<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
______________________
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended Commission File
September 30, 1995 No. 0-9767
______________________
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2579751
(State or other jurisdiction of (IRS Employer
incorporation or organization) identification No.)
9162 Eton Ave, Chatsworth, California 91311
(Address of principal executive offices) (Zip Code)
Telephone Number: 818-709-1244
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----------- -----------
The number of shares of Common Stock of the registrant outstanding as of October
27, 1995 was 5,936,579
<PAGE>
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
INDEX TO FORM 10-Q
Three months and nine months ended September 30, 1995 and 1994
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
Balance Sheets. . . . . . . . . . . . . . . . . . . . . . . . . .2
Statements of Operations. . . . . . . . . . . . . . . . . . .3 & 4
Statements of Cash Flows. . . . . . . . . . . . . . . . . . . . .5
Notes to Financial Statements.. . . . . . . . . . . . . . . . . .6
ITEM 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . 12
PART II - OTHER INFORMATION
ITEM 1 - Legal proceedings . . . . . . . . . . . . . . . . . . 16
ITEM 6 - Exhibits and Reports on Form 8-K . . . . . . . . . . . 16
(a) Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . 16
(b) Report on Form 8-K . . . . . . . . . . . . . . . . . . . . 17
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
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<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31 September 30
A S S E T S 1994 1995
----------- ------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,406,284 $ 1,666,297
Short-term investments 2,256,062 4,697,770
Accounts receivable-trade, net of allowance for doubtful
accounts of $35,443 in 1994 and 1995 2,057,503 2,108,558
Accounts receivable-service contracts 313,144 531,243
Accounts receivable other 575,657 192,056
Inventories 1,773,889 2,645,867
Prepaid expenses and other current assets 179,306 160,703
---------- ----------
Total current assets 9,561,845 12,002,494
Property and equipment, at cost, net of accumulated
depreciation 447,250 677,026
Software development costs, net of accumulated
amortization of $625,816 in 1994 and $656,669 in 1995 40,623 185,803
Long term investments 1,200,000 100,000
Deferred tax asset -- 594,000
Other assets 878,666 2,644,415
---------- ----------
Total assets $ 12,128,384 $ 16,203,738
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 746,142 $ 757,563
Accrued expenses 879,899 821,835
Service contracts-deferred income 683,402 771,115
---------- ----------
Total current liabilities 2,309,443 2,350,513
Service contracts-deferred income 119,913 278,918
---------- ----------
Total liabilities 2,429,356 2,629,431
---------- ----------
Shareholders' equity:
Common stock, $.01 par value
Authorized: 15,600,000 shares
Outstanding: 4,990,067 in 1994
6,008,865 in 1995 49,901 60,089
Additional paid-in capital 26,619,692 32,609,313
Treasury stock (96,473 shares) (453,386) (453,386)
Unearned compensation (93,130) (74,657)
Deficit (16,424,049) (18,567,052)
Total shareholders' equity 9,699,028 13,574,307
---------- ----------
Total liabilities and shareholders' equity $ 12,128,384 $ 16,203,738
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three months ended September 30
-------------------------------
1994 1995
---- ----
<S> <C> <C>
Sales of workstations and related supplies $ 2,070,577 $ 2,332,665
Service contracts 558,073 620,086
Research and development contracts 192,384 156,569
---------- ---------
Net sales 2,821,034 3,109,320
---------- ---------
Cost of goods from workstations and supplies 818,379 1,004,921
Cost of goods from service contracts 498,004 352,177
Cost of research and development contracts 237,384 122,997
---------- ---------
Cost of goods sold 1,553,767 1,480,095
---------- ---------
Gross profit 1,267,267 1,629,225
Marketing and selling 465,472 580,371
General and administrative 355,079 407,864
Research and development 62,786 207,623
---------- ---------
Total 883,337 1,195,858
Operating income 383,930 433,367
Other income:
Interest income 48,521 68,755
Other income 20,081 16,899
---------- ---------
Income before provision for income taxes 452,532 519,021
Provision for income taxes 11,000 2,000
---------- ---------
Net income $ 441,532 $ 517,021
---------- ---------
---------- ---------
Earnings per share of common stock - $ .08 $ .08
---------- ---------
---------- ---------
Weighted average number of common shares and
common share equivalents outstanding for the period 5,346,984 6,248,100
---------- ---------
---------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30
------------------------------
1994 1995
---- ----
