ----------- ----------- ----------- -----------
Total operating
expenses........... 3,260,182 6,194,346 8,581,939 3,915,164 6,025,417
----------- ----------- ----------- ----------- -----------
Loss from operations.... (3,654,515) (5,179,464) (4,963,911) (1,828,537) (1,007,091)
Interest expense, net... (69,686) (203,566) (105,611) (19,243) (68,518)
Other expense........... (21,560) (242,139) (43,432) (6,125) (81,767)
----------- ----------- ----------- ----------- -----------
Net loss............ $(3,745,761) $(5,625,169) $(5,112,954) $(1,853,905) $(1,157,376)
=========== =========== =========== =========== ===========
Basic and diluted net
loss per share......... $ (8.39) $ (12.45) $ (11.70) $ (4.30) $ (2.48)
Shares used in computing
basic and diluted net
loss per share......... 446,428 451,676 436,949 430,843 467,222
Unaudited pro forma
basic and diluted net
loss per share......... $ (0.78) $ (0.14)
Shares used in computing
unaudited pro forma
basic and diluted net
loss per share......... 6,567,037 8,323,501
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
eMed Technologies Corporation
Statement of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Convertible
preferred stock Common stock Total
------------------- -------------- Additional stockholders'
Par Par paid-in Deferred Treasury Accumulated equity
Shares value Shares value capital compensation stock deficit (deficit)
---------- -------- ------- ------ ----------- ------------ -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1995................ 1,510 $ 15 439,155 $4,392 $ 4,511,978 $ -- $ -- $ (5,326,181) $ (809,796)
Exercise of common
stock options....... 11,597 116 13,801 13,917
Issuance of 1,000
shares of Series F
convertible
preferred stock..... 1,000 10 999,990 1,000,000
Issuance of 816
shares of Series G
convertible
preferred stock..... 816 8 4,070,341 4,070,349
Issuance of 400
shares of Series H
convertible
preferred stock..... 400 4 1,999,997 2,000,001
Issuance of stock
options to
nonemployees........ 20,000 20,000
Net loss............. (3,745,761) (3,745,761)
---------- -------- ------- ------ ----------- ----------- -------- ------------ -----------
Balance, December 31,
1996................ 3,726 37 450,752 4,508 11,616,107 -- -- (9,071,942) 2,548,710
Exercise of common
stock options....... 1,562 16 1,859 1,875
Issuance of 409,091
warrants to purchase
Series J convertible
preferred stock..... 161,000 161,000
Issuance of 7,730,909
shares of Series J
convertible
preferred stock..... 7,730,909 77,309 8,333,868 8,411,177
Issuance of stock
options to
nonemployees........ 13,580 (8,002) 5,578
Net loss............. (5,625,169) (5,625,169)
---------- -------- ------- ------ ----------- ----------- -------- ------------ -----------
Balance, December 31,
1997................ 7,734,635 77,346 452,314 4,524 20,126,414 (8,002) -- (14,697,111) 5,503,171
Exercise of common
stock options....... 33,326 333 39,661 39,994
Purchase of common
stock held as
treasury shares..... (50,000) (50,000)
Amortization of
deferred
compensation........ 8,002 8,002
Net loss............. (5,112,954) (5,112,954)
---------- -------- ------- ------ ----------- ----------- -------- ------------ -----------
Balance, December 31,
1998................ 7,734,635 77,346 485,640 4,857 20,166,075 -- (50,000) (19,810,065) 388,213
Exercise of common
stock options
(unaudited)......... 36,514 365 43,455 43,820
Issuance of 4,142,857
shares of Series K
convertible
preferred stock
(unaudited)......... 4,142,857 41,429 5,756,037 5,797,466
Issuance of stock
options
(unaudited)......... 2,838,231 (2,838,231) --
Amortization of
deferred
compensation
(unaudited)......... 239,935 239,935
Net loss
(unaudited)......... (1,157,376) (1,157,376)
---------- -------- ------- ------ ----------- ----------- -------- ------------ -----------
Balance, June 30,
1999 (unaudited).... 11,877,492 $118,775 522,154 $5,222 $28,803,798 $(2,598,296) $(50,000) $(20,967,441) $ 5,312,058
========== ======== ======= ====== =========== =========== ======== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
eMed Technologies Corporation
Statement of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Year ended Six months ended
December 31, June 30,
------------------------------------- ------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss............... $(3,745,761) $(5,625,169) $(5,112,954) $(1,853,905) $(1,157,376)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization......... 364,946 469,488 521,006 259,844 374,725
Amortization of debt
discount............. -- 119,000 -- -- --
Loss on disposal of
fixed assets......... 20,032 236,764 50,933 12,339 85,763
Compensation expense
associated with
issuance of stock
options.............. 20,000 5,578 8,002 -- 239,935
Preferred stock
issued in lieu of
cash payment for
interest............. 5,381 22,906 -- -- --
Changes in operating
assets and
liabilities, net of
effects from
acquisition of E-
Systems Medical
Electronics:
Accounts receivable.. (2,389) (2,489,335) 36,664 (853,039) (1,291,237)
Inventories.......... (681,064) (399,200) 638,428 293,751 1,049,587
Prepaid expenses and
other current
assets.............. 12,874 (715,014) 553,719 512,581 17,507
Accounts payable..... 669,905 1,302,059 19,673 (296,930) (556,469)
Accrued employee
benefits............ 35,193 209,678 (19,382) 50,858 191,828
Accrued warranty
expenses............ -- 100,657 178,231 40,017 150,224
Other accrued
expenses............ 145,183 366,210 (302,859) (146,547) 89,513
Accrued acquisition
reserves............ -- -- -- -- (254,706)
Deferred revenue..... -- 284,375 689,532 110,830 (125,423)
----------- ----------- ----------- ----------- -----------
Net cash used in
operating
activities......... (3,155,700) (6,112,003) (2,739,007) (1,870,201) (1,186,129)
----------- ----------- ----------- ----------- -----------
Cash flows from
investing activities:
Purchases of fixed
assets................ (532,796) (853,122) (465,274) (335,838) (280,841)
Change in other
assets................ 15,935 11,596 (17,054) 21,192 (11,078)
Cash paid for the
acquisition of E-
Systems Medical
Electronics, net of
cash acquired......... -- -- (999,300) -- --
Proceeds from sale of
assets held for
sale.................. -- -- -- -- 861,000
----------- ----------- ----------- ----------- -----------
Net cash (used in)
provided by
investing
activities......... (516,861) (841,526) (1,481,628) (314,646) 569,081
----------- ----------- ----------- ----------- -----------
Cash flows from
financing activities:
Proceeds from sale-
leaseback
transactions.......... 138,709 -- -- -- --
Principal payments of
capital lease
obligations........... (174,897) (189,842) (179,746) (92,067) (39,970)
Cash received for
fixed assets.......... 5,600 46,028 -- -- --
Proceeds from issuance
of convertible notes
and warrants.......... -- 1,500,000 -- -- --
Borrowings from lines
of credit............. -- 884,527 2,390,039 1,242,522 --
Principal payments of
debt.................. -- -- (141,314) (55,756) (125,729)
Payment of note
payable due to
Raytheon for the
acquisition of
E-Systems Medical
Electronics........... -- -- -- -- (2,200,000)
Proceeds from issuance
of convertible
preferred stock....... 5,848,302 6,930,271 -- -- 5,797,466
Proceeds from exercise
of common stock
options............... 13,917 1,875 39,994 35,655 43,820
Purchase of common
stock held in
treasury.............. -- -- (50,000) (50,000) --
----------- ----------- ----------- ----------- -----------
Net cash provided by
financing
activities......... 5,831,631 9,172,859 2,058,973 1,080,354 3,475,587
----------- ----------- ----------- ----------- -----------
Net increase (decrease)
in cash and cash
equivalents........... 2,159,070 2,219,330 (2,161,662) (1,104,493) 2,858,539
Cash and cash
equivalents, beginning
of period............. 42,314 2,201,384 4,420,714 4,420,714 2,259,052
----------- ----------- ----------- ----------- -----------
Cash and cash
equivalents, end of
period................ $ 2,201,384 $ 4,420,714 $ 2,259,052 $ 3,316,221 $ 5,117,591
=========== =========== =========== =========== ===========
Supplemental cash flow
disclosures:
Cash paid for
interest.............. $ 148,573 $ 122,458 $ 240,343 $ 100,721 $ 148,953
=========== =========== =========== =========== ===========
</TABLE>
Non-cash financing and investing activities:
During 1996, eMed incurred capital lease obligations of $138,709 in connection
with the sale and leaseback of fixed assets.
During 1996, eMed exchanged $116,667 of redeemable preferred stock for
convertible preferred stock.
During 1996 and 1997, eMed converted $1,105,381 and $1,480,906, respectively,
of convertible notes and long-term debt into convertible preferred stock.
During 1998, in connection with the acquisition of E-Systems Medical
Electronics, eMed issued $2,200,000 of notes payable, acquired assets of
$5,020,053 and assumed liabilities of $1,897,069.
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
eMed Technologies Corporation
Notes to Financial Statements
1. Nature of Business
eMed Technologies Corporation ("eMed"), formerly known as ACCESS Radiology
Corporation, was incorporated under the laws of Delaware in March 1992. As a
provider of workflow solutions for electronically managing and distributing
medical images and related patient information, eMed markets and sells
electronic medical imaging systems and provides related support services to
healthcare providers primarily within the United States. eMed operates in one
business segment.
2. Summary of Significant Accounting Policies
Cash Equivalents
eMed invests its excess cash in money market funds of major financial
institutions. These investments are subject to minimal credit and market risk.
eMed considers all highly liquid investments purchased with an initial maturity
of three months or less to be cash equivalents. Cash equivalent investments are
classified as available-for-sale and are carried at cost, which approximates
fair value.
Fair Value of Financial Instruments
The carrying amounts of eMed's financial instruments, which include cash and
cash equivalents, accounts receivable, accounts payable, accrued expenses and
short- and long-term debt, approximate their fair values at December 31, 1997
and 1998.
Revenue Recognition, Significant Customers and Concentration of Credit Risk
Revenue from product sales is recognized upon shipment to the customer
provided that risk of loss has passed to the customer and collection of the
related receivable is probable. In the event uncertainty exists about customer
acceptance of product sales, revenue is deferred until acceptance occurs.
Customer payments received in advance of product shipments are recorded as
deferred revenue. eMed typically provides a one-year warranty on all products
sold. eMed accrues the estimated costs to be incurred in connection with
product warranty upon product shipment.
Service revenue consists of customer fees from installation and training,
network-based comprehensive support and post-warranty product maintenance.
Revenue from installation and training is recognized as the work is performed.
Revenue from support agreements and post-warranty product maintenance contracts
is deferred and recognized ratably over the applicable periods.
Financial instruments which potentially expose eMed to concentration of
credit risk include accounts receivable. eMed performs ongoing evaluations of
customers' financial condition and does not generally require collateral. At
December 31, 1997 and 1998, accounts receivable from one customer accounted for
approximately 13% and 11%, respectively, of the total amounts due to eMed.
There were no customers with accounts receivable greater than 10% of the total
amounts due to eMed at June 30, 1999.
In 1996, sales with three customers accounted for approximately 23%, 20% and
13% of eMed's total revenue. In 1997, sales with one customer accounted for
approximately 18% of eMed's total revenue. In 1998, sales with two customers
accounted for approximately 10% and 11% of eMed's total revenue. During the six
months ended June 30, 1999, no customers accounted for greater than 10% of
eMed's total revenue.
Inventories and Concentration of Suppliers
Inventories are stated at the lower of cost or market, cost being determined
using the first-in, first-out (FIFO) method.
F-7
<PAGE>
eMed Technologies Corporation
Notes to Financial Statements--(Continued)
eMed purchases certain components of eMed's products from limited suppliers.
A change in or loss of these suppliers could cause a delay in filling customer
orders and a possible loss of sales, which could adversely affect results of
operations; however, management believes that suitable replacement suppliers
could be obtained in such an event.
Fixed Assets
Fixed assets are recorded at cost and depreciated using the straight-line
method over their estimated useful lives. Repair and maintenance costs are
expensed as incurred.
Research and Development and Software Development Costs
Costs incurred in the research and development of eMed's products are
expensed as incurred. Costs associated with the development of computer
software are expensed prior to establishing technological feasibility, as
defined by SFAS No. 86, and capitalized thereafter until commercial release of
the products. Software development costs eligible for capitalization have not
been significant to date.
Stock-Based Compensation
eMed accounts for stock-based awards to employees using the intrinsic value
method as prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations. eMed
has adopted the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," for disclosure purposes only (Note 9).
Advertising Costs
Advertising costs are charged to operations as incurred. Advertising costs
were approximately $31,000, $114,000 and $106,000 in the years ended December
31, 1996, 1997 and 1998, respectively.
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 revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Unaudited Pro Forma Balance Sheet
Upon the closing of eMed's anticipated initial public offering, all shares
of convertible preferred stock outstanding at June 30, 1999 (Note 7) will
automatically convert into 7,856,150 shares of common stock. This conversion
has been reflected in the unaudited pro forma balance sheet as of June 30,
1999.
Unaudited Interim Financial Data
The interim financial data as of June 30, 1999 and for the six months ended
June 30, 1998 and 1999 have been derived from unaudited financial statements of
eMed. Management believes eMed's unaudited financial statements have been
prepared on the same basis as the audited financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial position and results of operations in such
periods. Results for the six months ended June 30, 1999 are not necessarily
indicative of results to be expected for the full fiscal year.
F-8
<PAGE>
eMed Technologies Corporation
Notes to Financial Statements--(Continued)
Actual and Unaudited Pro Forma Net Loss Per Share
Net loss per share is computed in accordance with SFAS No. 128, "Earnings
Per Share." Basic net loss per share is computed by dividing net loss
attributable to common stockholders by the weighted average number of shares of
common stock outstanding. Diluted net loss per share does not differ from basic
net loss per share since potential common shares from conversion of preferred
stock and exercise of stock options and warrants are anti-dilutive for all
periods presented. Unaudited pro forma basic and diluted net loss per share
have been calculated assuming the conversion of all outstanding shares of
preferred stock into common shares, as if the shares had converted immediately
upon their issuance.
Recently Issued Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." The new standard establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. In June 1999, the FASB issued SFAS
No. 137 which deferred the effective date of SFAS No. 133 for one year. SFAS
No. 133 is now effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. eMed does not expect SFAS No. 133 to have a material
effect on its financial position or results of operations.
In February 1998, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position ("SoP") 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SoP 98-1 establishes
the accounting for costs of software products developed or purchased for
internal use, including when such costs should be capitalized. SoP 98-1 will be
effective for eMed beginning in 1999, and eMed does not expect adoption of this
SoP to have a material effect on its financial position or results
of operations.
In April 1998, the AcSEC issued SoP 98-5, "Reporting on the Costs of Start-
Up Activities." Start- up activities are defined broadly as those one-time
activities related to the opening of a new facility, introducing a new product
or service, conducting business in a new territory, conducting business with a
new class of customer, commencing some new operation or organizing a new
entity. SoP 98-5 requires that the cost of start-up activities be expensed as
incurred. SoP 98-5 is effective for eMed beginning in 1999 and eMed does not
expect adoption of this SoP to have a material effect on its financial position
or results of operations.
3. Acquisition
On November 23, 1998, eMed purchased certain assets and assumed certain
liabilities of E-Systems Medical Electronics, a division of Raytheon, for total
consideration of $3,200,000. E-Systems Medical Electronics was engaged in the
business of designing, manufacturing and marketing electronic medical imaging
hardware and software systems and providing technical and network services to
healthcare providers within the United States. The acquisition was funded by a
$2,200,000 note payable to Raytheon (Note 6) and $1,000,000 in cash which was
obtained from eMed's working capital facility (Note 6).
The acquisition was accounted for under the purchase method of accounting
and, accordingly, operating results of this business subsequent to the date of
acquisition have been included in eMed's financial statements. The purchase
price was allocated to the assets acquired and liabilities assumed based on
their fair values at the date of acquisition. The excess of the purchase price
over the fair value of the net assets acquired of $77,016 was recorded as
goodwill and is being amortized over a period of ten years using the straight-
line method. In February 1999, certain assets, primarily inventory, purchased
in the acquisition were sold for total consideration of $861,000. These assets
were classified as assets held for sale at December 31, 1998.
F-9
<PAGE>
eMed Technologies Corporation
Notes to Financial Statements--(Continued)
The following unaudited pro forma data summarizes the results of operations
for the years ended December 31, 1997 and 1998 as if the acquisition of E-
Systems Medical Electronics had been completed on January 1, 1997 and 1998,
respectively. The pro forma data gives effect to actual operating results prior
to the acquisition with adjustments for interest expense and amortization of
goodwill and the sale of assets held for sale at December 31, 1998. These pro
forma amounts do not purport to be indicative of the results that would have
actually been obtained if the acquisition had occurred on January 1, 1997 and
1998 or that may be obtained in the future.
<TABLE>
<CAPTION>
Year ended
December 31,
------------------------
1997 1998
----------- -----------
(Unaudited)
<S> <C> <C>
Revenue............................................ $19,451,507 $20,708,044
Net loss........................................... (16,302,719) (11,457,663)
Net loss per share:
Basic and diluted.................................. ($36.09) ($26.22)
</TABLE>
In connection with the acquisition of E-Systems Medical Electronics, eMed
has undertaken a restructuring of the acquired business. In accordance with
Emerging Issues Task Force ("EITF") No. 95-3 "Recognition of Liabilities in
Connection with a Purchase Business Combination," eMed established a reserve of
approximately $412,000, primarily related to severance and other employee
related costs of $339,000 and other exit costs of $73,000. The restructuring
plan consists of the sale of certain monitor inventory and the exit of related
activities and a reduction in acquired headcount. eMed has terminated the
direct sales activity of the acquired company and discontinued shipping and
manufacturing certain acquired product lines. From the date of acquisition
through December 31, 1998, eMed has paid approximately $76,000 of the planned
costs which related solely to severance payments. As of June 30, 1999, eMed has
paid approximately $331,000 of the planned costs which is comprised of $73,000
of other exit costs and $258,000 of severance and other employee related costs.
The remaining reserve of $81,000 at June 30, 1999 is related to the settlement
of certain employment agreements and is expected to be paid in December 1999.
4. Inventories
<TABLE>
<CAPTION>
December 31,
--------------------- June 30,
1997 1998 1999
---------- ---------- -----------
(Unaudited)
<S> <C> <C> <C>
Raw materials and purchased components... $ 678,005 $1,545,650 $789,264
Work-in-process.......................... 20,654 107,336 126,396
Finished goods........................... 381,605 358,424 46,163
---------- ---------- --------
$1,080,264 $2,011,410 $961,823
========== ========== ========
</TABLE>
5. Fixed Assets
<TABLE>
<CAPTION>
December 31,
Estimated -------------------
Useful lives 1997 1998
(years) --------- ---------
<S> <C> <C> <C>
Furniture and fixtures.................... 5 $ 152,181 $ 194,503
Office equipment and computers............ 3 368,070 256,957
Electronic medical imaging equipment...... 3 1,205,597 1,558,018
Leasehold improvements.................... Lease term 57,066 90,940
--------- ---------
1,782,914 2,100,418
Less - Accumulated depreciation and
amortization............................. 890,464 1,109,237
--------- ---------
$ 892,450 $ 991,181
========= =========
</TABLE>
F-10
<PAGE>
eMed Technologies Corporation
Notes to Financial Statements--(Continued)
At December 31, 1997 and 1998, furniture and electronic medical imaging
equipment held under capital leases totaled $499,425 and $321,770,
respectively. Accumulated amortization of furniture and electronic medical
imaging equipment held under capital leases was $420,096 and $319,074 at
December 31, 1997 and 1998, respectively. Depreciation and amortization expense
on fixed assets was $364,946, $469,488 and $521,006, of which $244,824,
$187,838 and $54,727 related to amortization of assets held under capital
leases in 1996, 1997 and 1998, respectively.
6. Borrowings
Notes Payable
In connection with the acquisition of certain assets and liabilities of E-
Systems Medical Electronics (Note 3), eMed issued a $2,200,000 short-term note
payable to Raytheon. In accordance with the terms of the note, a payment of
$1,500,000 was made in January 1999. The remaining balance of $700,000 was paid
in May, 1999.
At various dates through September 1997, eMed issued $1,500,000 in 6.0%
convertible subordinated notes ("Notes") maturing on October 31, 1997. On
September 30, 1997, in connection with the Series J convertible preferred stock
offering, the Notes, together with accrued interest, were converted into
1,384,460 shares of Series J convertible preferred stock. In connection with
the issuance of the Notes, eMed issued warrants to purchase 409,091 shares of
Series J convertible preferred stock at an exercise price of $1.10. The
warrants expire on June 30, 2002. These warrants were ascribed a value of
approximately $161,000 which was reflected as a debt discount to be amortized
to interest expense over the term of the Notes. Approximately $119,000 of the
debt discount was amortized to interest expense for the year ended December 31,
1997.
Loan Facilities
In May 1997, eMed entered into an agreement with a bank under which it may
borrow up to $2,000,000 for working capital purposes ("Working Capital
Facility") and $500,000 for purchases of fixed assets ("Equipment Facility"),
subject to certain limitations. All borrowings under the agreement are
collateralized by substantially all of eMed's assets. Under the terms of the
agreement, eMed is required to comply with certain restrictive covenants,
including the maintenance of certain financial ratios and limitations on
indebtedness, liens, guaranties, mergers and payments of dividends.
In April 1998, the terms of the Working Capital Facility were amended
whereby eMed can borrow up to $3,000,000, subject to certain limitations,
through March 31, 1999, at which time, all outstanding principal and interest
is due. The interest rate on outstanding borrowings under the new Working
Capital Facility fluctuates monthly between the bank's prime rate plus 0.5% to
1.75% based on certain financial ratios. The interest rate at December 31, 1998
was 9.3%. Additionally, eMed is required to pay a fee equal to 0.75% of the
average unused Working Capital Facility, payable quarterly (the "Facility
Fee"). Borrowings under the Working Capital Facility totaled $550,000 and
$2,550,000 at December 31, 1997 and 1998, respectively.
In January and March 1999, the terms of the Working Capital Facility were
further amended whereby eMed can borrow up to $4,000,000, subject to certain
limitations, through September 30, 1999, at which time all outstanding
principal and interest is due. The amended interest rate on outstanding
borrowings fluctuates monthly between the bank's prime rate plus 0.5% to 2.0%
based on certain financial ratios and the Facility Fee was increased to 1.0%.
Additionally, the amended Working Capital Facility requires eMed to raise $2.0
million of additional capital by June 30, 1999. This additional capital was
obtained as discussed in Note 7.
Borrowings under the Equipment Facility bear interest, payable monthly, at
the bank's prime rate plus 1.0% (8.8% at December 31, 1998). In April 1998, the
terms of the Equipment Facility were amended whereby eMed could borrow up to
$750,000, subject to certain limitations. At December 31, 1998, outstanding
F-11
<PAGE>
eMed Technologies Corporation
Notes to Financial Statements--(Continued)
borrowings of $583,252 under the Equipment Facility converted to a three-year
term loan payable in 36 monthly installments of principal and interest.
As of December 31, 1998, future minimum principal payments under the
Equipment Facility are as follows:
<TABLE>
<CAPTION>
Year ending
December 31,
------------
<S> <C>
1999................................................................ $247,359
2000................................................................ 247,359
2001................................................................ 88,534
--------
$583,252
========
</TABLE>
7. Preferred Stock
Shares authorized, issued and outstanding and the carrying values of eMed's
preferred stock are as follows:
<TABLE>
<CAPTION>
December 31,
------------------- June 30,
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Series B:
716 shares authorized, issued and outstanding
at December 31, 1997 and 1998 and June 30,
1999 ........................................ $ 700,228 $700,228 $ 700,228
Series C:
450 shares authorized, issued and outstanding
at December 31, 1997 and 1998 and June 30,
1999 ........................................ 2,245,000 2,245,000 2,245,000
Series E:
345 shares authorized at December 31, 1997
and 1998 and June 30, 1999; 344 shares issued
and outstanding at December 31, 1997 and 1998
and June 30, 1999 ........................... 1,566,656 1,566,656 1,566,656
Series F:
1,000 shares authorized, issued and
outstanding at December 31, 1997 and 1998 and
June 30, 1999 ............................... 1,000,000 1,000,000 1,000,000
Series G:
816 shares authorized, issued and outstanding
at December 31, 1997 and 1998 and June 30,
1999 ........................................ 4,070,349 4,070,349 4,070,349
Series H:
400 shares authorized , issued and
outstanding at December 31, 1997 and 1998 and
June 30, 1999 ............................... 2,000,001 2,000,001 2,000,001
Series J:
8,140,000 shares authorized at December 31,
1997 and 1998 and June 30, 1999; 7,730,909
shares issued and outstanding at December 31,
1997 and 1998 and June 30, 1999 ............. 8,411,177 8,411,177 8,411,177
Series K:
No shares authorized, issued or outstanding
at December 31, 1997; 1,785,800 and 4,145,000
shares authorized at December 31, 1998 and
June 30, 1999, respectively; 0 and 4,142,857
shares issued and outstanding at December 31,
1998 and June 30, 1999, respectively ........ -- -- 5,797,466
Undesignated:
6,856,275 shares authorized at December 31,
1997;
5,070,475 shares authorized at December 31,
1998;
and 2,711,275 shares authorized at June 30,
1999 ........................................ -- -- --
</TABLE>
F-12
<PAGE>
eMed Technologies Corporation
Notes to Financial Statements--(Continued)
The convertible preferred stock has the following characteristics:
Dividends
No dividends have been declared or paid by eMed through December 31, 1998.
The holders of Series B, Series C, Series E, Series F, Series G and Series H
convertible preferred stock ("Series Preferred") are entitled to receive
noncumulative dividends whenever eMed declares a dividend on its common stock,
in such an amount as they would be entitled to receive if the convertible
preferred stock had been converted into common stock on the date the dividend
was declared. The holders of Series J convertible preferred stock ("Series J")
are entitled to receive noncumulative, annual cash dividends of $0.11 per share
when and if declared by eMed, in preference to the holders of Series Preferred
or common stock.
Voting
The holders of Series Preferred and Series J are entitled to vote, together
with holders of common stock, as a single class on all matters. Each
stockholder is entitled to the number of votes equal to the number of shares of
common stock into which such holder's shares are convertible.
Conversion
Each share of Series B, Series C, Series E, Series F, Series G, Series H,
and Series J convertible preferred stock may be converted at any time, at the
option of the stockholder, into 100, 396.88, 396.83, 833.33, 1,388.89, 1,388.89
and 0.42 shares of common stock, respectively, subject to certain anti-dilution
adjustments. All outstanding shares of Series Preferred automatically convert
into common stock, at their respective conversion rate, upon the closing of an
initial public offering of eMed's common stock or, in the case of Series H
convertible preferred stock and Series J, automatically upon the closing of an
initial public offering of eMed's common stock with gross proceeds of at least
$15,000,000 to eMed and at a price to the public of at least $7.20 per common
share.
Liquidation Preference
In the event of any liquidation, dissolution or winding-up of eMed, the
holders of Series J are entitled to receive, prior to any distribution to
holders of Series Preferred or common stock, up to the amount of $1.10 per
share, plus any declared but unpaid dividends. After the payment of the full
liquidation preference of Series J, the holders of Series B, Series C, Series
E, Series F, Series G and Series H are entitled to receive, prior to any
distribution to holders of common stock, up to the amount of $1,000, $5,000,
$5,000, $1,000, $5,000 and $5,000 per share, respectively, plus any declared
but unpaid dividends. The aggregate liquidation preference of the convertible
preferred stock is approximately $20,265,000 at December 31, 1998.
Subsequent Preferred Stock Issuance
In January and May 1999, eMed sold 4,142,857 shares of Series K Convertible
Preferred Stock ("Series K") for net proceeds of $5,797,466. Each share of
Series K is convertible into 0.42 share of common stock subject to certain
anti-dilution adjustments. The holders of Series K will participate on an as-
converted basis in any dividends paid on common stock and are entitled to vote
together with all other classes of voting stock as a single class on all
matters. The liquidation preference is equal to the issue price. In connection
with the Series K issuance, eMed issued warrants to purchase 467,186 shares of
common stock at an exercise price of $0.02. The warrants expire in 2009.
8. Common Stock
Each share of common stock entitles the holder to one vote on all matters
submitted to a vote of eMed's stockholders. Common stockholders are entitled to
receive dividends, if any, as may be declared by the Board of Directors,
subject to any preferential dividend rights of the preferred stockholders.
F-13
<PAGE>
eMed Technologies Corporation
Notes to Financial Statements--(Continued)
Reserved Shares
As of December 31, 1998 and June 30, 1999, eMed has 8,938,780 and 10,351,758
shares of common stock reserved for issuance upon the exercise of common stock
options and warrants and conversion of the outstanding convertible preferred
stock, respectively.
Stock Split
On September 15, 1999, eMed authorized a 2.4 for one reverse split on its
common stock. As a result, all common stock share and per share data included
in the accompanying consolidated financial statements and notes have been
retroactively restated for the split.
9. Stock Plans
Prior to adoption of the 1994 Stock Plan described below, eMed granted
25,928 non-qualified stock options to certain employees, directors and
consultants of eMed of which 417 options have been exercised and 3,471 have
been canceled. The stock options vested at various dates through January 1998.
In 1994, eMed adopted the 1994 Stock Plan (the "1994 Plan") which provides
for the grant of incentive stock options and non-qualified stock options, stock
awards and stock purchase rights for the purchase of shares of eMed's common
stock by officers, employees, consultants and directors of eMed. At December
31, 1998, the number of shares issuable pursuant to the 1994 Plan was
1,187,500. In February 1999, the stockholders approved an increase in the
number of shares issuable pursuant to the 1994 Plan to 1,812,500. The Board of
Directors is responsible for administration of the 1994 Plan. The Board
determines the term of each option, the option exercise price, the number of
shares for which each option is granted and the rate at which each option is
exercisable. Incentive stock options may be granted to any employee at an
exercise price per share of not less than the fair value per common share on
the date of the grant (not less than 110% of fair value in the case of holders
of more than 10% of eMed's voting stock) and with a term not to exceed ten
years from the date of the grant (five years for incentive stock options
granted to holders of more than 10% of eMed's voting stock).
No compensation cost has been recognized for employee stock-based
compensation in 1996, 1997 or 1998. Had compensation cost attributable to the
1994 Plan and other options been determined based on the fair value of the
options at the grant date consistent with the provisions of FAS 123, eMed's net
loss and net loss per share would have been increased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net loss
As reported........................ $(3,745,761) $(5,625,169) $(5,112,954)
Pro forma.......................... (3,782,260) (5,653,283) (5,180,199)
Basic and diluted net loss per share
As reported........................ $ (8.39) $ (12.45) $ (11.70)
Pro forma.......................... (8.47) (12.52) (11.86)
</TABLE>
Because the determination of the fair value of all options granted after
eMed becomes a public entity will include an expected volatility factor,
additional option grants are expected to be made subsequent to December 31,
1998, and most options vest over several years, the above pro forma effects are
not necessarily indicative of the pro forma effects on future years.
F-14
<PAGE>
eMed Technologies Corporation
Notes to Financial Statements--(Continued)
Under SFAS No. 123, the fair value of each employee option grant is
estimated on the date of grant using the Black-Scholes option pricing model to
apply the minimum value method with the following weighted-average assumptions
used for grants made during the years ended December 31, 1996, 1997 and 1998:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Expected option term (years)................... 5 5 5
Risk-free interest rate........................ 6.2% 6.4% 5.0%
Dividend yield................................. 0.0% 0.0% 0.0%
</TABLE>
A summary of the status of eMed's stock options as of December 31, 1996,
1997 and 1998, and changes during the years then ended is presented below:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------------------------
1996 1997 1998
----------------------- ----------------------- -----------------------
Weighted- Weighted- Weighted-
average average average
Shares exercise price Shares exercise price Shares exercise price
------- -------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 110,452 $2.11 235,812 $1.15 510,197 $1.18
Granted................. 236,737 $1.20 331,536 $1.20 564,697 $1.20
Exercised............... (11,597) $1.20 (1,562) $1.20 (33,326) $1.20
Canceled................ (99,780) $2.35 (55,589) $1.20 (54,268) $1.20
------- ----- ------- ----- ------- -----
Outstanding at end of
year................... 235,812 $1.15 510,197 $1.18 987,300 $1.20
======= ===== ======= ===== ======= =====
Options exercisable at
end of year............ 162,525 261,543 471,356
======= ======= =======
Weighted-average fair
value of options
granted during the
year................... $ 0.31 $ 0.34 $ 0.34
======= ======= =======
Options available for
grant at end of year... 328,887 666,884 175,755
======= ======= =======
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Weighted-average
Options remaining Options
Exercise price outstanding contractual life exercisable
-------------- ----------- ---------------- -----------
<S> <C> <C> <C>
$0.01 6,646 4.4 6,646
$0.42 14,286 4.1 14,286
$0.50 966,368 7.5 450,424
------- -------
987,300 471,356
======= =======
</TABLE>
Deferred Compensation
During the six months ended June 30, 1999, eMed granted stock options to
purchase 177,395 shares of its common stock with an exercise price of $1.20 per
share and 551,354 shares of its common stock with an exercise price of $2.04
per share. eMed recorded deferred compensation relating to these options
totaling approximately $2,838,231, representing the differences between the
estimated fair market value of the common stock on the date of grant and the
exercise price. Compensation expense related to these options is being
amortized over the related vesting periods. For the six months ended June 30,
1999, eMed recorded approximately $240,000 of compensation expense related to
these options.
F-15
<PAGE>
eMed Technologies Corporation
Notes to Financial Statements--(Continued)
10. Income Taxes
Deferred tax assets consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
1997 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................. $ 5,914,557 $ 7,532,342
Other............................................ 134,336 624,489
----------- -----------
Deferred tax assets................................ 6,048,893 8,156,831
Deferred tax asset valuation allowance............. (6,048,893) (8,156,831)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
Realization of deferred tax assets is dependent upon the generation of
future taxable income. eMed has provided a valuation allowance for the full
amount of its deferred tax assets since realization of these future benefits is
not sufficiently assured.
At December 31, 1998, eMed has net operating loss carryforwards of
approximately $18,371,000 to offset future federal taxable income. If not
utilized, these carryforwards will expire at various dates ranging from 2013 to
2018. Under the provisions of the Internal Revenue Code, certain substantial
changes in eMed's ownership may have limited, or may limit in the future, the
amount of net operating loss carryforwards which could be used annually to
offset future taxable income and income tax liability. The amount of any annual
limitation is determined based upon eMed's value prior to an ownership change.
11. 401(k) Plan
During 1995, eMed established a defined contribution savings plan under
Section 401(k) of the Internal Revenue Code. This plan covers substantially all
employees who meet minimum age and service requirements and allows participants
to defer a portion of their annual compensation on a pre-tax basis. eMed
contributions to the plan may be made at the discretion of the Board of
Directors. There were no contributions made to the plan by eMed during the
years ended December 31, 1996, 1997 and 1998.
12. Commitments
Leases
eMed leases office space and certain fixed assets under noncancelable
operating and capital leases. The future minimum lease commitments under all
noncancelable leases at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Operating Capital
Lease Leases
---------- -------
<S> <C> <C>
1999..................................................... $ 641,239 $52,919
2000..................................................... 584,980 6,966
2001..................................................... 567,780 --
2002..................................................... 520,465 --
---------- -------
Total minimum lease payments............................. $2,314,464 59,885
==========
Less--amount representing interest....................... 7,568
-------
Present value of minimum lease payments.................. $52,317
=======
</TABLE>
Total rent expense under noncancelable operating leases was approximately
$257,000, $287,000 and $562,000 in 1996, 1997 and 1998, respectively.
F-16
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of
eMed Technologies Corporation:
In our opinion, the accompanying balance sheet and the related statements of
operations and accumulated deficit and of cash flows present fairly, in all
material respects, the financial position of E-Systems Medical Electronics (a
division of Raytheon E-Systems, Inc.) at December 31, 1997 and November 23,
1998 and the results of its operations and its cash flows for the year ended
December 31, 1997 and for the period from January 1, 1998 through November 23,
1998 in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards, which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 9, 1999
F-17
<PAGE>
E-Systems Medical Electronics
(a division of Raytheon E-Systems, Inc.)
Balance Sheet
<TABLE>
<CAPTION>
December 31, November 23,
1997 1998
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash............................................. $ 90,888 $ 1,009
Accounts receivable, net of allowance for
doubtful accounts of $46,000 and $150,000 at
December 31, 1997 and November 23, 1998,
respectively.................................... 2,978,522 2,332,937
Inventories...................................... 1,175,196 2,430,573
Prepaid expenses and other current assets........ 363,432 54,653
------------ ------------
Total current assets........................... 4,608,038 4,819,172
Fixed assets, net.................................. 681,576 205,398
Other assets....................................... 37,200 --
------------ ------------
Total assets................................... $ 5,326,814 $ 5,024,570
============ ============
Liabilities and Accumulated Deficit
Current liabilities:
Accounts payable................................. $ 1,363,258 $ 1,156,310
Accrued employee benefits........................ 253,010 161,798
Accrued warranty................................. 200,000 200,000
Other accrued expenses........................... 575,679 390,958
Deferred revenue................................. 465,322 432,035
------------ ------------
Total current liabilities...................... 2,857,269 2,341,101
Long-term payable to Raytheon...................... 29,993,246 36,213,392
------------ ------------
Total liabilities.............................. 32,850,515 38,554,493
Commitments (Note 7)
Accumulated deficit................................ (27,523,701) (33,529,923)
------------ ------------
Total liabilities and accumulated deficit...... $ 5,326,814 $ 5,024,570
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
E-Systems Medical Electronics
(a division of Raytheon E-Systems, Inc.)
Statement of Operations and Accumulated Deficit
<TABLE>
<CAPTION>
Period from
January 1, 1998
Year ended through
December 31, November 23,
1997 1998
------------ ---------------
<S> <C> <C>
Revenue........................................... $ 15,006,266 $ 11,217,121
Cost of revenue................................... 16,055,320 9,928,411
------------ ------------
Gross margin.................................... (1,049,054) 1,288,710
------------ ------------
Operating expenses:
Research and development........................ 2,369,445 3,365,301
Sales and marketing............................. 3,145,504 2,599,950
General and administrative...................... 2,277,301 1,323,836
------------ ------------
Total operating expenses...................... 7,792,250 7,289,087
------------ ------------
Loss from operations.............................. (8,841,304) (6,000,377)
Other expense..................................... (80,895) (5,845)
------------ ------------
Net loss........................................ (8,922,199) (6,006,222)
Accumulated deficit, beginning of period.......... (18,601,502) (27,523,701)
------------ ------------
Accumulated deficit, end of period................ $(27,523,701) $(33,529,923)
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
E-Systems Medical Electronics
(a division of Raytheon E-Systems, Inc.)
Statement of Cash Flows
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
Period from
January 1, 1998
Year ended through
December 31, November 23,
1997 1998
------------ ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................ $ (8,922,199) $ (6,006,222)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation................................... 649,650 517,453
Loss on disposal of fixed assets............... -- 3,730
Allocation of costs by Raytheon................ 5,057,882 3,551,205
Changes in operating assets and liabilities:
Accounts receivable........................... 2,132,522 645,585
Inventories................................... 834,282 (1,255,377)
Prepaid expenses and other current assets..... (346,327) 308,779
Accounts payable.............................. 815,510 (206,948)
Accrued employee benefits..................... 23,112 (91,212)
Accrued warranty.............................. 118,300 --
Other accrued expenses........................ 463,955 (184,721)
Deferred revenue.............................. (611,628) (33,287)
Cash provided by Raytheon..................... 18,406,307 15,008,634
Cash remitted to Raytheon..................... (17,222,106) (12,339,693)
------------ ------------
Net cash (used in) provided by operating
activities.................................. 1,399,260 (82,074)
------------ ------------
Cash flows from investing activities:
Purchases of fixed assets....................... (629,604) (45,005)
Change in other assets.......................... (37,200) 37,200
------------ ------------
Net cash used in investing activities........ (666,804) (7,805)
------------ ------------
Cash flows from financing activities:
Cash paid in reorganization (Note 1)............ (9,545,942) --
------------ ------------
Decrease in cash................................. (8,813,486) (89,879)
Cash, beginning of period........................ 8,904,374 90,888
------------ ------------
Cash, end of period.............................. $ 90,888 $ 1,009
============ ============
Supplemental cash flow disclosure:
</TABLE>
No cash was paid for interest or taxes for the year ended December 31, 1997
or for the period from January 1, 1998 through November 23, 1998.
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
E-Systems Medical Electronics (a division of Raytheon E-Systems, Inc.)
Notes to Financial Statements
1. Organization and Nature of Business
E-Systems Medical Electronics markets and sells electronic medical imaging
systems and provides related services to healthcare providers primarily within
the United States. E-Systems Medical Electronics operates in one business
segment.
E-Systems Medical Electronics was established as a wholly owned subsidiary
of E-Systems. In 1995, E-Systems was acquired by Raytheon Company ("Raytheon")
and subsequently became Raytheon E-Systems, Inc., a wholly owned subsidiary of
Raytheon. In February 1997, E-Systems Medical Electronics was reorganized as a
division of Raytheon E-Systems, Inc. As part of the reorganization, the assets,
liabilities and capital of E-Systems Medical Electronics were transferred to
Raytheon E-Systems, Inc. E-Systems Medical Electronics operated as a division
of Raytheon E-Systems, Inc. from the date of transfer through November 23,
1998.
2. Summary of Significant Accounting Policies
Cash
E-Systems Medical Electronics maintains minimal levels of cash. Cash needs
are funded by Raytheon and cash receipts are remitted to Raytheon on a regular
basis.
Fair Value of Financial Instruments
The carrying amount of E-Systems Medical Electronics's financial
instruments, which include cash, accounts receivable, accounts payable, accrued
expenses and long-term payable, approximate their fair values at December 31,
1997 and November 23, 1998.
Revenue Recognition, Significant Customers and Concentration of Credit Risk
Revenue from the sale of electronic medical imaging systems and equipment is
recognized upon shipment to the customer provided that the risk of loss has
passed to the customer and collection of the related receivable is probable.
Service revenue, consisting of installation, training, and support services, is
recognized as the work is performed.
Financial instruments that potentially expose E-Systems Medical Electronics
to concentration of credit risk include accounts receivable. E-Systems Medical
Electronics performs ongoing evaluations of customers' financial condition and
does not generally require collateral. At December 31, 1997 and November 23,
1998, accounts receivable from one customer accounted for 13% and 26%,
respectively, of the total amounts due to E-Systems Medical Electronics.
In 1997, sales with two customers accounted for approximately 15% and 11% of
E-Systems Medical Electronics's total revenue. In 1998, sales with one customer
accounted for approximately 12% of E-Systems Medical Electronics's total
revenue.
Inventories
Inventories are stated at the lower of cost or market, cost being determined
using the first-in, first-out (FIFO) method.
F-21
<PAGE>
E-Systems Medical Electronics (a division of Raytheon E-Systems, Inc.)
Notes to Financial Statements--(Continued)
Fixed Assets
Fixed assets are recorded at cost and depreciated using the straight-line
method over their estimated useful lives. Repair and maintenance costs are
expensed as incurred.
Advertising Costs
Advertising costs are charged to operations as incurred. Advertising costs
were approximately $121,000 and $32,000 in the year ended December 31, 1997 and
the period ended November 23, 1998, respectively.
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 revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Income Taxes
As a division of Raytheon, E-Systems Medical Electronics does not operate as
a stand-alone taxable entity; however, for purposes of these financial
statements, income tax information has been calculated in accordance with
Statement of Accounting Standards No. 109, "Accounting for Income Taxes", as if
E-Systems Medical Electronics were a stand-alone taxable entity (Note 6).
Recently Issued Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The new standard establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, (collectively referred to
as derivatives) and for hedging activities. In June 1999, the FASB issued SFAS
No. 137 which deferred the effective date of SFAS No. 133 for one year. SFAS
No. 133 is now effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. E-Systems Medical Electronics does not expect SFAS No. 133
to have a material effect on its financial position or results of operations.
In April 1998, the AcSEC issued SoP 98-5, "Reporting on the Costs of Start-
Up Activities." Start-up activities are defined broadly as those one-time
activities related to the opening of a new facility, introducing a new product
or service, conducting business in a new territory, conducting business with a
new class of customer, commencing some new operation or organizing a new
entity. SoP 98-5 requires that the cost of start-up activities be expensed as
incurred. SoP 98-5 is effective for E-Systems Medical Electronics beginning in
1999, and E-Systems Medical Electronics does not expect adoption of this SoP to
have a material effect on its financial position or results of operations.
3. Inventories
<TABLE>
<CAPTION>
December 31, 1997 November 23, 1998
----------------- -----------------
<S> <C> <C>
Raw materials and purchased
components.......................... $1,053,037 $2,430,573
Work-in-process...................... 91,646 --
Finished goods....................... 30,513 --
---------- ----------
$1,175,196 $2,430,573
========== ==========
</TABLE>
F-22
<PAGE>
E-Systems Medical Electronics (a division of Raytheon E-Systems, Inc.)
Notes to Financial Statements--(Continued)
4. Fixed Assets
<TABLE>
<CAPTION>
Estimated
Useful life (years) December 31, 1997 November 23, 1998
------------------- ----------------- -----------------
<S> <C> <C> <C>
Furniture and fixtures.. 5 $ 70,330 $ 63,156
Office equipment and
computers.............. 3 613,085 620,720
Electronic imaging
equipment.............. 3 2,368,227 2,231,065
---------- ----------
3,051,642 2,914,941
Less -- Accumulated
depreciation........... 2,370,063 2,709,543
---------- ----------
$ 681,579 $ 205,398
========== ==========
</TABLE>
5. Intercompany Transactions
E-Systems Medical Electronics had a liability due to Raytheon in the amount
of $29,993,246 and $36,213,392 at December 31, 1997 and November 23, 1998,
respectively. The average balance of the liability due to Raytheon during the
year ended December 31, 1997 and the period ended November 23, 1998 was
$29,303,294 and $32,377,065, respectively. The liability due to Raytheon
results from cash transfers between E-Systems Medical Electronics and Raytheon
and the allocation of costs to E-Systems Medical Electronics consisting of
direct costs, such as insurance premiums, payroll services and legal services,
and other allocated services. Other allocated services consist of indirect
costs related to E-Systems Medical Electronics, such as corporate governance
and other general and administrative activities. Such allocations are based
upon estimated support provided to E-Systems Medical Electronics. Management
believes these estimates are reasonable. No interest has been charged on
intercompany liabilities.
The following table summarizes intercompany transactions during the year
ended December 31, 1997 and the period January 1, 1998 through November 23,
1998
<TABLE>
<S> <C>
Balance at December 31, 1996................................. $ 23,751,163
Allocation of costs to E-Systems Medical Electronics....... 5,057,882
Cash transferred from Raytheon to E-Systems Medical
Electronics............................................... 18,406,307
Cash transferred from E-Systems Medical Electronics to
Raytheon.................................................. (17,222,106)
------------
Balance at December 31, 1997................................. 29,993,246
Allocation of costs to E-Systems Medical Electronics....... 3,551,205
Cash transferred from Raytheon to E-Systems Medical
Electronics............................................... 15,008,634
Cash transferred from E-Systems Medical Electronics to
Raytheon.................................................. (12,339,693)
------------
Balance at November 23, 1998................................. $ 36,213,392
============
</TABLE>
6. Income Taxes
Deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
December 31, November 23,
1997 1998
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............... $ 6,062,000 $ 8,482,000
Other.......................................... 19,000 62,000
----------- -----------
Deferred tax assets.............................. 6,081,000 8,544,000
Deferred tax asset valuation allowance........... (6,081,000) (8,544,000)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
F-23
<PAGE>
E-Systems Medical Electronics (a division of Raytheon E-Systems, Inc.)
Notes to Financial Statements--(Continued)
Realization of deferred tax assets is dependent upon the generation of
future taxable income. E-Systems Medical Electronics has provided a valuation
allowance for the full amount of its deferred tax assets since realization of
these future benefits is not sufficiently assured.
7. Commitments
Leases
E-Systems Medical Electronics leases office space under noncancelable
operating leases. Future minimum lease payments under these leases are as
follows:
<TABLE>
<CAPTION>
Year ending
December 31,
------------
<S> <C>
1999.............................................................. $73,191
2000.............................................................. 20,483
2001.............................................................. 274
-------
Total minimum lease payments.................................... $93,948
=======
</TABLE>
Total rent expense was approximately $579,348 and $538,683 in 1997 and 1998,
respectively.
8. Subsequent Event
On November 23, 1998, E-Systems Medical Electronics was purchased by eMed
Technologies Corporation for $3,200,000. The acquisition was funded by a
$2,200,000 note payable to Raytheon and $1,000,000 in cash.
F-24
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
The following unaudited pro forma statement of operations gives effect to
the acquisition by eMed Technologies Corporation ("eMed") of E-Systems Medical
Electronics, a division of Raytheon E-Systems, Inc., in a transaction accounted
for as a purchase. The unaudited pro forma statement of operations is based on
the individual statements of operations of eMed and E-Systems Medical
Electronics appearing elsewhere in this registration statement, and combines
the results of operations of eMed and of E-Systems Medical Electronics
(acquired by eMed as of November 23, 1998) for the year ended December 31, 1998
as if the acquisition occurred on January 1, 1998. The unaudited pro forma
statement of operations for the year ended December 31, 1998 should be read in
conjunction with the historical financial statements and notes thereto of eMed
and E-Systems Medical Electronics included elsewhere in this registration
statement.
The pro forma information is presented for illustrative purposes only and is
not indicative of the operating results that would have occurred had the
acquisition been consummated at the beginning of the period presented, nor is
it indicative of future operating results.
Pro Forma Combined Statement of Operations
Year ended December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
E-Systems
Medical Pro forma Pro forma
eMed Electronics Adjustments Combined
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenue................. $12,594,167 $11,217,121 $(3,103,244)a $ 20,708,044
Cost of Revenue......... 8,976,139 9,928,411 (3,093,517)a 15,811,033
----------- ----------- ----------- ------------
Gross margin.......... 3,618,028 1,288,710 (9,727) 4,897,011
----------- ----------- ----------- ------------
Operating expenses:
Research and develop-
ment................. 2,361,430 3,365,301 -- 5,726,731
Sales and marketing... 3,498,169 2,599,950 -- 6,098,119
General and adminis-
trative.............. 2,722,340 1,323,836 7,704 b 4,053,880
----------- ----------- ----------- ------------
Total operating ex-
penses............. 8,581,939 7,289,087 7,704 15,878,730
----------- ----------- ----------- ------------
Loss from operations.... (4,963,911) (6,000,377) (17,431) (10,981,719)
Interest expense, net... (105,611) -- (321,056)c (426,667)
Other expense........... (43,432) (5,845) -- (49,277)
----------- ----------- ----------- ------------
Net loss.............. $(5,112,954) $(6,006,222) $ (338,487) $(11,457,663)
=========== =========== =========== ============
Pro forma basic and di-
luted net loss per
share.................. $ (11.70) -- -- $ (26.22)
Shares used in computing
pro forma basic
and diluted net loss per
share.................. 436,949 -- -- 436,949
</TABLE>
F-25
<PAGE>
NOTES TO PRO FORMA COMBINED STATEMENT OF OPERATIONS
(unaudited)
The unaudited pro forma combined statement of operations gives effect to the
following pro forma adjustments necessary to reflect the acquisition as if it
had occurred on January 1, 1998:
a. Elimination of revenue and cost of revenue directly associated with
certain assets acquired by eMed as part of E-Systems Medical Electronics
and classified as assets held for sale by eMed at December 31, 1998.
These assets were subsequently sold in February 1999.
b. Additional amortization of goodwill on a straight-line basis over 10
years.
c. Increase in interest expense on debt incurred in connection with the
acquisition of E-Systems Medical Electronics. A change in the interest
rate on variable rate debt by 1/8% would not have a material effect on
the pro forma combined statement of operations.
F-26
<PAGE>
"Internet Viewing Applications"
"Image-centric presentation for radiologists and specialists"
"Format"
"Screen layout and study navigation"
[radiology image and patient
information as displayed by FrameWave
Web on a computer monitor.]
"Patient Jacket"
"Access to current and prior
studies and reports"
"Workflow Tools" "Imaging"
"Worklists and Comprehensive tools for image
search utilities" enhancement
"Report-centric presentation for referring physicians"
"Patient Jacket" [radiology image integrated with
"Access to current and radioligist's report and patient
prior reports, audio clips and studies" information as displayed by
FrameWave Web on a computer
monitor.]
"Images"
"Reference images with
double click to full view"
"Report"
"Radiologist reports
readily accessible"
"The above graphics depict products that we introduced in June 1999."
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely
only on any unauthorized information or representation. This prospectus is an
offer to sell or a solicitation of an offer to buy only the shares offered by
this prospectus, but only under circumstances and in jurisdictions where it is
lawful to do so. The information contained in this prospectus is current only
as of its date.
---------------
TABLE OF CONTENTS
---------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 1
Risk Factors............................................................. 5
Use of Proceeds.......................................................... 13
Dividend Policy.......................................................... 13
Capitalization........................................................... 14
Dilution................................................................. 15
Selected Financial Data.................................................. 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 17
Business................................................................. 25
Management............................................................... 34
Certain Transactions..................................................... 44
Description of Capital Stock............................................. 45
Shares Eligible for Future Sale.......................................... 48
Underwriting............................................................. 50
Legal Matters............................................................ 52
Experts.................................................................. 52
Where You Can Find Additional Information................................ 52
Index to Financial Statements............................................ F-1
</TABLE>
Dealer Prospectus Delivery Obligation:
Until , 1999 (25 days after the date of this prospectus), all dealers
that buy, sell, or trade these shares of common stock, 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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,100,000 Shares
eMed Technologies
Corporation
Common Stock
---------------
PROSPECTUS
---------------
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette
---------------
Wit Capital Corporation
, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates, except
the Securities and Exchange Commission registration fee and the National
Association of Securities Dealers, Inc. filing fee.
<TABLE>
<CAPTION>
Item Amount
---- --------
<S> <C>
Securities and Exchange Commission Registration Fee................ $ 15,985
National Association of Securities Dealers Filing Fee.............. 6,250
Nasdaq National Market Listing Fee................................. 60,000
Blue Sky Fees and Expenses......................................... 10,000
Transfer Agent and Registrar Fees.................................. 3,500
Accounting Fees and Expenses....................................... 350,000
Legal Fees and Expenses............................................ 350,000
Printing Expenses.................................................. 90,000
Miscellaneous...................................................... 14,265
--------
Total............................................................ $900,000
========
</TABLE>
- --------
* To be filed by amendment
Item 14. Indemnification of Directors and Officers
The Registrant's Amended and Restated Certificate of Incorporation provides
that the Registrant's Directors shall not be liable to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent that the exculpation from liabilities is not permitted
under the Delaware General Corporation Law as in effect at the time such
liability is determined. The Amended and Restated By-Laws provide that the
Registrant shall indemnify its directors to the full extent permitted by the
laws of the State of Delaware. Each of the Registrant's Directors has entered
into an agreement with the Registrant whereby the Registrant has agreed to
indemnify such Director to the full extent permitted by the laws of the State
of Delaware.
Item 15. Recent Sales of Unregistered Securities
The following information is furnished with regard to all Securities sold by
the Registrant within the past three years which were not registered under the
Securities Act.
(a) From August 1, 1996 to September 17, 1999, the Registrant issued a
total of 148,247 shares of common stock for an aggregate consideration of
$177,898 pursuant to the exercise of stock options and warrants by
employees, directors, consultants and their affiliates.
(b) In June 1997, the Registrant sold $1,500,000 in principal amount of
convertible subordinated notes for aggregate proceeds of $1,500,000. These
notes were issued to Delphi Ventures III, L.P., Seaflower Health and
Technology Fund, LLC and other private investors. These notes were
automatically convertible, upon the Registrant's sale of new equity
securities for gross proceeds of at least $1,500,000, into securities
having the same price and terms as the new equity securities. Purchasers of
the notes also received warrants to purchase an additional amount of the
new equity securities having an aggregate purchase price of 30% of the
amount of the purchaser's note, at the same price that such new equity
securities were issued to other investors. The notes had a maturity date of
October 31, 1997 and bore
II-1
<PAGE>
interest at the rate of 6% per annum. Accrued interest converted on the
same terms as the principal amount of the notes. In September 1997, these
notes were automatically converted into 1,384,460 shares of Series J
preferred stock at a conversion price of $1.10 per share of Series J
preferred stock. The warrants issued with the notes became warrants to
purchase 409,091 shares of Series J preferred stock at an exercise price of
$1.10 per share. The Series J preferred stock will be converted into
3,221,179 shares of common stock and the Series J warrants will become
warrants to purchase 170,449 shares of common stock upon the closing of
this offering.
(c) In September through December of 1997, the Registrant sold an
aggregate of 6,346,449 shares of Series J preferred stock (excluding the
shares issued upon the conversion of the notes described above) for
aggregate proceeds of $6,981,094. These shares were issued to Bedrock
Capital Partners, Pacific Venture Group, L.P., Bessemer Venture Partners IV
L.P., and other private investors.
(d) In July 1998, various investors entered into commitments with the
Registrant to purchase shares of Series K preferred stock for an aggregate
price of $2,500,000 if the Registrant notified them of its election to sell
the shares. The investors who made these commitments also received warrants
to purchase in the aggregate 201,388 shares of common stock at an exercise
price of $.02 per share as consideration for their commitments.
In January 1999, the Registrant elected to draw upon the initial
investors' commitments to purchase Series K preferred stock and sold
additional shares of Series K preferred stock together with warrants to
purchase additional shares of our common stock at an exercise price of $.02
per share to other investors. In the aggregate (including the securities
discussed in the preceding paragraph), the Registrant issued 2,500,000
shares of Series K preferred stock together with warrants to purchase
281,916 shares of common stock for proceeds of $3,500,000. These shares and
warrants were issued to Bedrock Capital Partners, Pacific Venture Group,
L.P., Delphi Ventures III, L.P., Seaflower Bioventure Fund II, LLC,
Bessemer Venture Partners IV L.P., and other private investors.
In May 1999, the Registrant sold 1,642,856 additional shares of Series K
preferred stock and warrants to purchase an additional 185,270 shares of
common stock for aggregate proceeds of $2,300,000. These shares and
warrants were issued to Zero Stage Capital VI, L.P. and other private
investors.
All of the above securities were issued in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as
amended, and Rule 506 of the Securities and Exchange Commission promulgated
thereunder, as transactions by an issuer not involving a public offering.
Item 16. Exhibits and Financial Statement Schedules
The following is a list of exhibits filed as a part of this registration
statement.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1 Form of underwriting agreement.*
2 Acquisition Agreement dated as of November 23, 1998 by and between
Raytheon E-Systems, Inc. and the Registrant.
3.1 Form of Amended and Restated Certificate of Incorporation.**
3.2 Form of Amended and Restated By-Laws.**
4.1 Specimen Certificate for Common Stock.*
5 Opinion of Ropes & Gray.**
10.1 eMed 1994 Stock Plan.**
10.2 Securities Purchase Agreement dated as of September 30, 1997 between
the Registrant and each of the investors named therein.**
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.3 Investors Rights Agreement dated as of September 30, 1997 among the
Registrant and each of the holders of the Company's Series J Preferred
Stock parties thereto.**
10.4 Amendment No. 1 dated as of November 13, 1997 to the Investors Rights
Agreement.**
10.5 Securities Purchase Agreement dated as of July 28, 1998 between the
Registrant and each of the investors named therein.**
10.6 Amendment to Securities Purchase Agreement dated as of January 14,
1999.**
10.7 Securities Purchase Agreement dated as of January 20, 1999 between the
Registrant and each of the investors named therein.**
10.8 Amendment to the Securities Purchase Agreement dated as of May 7,
1999.**
10.9 Registration Rights Agreement dated as of July 28, 1998 between the
Registrant and the parties named therein.**
10.11 Commercial Lease as of September 26, 1997 by and between Hartwell
Group LLC and the Registrant.**
10.12 Amendment 1 to Commercial Lease dated as of November 28, 1997.**
10.13 Employment Agreement dated as of March 31, 1999 by and between Scott
S. Sheldon and the Registrant.**
10.14 Employment Agreement dated as of April 30, 1999 by and between Howard
Pinsky and the Registrant.**
10.15 Form of Director Indemnity Agreement.**
10.16 Form of Director Work Product Agreement.**
10.17 Form of Director Confidentiality Agreement.**
10.18 Form of Common Stock Warrant.**
10.19 Form of Series K Common Stock Warrant.**
10.20 Form of Series J Preferred Warrant.**
10.21 Web Software Licensing and Development Agreement dated as of September
10, 1999 between the Registrant and AWARE, Inc.+
10.22 Software Licensing and Development Agreement dated as of May 30, 1997
between the Registrant and AWARE, Inc.+
10.23 Amended and Restated Reseller Agreement dated as of May 30, 1997
between the Registrant and ISG Technologies, Inc.+
10.24 Amendment No. 1 to Amended and Restated Reseller Agreement dated as of
April 30, 1998 between the Registrant and ISG Technologies, Inc.+
10.25 Letter Agreement dated as of December 29, 1998 between the Registrant
and ISG Technologies, Inc.+
10.26 Access Radiology Corporation Confidentiality Agreement dated as of
March 31, 1995 between the Registrant and ISG Technologies, Inc.**
10.27 OEM Development Software Agreement dated as of November 9, 1995
between the Registrant and Mitra Imaging Incorporated.+
10.28 Amendment to OEM Development Software Agreement dated as of May 20,
1995 between the Registrant and Mitra Imaging Incorporated.+
10.29 Amendment to OEM Development Software Agreement dated as of April 28,
1999 between the Registrant and Mitra Imaging Incorporated.+
23.1 Consent of Ropes & Gray (Exhibit 5).**
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of PricewaterhouseCoopers LLP.
24 Power of Attorney (included on page II-5).**
27.1 Financial Data Schedule.**
</TABLE>
- --------
*To Be Filed by Amendment
**Previously Filed
+Portions have been omitted pursuant to a request for confidential treatment
dated September 29, 1999
II-3
<PAGE>
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts.
<TABLE>
<CAPTION>
Balance at Balance at
beginning of Charged to end of
Description period Operations Deductions period
- ----------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1996
Reserves and allowances
deducted from
asset accounts...............
Allowance for doubtful
accounts.................... $ -- 25,000 -- $ 25,000
Year ended December 31, 1997
Reserves and allowances
deducted from
asset accounts ..............
Allowances for doubtful
accounts ................... $25,000 10,000 -- $ 35,000
Year ended December 31, 1998
Reserves and allowances
dededucted from
asset accounts ..............
Allowances for doubtful
accounts ................... $35,000 460,000 (7,927)(1) $487,073
</TABLE>
- --------
(1) Uncollectible accounts written off.
All other schedules are omitted because they are not applicable or the
required information is shown in the other Financial Statements or Notes
thereto.
Item 17. Undertakings
(a) 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 provisions described under "Item 14--Indemnification
of Directors and Officers" above, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the 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.
(b) 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.
(2) For the 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.
(c) The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the purchase agreements, certificates
in such denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lexington, MA on this
28th day of September 1999.
eMed Technologies Corporation
/s/ Scott S. Sheldon
By: _________________________________
Scott S. Sheldon
Chief Executive Officer and
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Scott S. Sheldon President, Chief Executive September 28, 1999
______________________________________ Officer and Director
Scott S. Sheldon
/s/ Gary A. Lortie Chief Financial Officer September 28, 1999
______________________________________
Gary A. Lortie
* Director September 28, 1999
______________________________________
James J. Bochnowski
* Director September 28, 1999
______________________________________
Thomas B. Neff
* Director September 28, 1999
______________________________________
Thomas O. Pyle
* Director September 28, 1999
______________________________________
Michael Schmertzler
* Director September 28, 1999
______________________________________
Donald E. Strange
</TABLE>
By: /s/ Gary A. Lortie
-----------------------------
Attorney in fact
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1 Form of underwriting agreement.*
2 Acquisition Agreement dated as of November 23, 1998 by and between
Raytheon E-Systems, Inc. and the Registrant.
3.1 Form of Amended and Restated Certificate of Incorporation.**
3.2 Form of Amended and Restated By-Laws.**
4.1 Specimen Certificate for Common Stock.*
5 Opinion of Ropes & Gray.**
10.1 eMed 1994 Stock Plan.**
10.2 Securities Purchase Agreement dated as of September 30, 1997 between
the Registrant and each of the investors named therein.**
10.3 Investors Rights Agreement dated as of September 30, 1997 among the
Registrant and each of the holders of the Company's Series J Preferred
Stock parties thereto.**
10.4 Amendment No. 1 dated as of November 13, 1997 to the Investors Rights
Agreement.**
10.5 Securities Purchase Agreement dated as of July 28, 1998 between the
Registrant and each of the investors named therein.**
10.6 Amendment to Securities Purchase Agreement dated as of January 14,
1999.**
10.7 Securities Purchase Agreement dated as of January 20, 1999 between the
Registrant and each of the investors named therein.**
10.8 Amendment to the Securities Purchase Agreement dated as of May 7,
1999.**
10.9 Registration Rights Agreement dated as of July 28, 1998 between the
Registrant and the parties named therein.**
10.11 Commercial Lease as of September 26, 1997 by and between Hartwell
Group LLC and the Registrant.**
10.12 Amendment 1 to Commercial Lease dated as of November 28, 1997.**
10.13 Employment Agreement dated as of March 31, 1999 by and between Scott
S. Sheldon and the Registrant.**
10.14 Employment Agreement dated as of April 30, 1999 by and between Howard
Pinsky and the Registrant.**
10.15 Form of Director Indemnity Agreement.**
10.16 Form of Director Work Product Agreement.**
10.17 Form of Director Confidentiality Agreement.**
10.18 Form of Common Stock Warrant.**
10.19 Form of Series K Common Stock Warrant.**
10.20 Form of Series J Preferred Warrant.**
10.21 Web Software Licensing and Development Agreement dated as of September
10, 1999 between the Registrant and AWARE, Inc.+
10.22 Software Licensing and Development Agreement dated as of May 30, 1997
between the Registrant and AWARE, Inc.+
10.23 Amended and Restated Reseller Agreement dated as of May 30, 1997
between the Registrant and ISG Technologies, Inc.+
10.24 Amendment No. 1 to Amended and Restated Reseller Agreement dated as of
April 30, 1998 between the Registrant and ISG Technologies, Inc.+
10.25 Letter Agreement dated as of December 29, 1998 between the Registrant
and ISG Technologies, Inc.+
10.26 Access Radiology Corporation Confidentiality Agreement dated as of
March 31, 1995 between the Registrant and ISG Technologies, Inc.**
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.27 OEM Development Software Agreement dated as of November 9, 1995
between the Registrant and Mitra Imaging Incorporated.+
10.28 Amendment to OEM Development Software Agreement dated as of May 20,
1995 between the Registrant and Mitra Imaging Incorporated.+
10.29 Amendment to OEM Development Software Agreement dated as of April 28,
1999 between the Registrant and Mitra Imaging Incorporated.+
23.1 Consent of Ropes & Gray (Exhibit 5).**
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of PricewaterhouseCoopers LLP.
24 Power of Attorney (included on page II -5).**
27.1 Financial Data Schedule.**
</TABLE>
- --------
*To Be Filed by Amendment
**Previously Filed
+Portions have been omitted pursuant to a request for confidential treatment
dated September 29, 1999.
<PAGE>
EXHIBIT 2
ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT (the "Agreement"), dated as of November 23,
1998, is by and between Raytheon E-Systems, Inc., a Delaware corporation
("Seller"), and ACCESS Radiology Corporation, a Delaware corporation ("Buyer").
WHEREAS, Seller designs, develops and sells, among other things, hardware
and software solutions for teleradiology and picture archiving and
communications systems ("PACS") to health care providers through the E-Systems
Medical Electronics (also known as "E-MED") product line; and
WHEREAS, Buyer desires to purchase certain assets of Seller and assume
certain liabilities incurred by Seller relating to Seller's business, and Seller
desires to sell such assets and assign such liabilities incurred by Seller to
Buyer, upon the terms and conditions set forth herein (the "Asset Purchase');
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, the parties hereto
hereby agree as follows:
Article 1.
Certain Definitions
-------------------
As used herein, unless the context otherwise requires, the following terms
(or any variant in the form thereof) have the following respective meanings.
Terms defined in the singular shall have a comparable meaning when used in the
plural, and vice versa, and the reference to any gender shall be deemed to
include all genders. Unless otherwise defined or the context otherwise clearly
requires, terms for which meanings are provided herein shall have such meanings
when used in any Schedule hereto and each collateral document and certificate
executed or required to be executed pursuant hereto or thereto or otherwise
delivered, from time to time, pursuant hereto or thereto.
"Acquired Assets" means the assets listed on Schedule I hereto.
"Action" means any action, suit, arbitration, inquiry, proceeding or
investigation by or before any court, governmental or other regulatory or
administrative agency, commission or tribunal.
"Adverse", "Adversely" when used in conjunction with "Affect," "Change" and
"Effect shall mean, with respect to Seller or Buyer, whichever is the party in
the context to which such term applies, any event which could reasonably be
expected to (a) adversely affect the enforceability of this Agreement by such
party or (b) adversely affect the properties, financial
<PAGE>
condition or results of operation of such party, or (c) impair such party's
ability to fulfill its obligations under the terms of this Agreement or (d)
adversely affect the aggregate rights and remedies of such party under this
Agreement or (e) when used with respect to the Business, adversely affect the
value of the Business; and, with respect to clauses (a) through (e), unless
otherwise specifically set forth, in a material respect or manner or to a
material degree (which, for the purposes of this Agreement shall, unless
specifically stated to the contrary, be determined without regard to the fact
that various provisions of this Agreement set forth specific dollar amounts or
the basis for calculating such amounts).
"Affiliate" means, with respect to any Person, any other Person
controlling, controlled by or under common control with, such Person, with
"control" for such purpose meaning the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities or voting interests,
by contract or otherwise.
"Asset Purchase" has the meaning set forth in the second recital hereto.
"Assumed Liabilities" means, except for the Retained Liabilities, all
liabilities, known unknown, incurred or accrued in connection with the E-MED
business, operations and the Acquired Assets.
"Business" means, collectively, the Acquired Assets and the Assumed
Liabilities.
"Buyer Indemnified Parties" has the meaning set forth in Section 10.2
below.
"Closing" means the consummation of the transactions contemplated by
Section 2.1 of
"Closing Date" means has the meaning set forth in Section 2.3 below.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor thereto, and the rules and regulations promulgated thereunder.
"Contract" means any written note, bond, mortgage, indenture, lease,
contract, instrument, license, agreement, sales order, purchase order, open bid
or other obligation (oral or written) or binding commitment relating to the
Business and all rights therein.
"Conversion Amount" means that number of shares equal to (i) the Final
Installment divided by (ii) 50% of the Effective Price per share of the then
most recent sale of equity securities by Buyer in a transaction or group of
related transactions resulting in the receipt by Buyer of aggregate gross
proceeds of at least $ 100,000 (excluding the exercise or conversion of any
employee options or any warrants, options or convertible securities outstanding
on the date of this Agreement). The "Effective Price" means (x) in any
transaction in which only common stock is sold, the price per share of such
common stock, and (y) in any transaction in which
-2-
<PAGE>
warrants, convertible securities or other rights to acquire common stock are
sold (whether or not in combination with common stock itself), the price
determined by dividing (q) the aggregate consideration that would be paid by an
investor to purchase the relevant securities and to exercise all warrants,
conversion privileges and other rights to acquire common stock included in such
securities by (r) the aggregate number of shares of common stock that the
investor would receive upon completion of the purchase and the exercise of all
such warrants, conversion privileges and rights to acquire common stock.
"Covered Liabilities" has the meaning set forth in Section 10.2 below.
"Entity" means any Person other than a natural Person.
"Environmental Laws" means all Federal, state, local and foreign Laws
relating to pollution or protection of the environment, including but not
limited to the Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA "), 42 U.S.C. 9601 et seq., the Resource Conservation and Recovery
Act, 42 U.S.C. 6901 et seq., the Federal Water Pollution Control Act, 33 U.S.C.
1251 et seq., the Clean Air Act, 42 U.S.C. 7401 et seq., and the Toxic
Substances Control Act, 15 U.S.C. 2601 et seq., and all analogous state Laws.
"Estimated Balance Sheet" means the October 23, 1998 balance sheet, att
Schedule 11 hereto.
"Excluded Assets" means those assets of Seller listed on Schedule III
hereto.
"Final Determination" means (a) with respect to federal Income Taxes, a
"determination" as defined in Section 1313(a) of the Code or execution of an
Internal Revenue Service Form 870AD and, with respect to Taxes other than
federal Income Taxes, any final determination of liability in respect of a Tax
that, under applicable law, is not subject to further appeal, review or
modification through proceedings or otherwise (including the expiration of a
statute of limitations or a period for the filing of claims for refunds, amended
returns or appeals from adverse determinations), or (b) the payment of Tax by
Seller, Buyer or any of their Affiliates, whichever is responsible for payment
of such Tax liability under applicable law, with respect to any item disallowed
or adjusted by a Taxing Authority, provided that such responsible party
determines that no action should be taken to recoup such payment and the
indemnifying party, if any, agrees.
"Governmental Authority" means any nation or government, any state or other
political subdivision thereof, any federal, state, local or foreign Entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, including any court, government
authority, agency, department, board, commission, or instrumentality of the
United States, any State of the United States or political subdivision thereof,
and any tribunal or arbitral authority of competent jurisdiction, and any self
regulatory organization.
-3-
<PAGE>
"Income Tax" means any federal, state, local, or foreign income tax,
including any interest, penalty or addition thereto, whether disputed or not.
"Income Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Income Taxes, including
any schedule or attachment thereto, and including any amendment thereof
"Intellectual Property' means all proprietary software, designs and
documentation, patents, patent rights, copyrights, trade secrets, know-how,
service marks, maskworks and trademarks, applications for any of the foregoing,
in all countries in the world, and unfiled invention disclosures.
"Knowledge" (including the term "to the knowledge of') means the actual
knowledge of the Persons named on Schedule IV hereto.
"Laws" means statutes, regulations, ordinances, rules and other laws
promulgated by a Governmental Authority.
"Licenses" means permits, registrations, approvals, franchises or other
authorizations.
"Lien" means a restriction on voting or transfer or pledge, lien, mortgage,
hypothecation, collateral assignment, charge, encumbrance, easement, covenant,
restriction, title defect, encroachment or security interest of any kind.
"MegaScan" means the series of high definition monitors manufactured and
sold by Seller.
"Orders" means judgments, orders, injunctions, decrees, stipulations or
awards (whether rendered by a court, administrative agency, arbitrator or other
tribunal) and whether imposed or entered by consent.
"PACS" has the meaning set forth in the first recital hereto.
"Permits" has the meaning set forth in Section 3.15.
"Permitted Liens" means any Liens (i) for Taxes attributable to any taxable
period beginning on or prior to the Closing Date and not yet due or payable or
being contested in good faith, (ii) that are not material and constitute
mechanics', carriers', workers' or like liens incurred in the ordinary course of
business, or (iii) that, individually or in the aggregate, are not material.
"Person" means an individual, a corporation, a limited liability company, a
partnership, an association, a trust or any other entity or organization,
including a government or political subdivision or any agency or instrumentality
thereof.
-4-
<PAGE>
"Purchase Price" means Three Million Eight Hundred Thousand Dollars
($3,800,000), subject to adjustment pursuant to Schedule 2.3(b) and Section 2.5.
"Retained Liabilities" means those liabilities of Seller listed on Schedule
V hereto.
"Raytheon Indemnified Parties" has the meaning set forth in Section 10.3
below.
"Returns" means returns, reports and forms required to be filed with any
Governmental Authority.
"Schedule" or "Scheduled" means any Schedule hereto or of or pertaining to
any such Schedule.
"Taxes" means all taxes (whether federal, state, local or foreign) based
upon or measured by income and any other tax whatsoever, including, but not
limited to, gross receipts, profits, sales, use, occupation, value added, ad
valorem, transfer, franchise, withholding, payroll, employment, excise or
property taxes, together with any interest or penalties imposed with respect
thereto.
"Third Party Claim" means any Action by or before any Governmental
Authority asserted by a Person other than any party hereto or their respective
Affiliates which gives rise to a right of indemnification hereunder.
Article II.
Sale of Assets: Closing
------------------------
Section 2. 1. Purchase and Sale.
------------------
(a) On the basis of the representations, warranties, covenants and
agreements and subject to the satisfaction or waiver of the conditions set forth
herein, at the Closing, Buyer hereby agrees to purchase from Seller and Seller
hereby agrees to sell, convey, transfer, assign and deliver to Buyer, free and
clear of all Liens, other than Permitted Liens, the Acquired Assets, and Seller
hereby agrees to assign and Buyer hereby agrees to unconditionally assume and
agree to pay, satisfy and discharge when due in accordance with their terms, and
Buyer shall fully and forever hold Seller and any of its Affiliates harmless
against, any and all Assumed Liabilities. All transactions at the Closing shall
be deemed to be effective as of the close of business on the Closing Date, and
events taking place and periods ending thereafter shall be deemed to have taken
place or ended after the Closing Date.
(b) Seller shall retain all rights under and liabilities with respect to
the Excluded Assets and the Retained Liabilities and Buyer shall have no rights
under, and no liabilities with respect to, the Excluded Assets and the Retained
Liabilities and Seller shall fully and forever hold Buyer and any of its
Affiliates harmless against any and all Retained Liabilities.
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<PAGE>
Section 2.2. Closing Documents, Payment of First Installment. At the Closing:
-----------------------------------------------
(a) Seller shall assign and transfer to Buyer the Acquired Assets, and
Buyer shall assume from Seller the due payment, performance and discharge of the
Assumed Liabilities by delivery of (i) a General Assignment, Assumption and Bill
of Sale in substantially the form attached hereto as Exhibit A (the "Bill of
Sale"), duly executed by Seller and Buyer, (ii) all such other good and
sufficient instruments of conveyance, assignment and transfer, and such
affidavits and other instruments in form and substance reasonably acceptable to
Buyer's counsel, as shall be effective to transfer to Buyer the Acquired Assets,
and (iv) such other good and sufficient instruments of assumption, in form and
substance reasonably acceptable to Seller's counsel, as shall be effective to
cause Buyer to assume the Assumed Liabilities.
(b) Buyer shall pay to Seller by wire transfer One Million Dollars
($ 1,000,000) (the "First Installment"), in immediately available funds to the
account specified by Seller.
(c) Seller and Buyer shall deliver the certificates and other documents
required to be delivered under Articles VIII and IX.
Section 2.3. Post-Closing Installments of the Purchase Price. (a) Fifty
-----------------------------------------------
(50) days following the Closing, Buyer shall pay to Seller by wire transfer One
Million Five Hundred Thousand Dollars ($1,500,000), adjusted as provided in
Section 2.5, of the Purchase Price (the "Second Installment").
(b) No later than the First Anniversary (as defined on Schedule 2.3(b)),
Buyer shall pay by wire transfer to Seller the balance of the Purchase Price
(the "Final Installment") in the amount obtained from Schedule 2.3(b). For the
purposes of this Agreement, the Purchase Price shall consist of the First
Installment, the Second Installment and the Final Installment.
(c) In the event that Buyer fails to pay to Seller the Final Installment
prior to the First Anniversary, Seller may, within thirty days of the First
Anniversary, elect to convert the Final Installment into the right to an amount
of shares of capital stock of Seller equal to the Conversion Amount and, upon
such election, and subject to customary securities laws and representations
given by Seller, Buyer shall issue to Seller the Conversion Amount. Buyer shall
furnish Seller such information concerning Buyer, its properties, financial
condition and operations (subject to reasonable confidentiality undertakings),
as Seller may reasonably request to evaluate the advisability of converting the
Final Installment. In such event, the obligation of Buyer to pay to Seller the
Final Installment shall be extinguished. Otherwise, the Final Installment shall
be due and payable within five days from the date Seller notifies Buyer of its
intent not to elect conversion or thirty days after the First Anniversary,
whichever occurs first. The Final Installment shall bear interest until paid at
three percent above the prime rate of The Bank of Boston, N.A. (or its
successor) as of the First Anniversary, and Buyer shall indemnify and hold
Seller harmless against all reasonable costs of collection (including counsel
fees).
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<PAGE>
Section 2.4. Time and Place of Closing. The Closing shall take place on
-------------------------
November 23, 1998 (the "Closing Date") at 10:00 A.M., local time, at the offices
of Sullivan & Worcester LLP, or such other place or time as the parties may
agree.
Section 2.5. Determination of Adjusted Purchase Price. As promptly as
----------------------------------------
practicable, but in no event more than five (5) business days following the
Closing, the Buyer shall deliver to Seller an unaudited balance sheet of the
Business as of the close of business on the Closing Date (the "Closing Balance
Sheet"). Buyer shall prepare the Closing Balance Sheet substantially consistent
with the format of, and in accordance with accounting principles, policies and
practices of those used in the preparation of, the Estimated Balance Sheet.
Within five days of Buyer's delivery of the Closing Balance Sheet to Seller,
Buyer and Seller shall resolve any differences. The Second Installment shall be
increased or decreased, as the case may be, by the amount by which the sum of
line items specified on Schedule I in the Closing Balance Sheet are greater or
less than the sum of the same line items on the Estimated Balance Sheet.
Section 2.6. Allocation of Asset Purchase Consideration. (a) The Purchase
------------------------------------------
Price and the Assumed Liabilities and all other capitalizable costs
(hereinafter, the "Consideration"), to the extent properly taken into account
under Section 1060 of the Code, shall be allocated among each of the Acquired
Assets in the manner set forth on Schedule 2.6(a) hereto (the"Allocation").
(b) Except as required by a Final Determination, Seller and Buyer agree to
(i) be bound by the Allocation, (ii) act in accordance with the Allocation in
the preparation of financial statements and filing of all Returns (including
filing Form 8594 with its Income Tax Return for the taxable year that includes
the Closing Date) and in the course of any Tax audit, Tax review or Tax
litigation relating thereto, and (iii) take no position and cause their
Affiliates to take no position inconsistent with the Allocation for federal and
state Income Tax purposes.
(c) If an adjustment is made with respect to the Purchase Price pursuant
to Section 2.5, the Allocation shall be adjusted in accordance with Code Section
1060 and the regulations promulgated thereunder, and in accordance with Schedule
I or as otherwise mutually agreed by Seller and Buyer. Seller and Buyer agree to
file any additional information return required pursuant to the regulations
under Code Section 1060 and to reallocate the Purchase Price as adjusted
pursuant to Section 2.5.
(d) Not later than thirty (30) days prior to the filing of their
respective Forms 8594 relating to this transaction, Buyer and Seller shall
deliver each to the other a copy of its Form 8594.
Section 2.7. Nonassignable Contracts. Anything in this Agreement to the
-----------------------
contrary notwithstanding, this Agreement shall not require Seller to assign
(prior to the time, if ever, assignment is otherwise consented to) any claim,
contractual obligation, authorization of a Governmental Authority, lease,
commitment, sales, service or purchase order, or any claim, right or benefit
arising thereunder or resulting therefrom, if the Asset Purchase would be deemed
an
-7-
<PAGE>
attempted assignment thereof without the required consent of a third party
thereto or Governmental Authority and would constitute a breach thereof or in
any way affect the rights of Raytheon Company, Seller or Buyer thereunder. If
such consent is not obtained, or if the consummation of the Asset Purchase would
affect the rights of Seller thereunder so that Buyer would not in fact receive
the benefit of all such rights, Seller shall cooperate with Buyer in any
arrangement designed to provide for the benefits thereof to Buyer, including
subcontracting, sublicensing or subleasing to Buyer or enforcement for the
benefit of Buyer of any and all rights of Seller against a third party thereto
or Governmental Authority arising out of the performance, breach or cancellation
by such third party or Governmental Authority or otherwise; and any assumption
by Buyer of obligations thereunder whether by operation of Law in connection
with the Asset Purchase which shall require the consent or approval of any third
party shall be made subject to such consent or approval being obtained.
Section 2.8. Licenses. Buyer hereby grants Seller a non-exclusive,
--------
perpetual, irrevocable, royalty-free, fully paid up license, with the right to
sublicense to third parties, to the Intellectual Property associated with the
PACS Controller (the assembly described by E-MED Product Number 170-0226-6 Rev A
and Raytheon Part Number 431-90000) for use in any nonmedical application
(including commercial, non-commercial, aerial, spatial and hydrographical.
applications). Seller may transfer this license to any successor in interest to
all or substantially all of the business to which the license relates.
Article III.
Representations and Warranties of Seller
----------------------------------------
Seller hereby represents and warrants to Buyer as follows:
Section 3.1. Incorporation. Authorization, Etc. (a) Seller is a
---------------------------------
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and is duly qualified to transact business in each
jurisdiction in which the nature of property leased by the Seller with respect
to the Business or the conduct of Seller with respect to the Business requires
it to be so qualified, except where the failure to be in good standing or to be
duly qualified to transact business, would not, individually or in the
aggregate, reasonably be expected to have an Adverse Effect on Seller.
(b) Seller has all requisite corporate power and authority to own the
properties and assets employed by Seller, to carry on Seller's business as it is
now being conducted, to execute and deliver this Agreement and to consummate the
transactions contemplated hereby by Seller. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate proceedings on the part
of Seller. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) violate any
provision of Seller's certificate of incorporation or bylaws, (ii) except as
disclosed in Schedule 3.1 (b), violate any provision of, or be an event that is
----------------
(or with the passage of time will result in) a
-8-
<PAGE>
violation of, or result in the acceleration of or entitle any Person to
accelerate (whether after the giving of notice or lapse of time or both) any
obligation under, or result in the imposition of any Lien (except Permitted
Liens) upon any of the Acquired Assets, pursuant to any Contract or Order to
which Seller or any of its Affiliates is a party or by which it is bound, or
(iii) except as listed on Schedule 3.1(b), violate or conflict with any other
---------------
material restriction of any kind or character to which Seller is subject, that,
in the case of any of clauses (ii) and (iii), would, individually or in the
aggregate, reasonably be expected to Adversely Affect the Business. This
Agreement has been duly executed and delivered by Seller, and, assuming the due
execution hereof by Buyer, this Agreement constitutes the legal, valid and
binding obligation of Seller, enforceable against Seller in accordance with its
terms.
(c) Except as otherwise provided in this Agreement, at the Closing, Seller
will deliver to Buyer good title to the Acquired Assets free and clear of all
Liens, except Permitted Liens.
Section 3.2. Financial Statements. Attached hereto as Schedule 3.2 are true
--------------------
and complete copies of the unaudited balance sheet and the related statements of
income and cash flows of the Business for the year ended December 3 1, 1997 and
for the ten (10) months ended October 23, 1998 (collectively, the "Financial
Statements"). The Financial Statements have been prepared in each case in
accordance with Seller's internal financial reporting policies and procedures.
Section 3.3. Properties: Title to Assets. With the exception of properties
---------------------------
disposed of in the ordinary course of business, Seller has good title to, or
holds by valid and existing lease or license, all tangible personal property,
receivables and Contracts constituting Acquired Assets, free and clear of all
Liens except Permitted Liens. The Acquired Assets constitute, and on the
Closing Date will constitute, substantially all of the assets used or held for
use in the operations of the Business.
Section 3.4. Litigation: Orders. Except as disclosed in Schedule 3.4, there
------------------
are no Actions pending, or to Seller's knowledge, threatened against it that
would, individually or in the aggregate, reasonably be expected to have an
Adverse Effect on the Acquired Assets. Except as disclosed in Schedule 3.4, as
of the date hereof, there are no Orders against Seller or its properties or
business that would, individually or in the aggregate, reasonably be expected to
have an Adverse Effect on the Business. Except as disclosed in Schedule 3.4. to
Seller's knowledge, there. are no events or conditions' which would reasonably
be expected to result in an Action against it that would, individually or in the
aggregate, reasonably be expected to have an Adverse Effect on the Business.
Section 3.5. Contracts. Schedule 3.5 has been prepared by Buyer and, to
---------
Seller's knowledge, includes all of the Contracts which are material to the
Business. Seller is not, and to Seller's knowledge, no other party to any such
contract is in material breach thereof or material default thereunder, and there
does not exist under any provision thereof, as of the date hereof, any event
that, with the giving of notice or the lapse of time or both, would constitute
such a breach or default, or would give rise thereunder to any indemnity
obligation of Seller, except for
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<PAGE>
such breaches, defaults, indemnities and events as to which requisite waivers or
consents have been or are obtained or which would not, individually or in the
aggregate, reasonably be expected to have an Adverse Effect on the Business.
Section 3.6. Environmental Matters. Except as set forth on Schedule 3.6:
---------------------
(a) Seller is in compliance with all applicable Environmental Laws except
where the failure to be in compliance would not, individually or in the
aggregate, reasonably be expected to have an Adverse Effect on the Acquired
Assets, or, to Seller's knowledge, would impose liability on Buyer under any
Environmental Law for any act or omission of Seller prior to the Closing Date.
(b) Seller has or has applied for all Licenses required under
Environmental Laws for the operation of Seller's business (to the extent such
business relates to Seller's use of the Acquired Assets) as presently conducted
(the "Environmental Permits") and there are no violations, and no pending, or,
to the knowledge of Seller, threatened, investigations or proceedings with
respect to such Environmental Permits except where the failure to have such
Environmental Permits or where the violation, investigation or proceeding
relating thereto would not, individually or in the aggregate, reasonably be
expected to have an Adverse Effect on the Acquired Assets or, to Seller's
knowledge, would impose liability on Buyer under any Environmental Law for any
act or omission of Seller prior to the Closing Date.
(c) Since January 1, 1995, and, to Seller's knowledge, before that date,
Seller has not received any written notice, notification, demand, request for
information, citation, summons, complaint or Order, nor is there pending, or, to
the knowledge of Seller, threatened by any Person against Seller in connection
with Seller's business (to the extent such business relates to Seller's use of
the Acquired Assets) nor has any material penalty been assessed against Seller
for any alleged violation of any Environmental Law or liability thereunder,
other than where such notice, notification, demand, request for information,
citation, summons, complaint or Order has been fully resolved, or where
resolution would not, individually or in the aggregate, reasonably be expected
to have an Adverse Effect on the Acquired Assets.
(d) To the knowledge of Seller, no hazardous substance has been released
in violation of Environmental Laws at, on or under any real property used in the
Business. There has been no environmental investigation, study, audit, test,
review or other analysis conducted of which Seller has knowledge in relation to
any Acquired Asset which has not been delivered to Buyer.
Section 3.7. Consents, Approvals, Other Authorizations. No filing with,
-----------------------------------------
notice to or authorization, consent or approval of, any Governmental Authority
is required to be made, filed, given or obtained by Seller or any of its
Affiliates, in connection with the consummation of the Asset Purchase except for
(i) those set forth on Schedule 3.7, (ii) those that become applicable solely as
a result of the specific regulatory status of Buyer, or (iii) the failure to
make, file, give
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<PAGE>
or obtain which would not, individually or in the aggregate, reasonably be
expected to have an Adverse Effect on the Business.
Section 3.8. Condition of Assets. The Acquired Assets are in the state of
-------------------
repair and operating condition normally kept by Seller in the ordinary course of
its business, reasonable wear and tear excepted.
Section 3.9. Intellectual Property. Schedule 3.9(i) lists, as of the date
---------------------
hereof, all material Intellectual Property of Seller constituting part of the
Acquired Assets. Seller is the owner of all right, title and interest in and to
all Scheduled Intellectual Property (other than the licensed third party
Intellectual Property set forth on Schedule 3.9(ii)), free and clear of all
Liens. Except as set forth on Schedule 3.2(iii), to Seller's knowledge, as of
the date hereof, no claims of infringement of the intellectual property rights
of any third parties exist based upon the use by Seller of the Scheduled
Intellectual Property that would, individually or in the aggregate, reasonably
be expected to have an Adverse Effect on the Acquired Assets.
Section 3.10. Inventory. The inventory included in the Acquired Assets was
---------
produced or acquired by Seller in the ordinary course of business and, except as
disclosed in Schedule 3. 10, is in good and useable condition. The physical
inventory schedule dated included in Schedule I is accurate, and no items of
inventory identified on such list have been disposed of except in the ordinary
course of business.
Section 3.11. Accounts Receivable. The accounts receivable included in the
-------------------
Acquired Assets arose from bona fide transactions.
Section 3.12. Brokers, Finders, Etc. Except for the services of Newbury, Piret
& Company, Inc., the fees of which shall be paid by Seller, Seller has not
employed nor is it subject to any valid claim of, any broker, finder, consultant
or other intermediary in connection with the Asset Purchase who might be
entitled to a fee or commission in connection therewith..
Section 3.13. No Implied Representation. Notwithstanding anything contained in
this Agreement, it is the explicit intent of each party hereto that Seller is
making no representation or. warranty whatsoever, express or implied, beyond
those expressly given in this Agreement, including any implied warranty or
representation as to condition, merchantability, or suitability as to any of the
Acquired Assets and, subject to the representations and warranties given herein,
it is understood that Buyer takes the Acquired Assets as is and where is. It is
understood that any cost estimates, projections or other predictions contained
or referred to in the Schedules or in the offering materials that have been
provided to Buyer are not and shall not be deemed to be representations or
warranties of Seller.
Section 3.14. Schedules. (a) Any matter set forth in any Schedule shall be
deemed to be referred to on all other Schedules to which such matter logically
relates and where such reference would
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<PAGE>
be appropriate and can reasonably be inferred from the matters disclosed on the
first Schedule as if set forth on such other Schedules.
(b) The inclusion of any item on any Schedule to this Agreement shall not
be construed as an indication that such item is material in any respect.
(c) Seller shall not be obligated to revise or update any Schedule
attached hereto.
Section 3.15. Licenses and Permits. Schedule 3.15 sets forth each material
--------------------
license, franchise, permit or other similar authorization by a Governmental
Authority relating to the operation of the E-MED PACS product line (the
"Permits"), together with the name of the agency or authority issuing such
Permit. Except as set forth on Schedule 3.15, all of the Permits are valid and
in full force and effect and, assuming the consents referred to in Section 3.7
have been or will be obtained, are transferable to Buyer. Assuming the receipt
of such consents, Buyer will have all right, title and interest of Seller in the
Permits.
Article IV.
Representations and Warranties of Buyer
---------------------------------------
Buyer hereby represents and warrants to Seller as follows:
Section 4.1. Incorporation, Authorization, Etc. Buyer is a corporation
---------------------------------
duly incorporated, validly existing and in good standing under the laws of
Delaware. Buyer has all requisite corporate power to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement,
the performance of Buyer's obligations hereunder and the consummation of the
transactions contemplated hereby by Buyer have been duly and validly authorized
by Buyer and no further corporate proceedings or actions on the part of Buyer,
its Board of Directors or stockholders are necessary therefor. The execution,
delivery and performance of this Agreement will not (i) violate any provision of
the charter or bylaws or similar organizational instrument of Buyer, (ii)
violate any provision of, or be an event that is (or with the passage of time
will result in) a violation of, or result in the acceleration of or entitle any
party to accelerate (whether after the giving of notice or lapse of time or
both) any obligation under, or result in the imposition of any lien upon or the
creation of a security interest in any of Buyer's assets or properties pursuant
to, any Contract or Order to which Buyer is a party or by which Buyer is bound,
or (iii) violate or conflict with any other material restriction of any kind or
character to which Buyer is subject, that, in the case of clauses (ii) and
(iii), would, individually or in the aggregate, reasonably be expected to have
an Adverse Effect on Buyer or Buyer and its subsidiaries, taken as a whole. This
Agreement has been duly executed and delivered by Buyer, and, assuming the due
execution hereof by Seller, this Agreement constitutes the legal, valid and
binding obligation of Buyer, enforceable against Buyer in accordance with its
terms. Other than investors in Buyer, Buyer has no Affiliates.
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<PAGE>
Section 4.2. Brokers, Finders, Etc. Buyer has not employed, and is not
---------------------
subject to the valid claim of, any broker, finder, consultant or other
intermediary in connection with the transactions contemplated by this Agreement
who might be entitled to a fee or commission from Seller in connection with such
transactions.
Section 4.3. Consents, Approvals, Other Authorizations. No filing with,
-----------------------------------------
notice to or authorization, consent or approval of, any Governmental Authority
is required to be made, filed, given or obtained by Buyer, in connection with
the consummation of the Asset Purchase except for (i) those that become
applicable solely as a result of the specific regulatory status of Seller, or
(ii) the failure to make, file, give or obtain which would not, individually or
in the aggregate, reasonably be expected to have an Adverse Effect on Buyer.
Section 4.4. Acquisition of Acquired Assets and Operation of the Business
------------------------------------------------------------
for Investment. Buyer has such knowledge and experience in financial and
- --------------
business matters that it is capable of evaluating the merits and risks of its
purchase of the Acquired Assets and operation of the business acquired
hereunder. Buyer confirms that Seller has made available to Buyer the
opportunity to ask questions of the officers of Seller and management employees
of Seller and to acquire additional information about the business and financial
condition of Seller.
Section 4.5 Financial Capability. Buyer has immediately available cash in
--------------------
the amount the First Installment.
Article V.
Covenants of Seller and Buyer
-----------------------------
Section 5.1. Investigation of Business, Access to Properties, Records and
------------------------------------------------------------
Employees. (a) Seller shall afford to representatives of Buyer reasonable access
- ---------
to the offices, plants, properties, books and records of Seller during normal
business hours, in order that Buyer may have full opportunity to make such
investigations as it desires of the affairs of Seller to the extent such affairs
relate to the Acquired Assets or to the Assumed Liabilities; provided, however,
that such investigation shall not unreasonably disrupt the personnel and
operations of Seller. If, in the course of any investigation pursuant to this
Section 5. 1, Buyer discovers any breach of any representation or warranty
contained in this Agreement or any circumstance or condition that upon Closing
would constitute such a breach, Buyer covenants and that it will promptly so
inform Seller.
(b) Any information provided to Buyer or its representatives pursuant to
this Agreement shall be held by Buyer and its representatives in accordance
with, and shall be subject to the terms of, the Confidentiality Agreement dated
July 13, 1998 by and between Raytheon and Buyer, which is hereby incorporated in
this Agreement as though fully set forth herein.
(c) Buyer agrees to (i) hold all of the books and records of Seller
acquired hereunder existing on the Closing Date and not to destroy or dispose of
any thereof for a period of four (4)
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<PAGE>
years from the Closing Date or such longer time as may be required by law, and
thereafter, if it desires to destroy or dispose of such books and records, to
offer first in writing at least sixty (60) days prior to such destruction or
disposition to surrender them to Seller and (ii) following the Closing Date to
afford Seller, its accountants and counsel, during normal business hours, upon
reasonable request, full access to such books, records and other data to the
extent that such access may be requested for any legitimate purpose, including
without limitation preparation of filings under federal and state securities
laws, responding to Governmental Authorities, defending or prosecuting
litigation and preparation of Income Tax Returns and other tax filings, at no
cost to Seller (other than for reasonable out-of-pocket expenses); provided,
however, that nothing herein shall limit any of Seller's rights of discovery.
Buyer shall have the same rights, and Seller the same obligations, as are set
forth above in this Section 5. 1 (c), with respect to any material nonprivileged
records of Seller pertaining to the Acquired Assets or to the Assumed
Liabilities that are retained by Seller, with the exception of Returns relating
to Taxes that are not the responsibility of Buyer or alleged by a Governmental
Authority to be the responsibility of Buyer.
Section 5.2. Best Efforts, Obtaining Consents. (a) Subject to the terms
--------------------------------
and conditions herein provided, each of Seller and Buyer agrees to use its best
efforts (whether before or after the Closing Date) to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable to consummate and make effective as promptly as practicable, the
transactions contemplated by this Agreement and to cooperate with the other in
connection with the foregoing, including using its best efforts (i) to obtain
all necessary waivers, consents and approvals from other parties to material
Contracts, (ii) to obtain all consents, approvals and authorizations that are
required to be obtained under any Law, (iii) to lift or rescind any Order
adversely affecting the ability of the parties hereto to consummate the Asset
Purchase, (iv) to effect all necessary registrations and filings and submissions
of information requested by Governmental Authorities, and (v) to fulfill all
conditions to this Agreement (it being understood that such efforts shall not
include any requirement of Buyer or Seller to expend more than commercially
reasonable sums of money or grant any material financial or other accommodation,
or of Buyer to accept any material modification of its rights hereunder).
Seller and Buyer further covenant and agree, with respect to a threatened or
pending Order or Law that would adversely affect the ability of the parties
hereto to consummate the Asset Purchase, to use their respective best efforts to
prevent the entry, enactment or promulgation thereof, as the case may be (it
being understood that such efforts shall not include any requirement of Buyer or
Seller to expend more than commercially reasonable sums of money or grant any
material financial or other accommodation).
(b) In case at any time after the Closing any further action is necessary
or desirable to carry out the purposes of this Section 5.2, the proper officers
and/or directors of Buyer, including, to the extent applicable, any Entity
designated to hold the Acquired Assets, shall take all such necessary action.
(c) Seller covenants to use its commercially reasonable efforts to effect
the assignment of any contract, permit, license, claim, demand or right which is
not now transferred or assigned
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<PAGE>
and which is a part of the Business. In order that full value of every such
unassigned contract, lease, interest in property, permit, license, claim, demand
or right may be realized by and for the benefit of Buyer, Seller covenants and
agrees with Buyer that Seller will use its commercially reasonable efforts to
enforce every such contract, permit, license, claim, demand or right and to
facilitate the collection of the moneys due and payable and to become -due and
payable in and under every such contract and in respect of every such claim,
demand or right; and Seller does hereby covenant to hold in trust for and
promptly pay over to Buyer all moneys or things of value collected and paid to
Seller, its successors or assigns, after the Closing Date in respect of every
such contract, claim, demand or right. No amounts owing to Buyer by Seller under
this Section 5.2(c) shall be subject to the limitation set forth in Section
10.2.
Section 5.3. Conduct of Business. From the date hereof through the Closing,
-------------------
except as disclosed on Schedule 5.3 or otherwise provided for in, or
contemplated by, this Agreement, and, except as consented to or approved by
Buyer in writing, Seller covenants and agrees that:
(a) Seller shall make use of the Acquired Assets in the ordinary and usual
course in all material respects in accordance with past practices;
(b) Except as otherwise provided for in or contemplated by this Agreement,
Seller shall not (i) assume, incur or guarantee, except in the ordinary course
of business consistent with past practice, any obligation for borrowed money
that would constitute, or increase Buyer's obligation respecting, an Assumed
Liability, (ii) cancel or compromise, except in the ordinary course of business
consistent with past practice, any debts owed to it that would constitute, or
decrease the value of Buyer's right respecting, an Acquired Asset or (iii) waive
or release any rights of material value relating to the Acquired Assets; and
(c) Except in the ordinary course of business, Seller shall not (i) sell,
transfer, distribute as a dividend in kind or otherwise dispose of any material
Acquired Asset (other than inventory in the- ordinary course of business
consistent with past practice), (ii) create or permit to exist any new material
security interest, lien or encumbrance on Acquired Assets, or (iii) enter into
any joint venture, partnership or other similar arrangement or form any other
new material arrangement for the conduct of the business relating to the
Acquired Assets.
Section 5.4. Preservation of Business. From the date hereof to the Closing
------------------------
Date, subject to the terms and conditions of this Agreement, Seller shall use
reasonable efforts (i) to preserve the Acquired Assets intact and (ii) to
preserve the good will of customers and others having business relations with
Seller to the extent such business relations relate to the Acquired Assets.
Section 5.5. Further Assurances. Seller and Buyer agree that, from time to
-------------------
time, whether before, at or after the Closing Date, each of them will execute
and deliver such further instruments; of conveyance and transfer and take such
other action as may be reasonably required or desirable to carry out the
purposes and intent of this Agreement, including (i) allocating rights and
obligations under Contracts and other arrangements, if any, relating to
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business of Seller and its Affiliates, on the one hand, and relating to the
Acquired Assets on the other, (ii) allocating rights and obligations under
Contracts and other arrangements, if any, relating to the Assumed Liabilities,
and (iii) determining whether to enter into any service or other sharing
agreements on a mutually acceptable arm's length basis that may be necessary to
assure a smooth and orderly transition. In case at any time after the Closing
Date, any further action is necessary or desirable to carry out the purposes of
this Agreement, the proper officers and directors of each party to this
Agreement shall take all such necessary or desirable action. In addition to the
foregoing, Buyer shall, at Seller's sole cost and expense, cooperate with Seller
in the defense or prosecution of any of the Retained Liabilities.
Section 5.6. Public Announcements. Seller and Buyer will consult with
--------------------
each other before issuing, or permitting any agent or Affiliate to issue, any
press releases or otherwise making or permitting any agent or Affiliate to make,
any public statements with respect to this Agreement and the transactions
contemplated hereby, and, except as may be required by applicable law or any
listing agreement with any securities exchange, will not issue any such press
release or make any such public statement, unless the text of such statement
shall have been agreed upon by the parties, such agreement not to be
unreasonably withheld.
Section 5.7 Use of Raytheon Name. From and after the Closing, except for
--------------------
purposes of announcing Buyer's acquisition of the Acquired Assets or responding
reasonably to inquiries with respect thereto, Buyer and its Affiliates shall not
use or permit the use of the names or marks "E-Systems", "Raytheon E-Systems",
"ESY", "RESY", "Raytheon", "RTN", or any other trademark or trade name of Seller
or any Affiliate of Seller, for any commercial purpose or any trademarks or
trade names confusingly similar thereto, nor shall Buyer use or permit the use
of such names and marks in connection with the operation or disposition of the
Acquired Assets or the proceeds thereof, provided, however, that (1) for a
period of sixty (60) days, Buyer may make use of promotional and sales
literature, stationery, cartons and other packaging material included in the
Acquired Assets at Closing, provided, that to the extent practical such
literature is stickered or otherwise marked to indicate the change of ownership,
and (ii) nothing in this Section 5.7 shall require the amendment of any
Contracts nor limit, where relevant, any accurate and complete statement of
facts concerning ownership of the Acquired Assets prior to the Closing in any
Action or in any filing with a Governmental Authority. Notwithstanding the
foregoing, the Acquired Assets shall include, and after the Closing Date Buyer
shall have, the right to unrestricted use of the name "E-Med".
Section 5.8. Performance of Certain Obligations. Buyer agrees from and
----------------------------------
after the Closing Date to perform and fulfill (or cause to be performed and
fulfilled) all obligations and commitments incurred by Seller or any of its
Affiliates as such relate to the Business whether existing as of the Closing
Date or arising or incurred thereafter. Seller agrees from and after the
Closing Date to perform and fulfill (or cause to be performed and fulfilled) all
obligations and commitments incurred by Buyer or any of its Affiliates as such
relate to the Excluded Assets or Retained Liabilities whether existing as of the
Closing Date or arising or incurred thereafter.
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Section 5.9. Buyer's Warranty Obligation. Buyer covenants and agrees that
---------------------------
it will fully honor and diligently perform all of Seller's product warranty,
guaranty and product return obligations express or implied which arise from or
are related to Seller's operation of the Acquired Assets prior to the Closing
Date. If Buyer fails reasonably to perform such obligations, Seller may, at
Buyer's expense, satisfy, or retain others to satisfy, such obligations.
Section 5.10. Sale of MegaScan. Buyer covenants and agrees that, for one
----------------
(1) year following the Closing, it will use its best efforts to sell, assign or
otherwise dispose of that portion of the Acquired Assets which consist of
MegaScan (any such sale, assignment or disposition a "MegaScan Sale") as
promptly following the Closing Date at the highest reasonable price and in a
manner consistent with reasonable commercial practices; provided that Buyer may
nonetheless dispose of and use the MegaScan assets in the ordinary course
beginning on the Closing Date or terminate or liquidate the balance of the
MegaScan business if Buyer deems such action appropriate. In the event of such a
MegaScan Sale, if the proceeds (the "MegaScan Proceeds") thereof (net of (x)
losses sustained by MegaScan during the period between the Closing Date and any
such MegaScan Sale and (y) any fees and expenses incurred by Buyer in connection
with such MegaScan Sale) exceed $900,000, then Buyer and Seller shall share
equally in such excess. Buyer further covenants that it shall, within fifteen
(15) days of any such MegaScan Sale, deliver to Seller by wire transfer such
excess in immediately available funds.
Section 5.11. Non-competition. Seller agrees that for a period of two (2)
---------------
years after the date hereof (the "Restricted Period "), Seller will not compete
with Buyer in the manufacture or marketing of medical products, whether
individually or as a consultant, partner, owner or stockholder owning more than
five percent (5%) of an Entity in the business of manufacturing or marketing of
medical products in competition with Buyer (the "Restricted Business").
Notwithstanding the foregoing, nothing herein shall prohibit Seller or any of
its Affiliates from (a) owning, directly or indirectly, less than five percent
(5%) of any class of securities of any issuer listed on a national securities
exchange or traded publicly in the over-the-counter market, (b) directly or
indirectly acquiring a business which engages in the Restricted Business if such
business is twenty-five percent (25%) or less (measured by net revenues) of a
larger business so acquired by Seller or any of its Affiliates, and (d)
continuing to produce and sell those products now being produced and sold by
Seller and its Affiliates (including within the foregoing all products that were
under development as of the date hereof).
Section 5.12. Confidentiality. From and after the Closing Date, Seller
---------------
will hold confidential proprietary information constituting Acquired Assets or
provided to Seller by Buyer with respect to the Business after the Closing Date,
and, except to the extent Seller develops such information independently,
obtains it lawfully from a third party or is ordered to disclose such
information by a Governmental Authority, will not disclose any such information
to any third party without the prior written consent of Buyer.
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Article VI
Employees, Employee Benefits and Other Transitional Matters
-----------------------------------------------------------
Section 6.1. Hiring Employees, Comparable Benefits.
-------------------------------------
(a) Subject to Section 6.2(b) hereof, Buyer will continue the employment
of those employees of Seller dedicated to the product lines being sold to Buyer
as it deems advisable, (all such employees being "Assumed Employees'). To the
extent employment of Assumed Employees is continued by Buyer during the first
six (6) months following the Closing Date, such employment shall be on
substantially the same terms and conditions in the aggregate under which the
Assumed Employees worked for Seller immediately prior to the Closing Date.
Seller represents and warrants that Schedule 6. 1 (a) is a true and complete
list of all the employees of Seller dedicated to the product lines being sold to
Buyer.
(b) Buyer agrees that, for a period of 60 days after the Closing Date, it
will not cause any of the employees of Seller dedicated to the product lines
being sold to Buyer, including the Assumed Employees, to suffer "employment
loss" for purposes of the Worker Adjustment and Retraining Notification Act, 29
U.S.C. (S)(S) 2101-2109, and related regulations (the "WARN Act") if such
employment loss could create any liability for Seller or its Affiliates, unless
Buyer delivers notices under the WARN Act in such a manner and at such a time
that Seller or its Affiliates bears no liability with respect thereto. For all
employees other than the Assumed Employees, and for all Assumed Employees
terminated within thirty (30) days of the Closing Date, Buyer will make the
severance payments set forth on Schedule 6.1 (b).
Section 6.2. Medical Benefits. Commencing as of the Closing Date, Buyer
----------------
shall provide the Assumed Employees and dependents and beneficiaries thereof
medical and dental benefit coverage on the terms generally provided to the other
employees of Buyer and their dependants and beneficiaries. Medical benefits to
be provided to all other employees dedicated to the product lines being sold to
Buyer are set forth on Schedule 6.2.
Section 6.3. Investment Plans. Buyer shall have no liability and
----------------
responsibility for the disposition of interests under the E-Systems Employee
Savings Plan (the "Savings Plan") with respect to those Assumed Employees (or
their beneficiaries) who, as of the Closing Date, are participants in the
Savings Plan. No such participant will be eligible to make any contributions to
the Savings Plan, and Raytheon will not be obligated to make any contribution
with respect to any such participant in the Savings Plan, with respect to
compensation earned by such employees on or after the Closing Date.
Section 6.4. Retention Plans. Seller has provided Buyer with information
---------------
regarding Seller's retention plans established to encourage certain employees of
Seller to remain with Seller until Closing and to accept employment and remain
with Buyer after the Closing (the "Retention Plans"). Seller agrees to be
responsible for all payments under the Retention Plans which accrue on or prior
to the Closing Date with respect to the Assumed Employees and Buyer agrees be
responsible for all payments under the Retention Plans which accrue after the
Closing Date with respect to the Assumed Employees.
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Section 6.5. Access to Books and Records. As soon as practicable, Buyer
---------------------------
shall receive from Seller (i) such information concerning each Assumed
Employee's period of employment with Raytheon and/or Seller as Buyer may
reasonably require to determine service for eligibility and benefit accrual
purposes and (ii) such information concerning the terms of Seller's welfare
benefit plans and concerning each Assumed Employee's benefit utilization under
welfare benefit plans as Buyer may reasonably require to comply with Sections
6.1 (b) and 6.2 of this Agreement.
Section 6.6 No Third Party Beneficiaries. No provision of this Article 6
----------------------------
shall create any third party beneficiary or other rights in any employee or
former employee of Seller and no provision of this Article 6 shall create any
such rights in any such employees in respect of any benefits that may be
provided, directly or indirectly, under any employee plan or benefit arrangement
that may be established or maintained by Buyer. No provision of this Agreement
shall constitute a limitation on rights to amend, modify or terminate any
employee plan or benefit arrangement of Buyer.
Article VII
Tax Matters
-----------
Seller covenants for the benefit of Buyer, and Buyer covenants for the
benefit of Seller, as follows:
Section 7.1 Taxes and Refunds.
-----------------
(a) Seller shall be responsible for all Taxes accruing on or before the
Closing Date and Seller shall be entitled to any refunds or credits of Taxes
attributable to or arising in all taxable periods ending on or before the
Closing Date.
(b) Buyer shall be responsible for all Taxes accruing after the Closing
Date with respect to the use of the Acquired Assets and Buyer shall be entitled
to any refunds or credits of Taxes attributable to or arising in taxable periods
beginning on or after the Closing Date.
Section 7.2. Allocation of Transfer and Property Taxes.
-----------------------------------------
(a) All excise, sales, use, value added, registration stamp, recording,
documentary, conveyancing, franchise, property, transfer, gains and similar
Taxes, levies, charges and fees including any deficiencies, interest, penalties,
additions to tax or additional amounts excluding any Income Taxes (collectively,
"Transfer Taxes") incurred in connection with the transactions contemplated by
this Agreement shall be borne by Buyer. Buyer and Seller shall use reasonable
efforts to minimize the amount of all Transfer Taxes and shall cooperate in
providing each other with any appropriate resale exemption certifications and
other similar documentation. The party that is required by applicable law to
make the filings, reports, or returns and to handle any audits
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or controversies with respect to any applicable Transfer Taxes shall do so, and
the other party shall cooperate with respect thereto as necessary.
(b) All real property taxes, personal property taxes and similar ad
--
valorem obligations levied with respect to the Acquired Assets for a taxable
- -------
period which includes (but does not end on) the Closing Date (collectively, the
"Apportioned Obligations") shall be apportioned between Seller and Buyer based
on the number of days of such taxable period which fall on or before the Closing
Date (this and any other tax period which includes one or more days falling on
or before the Closing Date, a "Pre-Closing Tax Period") and the number of days
of such taxable period after the Closing Date (a "Post-Closing Tax Period").
Seller shall be liable for the proportionate amount of such taxes that is
attributable to the Pre-Closing Tax Period, and Buyer shall be liable for the
proportionate amount of, such taxes that is attributable to the Post-Closing Tax
Period. Upon receipt of any bill for real or personal property taxes relating to
the Acquired Assets, each of Seller and Buyer shall present a statement to the
other setting forth the amount of reimbursement to which each is entitled under
this Section together with such supporting evidence as is reasonably necessary
to calculate the proration amount. The proration amount shall be paid by the
party owing it to the other within 30 days after delivery of such statement. In
the event that either Seller or Buyer shall make any payment for which it is
entitled to reimbursement under this Section, the other party shall make such
reimbursement promptly but in no event later than ten (10) days after the
presentation of a statement setting forth the amount or reimbursement to which
the presenting party is entitled along with such supporting evidence as is
reasonably necessary to calculate the amount of reimbursement.
Section 7.3. Cooperation. Buyer and Seller agree to furnish or cause to be
-----------
furnished to each other, upon request, as promptly as practicable, such
information and assistance relating to the Acquired Assets (including, without
limitation, access to books and records) as is reasonably necessary for the
filing of all Tax Returns, the making of any election relating to Taxes, the
preparation for any audit by any taxing authority, and the prosecution or
defense of any claim, suit or proceeding relating to any Tax. Buyer and Seller
shall retain all books and records with respect to Taxes pertaining to the
Acquired Assets for a period of at least six (6) years following the Closing
Date. At the end of such period, each party shall provide the other with at
least thirty (30) days prior written notice before destroying any such books and
records, during which period the party receiving such notice can elect to take
possession, at its own expense, of such books and records. Seller and Buyer
shall cooperate with each other in the conduct of any audit or other proceeding
relating to Taxes involving the Acquired Assets. If either party becomes aware
of any pending or threatened assessment, official inquiry, examination or
proceeding that could result in an official determination with respect to Taxes
due or payable the responsibility for which rests with the other party hereto,
such party shall promptly so notify the other party in writing.
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Article VIII.
Conditions of Buyer's Obligation to Close
-----------------------------------------
Buyer's obligation to consummate the Asset Purchase shall be subject to the
satisfaction on or prior to the Closing Date of all of the following conditions:
Section 8.1. Representations, Warranties and Covenants of Seller. (a) The
----------------------------------------------------
representations and warranties of Seller contained in this Agreement shall be
true and correct on and as of the Closing Date with the same effect as though
such representations and warranties had been made on and as of such date (except
for representations and warranties that speak as of a specific date or time,
which need only be true and correct as of such date or time), except, in the
case of any representations or warranties other than those that contain a
qualification as to "Adverse Effect," for such inaccuracies which have not had
or would not reasonably be expected to have an Adverse Effect on the Acquired
Assets.
(b) Seller shall have performed in all material respects each obligation
and agreement and shall have complied in all material respects with each
covenant to be performed and complied with by it hereunder at or prior to the
Closing (other than Seller's covenants pursuant to Section 2.2 (a) and (b) with
respect to delivery of documents of transfer of the Acquired Assets at the
Closing, which shall be performed in all respects).
(c) Buyer shall receive at or prior to the Closing a certificate as to the
matters set forth in paragraphs (a) and (b), dated the Closing Date, and validly
executed by an authorized officer of Seller.
Section 8.2. Filings, Consents, Waiting Periods. All registrations,
----------------------------------
filings, applications, notices, consents, approvals, orders, qualifications and
waivers required to be obtained or made as of the Closing Date shall have been
filed, made or obtained, except for such registrations, filings, notices,
consents, approvals, orders, qualifications and waivers the lack of which would
not reasonably be expected to have an Adverse Effect on the Acquired Assets.
Section 8.3. No Injunction. At the Closing Date, there shall be no Order
-------------
of any nature of any Governmental Authority of competent jurisdiction that is in
effect that restrains or prohibits the consummation of all or any portion of the
Asset Purchase, and no Law shall have been enacted by any Governmental Authority
which prevents consummation of the Asset Purchase.
Article IX.
Conditions to Seller's Obligation to Close
------------------------------------------
Seller's obligation to consummate the Asset Purchase is subject to the
satisfaction on or prior to the Closing Date of all of the following conditions:
Section 9.1. Representations, Warranties and Covenants of Buyer. (a) The
--------------------------------------------------
representations and warranties of Buyer contained in this Agreement shall be
true and correct on and as of the Closing Date with the same effect as though
such representations and warranties had been made on and as of such date (except
for representations and warranties that speak as of
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a specific date or time, which need only be true and correct as of such date or
time), except, in the case of any representations or warranties other than those
that contain a qualification as to "Adverse Effect," for such inaccuracies which
have not had or would not reasonably be expected to have an Adverse Effect on
Buyer or Buyer and its subsidiaries, taken as a whole.
(b) Buyer shall have performed in all material respects each obligation
and agreement and shall have complied in all material respects with each
covenant to be performed and complied with by it hereunder at or prior to the
Closing.
(c) Seller shall receive at or prior to the Closing a certificate as to
the matters set forth in paragraphs (a) and (b), dated the Closing Date, and
validly executed by an executive officer of Buyer on behalf of Buyer.
Section 9.2. Filings: Consents: Waiting Periods. All registrations,
----------------------------------
filings, applications, notices, consents, approvals, orders, qualifications and
waivers required to be obtained or made as of the Closing Date shall have been
filed, made or obtained, except for such registrations, filings, notices,
consents, approvals, orders, qualifications and waivers the lack of which would
not reasonably be expected to have an Adverse Effect on Buyer or Buyer and its
subsidiaries, taken as a whole.
Section 9.3. No Injunction. At the Closing Date, there shall be no Order
-------------
of any nature of any Governmental Authority of competent jurisdiction that is in
effect that restrains or prohibits the consummation of all or any portion of the
Asset Purchase, and no Law shall have been enacted by any Governmental Authority
which prevents consummation of the Asset Purchase.
Article X.
Survival: Indemnification
-------------------------
Section 10.1. Survival Periods. The representations and warranties in this
----------------
Agreement shall survive for a period of six (6) months following the Closing. A
claim by any party hereunder shall survive if notice thereof is given in
accordance with Section 10.4(a) within such six (6) month period.
Section 10.2. Indemnification by Seller. (a) From and after the Closing
-------------------------
Date, Seller shall indemnify and hold harmless Buyer, its Affiliates, each of
their respective directors, officers, employees and agents, and each of the
heirs, executors, successors and assigns of any of the foregoing (collectively,
the "Buyer Indemnified Parties") from and against any and all damages, claims,
losses, expenses, costs, obligations and liabilities, including without
limitation liabilities for all reasonable attorneys', accountants', and experts'
fees and expenses including those incurred to enforce the terms of this
Agreement (collectively, "Covered Liabilities"), suffered, directly or
indirectly, by Buyer by reason of, or arising out of (i) any of the Retained
Assets or the Retained Liabilities, including any liability based on negligence,
gross negligence, strict liability or any other theory of liability, whether in
law (whether common or statutory) or equity or (ii) any
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breach of any representation, warranty, covenant or agreement of Seller
contained herein; provided. however, that, Seller shall not be required to
indemnify the Buyer Indemnified Parties with respect to any claim for
indemnification under clause (ii) of this Section 10.2 unless and until the
aggregate amount of all claims against Seller under clause (ii) of this Section
10.2 exceeds Two Hundred Thousand Dollars ($200,000) and then only to the extent
such aggregate amount exceeds such amount, and provided, further that in no
------- -------
event shall Seller be required to pay or otherwise be liable for an amount in
excess of One Million Dollars ($1,000,000) with respect to claims made under
clause (ii) of this Section 10.2.
(b) Anything in this Section to the contrary notwithstanding, in the event
that (i) based on a preponderance of the evidence, Seller shows that, on or
prior to the Closing Date, Buyer had knowledge of any breach, untruth,
inaccuracy of, or error in, any representation and warranty of Seller or (ii)
Seller notifies Buyer, on or prior to the Closing Date, of any breach, untruth,
inaccuracy of, or error in, any representation and warranty of Seller, and Buyer
proceeds with the Closing, Buyer shall be deemed to have waived any right
thereafter to assert any claim with respect to any such breach, untruth,
inaccuracy or error, including without limitation any right to indemnification
therefor. Except as set forth in the preceding sentence, Buyer's right to
indemnification hereunder shall not be affected by any investigation or inquiry
concerning the Business by Buyer, whether pursuant to Section 5.1 (a) hereof or
otherwise in conducting its diligence.
Section 10.3. Indemnification by Buyer. (a) From and after the Closing
------------------------
Date, Buyer shall indemnify and hold harmless Seller, its Affiliates, each of
their respective directors, officers, employees and agents, and each of the
heirs, executors, successors and assigns of any of the foregoing (collectively,
the "Raytheon Indemnified Parties") from and against any and all Covered
Liabilities incurred by or asserted against any of the Raytheon Indemnified
Parties in connection with or arising from any Assumed Liability or arising out
of or in connection with (i) any of the Acquired Assets after the Closing Date,
including any liability based on negligence, gross negligence, strict liability
or any other theory of liability, whether in law (whether common or statutory)
or equity or (ii) any breach of any representation, warranty, covenant or
agreement of Buyer contained herein; provided. however, that Buyer shall not be
required to indemnify the. Raytheon Indemnified Parties with respect to any
claim made for indemnification under clause (ii) of this Section 10.3 unless and
until the aggregate amount of all claims against Buyer under clause (ii) of this
Section 10.3 exceeds Two Hundred Thousand Dollars ($200,000) and then only to
the extent such aggregate amount exceeds such amount, and provided further, that
in no event shall Seller be required to pay or otherwise be liable for an amount
in excess of One Million Dollars ($1,000,000) with respect to claims made under
clause (ii) of this Section 10.2; and provided further, however, that the
deductible contained in the preceding provision shall not apply to (x) the
obligations of Buyer to pay to Seller the Purchase Price pursuant to Section 2.3
or (y) any fees or expenses incurred by Seller in connection with the
enforcement of the obligations of Buyer to pay the Purchase Price to Seller.
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(b) Anything in this Section to the contrary notwithstanding, in the event
that (1) based on a preponderance of the evidence, Buyer shows that, on or prior
to the Closing Date, Seller had knowledge of any breach, untruth, inaccuracy of,
or error in, any representation and warranty of Buyer or (ii) Buyer notifies
Seller, on or prior to the Closing Date, of any breach, untruth, inaccuracy of,
or error in, any representation and warranty of Buyer, and Seller proceeds with
the Closing, Seller shall be deemed to have waived any right thereafter to
assert any claim with respect to any such breach, untruth, inaccuracy or error,
including without limitation any right to indemnification therefor.
Section 10.4. Indemnification Procedures. (a) If any indemnified party
---------------------------
receives notice of the assertion of any Third Party Claim with respect to which
an indemnifying party is obligated under this Agreement to provide
indemnification, such indemnified party shall give such indemnifying party
written notice thereof (together with a copy of such Third Party Claim, process
or other legal pleading) promptly after becoming aware of such Third Party
Claim; provided, however, that the failure of any indemnified party to give
notice as provided in this Section 10.4 shall not relieve any indemnifying party
of its obligations under this Section 10.4, except to the extent that such
indemnifying party is actually prejudiced by such failure to give notice. Such
notice shall describe such Third Party Claim in reasonable detail.
(b) An indemnifying party, at such indemnifying party's own expense and
through counsel chosen by such indemnifying party (which counsel shall be
reasonably acceptable to the indemnified party), may elect to defend any Third
Party Claim. If an indemnifying party elects to defend a Third Party Claim,
then, within ten (10) business days after receiving notice of such Third Party
Claim (or sooner, if the nature of such Third Party claim so requires), such
indemnifying party shall notify the indemnified party of its intent to do so,
and such indemnified party shall cooperate in the defense of such Third Party
Claim (and pending such notice and assumption of defense, an indemnified party
may take such steps to defend against such Third-Party Claim as, in such
indemnified party's good-faith judgment, are appropriate to protect its
interests). Such indemnifying party shall pay such indemnified party's
reasonable out-of-pocket expenses incurred in connection with such cooperation.
Such indemnifying party shall keep the indemnified party reasonably informed as
to the status of the defense of such Third Party Claim. After notice from an
indemnifying party to an indemnified party of its election to assume the defense
of a Third Party Claim, such indemnifying party shall not be liable to such
indemnified party under this Section 10.4 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than those expenses referred to in the preceding sentence;
provided, however, that such indemnified party shall have the right to employ
one law firm as counsel, together with a separate local law firm in each
applicable jurisdiction ("Separate Counsel"), to represent such indemnified
party in any action or group of related actions (which firm or firms shall be
reasonably acceptable to the indemnifying party) if, in such indemnified party's
reasonable judgment at any time, either a conflict of interest between such
indemnified party and such indemnifying party exists in respect of such claim,
or there may be defenses available to such indemnified party which are different
from or in addition to those available to such indemnifying party and the
representation of both parties by the same
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counsel would be inappropriate, and in that event (i) the reasonable fees and
expenses of such Separate Counsel shall be paid by such indemnifying party (it
being understood, however, that the indemnifying party shall not be liable for
the expenses of more than one Separate Counsel (excluding local counsel) with
respect to any Third Party Claim (even if against multiple indemnified
parties)), and (ii) each of such indemnifying party and such indemnified party
shall have the right to conduct its own defense in respect of such claim. If an
indemnifying party elects not to defend against a Third Party Claim, or fails to
notify an indemnified party of its election as provided in this Section 10.4
within the period of ten (10) business days described above, the indemnified
party may defend, compromise, and settle such Third Party Claim and shall be
entitled to indemnification hereunder (to the extent permitted hereunder);
provided, however, that no such indemnified party may compromise or settle any
such Third Party claim without the prior written consent of the indemnifying
party, which consent shall not be unreasonably withheld or delayed.
Notwithstanding the foregoing, the indemnifying party shall not, without the
prior written consent of the indemnified party, (i) settle or compromise any
Third Party Claim or consent to the entry of any judgment which does not include
as an unconditional term thereof the delivery by the claimant or plaintiff to
the indemnified party of a written release from all liability in respect of such
Third-Party Claim, or (ii) settle or compromise any Third Party Claim in any
manner that would reasonably be expected to have a material adverse effect on
the indemnified party.
Section 10.5. Certain Limitations. (a) The amount of any Covered
-------------------
Liabilities for which indemnification is provided. under this Agreement shall be
net of any amounts actually recovered by the indemnified party from third
parties (including amounts actually recovered under insurance policies) with
respect to such Covered Liabilities. Any indemnifying party hereunder shall be
subrogated to the rights of the indemnified party upon payment in full of the
amount of the relevant indemnifiable loss. An insurer who would otherwise be
obligated to pay any claim shall not be relieved of the responsibility with
respect thereto or, solely by virtue of the indemnification provision hereof,
have any subrogation rights with respect thereto. If any indemnified party
recovers an amount from a third party in respect of an indemnifiable loss for
which indemnification is provided in this Agreement after the full amount of
such indemnifiable loss has been paid by an indemnifying party or after an
indemnifying party has made a partial payment of such indemnifiable loss and the
amount received from the third party exceeds the remaining unpaid balance of
such indemnifiable loss, then the indemnified party shall promptly remit to the
indemnifying party the excess of (A) the sum of the amount theretofore paid by
such indemnifying party in respect of such indemnifiable loss plus the amount
received from the third party in respect thereof, less (B) the full amount of
such Covered Liabilities.
(b) No remedy under this Agreement or at law or in equity shall include,
provide for or permit the payment of multiple, exemplary, punitive or
consequential damages or any equitable equivalent thereof or substitute
therefor, and the burden shall be on the party claiming loss to show actual loss
in the amount claimed.
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Article XI.
Termination
-----------
Section 11.1. Termination. This Agreement may be terminated at any time
-----------
prior to the Closing by:
(a) the mutual written consent of Seller and Buyer;
(b) either Seller or Buyer if the Closing has not occurred by the close of
business on November 23, 1998, and if the failure to consummate the Asset
Purchase on or before such date did not result from the failure by the party
seeking termination of this Agreement to fulfill any undertaking or commitment
provided for herein that is required to be fulfilled prior to Closing;
(c) Seller, provided it is not then in breach of any of its obligations
hereunder, if Buyer fails to perform in any material respect any covenant in
this Agreement when performance thereof is due or Buyer shall have breached in
any material respect any of the representations or warranties contained in this
Agreement and does not cure the failure or breach within thirty (30) business
days after Seller delivers written notice thereof, or
(d) Buyer, provided it is not then in breach of any of its obligations
hereunder, if Seller fails to perform in any material respect any covenant in
this Agreement when performance thereof is due or Seller shall have breached in
any material respect any of the representations and warranties contained in this
Agreement and does not cure the failure or breach within thirty (30) business
days after Buyer delivers written notice thereof.
Section 11.2. Procedure and Effect of Termination. In the event of
-----------------------------------
termination of this Agreement by either or both of Seller and Buyer pursuant to
Section 11.1, written notice thereof shall forthwith be given by the terminating
party to the other party hereto, and this Agreement shall thereupon terminate
and become void and have no effect, and the transactions contemplated hereby
shall be abandoned without further action by the parties hereto, except that the
provisions of Sections 5.1(b) and 12.4 shall survive the termination of this
Agreement; provided, however, that such termination shall not relieve any party
hereto of any liability for any breach of this Agreement. If this Agreement is
terminated as provided herein, all filings, applications and other submissions
made pursuant to Sections 3.7 and 4.3 shall, to the extent practicable, be
withdrawn from the agency or other persons to which they were made.
Article XII.
Miscellaneous
-------------
Section 12.1. Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement, and
shall become
-26-
<PAGE>
effective when one or more counterparts have been signed by each of the parties
and delivered to the other party.
Section 12.2. Governing Law, Consent to Jurisdiction. This Agreement shall
--------------------------------------
be governed by and construed in accordance with the laws of the Commonwealth of
Massachusetts without reference to the choice of law principles thereof. Buyer
and Seller consent to and hereby submit to the jurisdiction of any state or
federal court located in the Commonwealth of Massachusetts in connection with
any action, suit or proceeding arising out of or relating to this Agreement, and
each of the parties hereto irrevocably waives, to the fullest extent permitted
by law, any objection which it may now or hereafter have to the laying of the
venue of any such proceeding brought in such a court and any claim that any such
proceeding brought in such a court has been brought in an inconvenient forum.
Section 12.3. Entire Agreement. This Agreement (including agreements
----------------
incorporated he-rein) and the Schedules and Exhibits hereto contain the entire
agreement between the parties with respect to the subject matter hereof and
there are no agreements, understandings, representations or warranties between
the parties other than those set forth or referred to herein.
Section 12.4. Expenses. Except as set forth in this Agreement, whether the
--------
Asset Purchase is or is not consummated, all legal and other costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such costs and expenses; provided
that Buyer shall pay all fees relating to the transfer of the Acquired Assets
and the Assumed Liabilities; provided further that if such fees exceed Two
Thousand Five Hundred Dollars ($2,500), then Buyer and Seller shall pay such
fees equally.
Section 12.5. Notices. All notices hereunder shall be sufficiently given
-------
for all purposes hereunder if in writing and delivered personally, sent by
documented overnight delivery service or, to the extent receipt is confirmed,
telecopy, telefax or other electronic transmission service to the appropriate
address or number as set forth below. Notices to Seller shall be addressed to:
Raytheon Company
141 Spring Street
Lexington, Massachusetts 02421
Attention: General Counsel
Telecopy No: (781) 860-2924
or at such other address and to the attention of such other Person as Seller may
designate by written notice to Buyer. Notices to Buyer shall be addressed to:
-27-
<PAGE>
ACCESS Radiology Corporation
25 Hartwell Avenue
Lexington, Massachusetts 02421
Attention: Scott Sheldon
Telecopy No: (781) 861-6360
or at such other address and to the attention of such other Person as Buyer may
designate by written notice to Seller.
Section 12.6. Successors and Assigns. This Agreement shall be binding upon
----------------------
and inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that no party hereto will assign its rights or
delegate its obligations under this Agreement without the express prior written
consent of each other party hereto, except that Seller may assign this Agreement
to any Entity that succeeds to substantially all of Seller's assets and
liabilities, and Buyer may assign this Agreement (i) to any Entity that succeeds
to substantially all of Buyer's assets and liabilities, or (ii) as security to a
bank or other financial institution.
Section 12.7. Headings: Definitions. The section and article headings
---------------------
contained in this Agreement are inserted for convenience of reference only and
will not affect the meaning or interpretation of this Agreement. All references
to Sections or Articles contained herein mean Sections or Articles of this
Agreement unless otherwise stated.
Section 12.8. Amendment. This Agreement may not be amended, modified,
---------
superseded, canceled, renewed or extended except by a written instrument signed
by the party to be charged therewith.
Section 12.9. Waiver, Effect of Waiver. No provision of this Agreement may
------------------------
be waived except by a written instrument signed by the party waiving compliance.
No waiver by any party hereto of any of the requirements hereof or of any of
such party's rights hereunder shall release the other parties from full
performance of their remaining obligations stated herein. No failure to
exercise or delay in exercising on the part of any party hereto any right, power
or privilege of such party shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, power or privilege preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege by such party.
Section 12.10. Interpretation, Absence of Presumption. (a) For the purposes
--------------------------------------
hereof, (i) words in the singular shall be held to include the plural and vice
versa and words of one gender shall be held to include the other gender as the
context requires, (ii) the terms "hereof' "herein," and "herewith" and words of
similar import shall, unless otherwise stated, be construed to refer to this
Agreement as a whole (including all of the Schedules hereto) and not to any
particular provision of this Agreement, and Article, Section, paragraph and
Schedule references are to the Articles, Sections, paragraphs and Schedules to
this Agreement unless otherwise specified, (iii) the word "including" and words
of similar import when used in this Agreement means
-28-
<PAGE>
"including, without limitation," unless the context otherwise requires or unless
otherwise specified, (iv) the word "or" shall not be exclusive, (v) provisions
shall apply, when appropriate, to successive events and transactions, and (vi)
all references to any period of days shall be deemed to be to the relevant
number of calendar days.
(b) This Agreement shall be construed without regard to any presumption or
rule requiring construction or interpretation against the party drafting or
causing any instrument to be drafted.
Section 12.11. Specific Performance. The parties hereto each acknowledge
--------------------
that, in view of the uniqueness of the subject matter hereof, the parties hereto
would not have an adequate remedy at law for money damages in the event that
this Agreement were not performed in accordance with its terms, and therefore
agree that the parties hereto shall be entitled to specific enforcement of the
terms hereof in addition to any other remedy to which the parties hereto may be
entitled at law or in equity.
Section 12.12. Remedies Cumulative. Except as otherwise provided in
-------------------
Article X, all rights, powers and remedies provided under this Agreement or
otherwise available in respect hereof at law or in equity shall be cumulative
and not alternative, and the exercise or beginning of the exercise of any
thereof by any party shall not preclude the simultaneous or later exercise of
any other such right, power or remedy by such party.
-29-
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed and delivered, as an instrument under seal, in their names and on their
behalf by their respective officer, thereunto duly authorized, on and as of the
date first set forth above,
RAYTHEON E-SYSTEMS. INC.
By: ___________________________
Name:
Title:
ACCESS RADIOLOGY CORPORATION
By: __________________________
Name:
Title:
-30-
<PAGE>
Schedule 2.3(b)
---------------
The Final Installment shall be the amount obtained from the following
table:
Date Final Installment
---- -----------------
in or prior to the seventh (7th) month after the Closing Date $ 700,000
in the eighth (8th) month after the Closing Date $ 800,000
in the ninth (9th) month after the Closing Date $ 900,000
in the tenth (10th) month after the Closing Date $1,000,000
in the eleventh (11th) month after the Closing Date $1,100,000
in the twelfth (12th) month after the Closing Date $1,200,000
Upon the first anniversary (the "First Anniversary") of the Closing Date,
the Final Installment shall be One Million Three Hundred Thousand Dollars
($1,300,000). If Buyer fails to pay to Seller the Final Installment by wire
transfer in immediately available funds on or before the First Anniversary, then
interest shall accrue with respect to the Final Installment at the rate of
twenty percent (20%) per annum or at the maximum rate permitted by law,
whichever is less.
<PAGE>
Schedule I
Acquired Assets
---------------
Acquired Assets are those assets of Seller used or held in the ordinary
course of business for the manufacture, marketing and sale of the product lines
produced by Raytheon E-Systems under the name E-MED. These assets include,
without limitation:
1. Inventory listed in Attachment A and MegaScan inventory;
2. Intellectual property identified on Schedule 3.9(i);
3. Prepaid expenses listed on Attachment B;
4. Property, Plant and Equipment listed on Attachment C;
5. Leases at San Antonio, Texas and Billerica, Massachusetts;
6. All agreements entered into by Seller relating to the EMED product line;
7. All proposals outstanding relating to the EMED product line;
8. All books and records relating to the EMED product line; and,
9. All accounts receivable (including receivables from employee loans) and;
10. Work in progress related to the EMED product line.
-2-
<PAGE>
Schedule II
Estimated Balance Sheet
-----------------------
Schedule II
-----------
EMED
ESTIMATED BALANCE SHEET
October 23, 1998
<TABLE>
<CAPTION>
Account
Account # Account Description Balance
--------- ------------------- -------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
101** Total Cash $ -- Excluded
103** Total Accounts Receivable $ 2,330,059
105** Total Inventory (Excluding MegaScan) $ 3,681,494 (a,b)
1091* Total Prepaid-Miscellaneous $ 14,417
1092* Prepaid-ISG Software Service $ 67,501
1093* Prepaid Deposits $ 42,519
1094* Total Prepaid Travel $ 33,175
1095* Prepaid Third Party Warranty $ 146,382
1097* Prepaid Expenses-Advertising $ -- Excluded
1099* Total Prepaid Fringe Benefits $ -- Excluded
Total Current Assets $ 6,315,547
13*** Total Property and Equipment $ 639,670
183** PACS Software Productization $ 4,032,420
Total Assets $ 10,987,637
LIABILITIES
CURRENT LIABILITIES
201* Total Accounts Payable $ 1,207,163
202* Total Accrued Rent $ (6,145)
203** Total Accrued Payroll $ -- Excluded
2040* Provision for Warranty Cost $ 81,700
2041* Total Accrued Commission/Margins $ 163,576
2042* Accrued Megascan Costs $ -- Excluded
2045* Accrued Workmans Comp $ -- Excluded
2046* Accrued Advertising (RSNA) Fee $ 49,501
2049* Accrued Taxes $ -- Excluded
205** Total Deposits and Deferred Revenues $ 241,084
206** Total E-Systems Intercompany Account $ -- Excluded
Total Liabilities $ 1,736,879
ACQUIRED NET BOOK VALUE $ 9,250,758
</TABLE>
Notes:
-3-
<PAGE>
(a) Excludes MegaScan inventory located at all EMED locations including
Billerica and San Antonio, and at at vendor locations.
(b) Inventory on the closing balance sheet will be adjusted to reflect
differences between the 11/20/98 perpetual inventory and the inventory
physically on hand at that date as confirmed by Price Waterhouse Coopers
for the following items: (1) Film digitizers and related film feeders (2)
personal computers >266 MHz (adjusted at 75% of standard cost), (3) SUN
workstations with the following part numbers - 490-0607-7, 490-0587-6, 490-
0606-6, 490-0555-0, 490-0508-8, 490-0560-4, 495-0044-8 and 170-0231-1.
-4-
<PAGE>
Schedule III
Excluded Assets
---------------
1. Seller will retain non-exclusive world-wide, royalty free right and license
to use, modify, reproduce, release, perform, display, disclose, manufacture,
market and sell the PACSPro 11 Graphics Controller (the capacity to reproduce
and assemble the circuit cord EMED Part Number 170-0226-6 Rev A and Raytheon
Part Number 431-90000) for all non-medical applications, including commercial,
governmental, aerial, spatial, and hydrographical applications.
2. All cash of Seller.
3. All Contracts between Seller and ISG Technologies, Inc.
Schedule IV
-----------
Persons with Access Knowledge:
Mr. Scott Sheldon, President of Access
Mr. Gary Lortie, Access CFO
Persons with Raytheon Knowledge:
Mr. Ron Ford, EMED President
Mr. Robert Dryden, Division Counsel
Schedule V
Retained Liabilities
--------------------
1. Liabilities for infringement of intellectual property arising from events
occurring prior to the Closing Date.
2. All amounts payable by the EMED product line to Seller or its Affiliates.
3. Environmental liabilities relating to the leased properties arising prior
to the Closing Date.
4. Liabilities of Seller for Taxes arising in connection with Seller's the
operation of the product lines produced by Raytheon E-Systems under the name E-
MED.
-5-
<PAGE>
5. Liabilities attributable to the employment of the employees of Seller which
arose prior to the Closing date, excluding accrued vacation benefits accrued by
those employees that are Assumed Employees.
6. Liabilities under all Contracts between Seller and ISG Technologies, Inc.
Schedule 3.1(b)
Obligations breached as a result of the closure of this transaction
-------------------------------------------------------------------
Many of the contracts, leases and licenses relating to the business have
provisions precluding assignment without the consent of both parties to the
Agreement.
Schedule 3.2
Financial Statements of the Product Line
----------------------------------------
Identified in Attachment D
Schedule 3.4
Litigation - Actual or Threatened
---------------------------------
1. Christopher L. Mohen v. E-Systems Medical Electronics, Middlesex Superior
Court Civil Action No. 97-2821
2. Potential litigation involving the Company's alleged infringement of TASC's
PictureCom software
3. Issues previously discussed with Mr. Scott Sheldon relating to the claimed
obligation for EMED to upgrade 5 workstations sold to the Boston Veteran's
Hospital remain outstanding
4. Issues previously discussed with Mr. Scott Sheldon relating to return of
equipment and refund of some portion of the purchase price of equipment sold to
New England Baptist remain outstanding
Schedule 3.5
------------
Attachment G presents those contracts delivered to, reviewed by, or
available during due diligence to Access. Seller represents that this listing
includes but is not limited to all contracts that are material to the acquired
business. Buyer acknowledges that it has reviewed or had the opportunity to
review all of the contracts included in Attachment G. This listing is not
intended to represent outstanding backlog of the acquired business.
Schedule 3.6
Instances Where the Company is not in Compliance with Environmental Laws or
---------------------------------------------------------------------------
Licenses
--------
-6-
<PAGE>
None
Schedule 3.9
------------
(i) Intellectual property list
Identified in Attachment E
(ii) Intellectual property owned by third parties and included in the above
list
ISG
Mitra
Aware
Mayo
DOS
Windows for Workgroups 3.11
WIN 95
WIN 98
WIN NT
Solaris Desktop
Solaris Server
Unixware
Sybase SLQ
Motif Unix
AMASS
Carbon Copy for Windows
Dome Calibrator Software
Powerchute
(iii) Infringement claims by third parties
Identified in Schedule IV
Schedule 3.10
Inventory not in Good and Usable Condition
------------------------------------------
The inventory identified to Stockroom 8 is either obsolete or unlocated.
Remainder is good and usable. This is not to be construed as an assurance of
valuation.
-7-
<PAGE>
Schedule 3.15
Licenses and Permits
--------------------
1. Texas Department of Health Medical Device Manufacturer license
2. FDA Annual Registration of Device Establishment
3. FDA 510(k) Registration Numbers K901679, K935498, K941086 , K931060,
K931186, K931292S1, K922267B, K862158/D, K940859/S2 and K896223/A.
4. Registration to do business in those jurisdictions where the company's
business is conducted.
Schedule 5.1
Instances Where Company shall not act in the Ordinary Course of Business
------------------------------------------------------------------------
None
Schedule 6.1 (a)
List of EMED Employees
----------------------
Identified in Attachment F
-8-
<PAGE>
Attachments A through E to the foregoing Schedules have been omitted pursuant to
Rule 601(b)(2) under the Securities Act of 1933. The Attachments will be
provided supplementally to the Commission upon its request.
-9-
<PAGE>
CONFIDENTIAL TREATMENT EXHIBIT 10.21
WEB SOFTWARE LICENSING AND DEVELOPMENT AGREEMENT
This Web Software Licensing and Development Agreement is entered into as of
September 10, 1999 (the "Effective Date") between AWARE, Inc. ("AWARE") and eMed
Technologies Corporation ("EMED"), formerly known as ACCESS Radiology
Corporation.
Background
----------
1. EMED is in the business of providing integrated hardware and software
systems and services with respect to the transmission and interpretation of
medical images.
AWARE develops and licenses proprietary computer software that is useful for
compression and web-based viewing of digital images.
2. AWARE and EMED are parties to a Software Licensing and Development
Agreement dated May 30, 1997 (the "1997 Agreement"). The 1997 Agreement provides
for the licensing of various software by AWARE to EMED on the terms set forth
therein. Among other things, the 1997 Agreement contemplated the development,
licensing and marketing of certain new software, referred to in the 1997
Agreement as the "Joint Product". The 1997 Agreement sets forth procedures under
which the Joint Product would be developed and licensed, royalties would be
negotiated, and ownership of intellectual property would be determined.
3. The development efforts contemplated with respect to the Joint Product by
the 1997 Agreement have now resulted in the initial commercial release of a
software application for the web-based viewing and distribution of medical
images and related information. This release having occurred, AWARE and EMED now
wish to provide for definitive terms upon which this new software will be
licensed and marketed, and upon which further development work relating to the
new software will proceed.
NOW, THEREFORE, the parties agrees as follows:
CONFIDENTIAL TREATMENT
1
<PAGE>
I. MODIFICATION OF THE 1997 AGREEMENT.
1.01. Termination of Joint Product Provisions. Article III of the 1997
---------------------------------------
Agreement, which provides for various matters relating to the "Joint Product" as
defined therein, shall terminate upon the execution of this Agreement. In
addition, references to the Joint Product in Articles IV, V and VI of the 1997
Agreement shall have no further force or effect upon the execution of this
Agreement. The rights and obligations of AWARE and EMED with respect to the Web
Product and the related Licensed Software (as defined in Section 2.01 of this
Agreement), and with respect to the Joint Product (as defined Article III of
this Agreement)shall be governed exclusively by this Agreement, and not by the
1997 Agreement. The rights and obligations of AWARE and EMED with respect to the
"Compression Software" (as defined in the 1997 Agreement) shall be governed
exclusively by the 1997 Agreement, and not by this Agreement.
1.02 Survival of the 1997 Agreement. The 1997 Agreement shall survive the
-------------------------------
execution of this Agreement and shall continue to govern the rights and
obligations of the parties with respect to the "Compression Software" (as
defined in the 1997 Agreement), except to the extent expressly modified by this
Agreement. The references to "Schedule I" in Sections 1.01, 1.03(b), 1.04(a),
and 2.02(b) of the 1997 Agreement are amended to refer to "the documentation
separately supplied by AWARE".
II. LICENSING OF SOFTWARE; PAYMENTS.
2.01 Grant of License. Subject to the terms of this Agreement, AWARE grants to
-----------------
EMED the following rights, under any patent, copyright, trade secret or other
proprietary right (other than any trademark) of AWARE, whether presently held or
hereafter acquired, with respect to (i) the proprietary web-based image viewing
and distribution software identified on Schedule I and any upgrades or
modifications thereof (the "Web Product") and (ii) any other web-based image
viewing or distribution software developed by AWARE pursuant to this Agreement
(such software and the Web Product being referred to collectively as the
"Licensed Software"):
CONFIDENTIAL TREATMENT
2
<PAGE>
(a) The right to use the Licensed Software for internal purposes and
in support of users of EMED products for Medical Use, and to use and make
available the Licensed Software as part of EMED's product line and for
integration with other components of EMED products.
(b) The right to grant sublicenses of the Licensed Software for
Medical Use to users of EMED products and to original equipment
manufacturers or other parties which utilize toolkits to create derivative
products for Medical Use which are in turn licensed to end users.
Sublicenses of software will be granted in compliance with the procedures
set forth in Section 6.01.
(c) The right to modify the Licensed Software to create new releases
and new products for Medical Use, and to grant sublicenses of software as
modified for Medical Use to users and to original equipment manufacturers
or other parties which utilize toolkits to create derivative products for
Medical Use which will in turn be licensed to end users. Sublicenses of
software will be granted in compliance with the procedures set forth in
Section 6.01.
For purposes of the Agreement, "Medical Use" means the compression,
transmission, viewing or other processing of medical images. The rights granted
to EMED shall be exclusive to the extent set forth in Article III.
2.02. License Fees. (a) License fees payable to AWARE with respect to the Web
------------
Product will be determined based upon the terms on which the Web Product is made
available to customers. EMED expects to offer the Web Product to customers under
a plan in which the customer's initial payment upon installation of the Web
Product would be [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.] Licenses granted under
such a plan are referred to as "Subscription Sales". Customers are also expected
to be offered the [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.] License fees payable
with respect to Subscription Sales will be calculated as provided in subsection
(b) below, and license fees payable with respect to all other sales of licenses
of
CONFIDENTIAL TREATMENT
3
<PAGE>
the Web Product will be calculated as provided in subsection (c) below.
(b) With respect to each Subscription Sale of the Web Product, EMED will pay
to AWARE [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.] (as defined in subsection (d) below)
attributable to licenses of the client portion of the Web Product. These fees
are in addition to, and not in lieu of, the license fees payable for compression
software under the 1997 Agreement.
(c) With respect to sales of the Web Product other than Subscription Sales,
EMED will pay to AWARE [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.] of [*THE CONFIDENTIAL
PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]
(d) [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION] means amounts paid to EMED in Subscription
Sales for [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION] (excluding taxes, shipping, insurance,
the interest portion of payments under rental or leasing arrangements, actual
customer returns, customs duties, and any charges for services).
(e) [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION] means amounts paid to EMED by customers for
[*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION] (excluding taxes, shipping, insurance, the
interest portion of payments under rental or leasing arrangements, actual
customer returns, customs duties, and any charges for services), [*THE
CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.
] "High End Storage and Network Hardware" is defined in
Schedule II.
CONFIDENTIAL TREATMENT
4
<PAGE>
(f) No royalties shall be payable under this Section 2.02 for beta testing
installations, or demonstration or loaner units. The duration of beta testing
will be limited to a period of time no longer than that which is determined by
EMED to be reasonably necessary for satisfaction of the requirements for
commercial marketing of the product or release being tested. Loaner units will
be provided for a period of time no longer than that which is reasonably
necessary for the customer to assess the functionality and desirability of the
product or release being loaned. EMED will not make the Web Product available
without charge except for (i) beta testing installations, demonstration or
loaner units and (ii) copies of client software provided to radiologists in
connection with Subscription Sales, and EMED will not make the Web Product
available without charge to assist in selling other products or in generating
revenues from other sources.
2.03. Payments. (a) Promptly after the end of each calendar quarter, EMED will
--------
deliver to AWARE a statement setting forth, for such quarter, the number of
copies of server software included in Subscription Sales, Net Client License
Revenue, and Net Software License Revenue. Each quarterly statement shall be
accompanied by payment of license fees due. EMED will use its best efforts to
provide such statement and pay license fees due within 30 days of the end of
each calendar quarter. Each quarterly statement and payment of license fees
shall be provided no later than 60 days after the end of the relevant calendar
quarter.
(b) EMED will keep complete books of account containing all particulars that
may be necessary to determine the amounts payable to AWARE hereunder. Such books
and supporting data shall be open for inspection for one year following the
calendar year to which they pertain, at reasonable times and upon reasonable
notice, by an independent auditor for purposes of verifying the statements
delivered pursuant to subsection (a) above. AWARE will not conduct more than one
such inspection for books and supporting data relating to any single calendar
year. The results of any inspection shall be made available to EMED. If the
agreed results of an inspection show an underpayment or overpayment, then EMED
shall pay to AWARE the amount of any underpayment and AWARE shall pay to EMED
the amount of any overpayment. If the agreed results of such inspection show
that EMED has underpaid AWARE by [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.] then EMED shall
pay to AWARE the reasonable and
CONFIDENTIAL TREATMENT
5
<PAGE>
documented out of pocket costs of conducting such inspection, and allow
inspection of the books and supporting data for the prior two years. AWARE shall
otherwise bear the costs it incurs in performing any inspection.
2.04. Other Products. With respect to Licensed Software that may be developed
--------------
in the future, the parties will negotiate in good faith to determine definitive
terms. It is the intention of the parties that license fees shall be consistent
with the rate of [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION] of [*THE CONFIDENTIAL
PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION] as described in this Agreement.
III. MARKETING FOR NON-MEDICAL USE.
3.01 AWARE shall have the exclusive right to market software and other
components included in the Web Product and any other software developed pursuant
to this Agreement (the "Joint Product"), under any patent, copyright, trade
secret or other proprietary right of EMED (other than any trademark), whether
presently held or hereafter acquired, for all uses other than Medical Use. AWARE
shall have the following rights with respect to the Joint Product, which EMED
hereby grants to AWARE.
(a) The right to use the Joint Product for internal purposes and in
support of users of AWARE products, and to use and make available the Joint
Product as part of AWARE's product line and for integration with other
components of AWARE products, in all cases for uses other than Medical Use.
Medical Use includes grants of licenses to indemnity insurance companies,
and AWARE will not grant any such licenses.
(b) The right to make and have made, use and have used, and sell,
lease or otherwise transfer the Joint Product, and to grant sublicenses of
the software and other intellectual property included in the Joint Product
to users of AWARE products in which such software is included, in all cases
for uses other than Medical Use. Users to whom sublicenses are granted may
include original equipment manufacturers
CONFIDENTIAL TREATMENT
6
<PAGE>
or other parties which utilize toolkits to create derivative products for
any use other than for Medical Use, which will in turn be licensed to end
users. Sublicenses of software will be granted in compliance with the
procedures set forth in Section 7.01.
(c) The right to modify the Joint Product and the software included
in it to create new releases and new products, to make and have made, use
and have used, and sell, lease or otherwise transfer products including
modifications, and to grant sublicenses of software as modified to users of
AWARE products in which such software is included, in all cases for uses
other than Medical Use. Users to whom sublicenses are granted may include
original equipment manufacturers or other parties which utilize toolkits to
create derivative products for any use other than for Medical Use, which
will in turn be licensed to end users. Sublicenses of software will be
granted in compliance with the procedures set forth in Section 7.01.
3.02. AWARE shall pay royalties to EMED for licenses granted under this
Article III in amounts to be agreed between EMED and AWARE, and at intervals and
under procedures substantially the same as those set forth for payments by EMED
in Section 2.03. The royalties payable to EMED shall be a percentage (the
"Royalty Percentage") of amounts paid to AWARE for license of the Joint Product.
The Royalty Percentage shall be a percentage of not less than [*The confidential
portion has been omitted and filed separately with the Securities and Exchange
Commission.] which shall reflect the contribution of EMED during the term of
this Agreement to aspects of the Joint Product developed for uses other than
Medical Use. The Royalty Percentage will be determined based upon the principle
that the Royalty Percentage will be fixed at [*The confidential portion has been
omitted and filed separately with the Securities and Exchange Commission.] if
EMED contributes little or nothing to during the term of this Agreement to
aspects of the Joint Product developed for uses other than Medical Use, and will
approach [*The confidential portion has been omitted and filed separately with
the Securities and Exchange Commission.] if EMED contributes significantly to
such aspects. The exact percentage will depend on the mutual agreement of the
parties as to the significance of EMED's contribution. Promptly upon completion
of the functional product descriptions and design specifications
CONFIDENTIAL TREATMENT
7
<PAGE>
for the Joint Product, AWARE and EMED will negotiate in good faith to reach
agreement on the Royalty Percentage. As it is not contemplated that EMED will
contribute development efforts to aspects of the Joint Product other than
Medical Use, if no agreement is reached within [*The confidential portion has
been omitted and filed separately with the Securities and Exchange Commission.]
days, the Royalty Percentage shall be fixed at [*The confidential portion has
been omitted and filed separately with the Securities and Exchange Commission.]
Except as agreed in writing with EMED, AWARE will not make the Joint Product
available without charge.
IV. EXCLUSIVITY
4.01 Exclusivity Commitments. (a) EMED shall have the exclusive right to use
-----------------------
and sublicense software developed or owned by AWARE for Medical Use to the
extent set forth herein. From the date of this Agreement until the termination
of exclusivity as provided in Section 6.01, AWARE will not (except as expressly
permitted by this Agreement) supply for Medical Use or permit any person to use
for Medical Use (i) the Web Software or any modification or improvement of the
Web Software or (ii) any other dynamic HTML or plug-in product that is
developed, owned or licensed by AWARE. AWARE will take reasonable steps to
assure compliance with this exclusivity commitment by third parties to whom
AWARE provides software. Notwithstanding anything contained in this Agreement,
AWARE may provide its ADSL, SDSL, HFC and any other general data communication
product to third parties for Medical Use or any other purpose.
(b) From the date of this Agreement until the termination of exclusivity as
provided in Section 6.01, AWARE will be the exclusive supplier to EMED of web-
based image viewing and distribution software for use in EMED products. EMED
will not independently develop any such software and will not include any such
software (other than that developed by or in cooperation with AWARE under this
Agreement) in the Web Product or any product that is competitive with the Web
Product. The parties understand and agree that home, diagnostic and intensive
care unit viewers are complementary to the Web Product and are therefore not
within the scope of the foregoing restrictions.
CONFIDENTIAL TREATMENT
8
<PAGE>
4.02. Exceptions. (a) Licenses of software for Medical Use which have been
----------
previously granted and for which all license fees have been invoiced as of the
date of this Agreement shall continue in effect notwithstanding Section 4.01.
However, AWARE will not provide upgrades or new releases for any software
subject to such licenses except as expressly permitted in this Section 4.02.
(b) Notwithstanding Section 2.01, AWARE may [*THE CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
(c) Notwithstanding section 2.01, AWARE may until [*THE CONFIDENTIAL PORTION
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.] During the period from the effectiveness of this agreement until
[*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.] AWARE shall not [*THE CONFIDENTIAL PORTION
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]
4.03. Transition. Promptly after the date of this Agreement, AWARE will
----------
publicly announce that it has enlarged its exclusive relationship with EMED and
that EMED and AWARE are making a commitment to the Web Product. This
announcement will be subject to review by EMED before its release. EMED may
disclose the relationship between AWARE and EMED contemplated by this Agreement
in technical and product oriented marketing materials without review by AWARE.
EMED may disclose this Agreement and the relationship contemplated hereby in
filings with securities regulators to the extent set forth in Section 7.06. All
other public announcements by EMED that refer to AWARE will be subject to review
by AWARE prior to their release.
V. DUTIES OF EMED AND AWARE
5.01. Duties of EMED. EMED will use its best efforts to maximize the market
--------------
and sales volume for the Web Product. EMED will dedicate full-time engineering
management, and make substantial and continued resources available for sales,
marketing, support, installation and training for the Web Product. EMED will
continue to make modifications to its core image server (Compression Server)
products to accommodate greater functionality, performance,
CONFIDENTIAL TREATMENT
9
<PAGE>
and reliability of the complete product offering. EMED will also either develop
or source other products that improve the functionality and marketability of
EMED's web and client/server products as appropriate in the judgment of EMED.
5.02. Duties of AWARE. AWARE will continue to provide primary engineering
---------------
application development for EMED's web-based image viewing and distribution
software for use in EMED products including the client software and dynamic HTML
generation applications included in the Web Product. AWARE's responsibilities
will specifically include bug fixes, work-arounds and other software support as
needed to cause the Licensed Software to perform in accordance with its
specifications. AWARE will also make available, upon request by EMED, additional
applications, additional features on existing applications, and changes to core
technology as specified by EMED. AWARE will dedicate to these activities a
minimum of [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.] qualified full-time software engineers
who are knowledgeable in compression and web technology, a part time test
engineer, and additional engineering management resources as required.
5.03. Meetings. Management of AWARE and EMED will meet on a monthly basis to
---------
review technical and market progress towards meeting goals and objectives.
VI. TERM
6.01. Term; Effect of Expiration. (a) The initial term of this Agreement shall
--------------------------
extend until December 31, 2005. The term of this Agreement may be renewed by
mutual agreement of the parties.
(b) If the term of this Agreement shall expire (and this Agreement shall not
have been terminated for breach pursuant to Section 6.02), the licenses granted
in Section 2.01 and Section 3.01 shall remain in effect for five years from the
date of expiration; provided that such licenses shall be modified so that they
are no longer exclusive.
(c) AWARE and EMED agree that the royalties and license fees payable under
this Agreement shall be modified effective upon modification of the licenses
granted
CONFIDENTIAL TREATMENT
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<PAGE>
hereunder pursuant to subsection (b) above. AWARE and EMED further agree
that the appropriate amount of such modified royalties and license fees cannot
be determined as of the date of this Agreement. AWARE and EMED shall negotiate
in good faith for at least three months after effectiveness of license
modification pursuant to subsection (b) to reach agreement on modified license
fees and royalties. If, at any time after the end of such three month period,
either party shall determine in its judgment that negotiations are unlikely to
result in an acceptable outcome, such party may initiate arbitration to
determine modified fees and royalties pursuant to the procedures specified in
Section 8.01.
6.02. Termination for Breach. (a) If EMED shall materially breach its
-----------------------
obligations under this Agreement, and such material breach shall be continuing
for at least 60 days after delivery of a notice by AWARE describing such breach,
then AWARE may by a separate notice terminate this Agreement for breach under
this Section 6.02(a).
(b) If AWARE shall materially breach its obligations under this Agreement, and
such material breach shall be continuing for at least 60 days after delivery of
a notice by EMED describing such breach, then EMED may by a separate notice
terminate this Agreement for breach under this Section 6.02(b).
(c) With respect to the obligations of AWARE and EMED under Sections 5.01 and
5.02, "material breach" means willful failure of a party to allocate the
resources required by the Section 5.01 or 5.02 (as the case may be) to the
performance of such party's responsibilities.
(d) Termination for breach under this Section 6.02 shall not be an exclusive
remedy, but shall be in addition to any other remedies that either party may
have.
6.03. Effect of Termination for Breach. (a) If AWARE shall terminate this
---------------------------------
Agreement for breach pursuant to Section 6.02, then the license granted to EMED
pursuant to Section 2.01 shall immediately terminate and EMED shall cease using
or marketing the Licensed Software and the Web Product; provided that EMED shall
fulfill any maintenance obligations existing as of the effective date of such
termination. Upon the effectiveness of such a termination,
CONFIDENTIAL TREATMENT
11
<PAGE>
the exclusivity obligations of AWARE pursuant to Article III shall terminate.
(b) If EMED shall terminate this Agreement for breach pursuant to Section
6.02, then the license granted to EMED pursuant to Section 2.01 and the
exclusivity provisions binding upon AWARE pursuant to Article IV shall remain in
effect, and the exclusivity obligations of EMED pursuant to Article IV shall
terminate. In such event, AWARE shall continue to provide bug fixes, work-
arounds and other software support as needed to cause the Licensed Software to
perform in accordance with its specifications. Also in such event, EMED shall
retain source code delivered under Section 7.03, AWARE shall deliver to EMED any
additional source code of the Licensed Software not previously delivered under
Section 7.03, and EMED shall continue to have the right to modify the Licensed
Software. For so long as the license granted under Section 2.01 continues in
effect pursuant to this subsection (b), EMED shall pay license fees as provided
in Section 2.02. Upon the effectiveness of any termination by EMED for breach
under Section 6.02(b), the license granted to AWARE under Article III shall
terminate.
6.04. Additional Surviving Terms. All payment obligations accrued prior to
--------------------------
any termination or expiration of this Agreement shall survive such termination
or expiration. All sublicenses granted to any end user in accordance with this
Agreement prior to any termination or expiration of this Agreement shall survive
such termination or expiration. If EMED holds a continuing license under this
Agreement, EMED shall also continue to have the rights set forth in Section 7.03
with respect to such license. The provisions of Sections 6.05, 7.02, 7.05, 7.06,
8.01, 8.02, 8.03 and 8.12 shall survive any termination or expiration of this
Agreement.
6.05. Intellectual Property. AWARE and EMED shall negotiate in good faith
----------------------
for at least three months after effectiveness of expiration or termination of
this Agreement to reach agreement on specific definition of the intellectual
property owned by each party in accordance with the principles set forth in
Section 7.02. If, at any time after the end of such three month period, either
party shall determine in its judgment that negotiations are unlikely to result
in an acceptable outcome, such party may initiate arbitration to determine
ownership of intellectual
CONFIDENTIAL TREATMENT
12
<PAGE>
property pursuant to the procedures specified in Section 8.01.
VII. INTELLECTUAL PROPERTY
7.01. Software Licensing Procedures. (a) The procedures set forth in this
------------------------------
Section 67.01 shall govern the granting of sublicenses of software under this
Agreement.
(b) Each of AWARE and EMED shall assign a unique number to each copy made
by it of Licensed Software or any other software provided to it by the other
party, whether for internal use or for sublicense to a user. Each of AWARE and
EMED shall keep full, clear and accurate records of all copies that it makes of
any such software and the identity and location of each third party to whom any
such software is provided. Each of EMED and AWARE may examine records of the
other party not more than once in any calendar quarter, during normal business
hours and upon reasonable notice.
(c) Sublicenses of software granted under this Agreement shall include the
following provisions. Such terms may be set forth in a reasonably prominent
printed or electronic document that accompanies the software being sublicensed
and states that by use of such software, the user agrees to the terms set forth
in the document. Sublicenses may be granted directly, or by a reseller or other
intermediary. The provisions required by this subsection (c) are:
(i) a provision restricting the sublicensee's use of the licensed
software to its own business and professional purposes, provided that any
sublicensee of a toolkit may use it to create new applications to be
licensed to end users as part of the sublicensee's product;
(ii) a provision requiring the sublicensee to take all reasonable
precautions to keep the licensed software and any related documentation
confidential;
(iii) a provision prohibiting the sublicensee from reproducing
(except for backup copies), reverse engineering, translating or creating
other versions of the licensed software, provided that any sublicensee of a
toolkit may use it to create new applications to
CONFIDENTIAL TREATMENT
13
<PAGE>
be licensed to end users as part of the sublicensee's product;
(iv) a provision acknowledging that ownership of the licensed
software remains exclusively with the grantor of the license or its
suppliers;
(v) a provision limiting the other party's liability to the
sublicensee to at least the same extent that the liability of the grantor
to the sublicensee is limited, and disclaiming warranties on behalf of the
other party at least to the extent disclaimed on behalf of the grantor; and
(vi) a provision stating that AWARE or EMED (as the case may be) is
an intended third party beneficiary of the foregoing to the extent any
materials or information delivered to the sublicensee originated with or
are derived from materials or information supplied by AWARE or EMED (as the
case may be), and shall have the right to enforce and shall be entitled to
the benefit of any of the foregoing provisions as they relate to such
materials or information.
Each party will use reasonable efforts to enforce license agreements executed by
its customers. In no event shall source code be released to any sublicensee.
(d) Notwithstanding this Section 7.01 or any other provision of this
Agreement, software may be licensed to the Government of the United States of
America, or an agency or instrumentality thereof, under an agreement containing
software licensing terms generally used by the United States Government (or the
agency or instrumentality to which the software is licensed) for procurement of
commercial software.
7.02. Ownership. (a) As between EMED and AWARE, AWARE owns any software
---------
developed solely by AWARE or by any employee, consultant or other person acting
on AWARE's behalf (other than EMED) under this Agreement, including any
inventions, concepts, specifications, know-how and ideas embodied in such
software, together with all proprietary rights therein ("AWARE Intellectual
Property"). As between EMED and AWARE, EMED owns and shall continue to own those
concepts, specifications, know-how, and ideas
CONFIDENTIAL TREATMENT
14
<PAGE>
embodied in the design and functionality of the Web Product and conceived solely
by EMED, and as applied in the Web Product for Medical Use, and any software
developed solely by EMED or by any employee, consultant or other person acting
on EMED's behalf (other than AWARE) under this Agreement, including any
inventions, concepts, specifications, know-how and ideas embodied in any of the
foregoing, together with all proprietary rights therein ("EMED Intellectual
Property"). As between EMED and AWARE, the parties shall jointly own any
software or other intellectual property jointly developed by the parties under
this Agreement and not allocated between them above, including any inventions,
concepts, specifications, know-how and ideas embodied therein, together with all
proprietary rights therein ("Joint Intellectual Property"). Whether or not any
intellectual property is jointly developed shall be determined in accordance
with United States patent or copyright law as applicable; provided that in no
event shall either party have an obligation to account to the other except as
specifically provided in this Agreement.
(b) AWARE shall have the right to file and prosecute patent or copyright
applications on AWARE Intellectual Property and EMED shall have the right to
file and prosecute patent or copyright applications on EMED Intellectual
Property. The parties will cooperate in the filing and prosecution of patent or
copyright applications on Joint Intellectual Property, provided that neither
party shall file any such patent or copyright application without the prior
written consent of the other. Each party will cooperate with the other party in
the filing and prosecution by the other party of any patent or copyright
application that complies with this subsection (b), including by executing and
delivering or causing its officers and employees to execute and deliver (all at
the expense of the filing party) any documentation reasonably necessary or
appropriate for the filing and prosecution of such an application and the
vesting of rights as provided in this Agreement.
(c) The exclusivity obligations of the parties under Article IV shall not in
any way be affected by the ownership of AWARE Intellectual Property, EMED
Intellectual Property, or Joint Intellectual Property as provided in this
Section 7.02, or by the filing of any patent or copyright application or the
grant or issuance of any
CONFIDENTIAL TREATMENT
15
<PAGE>
patent or copyright. Neither party shall market, sell, license or distribute any
Joint Intellectual Property except to the extent that such Joint Intellectual
Property is covered by a license granted to such party hereunder.
7.03 Source Code. Copies of source code of all Licensed Software will be made
-----------
available to EMED by AWARE upon completion of each release or patch in which
such source code is included. The fact that AWARE has provided access to source
code shall in no way affect proprietary rights to source code or software, and
all source code shall continue to be owned by the party that owned it prior to
disclosure. All source code is "Confidential Information" as that term is used
in Section 7.06 and shall be subject to the restrictions set forth in Section
7.06. EMED will maintain source code revision control procedures with which both
AWARE and EMED will comply. These procedures will be designed to achieve, among
other things, compliance with "Good Manufacturing Practices" as defined by the
U.S. Food and Drug Administration and documentation of the ownership of source
code disclosed by either party. Provision of source code to EMED shall not
affect AWARE's obligations to provide engineering resources and support under
Section 5.01. Should AWARE wish to utilize its license rights pursuant to
Section 3.01, AWARE will notify EMED of such intentions and copies of source
code of Joint Products will be made available to AWARE by EMED upon completion
of each release or patch in which such source code is included. The fact that
EMED has provided access to source code shall in no way affect proprietary
rights to source code or software, and all source code shall continue to be
owned by the party that owned it prior to disclosure. All source code is
"Confidential Information" as that term is used in Section 7.06 and shall be
subject to the restrictions set forth in Section 7.06.
7.04. Representations. (a) AWARE represents to EMED that AWARE has full
---------------
authority to enter into this Agreement and grant the licenses and rights set
forth herein.
(b) EMED represents to AWARE that EMED has full authority to enter into this
Agreement and grant the licenses and rights set forth herein.
7.05. Indemnities. (a) AWARE will, at its expense, defend against, hold EMED
-----------
harmless from, and pay any final judgment against EMED or any customer of EMED
arising out
CONFIDENTIAL TREATMENT
16
<PAGE>
of (x) any claim that the Licensed Software infringed a copyright,
a patent or a trade secret of a third party, unless in the case of third party
patent claims, (i) AWARE can show that the patent claimed to have been infringed
was not known to Aware at the time of delivery to EMED of the infringing portion
of Licensed Software or (ii) such patent was infringed in order to comply with
an EMED design or specification or (iii)such patent would not be infringed by
the use of Licensed Software alone and not in combination with any EMED
software; or (y) out of marketing by AWARE of AWARE products (including any
product liability claim unless such product liability claim is caused by
designs, specifications or software provided by EMED); provided that (i) EMED
notifies AWARE in writing of such claim or action, and (ii) AWARE has sole
control of the defense and settlement of such claim or action. In defending
against such claim or action to the extent it relates to software provided by
AWARE, AWARE may, at its option, agree to any settlement in which AWARE shall
either (1) procure for EMED and all customers of EMED the right to continue
using the software at issue; or (2) modify or replace such software so that it
no longer infringes, to the extent that the exercise of such option does not
result in a material adverse change in the operational characteristics of such
software, and equivalent functions and performance provided by AWARE remain
following implementation of such option. If AWARE concludes in its judgment
that none of the foregoing options is reasonable, AWARE may remove the software
at issue and any other component supplied by AWARE rendered unusable as a result
of such removal and pay to EMED damages arising therefrom, including damages
incurred by reason of EMED's inability to perform its obligations under
sublicenses; provided that AWARE's liability for damages arising from such
inability shall be [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
(b) EMED will, at its expense, defend against, hold AWARE harmless from, and
pay any final judgment against AWARE or any customer of AWARE arising out of (x)
any claim that any software licensed to AWARE by EMED hereunder infringed a
copyright, a patent or a trade secret of a third party, unless in the case of
third party patent claims, (i) EMED can show that the patent claimed to have
been infringed was not known to EMED at the time of delivery to AWARE of the
infringing software or (ii) such patent was infringed in order to comply with an
AWARE
CONFIDENTIAL TREATMENT
17
<PAGE>
design or specification or (iii) such patent would not be infringed by the use
of the software licensed by EMED alone and not in combination with any AWARE
software; or (y) out of marketing by EMED of EMED products (including any
product liability claim unless such product liability claim is caused by
designs, specifications or software provided by AWARE) provided that (i) AWARE
notifies EMED in writing of such claim or action, and (ii) EMED has sole control
of the defense and settlement of such claim or action. In defending against such
claim or action to the extent it relates to software provided by EMED, EMED may,
at its option, agree to any settlement in which EMED shall either (1) procure
for AWARE and all customers of AWARE the right to continue using the software at
issue; or (2) modify or replace such software so that it no longer infringes, to
the extent that the exercise of such option does not result in a material
adverse change in the operational characteristics of such software, and
equivalent functions and performance provided by EMED remain following
implementation of such option. If EMED concludes in its judgment that none of
the foregoing options is reasonable, EMED may remove the software at issue and
any other component supplied by EMED rendered unusable as a result of such
removal and pay to AWARE damages arising therefrom, including damages incurred
by reason of AWARE's inability to perform its obligations under sublicenses;
provided that EMED's liability for damages arising from such inability shall be
[*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.]
(c) If EMED shall determine in its judgment that the concepts, specifications,
know-how, and ideas embodied in the design and functionality of the Licensed
Software infringe or conflict with a patent or copyright not known to EMED on
the date of this Agreement, then EMED shall notify AWARE and the parties will
discuss in good faith whether the Licensed Software can be modified or other
steps may be taken to avoid such infringement. If EMED determines in its
judgment that no such modification or other steps can be reasonably implemented,
EMED may by notice terminate the obligations of AWARE and EMED under this
Agreement with respect to the affected portion of the Licensed Software, and the
indemnity of EMED in subsection (b) above shall apply only to those claims
relating to the affected portion of the Licensed Software of which AWARE or
CONFIDENTIAL TREATMENT
18
<PAGE>
EMED had notice prior to the date of the first notice regarding infringement
delivered by EMED.
7.06. Confidentiality. As used in this Agreement, "Confidential
---------------
Information" means (i) all confidential information, proprietary software, trade
secrets, know-how, and all other intellectual property that is subject to the
licenses granted in this Agreement and in which proprietary rights would be
adversely affected by disclosure and (ii) all other confidential or proprietary
information (including without limitation financial information and business
information such as customer lists) that is or has been disclosed by AWARE to
EMED or by EMED to AWARE. AWARE and EMED agree that they will not, and will not
permit their respective officers, employees, agents and representatives to,
without first obtaining the written consent of the other party, use, sell or
disclose any Confidential Information, except as expressly contemplated hereby
and except that Confidential Information may be disclosed by the party that owns
it unless such disclosure would adversely affect the proprietary nature of
Confidential Information subject to any of the licenses granted hereunder.
Either party may disclose Confidential Information to potential customers, and
to other third parties to the extent necessary to permit any such third party to
assist in manufacture or integration of the Web Product, provided that any such
potential customer or third party to whom Confidential Information is disclosed
shall execute a confidentiality agreement no less restrictive than this Section
7.06. "Confidential Information" does not include (i) information that is or
becomes (other than by disclosure in violation of this Agreement) generally
available to the public, (ii) information that the receiving party can show was
known to the receiving party prior to its disclosure by the other party, or
(iii) information required to be disclosed by law or regulation or by judicial
process or administrative order, provided that prompt notice and an opportunity
to seek a protective order is given to the other party prior to disclosure.
AWARE and EMED agree that this Agreement and the Schedules hereto are
Confidential Information subject to this Section 7.06. AWARE consents to the
disclosure of the relationship contemplated by this Agreement in filings by EMED
with the U.S. Securities and Exchange Commission and state securities
authorities, and the filing of this Agreement and the 1997 Agreement as related
exhibits; provided that EMED shall diligently seek confidential treatment of all
CONFIDENTIAL TREATMENT
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<PAGE>
pricing information and shall promptly deliver a copy of all such filings to
AWARE.
VIII. GENERAL.
8.01. Arbitration. Any controversy or claim arising out of or relating to this
-----------
Agreement, or the breach thereof, shall be settled by arbitration administered
by the American Arbitration Association in Boston, Massachusetts under its
Commercial Arbitration Rules, and judgment on the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof.
Arbitration as specified in this Section 8.01 shall be the sole and exclusive
procedure for the resolution of disputes between the parties arising out of or
relating to this Agreement or the breach thereof; provided, however, that a
party, without prejudice to such procedure, may file a complaint to seek a
preliminary injunction or other provisional judicial relief, if in its judgment
such action is necessary to avoid irreparable damage or preserve the status quo.
Despite such action the parties will continue to participate in good faith in
the procedures specified in this Section 8.01. AWARE and EMED agree that any
breach of Sections 4.01, 4.02, 7.01 or 7.06 would cause irreparable harm and
that the aggrieved party shall be entitled to equitable relief in the nature of
an injunction for any such breach, without posting of a bond or other surety.
8.02. Limitation of Warranties. THE OBLIGATIONS OF AWARE AND EMED EXPRESSLY
-------------------------
STATED IN THIS AGREEMENT ARE IN LIEU OF ALL OTHER WARRANTIES OR CONDITIONS
EXPRESS OR IMPLIED. TO THE EXTENT ALLOWABLE TO BY LAW, THIS EXCLUSION OF ALL
OTHER WARRANTIES AND CONDITIONS EXTENDS TO IMPLIED WARRANTIES OR CONDITIONS OF
MERCHANTABLE QUALITY AND FITNESS FOR A PARTICULAR PURPOSE, OR AGAINST
INFRINGEMENT AND THOSE ARISING BY STATUTE OR OTHERWISE IN LAW, OR FROM A COURSE
OF DEALING OR USAGE OF TRADE.
8.03. Limitation of Liability. EMED AND AWARE AGREE THAT, EXCEPT AS EXPRESSLY
------------------------
STATED OTHERWISE IN SECTION 7.05. THE LIABILITY OF EITHER OF THEM TO THE OTHER,
IF ANY, UNDER ANY THEORY OF LAW OR EQUITY, ARISING OUT OF, OR IN ANY WAY RELATED
TO THIS AGREEMENT OR THE FULFILLMENT OF ANY OF THE OBLIGATIONS OF EITHER OF THEM
UNDER THIS AGREEMENT, IS LIMITED TO MONEY DAMAGES NOT TO EXCEED THE TOTAL AMOUNT
PAID OR PAYABLE BY EMED TO AWARE UNDER THIS AGREEMENT.
CONFIDENTIAL TREATMENT
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<PAGE>
8.04. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the Commonwealth of Massachusetts.
8.05. Assignment. (a) Subject to EMED's right to grant sublicenses
----------
hereunder, EMED may not assign this Agreement or any rights hereunder without
the prior written consent of AWARE, except that, without such consent and upon
notice to AWARE, (i) EMED may assign all of its rights hereunder to a
corporation or other legal entity that acquires substantially all of EMED's
assets or where EMED is consolidated or merged, but then only upon the express
assumption by such transferee or its successor of the obligations set forth in
this Agreement and (ii) EMED may grant security interests in the rights of EMED
under this Agreement to secure the obligations of EMED to a bank or other
financial institution which has extended credit to EMED.
(b) AWARE may not assign this Agreement or any rights hereunder without
the prior written consent of EMED, except that, without such consent and upon
notice to EMED, (i) AWARE may assign all of its rights hereunder to a
corporation or other legal entity that acquires substantially all of AWARE's
assets or where AWARE is consolidated or merged, but then only upon the express
assumption by such transferee or its successor of the obligations set forth in
this Agreement and (ii) AWARE may grant security interests in the rights of
AWARE under this Agreement to secure the obligations of AWARE to a bank or other
financial institution which has extended credit to AWARE.
(c) This Agreement is binding upon, and inures to the benefit of, the
successors and permitted assigns of the parties.
8.06. Effect of Waiver. The waiver or failure of either party to exercise
----------------
in any respect any right provided for in this Agreement shall not be deemed
a waiver of any further or future right hereunder.
CONFIDENTIAL TREATMENT
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<PAGE>
8.07. Headings. The headings used in this Agreement are for convenience of
--------
reference only and are not to be used in interpreting the provisions of this
Agreement.
8.08. Complete Agreement. This Agreement is the exclusive statement of the
------------------
understanding between the parties with respect to its subject matter. It
supersedes all prior agreements, negotiations, representations and proposals,
written or oral, relating to the subject matter hereof. No provisions of this
Agreement may be changed or modified except by an agreement in writing signed by
the party to be bound. No provision of any purchase order or other instrument
issued by EMED or any invoice or other form issued by AWARE that is inconsistent
with the provisions of this Agreement shall be binding or affect this Agreement
unless signed by both parties.
8.09. Severability. If any provision of this Agreement is invalid or
------------
unenforceable in any particular case, such case shall not invalidate or render
unenforceable any other part of this Agreement. This Agreement shall be
construed as not containing the particular provision or provisions held to be
invalid or unenforceable to the extent of the particular case, and the rights
and obligations of the parties hereto shall be construed and enforced
accordingly.
8.10. Effectiveness of Agreement; Counterparts. This Agreement is effective
----------------------------------------
when executed by both parties. This Agreement may be executed in counterparts,
each of which shall constitute one and the same instrument.
8.11. Notices. All notices provided for in this Agreement shall be in writing
-------
or facsimile, addressed to the appropriate party at the respective address set
forth below or to such other then-current address as is specified by notice, as
follows:
to AWARE:
AWARE, Inc.
40 Middlesex Turnpike
Bedford, MA 01730
Facsimile: (617) 276-4001
Attention: Edmund Reiter
CONFIDENTIAL TREATMENT
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<PAGE>
to EMED:
EMED Technologies Corporation
25 Hartwell Avenue
Lexington, MA 02421
Facsimile: (781) 861-6360
Attention: Howard Pinsky
Notices sent by certified mail, return receipt requested to the address
specified pursuant to this Section 7.11 shall be effective three business days
after deposit in the U.S. Mail with postage prepaid. Notice delivered by any
other means shall be effective upon receipt.
7.12. No Agency. AWARE and EMED are independent contractors and separate legal
---------
entities and shall in no way be interpreted as partners, joint venturers,
agents, employees or legal representatives of each other for any purposes.
Neither party shall be responsible for or bound by any act of the other party or
the other party's agents, employees or any persons in any capacity in its
service.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
first date set forth above.
EMED TECHNOLOGIES
CORPORATION AWARE, INC.
By: /s/Howard Pinsky By: /s/ Edmund C. Reiter
----------------- --------------------
Name: Howard Pinsky Name: Edmund C. Reiter
Title: Chief Technology Title: Senior Vice President
Officer
CONFIDENTIAL TREATMENT
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<PAGE>
Schedule 1
Description of Technology
The Web Product accepts medical images, reports, and other information from
various sources, and makes them available for distribution over the web to thin
web clients. Reports are collected and linked with the original studies
(images). The Web Product includes the application defined by EMED, and user
interfaces, features, and web server technology developed by EMED which handles
the image, text, voice and administrative input required for systems operation.
The Web Product further includes HTML generation, web plug-in, compression, and
end-user application software, using core components developed and owned by
AWARE, Inc. In addition, the product consists of user and technical
documentation which have been provided by both parties.
CONFIDENTIAL TREATMENT
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<PAGE>
CONFIDENTIAL TREATMENT EXHIBIT 10.22
SOFTWARE LICENSING AND DEVELOPMENT AGREEMENT
This Software Licensing and Development Agreement is entered into as of May
30, 1997 (the "Effective Date") between AWARE, Inc. ("AWARE") and ACCESS
Radiology Corporation ("ACCESS").
Background
----------
1. ACCESS is in the business of providing integrated hardware and software
systems and services with respect to the transmission and interpretation of
medical images. AWARE develops and licenses proprietary computer software that
is useful for compression and web based viewing of digital images.
2. ACCESS and AWARE are currently parties to a Software Supply Agreement
dated as of November 8, 1995 (the "Old Agreement") under which ACCESS has
licensed certain software from AWARE.
3. ACCESS and AWARE wish to modify the terms of the Old Agreement with
respect to the software currently licensed to ACCESS, and to provide for the
development of new products as described below.
NOW, THEREFORE, the parties agree as follows:
I. LICENSING OF COMPRESSION SOFTWARE; PAYMENTS.
1.01. Grant of Compression License. Subject to the terms of this Agreement,
----------------------------
AWARE grants to ACCESS the following rights, under any patent, copyright, trade
secret or other proprietary right of AWARE, whether presently held or hereafter
acquired, with respect to the proprietary image compression software identified
on Schedule I (the "Compression Software"). The rights granted to ACCESS shall
be exclusive to the extent set forth in Article II.
(a) The right to use the Compression Software for ACCESS's internal
business purposes and for the support of ACCESS customers, and to use and
make available Compression Software, for integration solely with other
components of ACCESS products provided to ACCESS customers and solely for
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Medical Use. ACCESS shall not resell toolkits or other applications
included in the Compression Software except to the extent integrated in
other ACCESS products with substantial ACCESS content.
(b) The right to grant sublicenses of the Compression Software for
Medical Use, solely as integrated with ACCESS products, to users of ACCESS
products. Sublicenses will be granted in compliance with the procedures set
forth in Section 5.01.
For purposes of the Agreement, "Medical Use" means the compression,
transmission, viewing or other processing of medical images.
1.02. Material Supplied for Compression Software. AWARE will make the
------------------------------------------
following materials available to ACCESS.
(a) One copy of the latest object code or executable code for the
Compression Software, with all upgrades as they are released. If the copy
of the Compression Software initially provided is lost, damaged or
destroyed, AWARE will provide at cost a replacement copy of the Compression
Software, which may be a more recent release or version.
(a) One copy of documentation in English and documentation updates as
they are prepared and released which, when taken together, constitute
complete documentation of the Compression Software. Additional copies of
documentation may be purchased at AWARE's then-current purchase price.
1.03. License Fees; Payments. (a) ACCESS shall prepay to AWARE a
----------------------
nonrefundable fee of [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.] on account of the
license and other rights granted to ACCESS hereunder (the "Prepayment"). The
Prepayment shall be due on August 30, 1997. The Prepayment shall bear interest
at the rate of 1% per month from August 30, 1997 if not paid on or before that
date.
(b) [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.] of the Prepayment shall be applied to
pay a [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.] AWARE acknowledges that ACCESS has
[*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
CONFIDENTIAL TREATMENT
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<PAGE>
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.] as of the date of
this Agreement (the "Old Agreement Licenses"). [*THE CONFIDENTIAL PORTION
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.] of the Prepayment to license fees at the rate provided in this
subsection, [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
(c) Promptly after the end of each calendar quarter, ACCESS will deliver to
AWARE a statement setting forth, for such quarter, (i) the number of sublicenses
of Compression Software granted for compression of images, (ii) the utilization
of Old Agreement Licenses, (iii) the amount of the Prepayment applied against
license fees due and (iv) any balance of license fees due. After [*THE
CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.] of the Prepayment and the [*THE CONFIDENTIAL PORTION
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.] each quarterly statement shall be accompanied by payment of license
fees due. ACCESS will use its best efforts to provide such statement and pay
license fees due within 10 days of the end of each calendar quarter. Each
quarterly statement and payment of license fees shall be provided no later than
30 days after the end of the relevant calendar quarter.
(d) ACCESS will keep complete books of account containing all
particulars that may be necessary to determine the amounts payable to AWARE
hereunder. Such books and supporting data shall be open for inspection for one
year following the calendar year to which they pertain, at reasonable times and
upon reasonable notice, by an independent auditor for purposes of verifying the
statements delivered pursuant to subsection (c) above. AWARE will not conduct
more than one such inspection for books and supporting data relating to any
single calendar year. The results of any inspection shall be made available to
ACCESS. If the agreed results of an inspection show an underpayment or
overpayment, then ACCESS shall pay to AWARE the amount of any underpayment and
AWARE shall pay to ACCESS the amount of any overpayment. If the agreed results
of such inspection show that ACCESS has underpaid AWARE by [*THE CONFIDENTIAL
PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.] or more, then ACCESS shall pay to AWARE the reasonable and
documented out of pocket costs of conducting such inspection, and allow
inspection of the books and supporting data
CONFIDENTIAL TREATMENT
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<PAGE>
for the prior two years. AWARE shall otherwise bear the costs it incurs in
performing any inspection.
1.04. Support of Compression Software. (a) AWARE warrants to ACCESS that
-------------------------------
the Compression Software will perform substantially in accordance with the
specifications included in Schedule I. AWARE will use its best efforts to ensure
such performance and, if necessary, to supply ACCESS with a corrected version of
the Compression Software as soon as practical after AWARE is notified of any
non-conformity. AWARE will provide maintenance releases, scheduled and
reasonable improvements in functionality, bug fixes and work-arounds at no
charge. This warranty will not apply to copies of Compression Software lost or
damaged through no fault of AWARE. AWARE will provide technical training to a
limited number of technically qualified ACCESS personnel without charge. ACCESS
and AWARE shall mutually agree upon a reasonable schedule for training of ACCESS
personnel.
(b) As between ACCESS and AWARE, ACCESS shall be solely responsible for
installation of Compression Software at end user sites, integration of
Compression Software into devices sold or otherwise provided by ACCESS, and
support of ACCESS customers. The warranty and support obligations of AWARE under
subsection (a) above shall be limited to support and service provided directly
to ACCESS as contemplated by subsection (a).
II. EXCLUSIVITY
2.01 Exclusivity Commitments. (a) The rights of ACCESS to use and
-----------------------
sublicense software developed, owned or licensed by AWARE for Medical Use shall
be exclusive to the extent set forth herein. From the Effective Date until the
termination of exclusivity as provided herein, AWARE will not (except as
expressly permitted by this Agreement) supply for Medical Use or permit any
person to use for Medical Use (i) the Compression Software or any modification
or improvement of the Compression Software, (ii) any other software developed,
owned or licensed by AWARE that implements lossy compression of images, or (iii)
any other software developed, owned or licensed by AWARE that provides
functionality similar to the Joint Product contemplated by Article III. AWARE
will take reasonable steps to assure compliance with this exclusivity commitment
by third parties to whom AWARE provides software. Notwithstanding anything
contained in this Agreement, AWARE may provide its ADSL, SDSL, HFC and any other
general data communication product (not including lossy compression) to third
parties for Medical Use or any other purpose.
CONFIDENTIAL TREATMENT
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<PAGE>
(b) From the Effective Date until the termination of exclusivity as
provided herein, AWARE will be the exclusive supplier to ACCESS of compression
and web based viewing software for use in ACCESS's current product line
(together with upgrades and new versions thereof) and the Joint Product
contemplated by Article III, and ACCESS will not purchase or license from any
other party compression software or web based viewing software for ACCESS's
current product line (together with upgrades and new versions thereof) or the
Joint Product contemplated by Article III.
2.02. Exceptions. (a) Licenses of Compression Software for Medical Use
----------
which have been previously granted and for which all license fees have been
invoiced as of the date of this Agreement shall continue in effect
notwithstanding Section 2.01.
(b) Notwithstanding Section 2.01, AWARE may [*THE CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]
AWARE shall not permit any customer to modify the Excepted Release (or any other
version of the Compression Software) for Medical Use and shall not make the
source code of the Excepted Release (or any other version of the Compression
Software) available to any third party.
(c) AWARE may provide support for Compression Software that is permitted to
be licensed for Medical Use to the limited extent set forth in this subsection
(c). This support may be provided only to customers to whom licensing of
Compression Software for Medical Use is permitted by this Section 2.02. AWARE
may provide corrections of reported defects in the operation of the Excepted
Release with any versions of Netscape Navigator, Microsoft Internet Explorer,
MAC OS System 7, Windows 95 and Windows NT that are current as of the date of
this Agreement or are released within 18 months after the date of this
Agreement. AWARE will not modify the Excepted Release for the purpose of
enabling it to operate with any version of such browsers or operating systems
released later than 18 months after the date of this Agreement. As used in this
subsection (c), "defect" means a condition that causes run time errors or
incorrect results. ACCESS and AWARE may mutually agree to permit a greater level
of support for certain customers on a case by case basis, taking into account
the willingness of the customer involved to purchase products of the development
efforts contemplated by the Agreement, the level of resources required, and the
nature and business activities of the customer requesting support. Except as
expressly agreed in advance by ACCESS, AWARE will not make upgrades of the
Excepted
CONFIDENTIAL TREATMENT
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<PAGE>
Release available for Medical Use to anyone other than ACCESS and its
sublicensees.
2.03. Transition. Promptly after the date of this Agreement, AWARE will
----------
publicly announce that it has entered into an exclusive relationship with ACCESS
and that ACCESS and AWARE are making a transition to the products contemplated
by the development provisions of this Agreement. This announcement will be
subject to review by ACCESS before its release.
III. DEVELOPMENT AND MARKETING OF NEW PRODUCTS
3.01. Development Project. (a) Promptly upon execution of this Agreement,
-------------------
AWARE and ACCESS will commence the joint development of a client/server product
that provides for wide-spread distribution and web based viewing of compressed
medical images, having substantially the functionality described in Schedule II.
Each of AWARE and ACCESS will use their best efforts to fulfill their respective
development responsibilities set forth in Schedule II on the timetable set forth
in Schedule II. Best efforts will include (without limitation) maintaining
staffing available for the development project consistent with the
responsibilities and timetable set forth in Schedule II. It is understood that
Schedule II is a planning document that is subject to change as development work
proceeds. AWARE and ACCESS will cooperate and consult in the development effort
and share information as necessary and appropriate for timely completion of the
development project. ACCESS will have final authority and responsibility for
decisions concerning design, specifications and development of the Joint
Product. The products, toolkits, concepts, inventions and applications arising
out of the development work conducted by ACCESS and AWARE under this Agreement,
including all software developed or contributed by either party, are
collectively referred to as the "Joint Product". Each party will bear expenses
it incurs in development of the Joint Product.
(b) AWARE and ACCESS shall each have access to the source code of software
under development or included in the Joint Product. The fact that either AWARE
or ACCESS has provided access to source code shall in no way affect proprietary
rights to source code or software, and all source code shall continue to be
owned by the party that owned it prior to disclosure. All source code is
"Confidential Information" as that term is used in Section 5.06 and shall be
subject to the restrictions set forth in Section 5.06. ACCESS will maintain
source code revision control procedures with which both AWARE and ACCESS will
comply. These procedures will be designed to achieve, among other things,
CONFIDENTIAL TREATMENT
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<PAGE>
compliance with "Good Manufacturing Practices" as defined by the U.S. Food and
Drug Administration and documentation of the ownership of source code disclosed
by either party.
3.02. Marketing; Licenses. ACCESS shall have following rights with respect
-------------------
to the Joint Product under any patent, copyright, trade secret or other
proprietary right of AWARE, whether presently held or hereafter acquired, which
AWARE hereby grants to ACCESS. The rights granted to ACCESS shall be exclusive
to the extent set forth in Article II.
(a) The right to use the Joint Product for internal purposes and in
support of users of ACCESS products for Medical Use, and to use and make
available the Joint Product as part of ACCESS's product line and for
integration with other components of ACCESS products.
(b) The right to make and have made, use and have used, and sell,
lease or otherwise transfer the Joint Product, and to grant sublicenses of
the software and other intellectual property included in the Joint Product,
to users of ACCESS products for Medical Use in which such software is
included. Users to whom sublicenses are granted may include original
equipment manufacturers or other parties which utilize toolkits to create
derivative products for Medical Use which will in turn be licensed to end
users. Sublicenses of software will be granted in compliance with the
procedures set forth in Section 5.01.
(c) The right to modify the Joint Product and the software included
in it to create new releases and new products for Medical Use, to make and
have made, use and have used, and sell, lease or otherwise transfer
products including modifications for Medical Use, and to grant sublicenses
of software as modified to users of ACCESS products in which such software
is included, in all cases for Medical Use. Users to whom sublicenses are
granted may include original equipment manufacturers or other parties which
utilize toolkits to create derivative products for Medical Use which will
in turn be licensed to end users. Sublicenses of software will be granted
in compliance with the procedures set forth in Section 5.01.
3.03. Royalties. (a) In consideration of AWARE's contributions to the Joint
---------
Product, ACCESS will pay royalties to AWARE as determined pursuant to this
Section 3.03. Royalties payable to AWARE will be calculated as a percentage (the
"Royalty Percentage") of Net Software License Revenue. "Net Software License
Revenue" means amounts paid to ACCESS by customers for the Joint Product
(excluding taxes, shipping, insurance, the
CONFIDENTIAL TREATMENT
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<PAGE>
interest portion of payments under rental or leasing arrangements, actual
customer returns, customs duties, and any charges for services), reduced by (x)
costs of software that is obtained from third parties (other than AWARE) in bona
fide arms length negotiations and that ACCESS has determined in its judgment is
reasonably appropriate for inclusion in the Joint Product, (y) [*THE
CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.] of the costs of High End Storage and Network Hardware
and (z) [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.] of the costs of all other hardware.
"High End Storage and Network Hardware" is defined in Schedule II.
(b) The Royalty Percentage shall be a percentage of not less than [*THE
CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.] nor more than [*THE CONFIDENTIAL PORTION HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.] which
shall reflect the contribution of AWARE to the development of the Joint Product,
and in particular the server software. Promptly upon completion of the
functional product descriptions and design specifications for the Joint Product,
AWARE and ACCESS will negotiate in good faith to reach agreement on the Royalty
Percentage.
(c) Promptly after the end of each calendar quarter after commencement of
marketing of the Joint Product, ACCESS will deliver to AWARE a statement setting
forth in reasonable detail the calculation of Net Software License Revenue and
royalties due. Each quarterly statement shall be accompanied by payment of
license fees due. ACCESS will use its best efforts to provide such statement
within 10 days of the end of each calendar quarter. Each quarterly statement and
payment of license fees shall be provided no later than 30 days after the end of
the relevant calendar quarter.
(d) ACCESS will pay to AWARE, in addition to the royalties described in
subsection (a) above, a [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.] ACCESS will cooperate
with AWARE in marketing efforts and keep AWARE informed of market developments
in general and ACCESS marketing programs in particular.
(e) No royalties shall be payable under this Section 3.03 for beta
testing installations, demonstration or loaner units. The duration of beta
testing will be limited to a period of time
CONFIDENTIAL TREATMENT
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<PAGE>
no longer than that which is determined by ACCESS to be reasonably necessary for
satisfaction of the requirements for commercial marketing of the product or
release being tested. Loaner units will be provided for a period of time no
longer than that which is reasonably necessary for the customer to assess the
functionality and desirability of the product or release being loaned. ACCESS
will not make the Joint Product available without charge except for the purposes
described in the preceding sentence and will not make the Joint Product
available without charge to assist in selling other products or in generating
revenues from other sources. ACCESS and AWARE will negotiate a reduced royalty
rate for users who migrate to the Joint Product after having previously
purchased ACCESS products including the Compression Software.
3.04. Support. AWARE will have responsibilities for support of software
-------
developed by AWARE and included in the Joint Product that are substantially
similar to AWARE's responsibilities for support of Compression Software pursuant
to Section 1.04. AWARE and ACCESS intend that ACCESS will pay support fees to
AWARE that represent a percentage equal to the Royalty Percentage of the
aggregate maintenance revenues received by ACCESS with respect to the Joint
Product. AWARE and ACCESS will negotiate in good faith to reach agreement on
calculation of support fees payable to AWARE at the same time that they
negotiate the Royalty Percentage.
3.05. Marketing for Non-Medical Use. AWARE shall have the right to market
-----------------------------
software and other components included in the Joint Product under any patent,
copyright, trade secret or other proprietary right of ACCESS, whether presently
held or hereafter acquired, for all uses other than medical uses. AWARE shall
have the following rights with respect to the Joint Product, which ACCESS hereby
grants to AWARE.
(a) The right to use the Joint Product for internal purposes and in
support of users of AWARE products, and to use and make available the Joint
Product as part of AWARE's product line and for integration with other
components of AWARE products, in all cases for uses other than Medical
Uses. ACCESS agrees that "Medical Uses" for purposes of this Section 3.05
does not include use by [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.] and that
AWARE may grant licenses to such companies; provided that no such license
may permit the use of the Joint Product by a business unit of any such
company that competes directly with ACCESS.
CONFIDENTIAL TREATMENT
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<PAGE>
(b) The right to make and have made, use and have used, and sell,
lease or otherwise transfer the Joint Product, and to grant sublicenses of
the software and other intellectual property included in the Joint Product
to users of AWARE products in which such software is included, in all cases
for uses other than Medical Uses. Users to whom sublicenses are granted may
include original equipment manufacturers or other parties which utilize
toolkits to create derivative products for any use other than Medical Uses
which will in turn be licensed to end users. Sublicenses of software will
be granted in compliance with the procedures set forth in Section 5.01.
(c) The right to modify the Joint Product and the software included in
it to create new releases and new products, to make and have made, use and
have used, and sell, lease or otherwise transfer products including
modifications, and to grant sublicenses of software as modified to users of
AWARE products in which such software is included, in all cases for uses
other than Medical Uses. Users to whom sublicenses are granted may include
original equipment manufacturers or other parties which utilize toolkits to
create derivative products for any use other than Medical Uses which will
in turn be licensed to end users. Sublicenses of software will be granted
in compliance with the procedures set forth in Section 5.01.
AWARE shall pay royalties to ACCESS for licenses granted under this Section 3.05
in amounts to be agreed between ACCESS and AWARE. Except as agreed in writing
with ACCESS, AWARE will not make the Joint Product available without
charge.
IV. TERM OF RIGHTS AND OBLIGATIONS
4.01. Term of Exclusivity. (a) The exclusivity provisions of Article II and
-------------------
the other obligations of the parties under this Agreement shall remain in effect
unless and until terminated in accordance with this Article IV.
(b) Subject to subsection (d) below, the exclusivity obligations of AWARE
and ACCESS will terminate on [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.] if AWARE has not
received, on or before that date, aggregate payments from ACCESS of at least
[*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.] At least [*THE CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
of such amount must
CONFIDENTIAL TREATMENT
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<PAGE>
consist of royalties and fees for the Joint Product, license fees for
Compression Software, or software maintenance revenues. The Prepayment will not
be counted towards this [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.] minimum.
(c) Subject to subsection (d) below, the exclusivity obligations of AWARE
and ACCESS will terminate on [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.] of any year after
[*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.] if AWARE has not received aggregate
payments from ACCESS of at least [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.] during the year
ended on that date. This entire amount must consist of royalties and fees for
the Joint Product, license fees for Compression Software in excess of the
portion of the Prepayment applied thereto, or software maintenance revenues.
(d) The dates set forth in subsections (b) and (c) above shall be extended
for a number of months (not exceeding twelve months) equal to the number of
whole months elapsed between December 31, 1997 and the date of a commercial
release of version 1.0 of the Joint Product that has been produced in compliance
with "good manufacturing practices" as defined by the U.S. Food and Drug
Administration (the "FDA"), and has received clearance for commercial marketing
for medical use from the FDA. This extension shall be effective if and only if
ACCESS shall have pursued clearance by the FDA and performance of ACCESS's
development responsibilities diligently and in good faith.
4.02. Effect of Termination of Exclusivity or Expiration of Initial Term.
------------------------------------------------------------------
(a) If the exclusivity obligations of AWARE and ACCESS shall terminate pursuant
to Section 4.01, AWARE and ACCESS will discuss in good faith whether an
extension of exclusivity or other modifications to this Agreement may be
appropriate. Unless otherwise agreed in writing, upon termination of exclusivity
pursuant to Section 4.01, the licenses granted in Sections 1.01, 3.02 and 3.05
shall remain in effect until five years from the date of termination of
exclusivity, except that (i) the licenses granted to ACCESS shall be modified so
that they shall no longer be exclusive, and (ii) the license granted to AWARE
shall be modified so that it shall no longer be limited to non-Medical Uses. If
development of the Joint Product has not been completed at the time of
termination of exclusivity pursuant to Section 4.01, then rights under such
licenses shall apply to such portions of the Joint Product as shall be in
existence on the
CONFIDENTIAL TREATMENT
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<PAGE>
date of termination (including any applications that are incomplete).
(b) AWARE and ACCESS agree that the royalties and license fees payable
under this Agreement shall be modified effective upon modification of the
licenses granted hereunder pursuant to subsection (a) above. AWARE and ACCESS
further agree that the appropriate amount of such modified royalties and license
fees cannot be determined as of the date of this Agreement. AWARE and ACCESS
shall negotiate in good faith for at least three months after effectiveness of
license modifications pursuant to subsection (a) to reach agreement on modified
license fees and royalties. If, at any time after the end of such three month
period, either party shall determine in its judgment that negotiations are
unlikely to result in an acceptable outcome, such party may initiate arbitration
to determine modified fees and royalties pursuant to the procedures specified in
Section 6.02.
4.03. Termination for Breach. (a) If ACCESS shall materially breach its
----------------------
obligations under this Agreement, and such material breach shall be continuing
for at least 60 days after delivery of a notice by AWARE describing such breach,
then AWARE may by a separate notice terminate this Agreement for breach under
this Section 4.03(a).
(b) If AWARE shall materially breach its obligations under this Agreement,
and such material breach shall be continuing for at least 60 days after delivery
of a notice by ACCESS describing such breach, then ACCESS may by a separate
notice terminate this Agreement for breach under this Section 4.03(b).
(c) With respect to the obligations of AWARE and ACCESS to participate in
development of the Joint Product pursuant to Section 3.01(a), "material breach"
means willful failure of a party to devote best efforts to the development
project or to allocate sufficient resources to perform such party's
responsibilities.
(d) Termination for breach under this Section 4.03 shall not be an
exclusive remedy, but shall be in addition to any other remedies that either
party may have.
4.04. Effect of Termination for Breach. (a) If AWARE shall terminate this
--------------------------------
agreement for breach pursuant to Section 4.03, then (i) the licenses granted to
ACCESS pursuant to Sections 1.01 and 3.02 shall immediately terminate and ACCESS
shall cease using or marketing the Compression Software and the Joint Product
and (ii) the license granted to AWARE pursuant to Section 3.05 shall remain in
effect.
CONFIDENTIAL TREATMENT
-12-
<PAGE>
(b) If ACCESS shall terminate this agreement for breach pursuant to Section
4.04, then (i) the license granted to AWARE pursuant to Section 3.05 shall
immediately terminate, and AWARE shall cease using or marketing the Joint
Product (ii) the licenses granted to ACCESS pursuant to Sections 1.01 and 3.02
shall remain in effect and (iii) the exclusivity obligations of ACCESS under
Article II shall immediately terminate.
(c) If development of the Joint Product has not been completed at the
time of termination for breach pursuant to Section 4.03, then rights under
continuing licenses shall apply to such portions of the Joint Product as shall
be in existence on the date of termination (including any applications that are
incomplete).
(d) For so long as the license granted under Section 1.01 continues in
effect, ACCESS shall pay royalties as provided in Section 1.03. To the extent
that licenses of the Joint Product under Sections 3.02 and 3.05 remain in
effect, royalties payable with respect to the Joint Product will be determined
by agreement between the parties or, failing such agreement, by arbitration
under Section 6.02.
4.06. Additional Surviving Terms. All payment obligations accrued
--------------------------
prior to any termination shall survive such termination. All sublicenses granted
to any end user by either party in accordance with this Agreement prior to any
termination of this Agreement shall survive such termination. Either party which
holds a continuing license under this Agreement shall also continue to have the
rights set forth in Sections 1.02, 1.04. 3.01(b) and 3.04 with respect to such
license. The provisions of Sections 5.02, 5.03, 5.06, 6.02, 6.04, 6.05 and 6.14
shall survive any termination of this Agreement.
V. INTELLECTUAL PROPERTY
5.01. Software Licensing Procedures. (a) The procedures set forth in
-----------------------------
this Section 5.01 shall govern the granting of sublicenses of software to users
under this Agreement. In this Section 5.01, the party granting a sublicense to a
user is referred to as the "Licensor".
(b) Each of AWARE and ACCESS shall assign a unique number to each copy made
by it of software comprising the Joint Product or any other software developed
or provided by the other party, whether for internal use or for sublicense to a
user. Each of AWARE and ACCESS shall keep full, clear and accurate records of
CONFIDENTIAL TREATMENT
-13-
<PAGE>
all copies that it makes of any such software and the identity and location of
each third party user to whom any such software is provided. Each of ACCESS and
AWARE may examine records of the other party not more than once in any calendar
quarter, during normal business hours and upon reasonable notice.
(c) Upon granting a sublicense of software comprising the Joint Product or
any other software developed or provided by the other party, the Licensor shall
require that the user execute an agreement including the software licensing
terms set forth below. Such agreement may be between the user and the Licensor,
or between the user and a reseller or other intermediary authorized by the
Licensor.
(i) a provision restricting the sublicensee's use of the licensed
software to its own business and professional purposes, provided that any
sublicensee of a toolkit may use it to create new applications to be
licensed to end users as part of the sublicensee's product;
(ii) a provision requiring the sublicensee to take all reasonable
precautions to keep the licensed software and any related documentation
confidential;
(iii) a provision prohibiting the sublicensee from reproducing
(except for backup copies), reverse engineering, translating or creating
other versions of the licensed software, provided that any sublicensee of a
toolkit may use it to create new applications to be licensed to end users
as part of the sublicensee's product;
(iv) a provision acknowledging that ownership of the licensed
software remains exclusively with the Licensor or its suppliers; and
(v) a provision limiting the other party's liability to the
sublicensee to at least the same extent that the liability of the Licensor
to the sublicensee is limited, and disclaiming warranties on behalf of the
other party at least to the extent disclaimed on behalf of the Licensor.
Each party will use reasonable efforts to enforce license agreements executed by
its customers. AWARE agrees that any license of Compression Software granted by
ACCESS prior to the Effective Date need not be altered if it complied with the
requirements of the Old Agreement.
(d) Notwithstanding this Section 5.01 or any other provision of this
Agreement, software may be licensed to the Government of the United States of
America, or an agency or instrumentality
CONFIDENTIAL TREATMENT
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<PAGE>
thereof, under an agreement containing software licensing terms generally used
by the United States Government (or the agency or instrumentality to which the
software is licensed) for procurement of commercial software.
5.02. Ownership. (a) As between ACCESS and AWARE, AWARE owns and shall
---------
continue to own the Compression Software (including without limitation AWARE's
AccuRad product) and any other software developed solely by AWARE or by any
employee, consultant or other person acting on AWARE's behalf under this
Agreement, including any inventions, concepts, specifications, know-how and
ideas embodied in such software, together with all proprietary rights therein
("AWARE Intellectual Property"). As between ACCESS and AWARE, ACCESS owns and
shall continue to own the concepts, specifications, know-how, and ideas embodied
in the design and functionality of the Joint Product, and as applied in the
Joint Product for Medical Use, and any software developed solely by ACCESS or
by any employee, consultant or other person acting on ACCESS's behalf under this
Agreement, including any inventions, concepts, specifications, know-how and
ideas embodied in any of the foregoing, together with all proprietary rights
therein ("ACCESS Intellectual Property"). As between ACCESS and AWARE, the
parties shall jointly own any software or other intellectual property jointly
developed by the parties under this Agreement and not allocated between them
above, including any inventions, concepts, specifications, know-how and ideas
embodied therein, together with all proprietary rights therein ("Joint
Intellectual Property"). Whether or not any intellectual property is jointly
developed shall be determined in accordance with the United States patent laws.
(b) AWARE shall have the right to file and prosecute patent or copyright
applications on AWARE Intellectual Property and ACCESS shall have the right to
file and prosecute patent or copyright applications on ACCESS Intellectual
Property. The parties will cooperate in the filing and prosecution of patent or
copyright applications on Joint Intellectual Property, provided that neither
party shall file any such patent or copyright application without the prior
written consent of the other. Each party will cooperate with the other party in
the filing and prosecution by the other party of any patent or copyright
application that complies with this subsection (b), including by executing and
delivering or causing its officers and employees to execute and deliver (all at
the expense of the filing party) any documentation reasonably necessary or
appropriate for the filing and prosecution of such an application and the
vesting of rights as provided in this Agreement.
(c) The exclusivity obligations of the parties under Article II shall not
in any way be affected by the ownership of AWARE
CONFIDENTIAL TREATMENT
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<PAGE>
Intellectual Property, ACCESS Intellectual Property, or Joint Intellectual
Property as provided in this Section 5.02, or by the filing of any patent or
copyright application or the grant or issuance of any patent or copyright.
Neither party shall market, sell, license or distribute any Joint Intellectual
Property except to the extent that such Joint Intellectual Property is covered
by a license granted to such party hereunder.
5.03. Trademarks. (a) The terms specified in Schedule 5.03 to this
----------
Agreement are trademarks or tradenames owned by AWARE and may not be used
without specific written permission. Nothing herein shall confer upon ACCESS any
proprietary interest in the trademarks or tradenames, except the right to use
the same in accordance with the terms hereof. All use of such marks or names,
and the goodwill associated therewith, shall inure to the benefit of AWARE.
ACCESS agrees not to, at any time during the term of this Agreement or
thereafter, directly or indirectly (i) dispute or contest the validity or
enforceability of AWARE's trademarks or tradenames, or (ii) take any action that
would dilute the value of the goodwill attaching to the trademarks or
tradenames.
(b) ACCESS shall exclusively own the trademarks or trade names under which
the Joint Product is sold for Medical Use or otherwise provided by ACCESS, and
may file and prosecute trademark applications on such trademarks and tradenames.
AWARE agrees not to, at any time during the term of this Agreement or
thereafter, directly or indirectly dispute or contest the validity or
enforceability of such trademarks or tradenames.
5.04. Representations. (a) AWARE represents to ACCESS that:
----------------
(i) AWARE has full authority to enter into this Agreement and grant
the licenses and rights set forth herein.
(ii) To the best of AWARE's knowledge, the documentation and code of
the Compression Software have not been published under circumstances which
have caused loss of proprietary rights therein, and to the best of AWARE's
knowledge, the documentation and code of the Compression Software do not
infringe upon any patent, copyright or other proprietary right of any third
party.
(iii) AWARE is not aware of any claim of infringement of any patent,
copyright or other proprietary right having been made or pending against
AWARE relative to the documentation or code of the Compression Software.
(b) ACCESS represents to AWARE that:
CONFIDENTIAL TREATMENT
-16-
<PAGE>
(i) ACCESS has full authority to enter into this Agreement and
grant the licenses and rights set forth herein.
(ii) To the best of ACCESS's knowledge, the specifications and
functionality of the Joint Product, as set forth in Schedule II, do not
infringe upon any patent, copyright or other proprietary right of any third
party.
5.05. Indemnities. (a) AWARE will, at its expense, defend against, hold
-----------
ACCESS harmless from, and pay any final judgment against ACCESS or any customer
of ACCESS arising (x) out of any claim that AWARE Intellectual Property
infringed a copyright, a patent or a trade secret or (y) out of marketing by
AWARE of AWARE products (including any product liability claim unless such
product liability claim is caused by designs, specifications or software
provided by ACCESS); provided that (i) ACCESS notifies AWARE in writing of such
claim or action, and (ii) AWARE has sole control of the defense and settlement
of such claim or action. In defending against such claim or action to the extent
it relates to software provided by AWARE, AWARE may, at its option, agree to any
settlement in which AWARE shall either (1) procure for ACCESS and all customers
of ACCESS the right to continue using the software at issue; or (2) modify or
replace such software so that it no longer infringes, to the extent that the
exercise of such option does not result in a material adverse change in the
operational characteristics of such software, and equivalent functions and
performance provided by AWARE remain following implementation of such option. If
AWARE concludes in its judgment that none of the foregoing options is
reasonable, AWARE may remove the software at issue and any other component
supplied by AWARE rendered unusable as a result of such removal and pay to
ACCESS damages arising therefrom, including damages incurred by reason of
ACCESS's inability to perform its obligations under sublicenses; provided that
AWARE's liability for damages arising from such inability shall be [*THE
CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.]
(b) ACCESS will, at its expense, defend against, hold ACCESS harmless from,
and pay any final judgment against AWARE or any customer of AWARE arising out of
(x) any claim that ACCESS Intellectual Property infringed a copyright, a patent
or a trade secret or (y) out of marketing by ACCESS of ACCESS products
(including any product liability claim unless such product liability claim is
caused by designs, specifications or software provided by AWARE) provided that
(i) AWARE notifies ACCESS in writing of such claim or action, and (ii) ACCESS
has sole control of the defense and settlement of such claim or action. In
CONFIDENTIAL TREATMENT
-17-
<PAGE>
defending against such claim or action to the extent it relates to software
provided by ACCESS, ACCESS may, at its option, agree to any settlement in which
ACCESS shall either (1) procure for AWARE and all customers of AWARE the right
to continue using the software at issue; or (2) modify or replace such software
so that it no longer infringes, to the extent that the exercise of such option
does not result in a material adverse change in the operational characteristics
of such software, and equivalent functions and performance provided by ACCESS
remain following implementation of such option. If ACCESS concludes in its
judgment that none of the foregoing options is reasonable, ACCESS may remove the
software at issue and any other component supplied by ACCESS rendered unusable
as a result of such removal and pay to AWARE damages arising therefrom,
including damages incurred by reason of AWARE's inability to perform its
obligations under sublicenses; provided that ACCESS's liability for damages
arising from such inability shall be [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
(c) If ACCESS shall determine in its judgment that the concepts,
specifications, know-how, and ideas embodied in the design and functionality of
the Joint Product infringe or conflict with a patent, copyright, trade secret or
other proprietary right not known to ACCESS on the date of this Agreement, then
ACCESS shall notify AWARE and the parties will discuss in good faith whether the
Joint Product can be modified or other steps may be taken to avoid such
infringement. If ACCESS determines in its judgment that no such modification or
other steps can be reasonably implemented, ACCESS may by notice terminate the
obligations of AWARE and ACCESS under this Agreement with respect to the Joint
Product, and the indemnity of ACCESS in subsection (b) above shall apply only to
those claims relating to the Joint Product of which AWARE or ACCESS had notice
prior to the date of the first notice regarding infringement delivered by
ACCESS.
5.06. Confidentiality. As used in this Agreement, "Confidential
---------------
Information" means (i) all confidential information, proprietary software, trade
secrets, know-how, and all other intellectual property that is subject to the
licenses granted in this Agreement and in which proprietary rights would be
adversely affected by disclosure and (ii) all other confidential or proprietary
information (including without limitation financial information and business
information such as customer lists) that is or has been disclosed by AWARE to
ACCESS or by ACCESS to AWARE. AWARE and ACCESS agree that they will not, and
will not permit their respective officers, employees, agents and representatives
to, without first obtaining the written consent of the other party, use, sell or
disclose any
CONFIDENTIAL TREATMENT
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<PAGE>
Confidential Information, except as expressly contemplated hereby and except
that Confidential Information may be disclosed by the party that owns it unless
such disclosure would adversely affect the proprietary nature of Confidential
Information subject to any of the licenses granted hereunder. Either party may
disclose Confidential Information to potential customers, and to other third
parties to the extent necessary to permit any such third party to assist in
manufacture or integration of the Joint Product, provided that any such
potential customer or third party to whom Confidential Information is disclosed
shall execute a confidentiality agreement no less restrictive than this Section
5.06. "Confidential Information" does not include (i) information that is or
becomes (other than by disclosure in violation of this Agreement) generally
available to the public, (ii) information that the receiving party can show was
known to the receiving party prior to its disclosure by the other party, or
(iii) information required to be disclosed by law or regulation or by judicial
process or administrative order, provided that prompt notice and an opportunity
to seek a protective order is given to the other party prior to disclosure.
AWARE and ACCESS agree that this Agreement and the Schedules thereto are
Confidential Information subject to this Section 5.06.
VI. GENERAL.
6.01. Regulatory Matters. ACCESS shall make and prosecute all filings and
------------------
take such other actions as ACCESS shall consider appropriate to obtain clearance
for commercial marketing of the Joint Products from the FDA and such other
authorities as may be appropriate for marketing of the Joint Product. AWARE will
cooperate with ACCESS in providing information and assistance with respect to
such filings and other actions and may review and comment on filings made by
ACCESS. AWARE shall take such actions to comply with regulatory requirements
(including without limitation "good manufacturing practices" as defined by the
FDA, and standards and procedures specified in filings made with the FDA) as
ACCESS shall reasonably request, including without limitation use of identified
development, design and specification methodologies.
6.02. Arbitration. Any controversy or claim arising out of or relating to
-----------
this Agreement, or the breach thereof, shall be settled by arbitration
administered by the American Arbitration Association in Boston, Massachusetts
under its Commercial Arbitration Rules, and judgment on the award rendered by
the arbitrator(s) may be entered in any court having jurisdiction thereof.
Arbitration as specified in this Section 6.02 shall be the sole and exclusive
procedure for the resolution of disputes
CONFIDENTIAL TREATMENT
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<PAGE>
between the parties arising out of or relating to this Agreement or the breach
thereof; provided, however, that a party, without prejudice to such procedure,
may file a complaint to seek a preliminary injunction or other provisional
judicial relief, if in its judgment such action is necessary to avoid
irreparable damage or preserve the status quo. Despite such action the parties
will continue to participate in good faith in the procedures specified in this
Section 6.02. AWARE and ACCESS agree that any breach of Sections 2.01, 2.02,
4.04, 5.01, 5.03 or 5.06 would cause irreparable harm and that the aggrieved
party shall be entitled to equitable relief in the nature of an injunction for
any such breach, without posting of a bond or other surety.
6.03. Public Announcements. AWARE and ACCESS will cooperate in all public
--------------------
disclosure concerning this agreement, and neither party shall make any such
disclosure without the approval of the other. Approval of disclosure required by
law or regulation shall not be unreasonably withheld; provided that it may be a
condition of such approval that the party making such disclosure seek
confidential treatment.
6.04. Limitation of Warranties. THE OBLIGATIONS OF AWARE AND ACCESS
------------------------
EXPRESSLY STATED IN THIS AGREEMENT ARE IN LIEU OF ALL OTHER WARRANTIES OR
CONDITIONS EXPRESS OR IMPLIED. TO THE EXTENT ALLOWABLE TO BY LAW, THIS EXCLUSION
OF ALL OTHER WARRANTIES AND CONDITIONS EXTENDS TO IMPLIED WARRANTIES OR
CONDITIONS OF MERCHANTABLE QUALITY AND FITNESS FOR A PARTICULAR PURPOSE, AND
THOSE ARISING BY STATUTE OR OTHERWISE IN LAW, OR FROM A COURSE OF DEALING OR
USAGE OF TRADE.
6.05. Limitation of Liability. ACCESS AND AWARE AGREE THAT, EXCEPT AS
-----------------------
EXPRESSLY STATED OTHERWISE IN THIS AGREEMENT, THE LIABILITY OF EITHER OF THEM TO
THE OTHER, IF ANY, UNDER ANY THEORY OF LAW OR EQUITY, ARISING OUT OF, OR IN ANY
WAY RELATED TO THIS AGREEMENT OR THE FULFILLMENT OF ANY OF THE OBLIGATIONS OF
EITHER OF THEM UNDER THIS AGREEMENT, IS LIMITED TO MONEY DAMAGES NOT TO EXCEED
THE TOTAL AMOUNT PAID OR PAYABLE BY ACCESS TO AWARE OR BY AWARE TO ACCESS (AS
THE CASE MAY BE) UNDER THIS AGREEMENT.
6.06. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the Commonwealth of Massachusetts.
6.07. Assignment. (a) Subject to ACCESS's right to grant sublicenses
----------
hereunder, ACCESS may not assign this Agreement or any rights hereunder without
the prior written consent of AWARE, except that, without such consent and upon
notice to AWARE, (i) ACCESS may assign all of its rights hereunder to a
corporation or other legal entity that acquires substantially all of ACCESS's
assets or where ACCESS is consolidated or merged, but then only
CONFIDENTIAL TREATMENT
-20-
<PAGE>
upon the express assumption by such transferee or its successor of the
obligations set forth in this Agreement and (ii) ACCESS may grant security
interests in the rights of ACCESS under this Agreement to secure the obligations
of ACCESS to a bank or other financial institution which has extended credit to
ACCESS.
(b) Subject to AWARE's right to grant sublicenses hereunder, AWARE may not
assign this Agreement or any rights hereunder without the prior written consent
of ACCESS, except that, without such consent and upon notice to ACCESS, (i)
AWARE may assign all of its rights hereunder to a corporation or other legal
entity that acquires substantially all of AWARE's assets or where AWARE is
consolidated or merged, but then only upon the express assumption by such
transferee or its successor of the obligations set forth in this Agreement and
(ii) AWARE may grant security interests in the rights of AWARE under this
Agreement to secure the obligations of AWARE to a bank or other financial
institution which has extended credit to AWARE.
(c) This Agreement is binding upon, and inures to the benefit of, the
successors and permitted assigns of the parties.
6.08. Effect of Waiver. The waiver or failure of either party to exercise
----------------
in any respect any right provided for in this Agreement shall not be deemed a
waiver of any further or future right hereunder.
6.09. Headings. The headings used in this Agreement are for convenience of
--------
reference only and are not to be used in interpreting the provisions of this
Agreement.
6.10. Complete Agreement. This Agreement is the exclusive statement of the
------------------
understanding between the parties with respect to its subject matter. It
supersedes all prior agreements, negotiations, representations and proposals,
written or oral, relating to the subject matter hereof, including without
limitation the Old Agreement. No provisions of this Agreement may be changed or
modified except by an agreement in writing signed by the party to be bound. No
provision of any purchase order or other instrument issued by ACCESS or any
invoice or other form issued by AWARE that is inconsistent with the provisions
of this Agreement shall be binding or affect this Agreement unless signed by
both parties.
6.11. Severability. If any provision of this Agreement is invalid or
------------
unenforceable in any particular case, such case shall not invalidate or render
unenforceable any other part of this Agreement. This Agreement shall be
construed as not containing the particular provision or provisions held to be
invalid or unenforceable to the extent of the particular case, and the
CONFIDENTIAL TREATMENT
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<PAGE>
rights and obligations of the parties hereto shall be construed and enforced
accordingly.
6.12. Effectiveness of Agreement; Counterparts. This Agreement is effective
----------------------------------------
when executed by both parties. This Agreement may be executed in counterparts,
each of which shall constitute one and the same instrument.
6.13. Notices. All notices provided for in this Agreement shall be in
-------
writing or facsimile, addressed to the appropriate party at the respective
address set forth below or to such other then-current address as is specified by
notice, as follows:
(b) to AWARE:
Aware, Inc.
One Oak Park
Bedford, MA 01730
Facsimile: (617) 276-4001
Attention: Edmund Reiter
(c) to ACCESS:
ACCESS Radiology Corporation
313 Speen Street
Natick, MA 01760
Facsimile: (508) 647-9350
Attention: Howard Pinsky
CONFIDENTIAL TREATMENT
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<PAGE>
Notices sent by certified mail, return receipt requested to the address
specified pursuant to this Section 6.13 shall be effective three business days
after deposit in the U.S. Mail with postage prepaid. Notice delivered by any
other means shall be effective upon receipt.
6.14. No Agency. AWARE and ACCESS are independent contractors and separate
---------
legal entities and shall in no way be interpreted as partners, joint venturers,
agents, employees or legal representatives of each other for any purposes.
Neither party shall be responsible for or bound by any act of the other party or
the other party's agents, employees or any persons in any capacity in its
service.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the first date set forth above.
ACCESS RADIOLOGY
CORPORATION AWARE, INC.
By: /s/ Howard Pinsky By: /s/ Edmund C. Reiter
----------------- --------------------
Name: Howard Pinsky Name: Edmund C. Reiter
Title: Vice President of Title: Senior Vice President
Technology
CONFIDENTIAL TREATMENT
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<PAGE>
Schedule 1
1. Existing Accurad Product and Plugin Specifications
--------------------------------------------------
1.a AccuPress for Radiology Version 3.6 for Unix and DOS User's Guide and
Developer's Kit
1.b AWARE AccuRad Plugin User's Guide: Plugin revision history
1.c AWARE AccuRad Plugin User's Guide: Embed Options Reference
1.d AWARE AccuRad Plugin User's Guide: Using the Plugin
2. Agreed to Supported AWARE Customer List
---------------------------------------
[*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.]
CONFIDENTIAL TREATMENT
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<PAGE>
SCHEDULE 2
Summary of Project "Butterfly"
Joint software development resulting in a client/server product that provides
for wide-spread distribution and web-based viewing and editing of compressed
medical images. The Product is intended to be marketable on a world-wide basis
to a broad OEM and direct user base assuming no prior and perhaps no potential
future ACCESS content. The product is intended to draw from the core
competencies from both organizations; wavelet (and other algorithms as
appropriate) compression and web image processing from AWARE, and general
medical market imaging knowledge and Compression Server development from ACCESS.
ACCESS and AWARE plan to derive revenues from software licenses from developed
products according to an agreed schedule to be determined.
BUTTERFLY PRODUCT CONCEPT
The Butterfly product concept is to provide wide-spread image distribution over
both LAN and WAN combining "Web" technology with compression technology. More
specifically, the concept is to develop:
. A browser based client application that provides sufficient capabilities to
allow effective review of both diagnostic and referral quality radiology,
pathology and other types of medical images. It should also provide
interactive multimedia capabilities to allow reporting, synchronous
consultation, and medical record review.
. A server that manages the collection, storage and distribution of
multimedia medical information including images, text, video and audio.
The server should also provide compression capabilities, configurable
workflow tools, and DICOM/HL7/http interfaces.
The Butterfly product focuses not only on image distribution but also on
improving workflow within the environment of use. As such, the product
architecture will embrace component technology e.g. COM, and provide "task
centric" operation at both the client and server.
CONFIDENTIAL TREATMENT
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<PAGE>
ASSIGNMENT OF RESPONSIBILITIES AND WORK
Broad responsibilities will be assigned as follows:
<TABLE>
<CAPTION>
ACCESS ACTIVITIES AWARE ACTIVITIES
<S> <C>
- ---------------------------------------------------------------------------------------------------------
Product Definition Assist in Product Definition
- ---------------------------------------------------------------------------------------------------------
Primary Web Compression Server Application . Primary Client Software Development
Software Development . Sole Provider/Developer of Compression
Software Medical Library
. Primary Web Interface Level (CGI) Server
Software Development
. Secondary Server Application Software
Development
- ---------------------------------------------------------------------------------------------------------
Overall Project Management Internal Project Management
- ---------------------------------------------------------------------------------------------------------
Clinical Site Management
- ---------------------------------------------------------------------------------------------------------
Regulatory Affairs and Filings
- ---------------------------------------------------------------------------------------------------------
Good Manufacturing Practices Compliance with GMP Software Development
Requirements
- ---------------------------------------------------------------------------------------------------------
Medical Direct and OEM Channel Sales & Marketing Cross-License non-Medical Marketing
- ---------------------------------------------------------------------------------------------------------
Ongoing Server Application Software Support Ongoing Client, Server Component, and Compression
Software Support
- ---------------------------------------------------------------------------------------------------------
Installation & Customer Support
- ---------------------------------------------------------------------------------------------------------
Complaint Handling
- ---------------------------------------------------------------------------------------------------------
License & Revenue Accounting Periodic Examination
- ---------------------------------------------------------------------------------------------------------
</TABLE>
CONFIDENTIAL TREATMENT
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<PAGE>
ANTICIPATED TIMETABLES & KEY EVENTS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
TASK RESPONSIBILITY DATE
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------
Complete Term Sheet ACCESS, AWARE 4/18/98
- ----------------------------------------------------------------------------------------------------------
Complete Contract ACCESS, AWARE 5/28/97
- ----------------------------------------------------------------------------------------------------------
Announce to Market ACCESS, AWARE TBD
- ----------------------------------------------------------------------------------------------------------
Complete Regulatory Review ACCESS 6/21/97
Complete Regulatory 510(k) Filings as Needed ACCESS
- ----------------------------------------------------------------------------------------------------------
Complete Functional Specification ACCESS
Review Functional Specification AWARE
Finalize Functional Specification ACCESS 6/30/97
- ----------------------------------------------------------------------------------------------------------
Complete Product and Software Delivery Plan ACCESS 7/7/97
- ----------------------------------------------------------------------------------------------------------
Sign up Clinical Beta Partners ACCESS 6/30/97
- ----------------------------------------------------------------------------------------------------------
Complete Server Application Design Specification ACCESS
Complete Server CGI Design Specification AWARE
Complete Client Design Specification AWARE
Complete Review of Design Specifications ACCESS & AWARE
Finalize Design Specification ACCESS 8/1/97
- ----------------------------------------------------------------------------------------------------------
Complete Operational Plan including: ACCESS 8/1/97
Strategy and Global market Positioning
Sales & Marketing
Packaging & Pricing
Sales Forecasts
P & L
- ----------------------------------------------------------------------------------------------------------
Complete Test Plans ACCESS & AWARE 8/1/97
- ----------------------------------------------------------------------------------------------------------
Complete Alpha Development & Testing ACCESS & AWARE 11/15/97
- ----------------------------------------------------------------------------------------------------------
Start Beta Testing ACCESS 11/15/97
- ----------------------------------------------------------------------------------------------------------
Receive FDA 510(k) Market Clearance FDA 12/1/97
- ----------------------------------------------------------------------------------------------------------
Implement Installation and Support Staff Ramp-up Plan ACCESS 1/1/98
- ----------------------------------------------------------------------------------------------------------
Product Sales and Marketing Launch ACCESS 12/1/97
- ----------------------------------------------------------------------------------------------------------
Complete First Phase Beta ACCESS 1/1/97
- ----------------------------------------------------------------------------------------------------------
Complete GMA Documentation and Notification of Validation & ACCESS 1/1/98
Testing to FDA
- ----------------------------------------------------------------------------------------------------------
Complete Customer Support Plan ACCESS 1/1/98
- ----------------------------------------------------------------------------------------------------------
Begin US Commercialization ACCESS 1/1/98
- ----------------------------------------------------------------------------------------------------------
Install West Coast and International End-User Partnership ACCESS 1/15/97
Accounts
- ----------------------------------------------------------------------------------------------------------
Support and Release Products Accordingly ACCESS & AWARE On-going
- ----------------------------------------------------------------------------------------------------------
</TABLE>
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SCHEDULE 3: TRADEMARKS
FrameWave is a registered trademark belonging to ACCESS Radiology Corporation.
AccuPress for Radiology is a registered trademark belonging to AWARE, Inc.
CONFIDENTIAL TREATMENT
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CONFIDENTIAL TREATMENT EXHIBIT 10.23
AMENDED AND RESTATED RESELLER AGREEMENT
This Amended and Restated Reseller Agreement is made as of May 30,
1997, between ISG TECHNOLOGIES, INC., a corporation incorporated under the laws
of the Province of Ontario, Canada (hereinafter called "ISG"), and ACCESS
RADIOLOGY CORPORATION, a corporation incorporated in the State of Delaware
(hereinafter called "ACCESS").
B A C K G R O U N D :
1. ACCESS and ISG are parties to a Reseller Agreement dated May 17,
1996, as amended by a Supplemental Agreement dated as of September 30, 1996, (as
so amended, the "Old Reseller Agreement"), under which ACCESS and ISG have
agreed that ACCESS will resell certain medical devices (including software)
developed by ISG.
2. ACCESS and ISG wish to amend the Old Reseller Agreement in certain
respects.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth the parties agree that the Old Reseller Agreement shall be amended and
restated to read in its entirety as follows:
1. DEFINITIONS.
1.1 In this Agreement, each of the following terms has the meaning set
out below:
1.1.1 "Carryover Amount" has the meaning set forth in
Section 4.2.
1.1.2 "Committed Amount" has the meaning set forth in
Section 4.2.
1.1.3 "FDA" means the United States Food and Drug Administration.
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1.1.4 "Food and Drug Act" means the United States Federal Food,
Drug and Cosmetic Act, 21 U.S.C. et seq., as amended from time to time.
------
1.1.5 "GMA Release" means, with respect to any VRS Application
or VRS Option, compliance with all of the conditions set forth below. The date
of GMA Release for any release of any VRS Application or VRS Option shall be the
first date on which the conditions set forth below are satisfied for such
release.
(i) The VRS Application or VRS Option, when installed on
ISG Devices, shall perform all of the functions described for such software
on Schedule I and shall perform reasonably free from bugs material to such
software's intended use.
(ii) ISG shall have certified such VRS Application or VRS
Option for installation on ISG Devices consisting of at least the types of
systems and related equipment required by Section 5.3 as of the date of GMA
Release.
(iii) ISG Devices on which the VRS Application or VRS
Option is installed shall all have been cleared for commercial marketing by
the FDA.
(iv) All ISG Devices including such VRS Application or VRS
Option that are to be resold as contemplated by this Agreement shall be in
compliance with all relevant filings made by ISG with the FDA and with "good
manufacturing practices" as defined in the Food and Drug Act and the
regulations or other measures promulgated by the FDA thereunder.
(v) ISG shall have notified ACCESS that GMA Release of the
VRS Application or VRS Option has occurred.
1.1.6 "ISG Devices" means medical imaging workstations
consisting of Licensed Works provided by ISG, installed by ACCESS in accordance
with instructions provided by ISG on computer hardware and video monitors in
configurations certified by ISG as contemplated by Section 5.3.
1.1.7 "Licensed Works" means all or any part of the VRS
Applications and the VRS Options.
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1.1.8 [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
1.1.9 "Support Period" means, with respect to any ISG Device, a
period of five years from the date of installation of such ISG Device.
1.1.11 "UNIX Termination Date" has the meaning set forth in
Section 5.3(ii).
1.1.10 "Utilization Amount" has the meaning set forth in
Section 4.2.
1.1.11 "VRS Applications" means each of the medical imaging
software applications developed by ISG having the capabilities and service
features described in Schedule I. The features of each VRS Application included
at the base unit price and the VRS Options available for each VRS Application at
additional cost are shown on Schedule I.
1.1.12 "VRS Options" means the options for the VRS Applications
having the capabilities and service features described in Schedule I.
1.1.13 "VRS NT Software" means the VRS Applications and the VRS
Options for use with the Windows NT operating system, as indicated on
Schedule I.
1.1.14 "VRS UNIX Software" means the VRS Applications and the
VRS Options for use with the Sun Solaris operating system, as indicated on
Schedule I.
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2. GRANT OF RIGHTS.
2.1 Effective upon execution of this Agreement and subject to the
conditions set forth below, ISG hereby appoints ACCESS a non-exclusive reseller
of ISG Devices and grants to ACCESS the following non-exclusive rights:
2.1.1 The right to make ISG Devices available to customers,
whether on a monthly fee basis or through outright sales. Such sales may be made
through a prime contractor or systems integrator so long as (i) the end user
shall enter into an agreement containing licensing provisions complying with
Section 3, and (ii) such sales shall be Qualifying Contractor Sales.
2.1.2 The right to include copies of the Licensed Works in ISG
Devices made available by ACCESS to customers and to sublicense Licensed Works
included in such devices in the regular course of business.
2.1.3 The right to use copies of the Licensed Works without
charge for internal purposes of ACCESS, which shall be limited to demonstration
and technical support of customers only.
2.2 ACCESS shall not have any right to distribute the source code of
any of the Licensed Works.
3. CUSTOMER LICENSE AGREEMENTS.
3.1 No customer shall receive any Licensed Works unless such customer
shall have signed an agreement (with ACCESS or with a prime contractor or
systems integrator) containing software licensing provisions complying with
Section 3.2 below.
3.2 Each customer agreement shall set out the name of the customer
and the identity and location of the ISG Devices on which the customer is
licensed to use a copy of the Licensed Works. Such a customer agreement shall
comply with this Section 3.2 if it contains:
(i) in the case of any user, substantially the provisions set
forth in Schedule II (it being understood that ISG need not be
identified by name), or
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(ii) in a case where the end user is the Government of the
United States of America or an agency or instrumentality
thereof, substantially the provisions set forth in Schedule IIA,
or such other licensing terms as such Government, agency or
instrumentality shall then generally prescribe for the procurement
of commercial software.
3.3 ACCESS shall use reasonable efforts to enforce all the licensing
provisions of customer agreements.
4. PAYMENTS.
4.1 ACCESS agrees to pay to ISG the following license fees:
4.1.1 A license fee as set forth in Table 1 of Schedule I for
each copy of the GMA Release version of any VRS Application installed on an ISG
Device made available by ACCESS to a customer in accordance with this Agreement,
except as provided in Section 4.1.2 below.
4.1.2 [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
4.1.3 A license fee as set forth in Table 1 of Schedule I for
each copy of the GMA Release version of each VRS Option installed on an ISG
Device made available by ACCESS to a customer in accordance with this Agreement.
4.1.4 All prices specified in this Section 4.1 are subject to
adjustment as provided in Section 4.2 below.
4.2 ACCESS and ISG agree to the following purchase commitments and
pricing options:
4.2.1. ACCESS agrees, subject to the termination options set forth
below, to pay the Committed Amounts of license fees for each quarter shown in
Schedule I. ACCESS will issue a purchase order at the beginning of each quarter
for the Committed Amount for that quarter. The Committed Amounts shall be
invoiced and paid on the dates set forth in Schedule I. During each quarter,
ACCESS and ISG will record the installation of each copy of the Licensed Works
for which license fees are payable, using
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the procedures described in Section 4.4. After the end of each quarter, ISG will
deliver to ACCESS a statement setting forth the calculation of the Utilization
Amount, the Committed Amount and the Carryover Amount for the quarter. ACCESS
will pay to ISG within 45 days of receipt of such statement the amount, if any,
by which (i) the Utilization Amount for the quarter minus the Carryover Amount
-----
for the quarter exceeds (ii) the Committed Amount for the quarter.
4.2.2. The following terms used in Section 4.2.1 have the
following meanings:
"Committed Amount" means, for any quarter, the amount so
designated for such quarter in Schedule I.
"Utilization Amount" means, for any quarter, the amount of
license fees that would be payable for all copies of Licensed Works installed
during the quarter, calculated in accordance with Section 4.1 and reflecting any
increase or decrease pursuant to Section 4.2.3.
"Carryover Amount" means, for any quarter, the amount (if any) by
which (i) the sum of the Committed Amounts for all preceding quarters exceeds
(ii) the sum of the Utilization Amounts for all preceding quarters. The
Carryover Amount shall be retroactively adjusted to reflect any retroactive
price adjustments required by Section 4.2.3.
4.2.3. The obligation of ACCESS to pay Committed Amounts shall be
subject to compliance by ISG with its obligations hereunder and shall terminate
upon any termination of this Agreement. ACCESS shall have the following options
to change its obligations to pay the Committed Amounts and the pricing of
Licensed Works.
Option 1. ACCESS may cancel its obligations to pay the Committed
--------
Amounts for the quarter ended June 30, 1998 and all subsequent quarters upon
notice to ISG delivered on or before June 29, 1997. The obligations of ACCESS to
pay the Committed Amounts for the quarter ending on March 31, 1998 and all prior
quarters will be unaffected by exercise of this option. Upon exercise of this
option, the license fees for Licensed Works will be changed from those shown in
Table 1 of Schedule I to those shown in Table 2 of Schedule I, and Utilization
Amounts and the Carryover Amount shall be calculated on this basis. This change
will apply retroactively to all copies of Licensed Works installed after the
effective date of this Amended and Restated
CONFIDENTIAL TREATMENT
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Reseller Agreement and ACCESS will pay, upon invoice by ISG following exercise
of this Option 1, the amount (if any) by which (i) the payments that would have
been made under Section 4.2.1 for prior quarters based upon Table 2 of Schedule
I exceed (ii) the amounts actually paid by ACCESS during such prior quarters.
Option 2. ACCESS may cancel its obligations to pay the Committed
--------
Amounts for the quarter ended June 30, 1999 and all subsequent quarters upon
notice to ISG delivered on or before September 15, 1998. The obligations of
ACCESS to pay the Committed Amounts for the quarter ending on March 31, 1999 and
all prior quarters will be unaffected by exercise of this option. Upon exercise
of this option, the license fees for copies of Licensed Works installed after
March 31, 1998 will be changed from those shown in Table 1 of Schedule I to
those shown in Table 2 of Schedule I, and Utilization Amounts and the Carryover
Amount shall be calculated on this basis. This change will not be retroactive.
If neither Option 1 nor Option 2 is exercised, the license fee
for the VRS NT 200 (v1.1) application will be reduced to zero for all copies
installed after September 15, 1998. If ACCESS shall deliver to ISG an
irrevocable waiver of ACCESS's rights to exercise Option 1 and Option 2 (which
may be delivered after Option 1 has expired), the license fee for the VRS NT 200
(v1.1) application will be reduced to zero for all copies installed after the
date of the waiver. ACCESS may at any time elect to reduce the license fee for
the VRS NT 200 (v1.1) application to zero by notice to ISG accompanied by
payment of a reduction fee of [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.] Such a reduction
will be effective for all copies of the VRS NT 200 (v1.1) application installed
after the date of notice and payment.
4.3 After termination of the obligations of ACCESS to pay Committed
Amounts ACCESS shall nonetheless have the rights to resell ISG Devices and
license the Licensed Works as set forth herein for the remaining term of this
Agreement. After any termination of the Committed Amount obligations, license
fees for the Licensed Works shall be calculated in accordance with Sections 4.1
and 4.2.3 and shall be paid monthly upon invoice by ISG for Licensed Works
installed during each month. Any Carryover Amount remaining after termination of
the Committed Amount obligations shall be applied on a first dollar basis to
reduce license fees otherwise payable.
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<PAGE>
4.4 Within 15 business days of the end of each month, ACCESS will
deliver to ISG a written statement setting forth a list of all ISG Devices
shipped or installed during the month, the Licensed Works included in such ISG
Devices, the name and address of the end user site for each device, a contact
name and telephone number for each end user, and the host ID of each system on
which Licensed Works are installed. These statements will be the basis for
quarterly statements of utilization required by Section 4.2.1 and the monthly
invoices required by Section 4.3. Terms and conditions for all ISG Devices
ordered hereunder shall be in accordance with this Agreement and shall not be
modified by any terms of ACCESS's purchase order or other forms or ISG's
invoice, bill of lading, installation certificate or other forms. Payment of all
invoices shall be due 45 days from receipt of invoice. Amounts overdue beyond
this limit will bear interest at the rate of 1% per month.
4.5 ACCESS shall maintain complete and accurate records of each ISG
Device sold and each copy of Licensed Works installed hereunder, including
without limitation all records required for compliance with FDA regulations. ISG
may, not more often than twice in any period of twelve consecutive months,
conduct a review of the records of ACCESS relating to ISG Devices and Licensed
Works, at reasonable times and upon reasonable notice. ISG shall bear its own
costs incurred for any such audit unless the audit results in a determination of
a discrepancy of more than 10% between license fees payable as originally
reported by ACCESS and license fees actually payable for Licensed Works
installed by ACCESS for the period covered by the audit, in which case ACCESS
shall pay the reasonable out of pocket costs of the audit. All information made
available by ACCESS under Section 4.4 or this section 4.5 shall be treated as
confidential in accordance with Section 6.2 and shall not be used for any
purpose other than determination of the amounts payable under this Agreement.
4.6 Prices do not include sales tax or similar taxes. ACCESS shall
pay such taxes either directly or when invoiced by ISG, or shall supply
appropriate tax exemption certificates in a form satisfactory to ISG.
4.7 Payments to ISG shall not be deemed to have been made until the
funds are available to ISG in Mississauga, Ontario, Canada. Alternatively, if
ACCESS is prevented by government regulations from transferring funds to
Canada, ISG shall have the right to require ACCESS to deposit the blocked funds
or an equivalent amount denominated in another currency due to ISG in a bank and
country designated by ISG and for ISG's account.
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<PAGE>
4.8 ACCESS shall be responsible, at its own expense, for obtaining
all necessary import permits and for the payment of any and all taxes and duties
imposed on the delivery, importation, sale or license of the ISG Devices and
Licensed Works in locations designated by ACCESS; except that ISG shall be
responsible for complying with all regulations or other measures promulgated by
the FDA under the Food and Drug Act which are required to be complied with for
the importation of ISG Devices into the United States.
4.9 If any copy of Licensed Works installed on an ISG Device is lost
or is so damaged as to be unusable prior to delivery of such ISG Device to the
customer, ISG will permit installation of a replacement copy of such lost or
damaged Licensed Works without payment of an additional license fee.
5. SUPPORT.
5.1 ISG will supply the following materials to ACCESS:
5.1.1 Five copies of the latest object code or executable code
for the GMA Release version of each item included in the Licensed Works, with
updates as provided in Section 5.2.3. Each copy of Licensed Works will enable
ACCESS to install and integrate such Licensed Works on ISG Devices, and will
enable users to use such ISG Devices for an unlimited time, without requiring
any activation or other action by ISG. If a copy of the Licensed Works initially
provided is lost, damaged or destroyed, ISG will provide at cost a replacement
copy, which may be a more recent release or version.
5.1.2 Either (i) for each ISG Device for which a license fee is
recorded, one copy of documentation in English and documentation updates as they
are prepared and released which, when taken together, constitute complete
documentation for the ISG Devices complying with the requirements of the Food
and Drug Act and the regulations and other measures promulgated by the FDA
thereunder or (ii) all materials necessary to permit ACCESS to produce
documentation as set forth in clause (i), which will include soft copy of text
and updates as well as art work for covers, backs and spines of user manuals.
CONFIDENTIAL TREATMENT
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5.1.3 Five copies of all installation scripts and procedures
necessary or appropriate for installation of the GMA Release version of each
item of Licensed Software on ISG Devices.
5.1.4 Five copies of any modifications to the Licensed Works
(with revisions to the documentation to reflect such modifications) which are
provided to other customers of ISG without charge and are not proprietary to
such customers.
5.2 ISG will provide the following support:
5.2.1 ISG will make support as provided in this Section 5.2
available for each ISG Device for the duration of the Support Period for such
device, subject to payment of support fees as provided herein. ISG will at all
times support the current release of each of the Licensed Works and the
immediately preceding Major Release of each of the Licensed Works. ISG will
support each Major Release of VRS UNIX Software for at least 12 months from the
date of GMA Release, regardless of the number of additional releases during such
period. After June 30, 1998, ISG will support each Major Release of VRS NT
Software for at least 12 months from the date of GMA Release, regardless of the
number of additional releases during such period. A "Major Release" is a release
of a Licensed Work which has undergone full GMA Release procedures and is
identified by the first two numerals in a version number (that is, "x.y").
5.2.2 ACCESS will provide first line support to its customers.
In the event of a problem, ACCESS's end customer will contact ACCESS with
problems, queries and/or help line requests. Trained ACCESS customer service
personnel will respond to calls and attempt to diagnose and repair problems
according to procedures defined in ISG's training courses and documentation.
ACCESS will contact ISG only after having done so without resolving the problem,
with such contact being made as defined for the relevant geographical territory
and the problem being logged in accordance with an agreed procedure. ISG will
then provide second line support. ISG will issue a Customer Service Order Number
and one or more of the following courses of action will be taken as deemed
appropriate by ISG technical support staff:
i) Technical or applications support via telephone to trained
ACCESS service personnel.
ii) In depth problem investigation and analysis via modem to end
customer system. This support is provided only where direct high speed modem
access is available via a dedicated telephone line.
CONFIDENTIAL TREATMENT
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iii) A monthly problem report will be provided to ACCESS
detailing the Customer Service Order Number, date and type of call and
resolution of each support call.
iv) On site consultation is available upon request at then
applicable ISG standard time and materials rates and is subject to availability
of technical or applications support personnel.
v) Five master copies of software updates will be provided from
time to time to ACCESS, as provided in Section 5.2.3 below.
5.2.3 In providing maintenance support, ISG shall:
i) Respond to and verify any alleged errors in the
documentation or code upon notification by ACCESS; and
ii) Provide resolution of defects as detailed below:
1. Safety - Deficiency affects patient safety or FDA
reportable defects.
2. Critical - Deficiency causes the VRS application to fail
catastrophically.
3. Urgent - Deficiency causes the VRS application to give
erroneous, distorted or severely deficient function from which users
must be isolated.
4. Serious to Minor - Deficiency similar to level 3 above,
but for which a work-around can be implemented allowing the user to
achieve the desired accuracy or function, with minor inconvenience, or
deficiency causes minor inconvenience, but is a definite deficiency
against specification.
5. Improvements - ACCESS requests new functionality not
covered by specification.
For priority levels 1, 2 and 3, ISG will immediately take corrective action and
provide a validated bug fix, in the form of an update, within a reasonably
expeditious time frame.
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For priority level 4, ISG will take corrective action and provide a validated
bug fix, in the form of an update, without charge, within a reasonable time
frame.
For priority level 5, ISG will determine in its good faith judgment whether the
requested functionality is appropriate for inclusion in the next general release
to customers. If ISG so determines, ISG will provide an update to ACCESS
without charge. If ISG does not so determine, ISG will provide the requested
modification at ISG's standard charges.
5.2.4 ACCESS will pay support fees of [*THE CONFIDENTIAL
PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.] to be invoiced on June 30, 1997 and [*THE CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
to be invoiced on June 30, 1998. ACCESS and ISG will, not less than annually,
review the foregoing support fees and the records of both parties relating to
service provided to customers, and will discuss in good faith whether any change
in such fees is appropriate in light of the time and effort actually expended by
ISG on support under this Agreement. Prior to March 31, 1999, ACCESS and ISG
will negotiate pricing for support to be provided by ISG after that date. ISG
will in any event make support available after that date to the extent provided
in this Agreement at ISG's then applicable time and materials charges.
5.3 ISG hereby certifies the compatibility only of the hardware and
systems configurations listed in Schedule I for inclusion in ISG Devices on
which Licensed Works are installed. ISG will cause the Licensed Works to be
compatible with, and will certify to ACCESS that ISG Devices may include:
(i) At all times during the term of this Agreement prior to the
UNIX Termination Date, the release of the Sun Solaris operating system
immediately prior to the then most current release.
(ii) At all times during the term of this Agreement on or after
the UNIX Termination Date, the most current release of the Sun Solaris
operating system as of the UNIX Termination Date; provided that if support
of a newer release of the Sun Solaris operating system is
CONFIDENTIAL TREATMENT
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<PAGE>
necessary to correct a defect of Level 3 or higher (as defined in Section
5.2.3(ii)), ISG will provide the necessary support. The "UNIX Termination
Date" means a date of which ACCESS is notified at least twelve months in
advance, on which ISG shall cease to make VRS UNIX Software available to
customers.
(iii) At all times during the term of this Agreement, the
release of the Windows NT operating system immediately prior to the then
most current release.
ISG Devices including any of the systems and components set forth
above, and Licensed Works installed thereon, shall be covered by all support
obligations, representations, warranties and agreements of ISG contained herein.
5.4 While it is acknowledged that the ISG Devices may be used in
certain surgical, medical life support or other applications of a similar degree
of potential hazard, ACCESS acknowledges that ISG Devices are not designed or
intended to substitute for or override the training, experience and knowledge of
end users.
1. ADDITIONAL COVENANTS.
6.1 ACCESS shall include in all copies of Licensed Works made by
ACCESS any copyright or similar notice as furnished by ISG to ACCESS.
6.2 Each party hereto covenants that it shall keep confidential any
confidential information relating to the other party's business, finances,
marketing and technology to which it obtains access (including without
limitation the Licensed Works and the pricing and other terms of this Agreement)
and that it shall take all reasonable precautions to protect such confidential
information of the other party or any part thereof from any use, disclosure or
copying except as expressly authorized by this Agreement. The obligations of
the parties under this Section 6.2 are in addition to, and not in substitution
of, their respective obligations under the Confidentiality Agreement dated as of
March 31, 1995 between ACCESS and ISG.
6.3 The parties agree as follows with respect to proprietary rights:
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6.3.1 ACCESS acknowledges that, except as set forth in Section
6.3.2 below, the Licensed Works and all related information and documentation
are the property of ISG and/or third parties from whom ISG has acquired certain
rights under license.
6.3.2 ISG acknowledges that ACCESS has provided and will
provide to ISG certain software applications, know-how and trade secrets
relating to wavelet compression and decompression of images, which are included
in Licensed Works made available to ACCESS under this Agreement. ISG agrees that
it will treat the particular specifications ACCESS has provided regarding
compression and decompression as proprietary information of ACCESS. This applies
to the specifications and concepts including the following:
1. Non-standard DICOM transport mechanisms for image transmission
2. Controls over the number of images in a study
3. The use of progressive decompression
4. Modifications to the DICOM header elements reflecting changes in
certain data such as image matrix size and compression status
5. Error and exception handling
6. PPP server transmission methodologies
ISG agrees that it will not provide other customers for its workstation products
with the above information and know-how (or devices or applications including
them). Nothing in this paragraph will be construed so as to restrict ISG from
developing and/or marketing a solution similar to any or all of the ACCESS
solutions specified in items 1 to 6 above, provided that ISG has received the
specifications and/or know-how for such similar solutions from a third party
without solicitation or assistance from ISG and without any knowledge on ISG's
part that such third party is in violation of any confidentiality obligation or
proprietary right.
6.4 ACCESS at all times will comply with all provisions of the Food
and Drug Act and the regulations and other measures promulgated by the FDA
thereunder which are applicable to ACCESS as a distributor of ISG Devices as
contemplated by this Agreement.
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6.5 ISG represents that the ISG Devices, when configured and marketed
as contemplated by this Agreement and assuming compliance by ACCESS with its
covenant set forth in Section 6.4, will at all times comply with all applicable
provisions of the Food and Drug Act, the regulations and other measures
promulgated by the FDA thereunder, and all filings made by ISG thereunder, and
will have all necessary FDA clearances or approvals for commercial marketing in
the United States of America. ISG will at all times comply with all provisions
of the Food and Drug Act, the regulations and other measures promulgated by the
FDA thereunder, and all filings made by ISG thereunder, which are applicable to
ISG as the manufacturer of ISG Devices distributed as contemplated by this
Agreement.
6.6 The parties agree to the following indemnity provisions:
6.6.1 ACCESS shall indemnify and save harmless ISG from and
against any and all liabilities, damages, costs or expenses (including
attorney's fees as incurred) resulting from any negligence or misconduct of
ACCESS in marketing or installing ISG Devices or failure to comply with ACCESS's
obligations set forth in Section 6.4.
6.6.2 ISG shall indemnify and save harmless ACCESS from and
against any and all liabilities, damages, costs or expenses (including
attorney's fees as incurred) resulting from any negligence or misconduct of ISG
in manufacturing ISG Devices, any defect in ISG Devices installed and configured
as instructed by ISG, or any inaccuracy or failure of compliance with ISG's
representations and obligations set forth in Section 6.5.
6.6.3 Any party seeking indemnification hereunder shall promptly
inform the indemnifying party in writing upon becoming aware of any claim for
which indemnity may be sought. Such notice shall include a statement of the
facts and circumstances relevant to such claim. Following such notice, the
indemnifying party may participate in the defense. Neither party shall settle
or compromise any claim for which indemnity is sought hereunder without the
prior written consent of the indemnifying party.
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6.7 At least two qualified ACCESS employees will attend two days of
service training at ISG's facility annually. ACCESS will pay a charge of $3,000
per person per year for such training. Attendance by ACCESS personnel for whom
the training charge has been paid in any year at additional new training courses
during that year will be free of charge.
6.8 ISG agrees to the following development obligations.
6.8.1 ISG will release for resale by ACCESS hereunder either a
software patch for VRS UNIX 2.1 or a release of VRS UNIX 2.2 , which will in
either case include additional functionality as set forth in Schedule I. This
patch or release will be released in a beta test version by June 30, 1997 and a
GMA Release version by October 31, 1997.
6.8.2 ISG will release for resale by ACCESS hereunder a GMA
Release version of the VRS NT-200 Release 1.1 application, having the
functionality specified in Schedule I, by May 30, 1997.
6.8.3 ISG will release for resale by ACCESS hereunder a GMA
Release version of the VRS NT Software having the decompression functionality
specified in Schedule I by June 30, 1997.
6.8.4 If ISG does not release any of the applications set forth
above by the date specified, payment of all Committed Amounts falling due after
the specified release date will be deferred until release occurs. During any
period of deferral, ACCESS will pay license fees as provided in Section 4.3.
Upon resumption of payment of Committed Amounts, payments made during the
deferral period will be credited on a first dollar basis against Committed
Amounts payable.
7. WARRANTIES.
7.1 ISG warrants and agrees that:
7.1.1 ISG has the full authority to grant the license and rights
set forth in this Agreement.
7.1.2 To the best of ISG's knowledge, the documentation and
code of the Licensed Works have not been published under circumstances which
have caused loss of copyright therein, and to the best of the ISG's knowledge
the documentation and code of the Licensed Works do not infringe upon any
copyright or other proprietary right of any third party.
CONFIDENTIAL TREATMENT
-16-
<PAGE>
7.1.3 ISG is not aware of any claim of infringement of any
copyright or other proprietary right having been made or pending against ISG
relative to the documentation or code of the Licensed Works.
7.1.4 ISG will, at its expense, defend against, hold ACCESS
harmless from, and pay any final judgment against ACCESS or any ACCESS customer
arising out of any claim that the use of any Licensed Work as contemplated by
this Agreement infringed a copyright, a patent or a trade secret provided that
(i) ACCESS notifies ISG in writing of such claim or action, and (ii) ISG has
sole control of the defense and settlement of such claim or action. In defending
against such claim or action, ISG may, at its option, agree to any settlement in
which ISG shall either (1) procure for ACCESS and all ACCESS customers the right
to continue using the Licensed Works; or (2) modify or replace the Licensed
Works so that they no longer infringe, to the extent that the exercise of such
option does not result in a material adverse change in the operational
characteristics of the Licensed Works, and equivalent functions and performance
provided by ISG remain following implementation of such option. If ISG concludes
in its judgment that none of the foregoing options is reasonable, ISG may remove
the Licensed Works and any other components supplied by ISG rendered unusable as
a result of such removal and repay to ACCESS all amounts paid with respect to
the infringing products by ACCESS to ISG under this Agreement. Any such payment
shall be in addition to, and shall not diminish, ISG's obligation to defend and
indemnify against claims for infringement. Each party shall promptly notify the
other in the event that it becomes aware of a claim covered by this Section 7.1.
7.2 The ISG Devices, when properly installed and configured, will meet
all applicable standards of the American College of Radiology for diagnostic
images and are appropriate for diagnostic radiological examinations, and ISG has
no knowledge of existing problems which would cause the ISG Devices to fail to
comply with the foregoing warranty.
8. TERM AND TERMINATION.
8.1 This agreement shall have an initial term ending on March 31,
2000, subject to earlier termination as provided below.
8.2 If there shall be any material breach of this Agreement by ACCESS
which shall not be cured within 30 days of ISG giving written notice thereof to
ACCESS, then at any time thereafter that such breach shall be continuing ISG may
terminate this Agreement by delivery of a separate written termination notice to
ACCESS.
CONFIDENTIAL TREATMENT
-17-
<PAGE>
8.3 If there shall be any material breach of this Agreement by ISG
which shall not be cured within 30 days of ACCESS giving notice thereof to ISG,
then at any time thereafter that such breach shall be continuing ACCESS may
terminate this Agreement by delivery of a separate written termination notice to
ISG.
8.4 If either party to this Agreement shall wind up or discontinue its
business, shall make an assignment for the benefit of creditors, shall have a
receiver appointed for its assets, shall commence bankruptcy or insolvency
proceedings, or shall have bankruptcy or insolvency proceedings commenced
against it which shall not be dismissed or stayed within 60 days, the other
party may terminate this Agreement upon notice to the affected party.
8.5 If this Agreement shall be terminated under Section 8.2, Section
8.3 or Section 8.4, then:
8.5.1 ACCESS's right to resell ISG Devices and to furnish
Licensed Works to customers and to use and make copies of the Licensed Works
shall immediately terminate;
8.5.2 ISG's support obligations hereunder shall immediately
terminate;
8.5.3 ACCESS shall pay, within ten (10) days, all amounts which
have accrued to ISG;
8.5.4 ACCESS shall immediately deliver the master copy of the
Licensed Works and all other copies in the possession of ACCESS to ISG at
ACCESS's expense; and
8.5.5 ACCESS shall provide a list of names and addresses of
customers who have entered into sublicenses with ACCESS since the date of this
Agreement.
8.6 Notwithstanding any termination or expiration of this Agreement,
any sublicense granted to an ACCESS customer prior to such termination or
expiration shall survive such termination or expiration, and Sections 6.2, 6.3,
6.6 and 7.1 shall survive any such termination or expiration. The rights of
ACCESS under Section 9.10 and the Escrow Agreement referred to therein shall
survive any termination of this Agreement by
CONFIDENTIAL TREATMENT
-18-
<PAGE>
ACCESS. The obligations of ISG to provide support set forth in Section 5.2 and
the obligations of ISG under Section 9.10 shall survive expiration of the term
of this Agreement for the remainder of the Support Period for any ISG Device,
subject to continued payment of support fees by ACCESS.
8.7 The remedies set forth in Sections 8.1 through 8.5 shall not be
exclusive, but shall be in addition to any other remedies available to either
party at law or in equity.
9. GENERAL.
9.1.1 ACCESS and ISG are independent contractors and separate legal
entities and shall in no way be interpreted as partners, joint-venturers,
agents, employees or legal representatives of each other for any purpose.
ACCESS shall solicit orders for ISG Devices only as an independent contractor.
The parties shall not be responsible for or bound by any act of the other party
or such other party's agents, employees or any person in any capacity in its
service.
9.2 Assignment:
9.2.1 Subject to ACCESS's right to grant sublicenses hereunder,
ACCESS may not assign this Agreement or any rights hereunder without the prior
written consent of ISG except that, without such consent and upon notice to ISG,
ACCESS may assign all of its rights hereunder to a corporation or other legal
entity that acquires substantially all of ACCESS's assets or where ACCESS is
consolidated or merged but then only upon the express assumption by such
transferee or its successor of the obligations set forth in this Agreement.
9.2.2 ISG may not assign this Agreement or any rights hereunder
without the prior written consent of ACCESS, except that, without such consent
and upon notice to ACCESS, ISG may assign all of its rights hereunder to a
corporation or other legal entity that acquires substantially all of ISG's
assets or where ISG is consolidated or merged, but then only upon the express
assumption by such transferee or its successor of the obligations set forth in
this Agreement.
9.2.3 This Agreement is binding upon, and inures to the benefit
of, the successors and permitted assigns of the parties.
CONFIDENTIAL TREATMENT
-19-
<PAGE>
9.3 The waiver or failure of either party to exercise in any respect
any right provided for in this Agreement shall not be deemed a waiver of any
further or future right hereunder.
9.4 The headings used in this Agreement are for convenience of
reference only and are not to be used in interpreting the provisions of this
Agreement.
9.5 If any provision of this Agreement is invalid or unenforceable in
any particular case, such case shall not invalidate or render unenforceable any
other part of this Agreement. The Agreement shall simply be construed as not
containing the particular provision or provisions held to be invalid or
unenforceable to the extent of the particular case, and the rights and
obligations of the parties hereto shall be construed accordingly.
9.6 This Agreement is effective when executed by both parties. This
Agreement may be executed in counterparts, each of which shall constitute one
and the same instrument.
9.7 This Agreement and the Confidentiality Agreement dated March 31,
1995 constitute the entire agreement between the parties pertaining to the
subject matter hereof and supersedes all prior agreements, understandings,
negotiations and discussions, whether oral or written, of the parties
pertaining to such subject matter.
9.8 Unless otherwise indicated, all dollar amounts referred to in this
Agreement are in U.S. funds.
9.9 This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts.
9.10 ISG shall place a copy of the source code for the Licensed Works
(the "Escrow Materials") it has the authority to so deliver, in escrow with Fort
Knox Escrow Services, Inc. (the "Escrow Agent") under an Escrow Agreement in the
form of Schedule IV. The Escrow Agent shall be authorized to release the Escrow
Materials to ACCESS if and when ACCESS is deemed to have the right thereto as
determined below.
9.10.1 Provided that ACCESS is not then in material default under
the terms of this Agreement, the Escrow Agent shall provide to ACCESS the Escrow
Materials upon notification by ACCESS to the Escrow Agent, with a copy to ISG,
CONFIDENTIAL TREATMENT
-20-
<PAGE>
of the occurrence of any of the following events (each a "Release Condition"):
(a) The undisputed failure by ISG, following not less than 90
days written notice from ACCESS, clearly indicating the
nature of the default, to maintain the Licensed Works and
such failure results in the occurrence or continuance of a
defect classified as Level 1 Safety, Level 2 Critical or
Level 3 Urgent under Section 5.2.3 above, or if such
failure is disputed, the notice must be supplemented by a
court order resolving the dispute; or
(b) Proceedings shall be commenced by or against ISG under the
United States Bankruptcy Code or the Canadian Bankruptcy
and Insolvency Act and (in the case of a proceeding
commenced against ISG) shall not be dismissed or discharged
within 90 days of commencement.
9.10.2 Upon taking possession of the Escrow Materials due to the
occurrence of a Release Condition, ACCESS agrees that such source code shall be
subject to restrictions on use, transfer, sales and reproduction placed on the
Licensed Works themselves by this Agreement.
9.10.3 The Escrow Agreement will continue in full force and
effect, except that this Agreement shall govern any inconsistencies between this
Agreement and the Software Escrow Agreement.
9.10.4 ACCESS shall use the Escrow Materials only for what would
otherwise be obligations of ISG to provide support of the Licensed Works. It is
expressly understood that the Software Escrow Agreement pertains to the right to
use the Escrow Materials and that no rights to ownership of the Escrow Materials
pass from ISG to ACCESS. It is also expressly understood that the Escrow
Materials are confidential and secret assets of ISG and the Escrow Materials
will be held by ACCESS and not reproduced or copied, or made available to any
third party, except in accordance with this Agreement. It is expressly
understood that the Escrow Materials will be either returned to ISG or destroyed
once the default giving rise to a Release Condition is cured and adequate
assurances of ISG's future performance are given to ACCESS. UNDER NO
CIRCUMSTANCES IS THE SOURCE CODE TO BE SOLD, TRANSFERRED OR COPIED BY ACCESS OR
ITS DISTRIBUTORS. This
CONFIDENTIAL TREATMENT
-21-
<PAGE>
Agreement shall be deemed to be a "License Agreement" referred to in the Escrow
Agreement and Section 365(n) of the United States Bankruptcy Code.
9.11 EXCEPT AS OTHERWISE SET FORTH IN THIS AGREEMENT (INCLUDING WITHOUT
LIMITATION ARTICLE 5), ISG MAKES NO WARRANTIES OF ANY KIND WITH RESPECT TO THE
ISG DEVICES, INCLUDING WITHOUT LIMITATION ANY WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE. Except as otherwise set forth in this
Agreement, in no event shall ISG be liable to ACCESS for any indirect, special,
incidental or consequential damages of any nature or kind whatsoever or for any
damages (whether caused directly or indirectly) related to loss of profits, loss
of revenue, loss of data or other economic loss in connection with, or arising
out of, the use or supply or non-supply of the ISG Devices. Except as otherwise
set forth in this Agreement (including without limitation Articles 6 and 7), the
liability of ISG to ACCESS under this Agreement or resulting from this Agreement
under any theory of law or equity is limited to money damages not to exceed the
total amount paid by ACCESS to ISG hereunder.
9.12 Notices:
All notices provided for in this Agreement shall be in writing or facsimile,
addressed to the appropriate party at its respective address set forth below or
to such other then-current address as is specified by notice, as follows:
(a) to ISG: ISG Technologies, Inc.
6509 Airport Road
Mississauga, Ontario
CANADA L4V 1S7
Facsimile: (905) 672-0360
Attention: VP Finance
(b) to ACCESS: ACCESS Radiology Corporation
313 Speen Street
Natick, MA 01760
Facsimile: (508) 647-9350
Attention: Howard Pinsky
Notices shall be deemed to be received upon actual delivery, upon confirmation
of receipt of a facsimile, or five days after mailing with first class postage
prepaid.
CONFIDENTIAL TREATMENT
-22-
<PAGE>
9.13. This Amended and Restated Reseller Agreement shall become
effective when executed by ISG and ACCESS. All references to "this Agreement",
"herein", "hereby" and similar references shall refer to this Amended and
Restated Reseller Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the first date set forth above.
ACCESS RADIOLOGY CORPORATION ISG TECHNOLOGIES, INC.
By: /s/ David Lang /s/ Peter Bak
---------------------------- ----------------------------
By:
---------------------------- ----------------------------
Name: David Lang Name: Peter Bak
---------------------------- ----------------------------
Title: Vice President of Title: Vice President of
Business Operations Product Development
CONFIDENTIAL TREATMENT
-23-
<PAGE>
SCHEDULE I
----------
LICENSED WORKS DESCRIPTION AND PRICING
--------------------------------------
PRICING TABLE 1
<TABLE>
<CAPTION>
==========================================================================================================
PRODUCT FEATURE VRS-NT-200 VRS-NT-600 VRS-NT-ICU VRS-NT-DX VRS-NT-XS VRS-UNIX DX VRS-UNIX XS
(V1.1)
==========================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
BASE PRICING
==========================================================================================================
[*] [*] [*] [*] [*] [*] [*] [*]
==========================================================================================================
OPTIONS PRICING
==========================================================================================================
[*] [*] [*] [*] [*] [*] [*]
- ----------------------------------------------------------------------------------------------------------
[*] [*] [*] [*] [*] [*] [*] [*]
- ----------------------------------------------------------------------------------------------------------
[*] [*] [*] [*] [*] [*] [*] [*]
- ----------------------------------------------------------------------------------------------------------
[*] [*] [*] [*] [*] [*] [*] [*]
- ----------------------------------------------------------------------------------------------------------
[*] [*] [*] [*] [*] [*] [*] [*]
- ----------------------------------------------------------------------------------------------------------
[*] [*] [*] [*] [*] [*] [*] [*]
- ----------------------------------------------------------------------------------------------------------
[*] [*] [*] [*] [*] [*] [*] [*]
- ----------------------------------------------------------------------------------------------------------
[*] [*] [*] [*] [*] [*] [*] [*]
- ----------------------------------------------------------------------------------------------------------
[*] [*] [*] [*] [*] [*] [*] [*]
- ----------------------------------------------------------------------------------------------------------
[*] [*] [*] [*] [*] [*] [*] [*]
==========================================================================================================
</TABLE>
* THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
CONFIDENTIAL TREATMENT
-24-
<PAGE>
PRICING TABLE 2
<TABLE>
<CAPTION>
==========================================================================================================
PRODUCT FEATURE VRS-NT-200 VRS-NT-600 VRS-NT-ICU VRS-NT-DX VRS-NT-XS VRS-UNIX DX VRS-UNIX XS
(V1.1)
==========================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
BASE PRICING
==========================================================================================================
[*] [*] [*] [*] [*] [*] [*] [*]
==========================================================================================================
OPTIONS PRICING
==========================================================================================================
[*] [*] [*] [*] [*] [*] [*]
- ----------------------------------------------------------------------------------------------------------
[*] [*] [*] [*] [*] [*] [*] [*]
- ----------------------------------------------------------------------------------------------------------
[*] [*] [*] [*] [*] [*] [*] [*]
- ----------------------------------------------------------------------------------------------------------
[*] [*] [*] [*] [*] [*] [*] [*]
- ----------------------------------------------------------------------------------------------------------
[*] [*] [*] [*] [*] [*] [*] [*]
- ----------------------------------------------------------------------------------------------------------
[*] [*] [*] [*] [*] [*] [*] [*]
- ----------------------------------------------------------------------------------------------------------
[*] [*] [*] [*] [*] [*] [*] [*]
- ----------------------------------------------------------------------------------------------------------
[*] [*] [*] [*] [*] [*] [*] [*]
- ----------------------------------------------------------------------------------------------------------
[*] [*] [*] [*] [*] [*] [*] [*]
- ----------------------------------------------------------------------------------------------------------
[*] [*] [*] [*] [*] [*] [*] [*]
==========================================================================================================
</TABLE>
* THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
Base Unit Feature Content:
- --------------------------
The features included in the Base Unit for each Product are detailed in the
attached Marketing Specifications Documents as follows:
VRS-NT 200 Product -
1. Viewing and Reading Stations on NT (VRS-NT)
Release 1.0
Marketing Specifications Document v1.1
November 29, 1997
2. VRS-NT 200 Release 1.1
ACCESS Radiology Corporation Additional Features to VRS-
NT 200 Release 1.0
VRS-NT 600, ICU, DX and XS Products -
1. Document 1997-00295
Rev. 12.0-approved
31 March 1997
VRS-UNIX Products -
1. Viewing and Reading Stations (VRS) Release 2.1
Marketing Specifications Document v5.0
November 29, 1997
CONFIDENTIAL TREATMENT
-25-
<PAGE>
2. VRS UNIX Release 2.1 Patch / Release 2.2
ACCESS Radiology Corporation Additional Features to VRS
UNIX Release 2.1
Exceptions to the detailed features are as follows:
- "Advanced Viewing Protocols" is an option for the VRS-NT DX and
VRS-UNIX DX.
- "Scout View and Image Cross Reference" is an option for VRS-NT 600,
VRS-NT DX and VRS-UNIX DX.
- "Multi-planar Reformat" is an option for VRS-NT XS and VRS-UNIX XS.
- "Maximum Intensity Projection" is an option for VRS-NT XS.
- "DICOM 3.0 Export" is an option for VRS-NT 600 and VRS-NT ICU.
Options Pricing Legend:
- -----------------------
[*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.]
CONFIDENTIAL TREATMENT
-26-
<PAGE>
COMMITMENT TABLE
================================================================================
QUARTER AMOUNT INVOICE DATE PAID DATE
(ON OR BEFORE) (ON OR BEFORE)
================================================================================
Q1 [*] - -
- --------------------------------------------------------------------------------
Q2 [*] June 30/th/ 1997 August 14/th/ 1997
- --------------------------------------------------------------------------------
Q3 [*] September 30/th/ 1997 November 14/th/ 1997
- --------------------------------------------------------------------------------
Q4 [*] December 31/st/ 1997 February 14/th/ 1998
- --------------------------------------------------------------------------------
Q5 [*] March 31/st/ 1998 May 15/th/ 1998
- --------------------------------------------------------------------------------
Q6 [*] June 30/th/ 1998 August 14/th/ 1998
- --------------------------------------------------------------------------------
Q7 [*] September 30/th/ 1998 November 14/th/ 1998
- --------------------------------------------------------------------------------
Q8 [*] December 31/st/ 1998 February 14/th/ 1999
- --------------------------------------------------------------------------------
Q9 [*] March 31/st/ 1999 May 15/th/ 1999
- --------------------------------------------------------------------------------
Q10 [*] June 30/th/ 1999 August 14/th/ 1999
- --------------------------------------------------------------------------------
Q11 [*] September 30/th/ 1999 November 14/th/ 1999
- --------------------------------------------------------------------------------
Q12 [*] December 31/st/ 1999 February 14/th/ 2000
- --------------------------------------------------------------------------------
Q13 [*] March 31/st/ 2000 May 15/th/ 2000
================================================================================
* THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
CONFIDENTIAL TREATMENT
-27-
<PAGE>
VRS UNIX RELEASE 2.1 PATCH / RELEASE 2.2
ACCESS RADIOLOGY CORPORATION ADDITIONAL FEATURES TO VRS UNIX
RELEASE 2.1
The following additional features to VRS UNIX Release 2.1 will be provided to
ACCESS Radiology Corporation in the form of either a patch to VRS UNIX Release
2.1 or a new version VRS UNIX Release 2.2.
================================================================================
FEATURE DESCRIPTION
- --------------------------------------------------------------------------------
[*THE [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED
CONFIDENTIAL AND FILED SEPARATELY WITH THE SECURITIES AND
PORTION HAS EXCHANGE COMMISSION.]
BEEN OMITTED
AND FILED
SEPARATELY
WITH THE
SECURITIES
AND EXCHANGE
COMMISSION.]
- --------------------------------------------------------------------------------
[*THE [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED
CONFIDENTIAL AND FILED SEPARATELY WITH THE SECURITIES AND
PORTION HAS EXCHANGE COMMISSION.]
BEEN OMITTED
AND FILED
SEPARATELY
WITH THE
SECURITIES
AND EXCHANGE
COMMISSION.]
- --------------------------------------------------------------------------------
CONFIDENTIAL TREATMENT
-28-
<PAGE>
- --------------------------------------------------------------------------------
[*THE [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED
CONFIDENTIAL AND FILED SEPARATELY WITH THE SECURITIES AND
PORTION HAS EXCHANGE COMMISSION.]
BEEN OMITTED
AND FILED
SEPARATELY
WITH THE
SECURITIES
AND EXCHANGE
COMMISSION.]
- --------------------------------------------------------------------------------
[*THE [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED
CONFIDENTIAL AND FILED SEPARATELY WITH THE SECURITIES AND
PORTION HAS EXCHANGE COMMISSION.]
BEEN OMITTED
AND FILED
SEPARATELY
WITH THE
SECURITIES
AND EXCHANGE
COMMISSION.]
================================================================================
CONFIDENTIAL TREATMENT
-29-
<PAGE>
VRS-NT 200 RELEASE 1.1
ACCESS RADIOLOGY CORPORATION ADDITIONAL FEATURES TO VRS-NT 200
RELEASE 1.0
The following features, in addition to those already provided in VRS-NT 200
Release 1.0, will be provided to ACCESS Radiology Corporation in VRS-NT 200
Release 1.1.
================================================================================
FEATURE DESCRIPTION
- --------------------------------------------------------------------------------
[*THE [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED
CONFIDENTIAL AND FILED SEPARATELY WITH THE SECURITIES AND
PORTION HAS EXCHANGE COMMISSION.]
BEEN OMITTED
AND FILED
SEPARATELY
WITH THE
SECURITIES
AND EXCHANGE
COMMISSION.]
- --------------------------------------------------------------------------------
[*THE [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED
CONFIDENTIAL AND FILED SEPARATELY WITH THE SECURITIES AND
PORTION HAS EXCHANGE COMMISSION.]
BEEN OMITTED
AND FILED
SEPARATELY
WITH THE
SECURITIES
AND EXCHANGE
COMMISSION.]
- --------------------------------------------------------------------------------
[*THE [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED
CONFIDENTIAL AND FILED SEPARATELY WITH THE SECURITIES AND
PORTION HAS EXCHANGE COMMISSION.]
BEEN OMITTED
AND FILED
SEPARATELY
WITH THE
SECURITIES
AND EXCHANGE
COMMISSION.]
- --------------------------------------------------------------------------------
CONFIDENTIAL TREATMENT
-30-
<PAGE>
- --------------------------------------------------------------------------------
[*THE [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED
CONFIDENTIAL AND FILED SEPARATELY WITH THE SECURITIES AND
PORTION HAS EXCHANGE COMMISSION.]
BEEN OMITTED
AND FILED
SEPARATELY
WITH THE
SECURITIES
AND EXCHANGE
COMMISSION.]
- --------------------------------------------------------------------------------
[*THE [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED
CONFIDENTIAL AND FILED SEPARATELY WITH THE SECURITIES AND
PORTION HAS EXCHANGE COMMISSION.]
BEEN OMITTED
AND FILED
SEPARATELY
WITH THE
SECURITIES
AND EXCHANGE
COMMISSION.]
================================================================================
CONFIDENTIAL TREATMENT
-31-
<PAGE>
VRS-NT SOFTWARE
ACCESS RADIOLOGY CORPORATION ADDITIONAL FEATURES TO VRS-NT SOFTWARE
The following features, in addition to those stated in VRS NT marketing
Specifications Document Revision 12, #1997-00295, will be provided to ACCESS
Radiology Corporation.
================================================================================
FEATURE DESCRIPTION
- --------------------------------------------------------------------------------
[*THE [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED
CONFIDENTIAL AND FILED SEPARATELY WITH THE SECURITIES AND
PORTION HAS EXCHANGE COMMISSION.]
BEEN OMITTED
AND FILED
SEPARATELY
WITH THE
SECURITIES
AND EXCHANGE
COMMISSION.]
- --------------------------------------------------------------------------------
[*THE [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED
CONFIDENTIAL AND FILED SEPARATELY WITH THE SECURITIES AND
PORTION HAS EXCHANGE COMMISSION.]
BEEN OMITTED
AND FILED
SEPARATELY
WITH THE
SECURITIES
AND EXCHANGE
COMMISSION.]
- --------------------------------------------------------------------------------
[*THE [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED
CONFIDENTIAL AND FILED SEPARATELY WITH THE SECURITIES AND
PORTION HAS EXCHANGE COMMISSION.]
BEEN OMITTED
AND FILED
SEPARATELY
WITH THE
SECURITIES
AND EXCHANGE
COMMISSION.]
================================================================================
CONFIDENTIAL TREATMENT
-32-
<PAGE>
SCHEDULE II
-----------
STANDARD FORM SUBLICENSING PROVISIONS
-------------------------------------
Each customer agreement shall provide:
1. That the customer is granted a non-exclusive, nontransferable
license to operate, at the location specified in the customer agreement and for
its own business and professional purposes only, a copy or copies of the object
code form of the software.
2. That title, ownership rights, intellectual property rights and all
other rights associated with the software and applicable under law shall remain
vested in ISG.
3. That the obligations (if any) of ISG are limited to those
expressly stated in the sublicense, are in lieu of all other warranties or
conditions expressed or implied, including without limitation warranties of
merchantability or fitness for a particular use, or those arising by statute or
otherwise in law, or from a course of dealing or usage of trade.
4. That the liability of ISG under any theory of law or equity is
limited to money damages not to exceed the total amount paid by the customer for
ISG Devices.
5. That ISG shall have no liability to the customer with respect to
any claim of patent or copyright infringement to the extent that such claim is
based upon (i) the combination of licensed software with machines, systems or
devices other than those included in the ISG Devices sold to the customer, (ii)
modification of the licensed software by the customer, or (iii) use of the
licensed software not in accordance with its specifications.
6. That the customer shall:
(a) maintain the software in confidence, utilizing at least the
same degree of care used by the customer to protect its own
confidential information;
(b) not transfer the software to any other party, except in
connection with a sale of the ISG Device in which it is
installed;
CONFIDENTIAL TREATMENT
-33-
<PAGE>
(c) not attempt to produce any work derived from the software
or modify the software in any manner whatsoever;
(d) not attempt to decode, decipher, decompile, decompose,
disassemble, reverse engineer or otherwise render the
software to a human-perceivable form; and
(e) not attempt to defeat the mechanisms which control the
number of copies of the software which are allowed to
operate simultaneously during any particular time period.
7. That the customer acknowledges that, although the software may be
used in certain surgical, medical life support or other applications of a
similar degree of potential hazard, the software is not designed or intended to
substitute for or override the training, experience and knowledge of end users.
8. That the customer acknowledges that ISG Devices are resold to the
customer by agreement of ISG, and that the customer is agreeing to the foregoing
provisions in consideration of ISG making the ISG Devices available under such
agreement.
CONFIDENTIAL TREATMENT
-34-
<PAGE>
CONFIDENTIAL TREATMENT EXHIBIT 10.24
AMENDMENT NO. 1
TO
AMENDED AND RESTATED RESELLER AGREEMENT
This is Amendment No. 1, dated as of April 30, 1998, to the Amended and
Restated Reseller Agreement (the "Reseller Agreement") dated as of May 30, 1997
between ACCESS Radiology Corporation ("ACCESS") and ISG Technologies, Inc.
("ISG").
WHEREAS, ACCESS and ISG wish to amend the Reseller Agreement to reflect the
replacement of the VRS NT 200 Product with the VRS 300 Product, and to address
certain related matters,
NOW, THEREFORE, the parties agree as follows:
1. Definitions. Capitalized terms used herein and not otherwise defined
-----------
have the meanings set forth in the Reseller Agreement. Upon the effectiveness of
this Amendment No. 1, references in the Reseller Agreement to "this Agreement",
"hereof", "hereunder", and the like shall refer to the Reseller Agreement as
amended by this Amendment No. 1. The reference to "the VRS NT 200 application"
in section 1.1.8 of the definitions is changed to "the VRS 300 Product". The
following new definition is added to Section 1.1 of the Reseller Agreement:
1.1.2A "Execution Date" means the later of (i) April 30, 1998 and
(ii) the thirtieth day after GMA Release of the VRS 300 Product.
2. Schedules. The pricing for VRS-NT-200 (v1.1) appearing in Pricing Table
---------
1 and Pricing Table 2 of Schedule I shall cease to apply as of the effectiveness
of this Amendment No. 1. The Base Unit price for the VRS 300 Product is [*THE
CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.] There are no options for the VRS 300 Product. The
portion of Schedule I titled "VRS-NT 200 Release 1.1" and the Marketing
Specifications Document for the VRS NT 200 Product included in Schedule I are
replaced in their entirety by the pages attached to this Amendment No. 1.
Schedule IIA attached to this Amendment No. 1 is hereby made a Schedule to the
Reseller Agreement.
CONFIDENTIAL TREATMENT
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<PAGE>
3. Amendment of Section 4.1.2. Section 4.1.2 of the Reseller Agreement is
---------------------------
amended to read in its entirety as follows:
4.1.2 [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
4. Addition of Section 4.1.5. A new Section 4.1.5 is added to the Reseller
---------------------------
Agreement to read as follows:
4.1.5 Prior to the Execution Date, ACCESS has paid an aggregate of
[*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.] in prepaid license fees for the VRS NT
200 Product. Following the Execution Date, any balance of this prepayment
not applied to license fees for installed copies of the VRS NT 200 Product
will be applied on a first dollar basis to license fees payable hereunder
for the VRS 300 Product. This prepayment and its application will be
accounted for separately from the accounting for the application of
Committed Payments under Section 4.2. The balance of this prepayment
remaining as of April 30, 1998 is [*THE CONFIDENTIAL PORTION HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
A detailed calculation of this remaining balance is set forth in Schedule
IIA.
5. Amendment of Section 4.2.3. The last paragraph of Section 4.2.3 is
---------------------------
deleted.
6. Amendment of Section 5.1.1. A new sentence is added to Section 5.1.1, to
---------------------------
read as follows:
Materials provided under this Section will include materials for the
upgrade of VRS NT 200 Products installed for existing users to the VRS 300
Product. ISG will provide a CD-ROM for each copy of the VRS 300 Product to
be installed (including upgrades from the VRS 200), or in the alternative
CONFIDENTIAL TREATMENT
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<PAGE>
will enable ACCESS to produce such CD-ROMS from an original supplied by
ISG.
7. Addition of Section 5.5. A New Section 5.5 is added to the Reseller
------------------------
Agreement, to read as follows:
5.5 Notwithstanding anything else contained in this agreement, ISG
shall have no responsibility for support of the VRS NT 200 Product after
the Execution Date.
8. General. This Amendment No. 1 will become effective as of April 30, 1998
-------
when executed and delivered by both parties. This Amendment No. 1 may be
executed in counterparts, all of which taken together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
first date set forth above.
ACCESS RADIOLOGY CORPORATION ISG TECHNOLOGIES, INC.
By:/s/ David Lang By: /s/ Peter Bak
---------------------------- ------------------------
Name: David Lang Name: Peter Bak
Title: Vice President of Title: Vice President Business
Operations of Product Development
CONFIDENTIAL TREATMENT
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<PAGE>
CONFIDENTIALTREATMENT EXHIBIT 10.25
[ISG LOGO]
December 29, 1998
Mr. Howard Pinsky
Vice President of Technology
Access Radiology Corporation
25 Hartwell Avenue
Lexington, MA 02173
Dear Howard:
This letter outlines the general terms and conditions around which ISG will
agree to provide the VRS 300 Workstation software to Access Radiology at a
reduced cost. This letter, upon your signature, will constitute an amendment to
the Reseller Agreement dated May 30, 1997. All other terms and conditions of
the Reseller Agreement shall continue to apply.
1) ACCESS will purchase [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.] copies of the VRS 300
licensed work for a total cost of [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.] A purchase
order must be received by [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.] for the full amount.
ISG will invoice ACCESS for the full amount, with payment terms of one quarter
the total amount due on the first day of each quarter of [*THE CONFIDENTIAL
PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.] commencing [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.] Access will make the
VRS 300 software available as part of a larger product offering. Access may, at
ACCESS's option, during the calendar year of [*THE CONFIDENTIAL PORTION HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.],
purchase and pay for additional copies of software for [*THE CONFIDENTIAL
PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.] per copy after the [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.] copies have been
purchased.
2) Access agrees to assist ISG with obtaining and implementing Aware's wavelet
compression, and ISG plans to make it available for use on all products and
components developed and owned by ISG, including but not limited to the IAP
Tool Kit. Specifically, ACCESS will release AWARE, Inc. of competitive
restrictions on AWARE products (that are the sole property of AWARE, Inc.)
to ISG, so that ISG can use the AWARE.DLL and AWARE plug-ins in their
products as defined above. Furthermore:
i) ISG may ask Access to provide advice to ISG in matters relating to
ISG's obtaining FDA market clearance; although ACCESS in no way
warrants any specific legal expertise in FDA regulatory matters. If
appropriate, ACCESS will allow ISG to take advantage of the Access's
FDA clearance of the Aware Compression/Decompression solution through
either
CONFIDENTIAL TREATMENT
<PAGE>
reference of substantial equivalence, or through re-packaging and re-
licensing of ACCESS software components.
ii) Access and ISG will work cooperatively in developing decompression
mechanisms that provide for optimal performance in receiving and
displaying compressed images.
iii) [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.]
3) Access also agrees to have the ISG name and logo included in conjunction
with the Access "Splash Screen," when the software is started. The
software copyrights will also make appropriate reference to ISG and contain
the ISG logo in the "About VR" window under the Help Menu. ISG requests
that a copy of the software be sent to ISG, so that ISG, can verify that
the correct information and logo are incorporated into the software before
it is shipped.
4) Access agrees to continue to promote the ISG workstation products in sales
to customers that have installed the VRS 300 and Access Servers.
5) ISG will provide Access with a method of accessing the ISG "Install Wizard"
to allow Access to modify the program to suit its specific installation
requirements. ISG acknowledges that ACCESS plans to provide VRS 300 (as a
part of an ACCESS solutions package) as software only, and plans to use the
Install Wizard to accomplish this. Further, ACCESS plans to run software on
operating systems certified by ISG, including Windows 95 and Windows NT.ISG
will work toward releasing the VRS 300 as quickly as possible under Windows
98.
6) The current implementation of the VR WIN suite of products does not support
different configuration for GDI and Diagnostic Quality (DICOM) printing. If
the print feature is enabled, both GDI (postscript) and DICOM printing are
available. For the purpose of this agreement:
a) Access Radiology may purchase as an option, on any VRS 300 license
covered by this agreement, the full print feature. Access must accept
legal responsibility for enforcing with their end users that the
software's additional print features, beyond postscript, are not
activated. If future ISG VR WIN releases separate the DICOM and the
postscript print features, the new version may be substituted for the
full version. The cost of this option is [*THE CONFIDENTIAL PORTION HAS
BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.] per license.
B) [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.]
CONFIDENTIAL TREATMENT
<PAGE>
7) ACCESS plans to add ACCESS developed application software to the ISG VRS
products to improve functionality as it relates to end-user workflow. To
accomplish this, ISG will support the VRS COM Interface Specification V3.0
for the VRS 300 product, as well as all other VRS Windows (non-UNIX) based
products, and will support the extensions and modifications of the
specification on future versions of the VRS product. In addition, ISG will
make reasonable efforts to modify the above interface Specification as
requirements and changes are specified by ACCESS. The VRS COM Interface (VR
Server/Broker) consist of a Development Tool Kit priced at [*THE
CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.] and run time licenses at [*THE
CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.] per license for the VRS 300 and [*THE
CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.] per license for all other VR WIN
models. The Development Tool Kit will be purchased as part of agreement and
the run time license can be purchased as an option at any time.
8) In addition, ACCESS plans to include additional applications (report
viewing and network diagnostics) available through the VRS 300 product.
Currently using the default configuration with the small toolbar there is
no way to access reports. This can be modified by changing the registry to
turn on the next size toolbar to get access to reports (this is because
changing to the next size toolbar brings up the study bar which is where
the report button is). This is not optimum. ISG will therefore add either a
report button to the toolbar and/or have report accessible from the menu
bars.
Please indicate your agreement to these general terms and conditions with your
signature below.
- --------------------------------------------------------------------------------
Agreed to this 31st day of December 1998.
ISG TECHNOLOGIES INC. ACCESS RADIOLOGY CORPORATION
By: /s/ Maxwell Rutherford By: /s/ Howard Pinsky
------------------------------ -------------------------------
Name: Maxwell Rutherford Name: Howard Pinsky
---------------------------- -----------------------------
Title: President & Chief Operating Title: Vice President of Technology
--------------------------- ----------------------------
Officer
CONFIDENTIAL TREATMENT
<PAGE>
CONFIDENTIAL TREATMENT EXHIBIT 10.27
OEM DEVELOPMENT SOFTWARE AGREEMENT
This agreement is made as of the 9th day of November, 1995, between MITRA
IMAGING INCORPORATED, a corporation incorporated under the laws of the Province
of Ontario, Canada (hereinafter called "Mitra"), and ACCESS RADIOLOGY
CORPORATION, a corporation incorporated in the State of Delaware (hereinafter
called "ACCESS").
B A C K G R O U N D
1. ACCESS desires to develop application-specific software using software
products marketed by Mitra and to distribute Mitra Software to third party end
users (hereinafter called "Customers"); and
2. Mitra has agreed to license ACCESS to do so,
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth the parties hereto agree as follows:
1. Interpretation.
1.1 In this Agreement, each of the following terms has the meaning
set out below:
1.1.1 "DAP for Windows" means all or any portion of the
computer programs in object code format, described as
such in the user's manual entitled "Mitra Imaging
Incorporated DICOM Application Platform Revision 1.0"
dated April 29, 1995, and conforming to the
specifications set forth therein.
1.1.2 "DAP for UNIX" means all or any portion of the computer
programs in object code format, described as such in the
user's manual entitled "Mitra Imaging Incorporated DICOM
Application Platform Revision 1.0" dated April 29,
1995, and conforming to the specifications set forth
therein.
1.1.3 "FDA" means the United States Food and Drug
Administration.
1.1.4 "Food and Drug Art" means the United States Pure Food
and Drug Act, as amended from time to time.
CONFIDENTIAL TREATMENT
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<PAGE>
1.1.5 "Lumiscan" means all or any portion of the computer
programs in object code format, described in the User's
Manual for Lumisys DICOM 3.0 Tookit Version 0-4.2 dated
August 3, 1995, and conforming to the specifications set
forth therein.
1.1.6 "Mitra Software" means all or any portion of DAP for
Windows, DAP for UNIX, Lumiscan and the server software.
1.1.7 "Server Software" means all or any portion of the
computer programs in object code format, listed on
Schedule A and conforming to the specifications set
forth therein.
1.2 Entire Agreement. This Agreement constitutes the entire
agreement between the parties pertaining to the subject matter
hereof and supersedes all prior agreements, understandings,
negotiations and discussions, whether oral or written, of the
parties pertaining to such subject matter.
1.3 Currency. Unless otherwise indicated, all dollar amounts
referred to in this Agreement are in U.S. funds.
1.4 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of
Massachusetts.
2. Grant of Rights.
2.1 Effective upon execution of this Agreement, Mitra hereby
appoints ACCESS a non-exclusive reseller of Mitra Software
products and grants to ACCESS the following nonexclusive rights:
2.1.1 The right to use DAP for Windows and DAP for UNIX to
develop application-specific software and to sublicense
such software incorporated in such ACCESS-developed
software to ACCESS customers in the regular course of
business;
2.1.2 The right to include copies of the Lumiscan and Server
Software in software or devices made available by ACCESS
to its customers and to sublicense Lumiscan and Server
Software included in such software or devices to ACCESS
customers in the regular course of business; and
2.1.3 The right to use copies of the Mitra Software for
internal purposes of ACCESS, including software
development, demonstration,
CONFIDENTIAL TREATMENT
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<PAGE>
support of ACCESS customers and processing of data in
the regular course of ACCESS's business.
3. Customer License Agreements.
3.1 ACCESS shall develop standard form customer sublicensing
provisions acceptable to Mitra for use with Mitra Software. No
customer shall receive any Mitra Software unless such customer
shall have signed an agreement containing the standard form
customer sublicensing provisions.
3.2 Each customer agreement shall set out the name and address of
the customer and the identity and location of the devices on
which the customer is licensed to use a copy of Mitra Software,
and shall include standard form customer sublicensing provisions
which provide:
3.2.1 that only a personal, non-transferable and non-exclusive
right to use each copy of Mitra Software solely for the
customer's business or professional purposes is granted
to the customer;
3.2.2 that no title to the Mitra Software is transferred to
the customer; and
3.2.3 that the customer shall not transfer, provide or
disclose Mitra Software to any other third party.
3.3 ACCESS shall assign a unique internal number to each sublicense
granted to a customer and shall place this number clearly in the
customer agreement.
3.4 ACCESS shall use reasonable efforts to all the licensing
provisions of customer agreements.
3.5 ACCESS shall demonstrate to Mitra that its software applications
that include Mitra Software have sufficient mechanisms for
tracking usage and preventing unauthorized copying. Without this
ACCESS is required to distribute a copy-protected version of the
Mitra Software administrated by Mitra at installation.
4. License Fees.
4.1 ACCESS agrees to pay to Mitra the following license fees:
CONFIDENTIAL TREATMENT
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<PAGE>
4.1.1 A [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
for [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
and a [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.] for [*THE CONFIDENTIAL PORTION HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.]
4.1.2 A [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
for each copy of [*THE CONFIDENTIAL PORTION HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.] which is sublicensed to an ACCESS
customer.
4.1.3 A [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
for each copy of any application incorporating [*THE
CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
which is sublicensed to an ACCESS customer; provided that
if any copy of such application software replaces a copy
of [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
for which a license fee has previously been paid pursuant
to Section 4.1.2, then ACCESS shall only be required to
pay an upgrade fee of [*THE CONFIDENTIAL PORTION HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.] with respect to such replacement
copy.
4.1.4 A [*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
for each copy of software incorporating [*THE
CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
which is sublicensed to an ACCESS customer. Copies of
Server Software may in such application software at [*THE
CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
4.2 License and upgrade fees under Sections 4.1.2 through 4.1.4
shall be payable quarterly within 30 days of the end of each
calendar quarter for sublicenses granted to ACCESS Customers
during such quarter. Each payment of such license fees shall be
accompanied by a statement setting forth in reasonable detail
the calculation of the license fees payable. License fees do not
include any customs or import duties, or sales, use or similar
taxes, which shall be the responsibility of ACCESS.
4.3 ACCESS shall keep full, clear and accurate records of the number
of copies of Mitra Software furnished by it to customers or used
by it internally, and the identity and location of each customer
to whom Mitra Software is furnished by ACCESS.
4.4 Mitra shall have the right to make an examination and audit not
more than twice per calendar year, of all records kept pursuant
to Section 4.3.
5. Support.
5.1 Mitra will supply the following materials to ACCESS:
5.1.1 One copy of the latest object code or executable code
for each item of Mitra Software, with upgrades as
provided in Section 5.2. If a
CONFIDENTIAL TREATMENT
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<PAGE>
copy of the Mitra Software initially provided is lost,
damaged or destroyed, Mitra will provide at cost a
replacement copy, which may be a more recent release or
version; and
5.1.2 One copy of documentation in English and documentation
updates as they are prepared and released which, when
taken together, constitute complete documentation of the
Mitra Software complying with Good Manufacturing
Practices as defined in the Food and Drug Act and the
rules, regulations and orders of the FDA thereunder.
5.2 For so long as ACCESS is current in the payment of support costs
as provided in Section 5.3, Mitra warrants to ACCESS that the
Mitra Software will perform in accordance with its
specifications. Mitra will use its best efforts to ensure if
with a such performance and, corrected version of the Mitra
Software as soon as practical after Mitra is notified of any
non-conformity. Mitra will provide generally available upgrades,
maintenance releases, bug fixes and work-arounds at no charge
(except as provided in Section 5.2). Mitra will support the
version of DAP for Windows used by ACCESS as of the date of this
Agreement only until ACCESS upgrades to the next available
version, which ACCESS will do as soon as practicable.
5.3 ACCESS will pay to Mitra aggregate annual support costs of [*THE
CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.] per year with respect
to Mitra Software. Support costs will be payable in advance on
the execution of this Agreement and each anniversary thereof
during the term of this Agreement.
5.4 Notwithstanding Section 5.2, if an upgrade of DAP for Windows
compatible with Windows 95 or Windows NT shall become available
and ACCESS shall request such an upgrade from Mitra, then upon
delivery of such an upgraded version, ACCESS shall pay to Mitra
a one time upgrade fee. This fee shall be equal to [*THE
CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.]
Following delivery of any such upgraded versions, the term "DAP
for Windows" as used in this Agreement shall be deemed to
include such upgraded version for all purposes, it being
understood that the obligations
CONFIDENTIAL TREATMENT
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<PAGE>
of ACCESS and Mitra with respect to the previously existing
version of DAP for Windows shall also remain in full force and
effect.
6. Additional Covenants.
6.1 ACCESS shall include in all copies of Mitra Software made by
ACCESS any copyright notice as furnished by Mitra to ACCESS.
6.2 Each party hereto covenants that it shall keep confidential any
confidential information relating to the other party's business,
finances, marketing and technology, to which it obtains access
(including without limitation DAP for windows, DAP for UNIX and
the pricing and other terms of this Agreement) and that it shall
take all reasonable precautions to protect such confidential
information of the other party or any part thereof from any use,
disclosure or copying except as expressly authorized by this
Agreement.
6.3 ACCESS acknowledges that Mitra Software and all related
information and documentation are the property of Mitra and/or
third parties from whom Mitra has acquired certain rights under
license.
6.4 ACCESS shall indemnify and save harmless Mitra from and against
any and all liabilities, damages, costs or expenses awarded
against or incurred or suffered by Mitra arising out of any
action or proceeding commenced or maintained by any third party
in respect of any acts or omissions of ACCESS in marketing or
distributing the Mitra Software.
7. Warranties.
7.1 Mitra warrants and agrees that:
7.1.1 Mitra has the full authority to grant the license and
rights set forth in this Agreement.
7.1.2 To the best of Mitra's knowledge, the documentation and
code of the Mitra Software have not been published under
circumstances which have caused loss of copyright
therein, and to the best of Mitra's knowledge, the
documentation and code of the Mitra Software do not
infringe upon any copyright or other proprietary right
of any third party.
CONFIDENTIAL TREATMENT
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<PAGE>
7.1.3 Mitra is not aware of any claim of infringement of any
copyright or other proprietary right having been made or
pending against Mitra relative to the documentation or
code of the Mitra Software.
7.1.4 Mitra will, at its expense, defend against, hold ACCESS
harmless from, and pay any final judgment against ACCESS
or any ACCESS customer arising out of any claim that any
Mitra Software infringed a copyright, a patent or a
trade secret provided that (i) ACCESS notifies Mitra in
writing of such claim or action, and (ii) Mitra has sole
control of the defense and settlement of such claim or
action. In defending against such claim or action, Mitra
may, at its option, agree to any settlement in which
Mitra shall either (1) procure for ACCESS and all ACCESS
customers the right to continue using the Mitra
Software; and (2) modify or replace the Mitra Software
so that it no longer infringes, to the extent that the
exercise of such option does not result in a material,
adverse change in the operational characteristics of the
Mitra Software, and equivalent functions and performance
provided by Mitra remain following implementation of
such option. If Mitra concludes in its judgment that
none of the foregoing options is reasonable, Mitra may
remove the Mitra Software and any other components
supplied by Mitra rendered unusable as a result of such
removal and pay to ACCESS all damages arising therefrom,
including damages incurred by reason of ACCESS's
inability to perform its obligations to ACCESS
customers, but without diminishing Mitra's obligations
under this Section 7.1.4. Each party shall promptly
notify the other in the event that it becomes aware of a
claim covered by this Section 7.1.
7.2 Mitra warrants and agrees that the Mitra Software, when properly
installed and configured, will meet all applicable standards of
the American College of Radiology for diagnostic images and is
appropriate for diagnostic radiological examinations, and Mitra
has no knowledge of existing problems which would cause the
Mitra Software to fail to comply with the foregoing warranty.
7.3 The express warranties set forth in Sections 5.21, 7.1 and 7.2
are the only warranties made by Mitra with respect to the Mitra
software and other services provided by Mitra. Mitra makes no
other warranties expressed or implied or arising by custom or
trade usage and specifically makes no warranty of
merchantability.
CONFIDENTIAL TREATMENT
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<PAGE>
8. Term and Termination.
8.1 This agreement shall have an initial term of three years,
subject to earlier termination as provided below.
8.2 If there shall be any material breach of this Agreement by
ACCESS which shall not be cured within 30 days of Mitra giving
written notice thereof to ACCESS, then at any time that such
breach shall be continuing Mitra may terminate this Agreement by
delivery of a separate written termination notice to ACCESS.
8.3 If there shall be any material breach of this Agreement by Mitra
which shall not be cured within 30 days of ACCESS giving notice
thereof to Mitra, then at any time that such breach shall be
continuing ACCESS may terminate this Agreement by delivery of a
separate written termination notice to Mitra.
8.4 If this Agreement shall be terminated under Section 8.2 or
Section 8.3, then:
8.4.1 ACCESS's right to develop application specific software
using Mitra Software and to furnish Mitra Software to
customers and to make copies of the Mitra Software shall
immediately terminate;
8.4.2 Mitra's maintenance and support obligations hereunder
shall immediately terminate;
8.4.3 ACCESS shall pay, within ten (10) days, all amounts
which have accrued to Mitra;
8.4.4 ACCESS shall immediately deliver the master copy of
Mitra Software and all other copies to Mitra at ACCESS's
expense; and
8.4.5 ACCESS shall provide a list of names and addresses of
customers who have entered into sublicenses with ACCESS
since the date of this Agreement.
8.5 Notwithstanding any termination or expiration of this Agreement,
any sublicense granted to an ACCESS customer prior to such
termination or expiration shall survive such termination or
expiration, and Sections 6.2, 6.3 and 7.1 shall survive any such
termination or expiration.
CONFIDENTIAL TREATMENT
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<PAGE>
8.6 The remedies set forth in Sections 8.1 through 8.5 shall not be
exclusive, but shall be in addition to any other remedies
available to either party at law or in equity.
9. General.
9.1 Mitra agrees for one year from the date of this Agreement not to
itself incorporate wavelet-based compression in its acquisition
software.
9.2 Assignment:
9.2.1 Subject to ACCESS's right to grant sublicenses
hereunder, ACCESS may not assign this Agreement or any
rights hereunder without the prior written consent of
Mitra, except that, without such consent and upon notice
to Mitra, Mitra may assign all of its rights hereunder
to a corporation or other legal entity that acquires
substantially all of ACCESS's assets or where ACCESS is
consolidated or merged but then only upon the express
assumption by such transferee or its successor of the
obligations set forth in this Agreement.
9.2.2 Mitra may not assign this Agreement or any rights
hereunder without the prior written consent of ACCESS,
except that, without such consent and upon notice to
ACCESS, Mitra may assign all of its rights hereunder to
a corporation or other legal entity that acquires
substantially all of Mitra's assets or where Mitra is
consolidated or merged, but then only upon the express
assumption by such transferee of its successor of the
obligations set forth in this Agreement.
9.2.3 This Agreement is binding upon, and inures to the
benefit of, the successors and permitted assigns of the
parties.
9.3 The waiver or failure of either party to exercise in any respect
any right provided for in this Agreement shall not be deemed a
waiver of any further or future right hereunder.
9.4 The headings used in this Agreement are for convenience of
reference only and are not to be used in interpreting the
provisions of this Agreement.
9.5 If any provision of this Agreement is invalid or unenforceable
in any particular case, such case shall not invalidate or render
unenforceable any
CONFIDENTIAL TREATMENT
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<PAGE>
other part of this Agreement. The Agreement shall simply be
construed as not containing the particular provision or
provisions held to be invalid or unenforceable to the extent of
the particular case, and the rights and obligations of the
parties hereto shall be construed accordingly.
9.6 This Agreement is effective when executed by both parties. This
Agreement may be executed in counterparts, each of which shall
constitute one and the same instrument.
9.7 Notices:
All notices provided for in this Agreement shall be in writing
or facsimile, addressed to the appropriate party at the
respective address set forth below or to such other then-current
address as is specified by notice, as follows:
(a) to Mitra: Mitra Imaging Inc.
115 Randall Drive
Waterloo, Ontario N2V 1C5 CANADA
Facsimile: (519) 746-3745
Attention: Eric Peterson
(b) to ACCESS: ACCESS Radiology Corporation
Bay Colony Corporate Center
950 Winter Street Waltham, MA 02154
Facsimile: (617) 890-0110
Attention: Howard Pinsky
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the first date set forth above.
ACCESS RADIOLOGY CORPORATION MITRA IMAGING INCORPORATED
By: /s/ Howard Pinsky By: /s/ Eric Petersen
----------------------------- ----------------------------
Name: Howard Pinsky Name: Eric Petersen
Vice President of Technology President
----------------------------- ----------------------------
Title Title
CONFIDENTIAL TREATMENT
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<PAGE>
SCHEDULE A
----------
The MITRA TTY interface is intended to provide end-user functionality to a set
of functions employing a VT style interface. The functionality includes:
. the capability to manually delete a stud
. the capability to set the autopurge functions, including the software
which executes the autopurge of patient studies
. the capability to protect a study from autopurge and delete
. the ability to set up DICOM Query/Retrieval Class nodes
. the ability to manually route a study to a DICOM node demographics
. the ability of the above sorted by date and name
. any additional functionality provided in the interface not listed
above
The interface is relevant to the UNIX implementation of the DAP database.
CONFIDENTIAL TREATMENT
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<PAGE>
CONFIDENTIAL TREATMENT EXHIBIT 10.28
AMENDMENT
TO
OEM DEVELOPMENT SOFTWARE AGREEMENT
This Amendment to OEM Development Software Agreement is made as of May 20,
1997, between MITRA Imaging Incorporated ("MITRA"), and ACCESS Radiology
Corporation ("ACCESS").
ACCESS and MITRA are parties to an OEM Development Software Agreement (the
"OEM Agreement") dated as of November 9, 1995. ACCESS and Mitra wish to amend
the OEM Agreement as set forth below.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth the parties hereto agree as follows:
1. DEFINITIONS. Capitalized terms used herein and not otherwise defined
have the meanings set forth in the OEM Agreement. The term "DTK", for purposes
of this Agreement and the OEM Agreement, shall mean all or any portion of the
computer programs in object code format, described in Schedule B attached hereto
and conforming to the specifications set forth in Schedule B. The term "Mitra
Software" is amended to include DTK.
2. AMENDMENT OF SECTION 2.1.1. Section 2.2.1 is amended to read as follows:
2.2.1. The right to use DAP for Windows, DAP for UNIX and
DTK to develop application-specific software and to sublicense
such software incorporated in such ACCESS-developed software to
ACCESS customers in the regular course of business.
3. AMENDMENT OF SECTION 3.1. Section 3.1. is amended to read as follows:
3.1 ACCESS shall develop standard form customer licensing provisions
acceptable to Mitra for use with Mitra Software. No customer shall receive
any Mitra Software unless such customer shall have signed an Agreement
(with ACCESS or with a reseller of ACCESS Systems authorized by ACCESS)
containing the standard form customer sublicensing provisions.
Confidential Treatment
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<PAGE>
4. ADDITION OF SECTION 3.6. Section 3 is amended by adding the following
Section 3.6:
3.6 Notwithstanding Section 3.2 or any other provision of this
Agreement, Mitra Software may be licensed to the Government of the United
States of America, or an agency or instrumentality thereof, under an
Agreement containing software licensing terms generally used by the United
States Government (or the agency or instrumentality to which the Mitra
Software is licensed) for procurement of commercial software.
5. ADDITION OF SECTION 4.1.5. Section 4.1 is amended by adding the
following Section 4.1.5:
4.1.5. A License fee of [*THE CONFIDENTIAL PORTION HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.] for each copy of application software incorporating [*THE
CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.] which is sublicensed to an Access
customer.
6. AMENDMENT OF SECTION 8.1. Section 8.1 is amended to read as follows:
8.1. This Agreement shall have an initial term ending on December 31,
2001, subject to earlier termination as provided below.
7. COUNTERPARTS; EFFECTIVENESS. This Amendment shall become effective when
executed by MITRA and ACCESS. This Amendment may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. Upon the effectiveness of this
Agreement, all references in the OEM Agreement to the "Agreement", "hereof",
"hereunder" and similar references shall be deemed to refer to the OEM Agreement
as amended hereby. Except as expressly amended hereby, all terms of the OEM
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
ACCESS RADIOLOGY CORPORATION MITRA IMAGING INCORPORATED
By: /s/ Howard Pinsky By: /s/ Eric Petersen
---------------------------- ---------------------------
Name: Howard Pinsky Name: Eric Petersen
Vice President of Technology President
---------------------------- ---------------------------
Title: Title:
Confidential Treatment
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<PAGE>
CONFIDENTIAL TREATMENT EXHIBIT 10.29
AMENDMENT TO OEM DEVELOPMENT SOFTWARE AGREEMENT
This Amendment to OEM Development Software Agreement is made as of 4/28/99
between Mitra Imaging Inc. ("MITRA") and ACCESS Radiology Corporation
("ACCESS").
ACCESS and MITRA are parties to an OEM Development Software Agreement dated as
of November 9, 1995 and a subsequent Amendment dated May 20, 1997 ("the OEM
Agreement"). ACCESS and MITRA wish to amend the OEM Agreement as set forth
below.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth
the parties hereto agree as follows:
1. ADDITION OF SECTION 4.1.5 Section 4 is amended by adding the following
item:
MITRA agrees to offer and ACCESS aggrees to accept a [*THE CONFIDENTIAL PORTION
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]
The license fee paid under this section is for any combination of DTK for
Windows and DTK for UNIX licenses that are incorporated into each copy of
application software by ACCESS, for which the total number of licenses used is
three hundred(300).
Upon execution of this Amendment, MITRA will invoice ACCESS in the amount of
[*THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.] (US funds). ACCESS will issue payment of
this invoice within thirty days of the receipt of the invoice.
ACCESS agrees to continue reporting license usage on a monthly basis for the
period beginning December 1, 1998.
If MITRA terminates this agreement in accordance with Section 8.2 of the
Agreement, MITRA will reimburse ACCESS an amount equal to the value of the
prepaid licenses that are unreported as of the termination date.
Confidential Treatment
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<PAGE>
2. AMENDMENT OF SECTION 8.1 Section 8.1 is amended to read as follows:
8.1 This Agreement shall have an initial term ending on December 31, 2004,
subject to earlier termination as provided below.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
ACCESS RADIOLOGY CORPORATION MITRA IMAGING INC.
BY: /s/ By: /s/
------------------------------ ---------------------------------
Name Name
Title Title
Confidential Treatment
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<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated March 22, 1999, except
for the last paragraphs of Notes 7 and 8 which are as of September 16, 1999,
relating to the financial statements of eMed Technologies Corporation, which
appears in such Prospectus. We also consent to the application of such report
to the Financial Statement Schedule for the three years ended December 31, 1998
listed under Item 16(b) of this Registration Statement when such schedule is
read in conjunction with the financial statements referred to in our report.
The audits referred to in such report also included this schedule. We also
consent to the reference to us under the headings "Experts" in such Prospectus.
PricewaterhouseCoopers LLP
Boston, Massachusetts
September 28, 1999
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated August 9, 1999 relating
to the financial statements of E-Systems Medical Electronics (a division of
Raytheon E-Systems, Inc.) which appears in such Prospectus.
PricewaterhouseCoopers LLP
Boston, Massachusetts
September 28, 1999