<S> <C> <C>
Sales from workstations and related supplies $ 5,232,321 $ 6,655,826
Service contracts1,551,0371,744,103
Research and development contracts 551,266 794,719
--------- ----------
Net sales 7,334,624 9,194,648
--------- ----------
Cost of goods from workstations and supplies 2,178,769 2,746,118
Cost of goods from service contracts 1,310,155 1,169,314
Cost of research and development contracts 686,266 883,710
--------- ----------
Cost of goods sold 4,175,190 4,799,142
--------- ----------
Gross profit 3,159,434 4,395,506
Marketing and selling 1,312,358 1,756,865
General and administrative 925,644 1,188,055
Research and development 222,255 373,600
Acquisition of in-process research and development -- 3,480,987
--------- ----------
Total 2,460,257 6,799,507
Operating income (loss) 699,177 (2,404,001)
Other income:
Interest income 113,647 207,150
Other income 100,655 83,848
Income (loss) before provision for income taxes 913,479 (2,113,003)
Provision for income taxes 21,000 30,000
--------- ----------
Net income (loss) $ 892,479 $(2,143,003)
--------- ----------
--------- ----------
Earnings (loss) per share of common stock - $ .17 $ (.40)
--------- ----------
--------- ----------
Weighted average number of common shares and common
share equivalents outstanding for the period 5,314,773 5,405,526
--------- ----------
--------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30
------------------------------
1994 1995
---- ----
<S> <C> <C>
Cash flows from operations:
Net income (loss) $ 892,479 $(2,143,003)
Adjustments to reconcile net income (loss) to
net cash (used) provided by operations:
Depreciation and amortization 303,036 364,605
Common stock compensation 71,852 64,276
Write off of acquired in-process research and development -- 3,480,987
Changes in assets and liabilities:
Accounts receivable trade (129,817) (51,055)
Accounts receivable other 13,731 (196,953)
Service contracts, net 134,751 28,619
Inventories 349,175 (871,978)
Prepaid expenses and other current assets (143,748) 18,603
Other assets (54,760) (925,440)
Accounts payable (10,759) 11,421
Accrued expenses (184,272) (63,574)
----------- -----------
Net cash provided (used) by operations 1,241,668 (283,492)
----------- -----------
Cash flows used in investing activities:
Acquisition of property and equipment, (104,006) (433,273)
Software development costs (16,272) (176,033)
Increase in investments (1,571,832) (1,473,006)
----------- -----------
Net cash used in investing activities (1,692,110) (2,082,312)
----------- -----------
Cash flow from financing activities:
Issuance of common stock for cash 302,750 1,625,817
Principal payments received on
shareholders' notes receivable 6,667 --
Acquisition of treasury stock (55,393) --
----------- -----------
Net cash provided by financing activities 254,024 1,625,817
----------- -----------
Net decrease in cash and cash equivalents (196,418) (739,987)
Cash and cash equivalents at beginning of period 2,937,379 2,406,284
----------- -----------
Cash and cash equivalents at end of period $ 2,740,961 $ 1,666,297
----------- -----------
Supplemental schedule of non-cash financing activities:
Issuance of stock upon exercise of options $251,000
Issuance of warrants for LDA's secondary offering $385,285
Issuance of shares under Key Employee Stock Plan $95,642 $14,490
Issuance of warrants for asset purchase $213,750
Issuance of stock for exercise of call option to acquire LDA $2,977,344
Issuance of warrants in connection with PSI offering $790,000
Issuance of warrants in connection with a development
agreement $315,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. FORMATION AND BUSINESS OF THE COMPANY.
International Remote Imaging Systems, Inc. (IRIS) was incorporated in
California in 1979 and reincorporated during 1987 in Delaware. IRIS engages in
the business of developing, manufacturing and selling microscopical image
analyzing systems based on proprietary technology.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
In the opinion of IRIS, the accompanying unaudited financial statements
contain all normal recurring adjustments necessary to present fairly the
financial position of IRIS as of September 30, 1995 and the results of
operations and cash flows for the three and nine months ended September 30, 1995
and 1994. It is suggested that these financial statements be read in
conjunction with the financial statements and notes included in the latest IRIS
annual report on Form 10-K. Interim results are not necessarily indicative of
results for a full year.
Cash, Cash Equivalents and Short-term Investments:
Short-term investments principally include certificates of deposit and debt
instruments of the United States Government with initial maturities greater than
three months and less than one year. Long term investments represent
certificates of deposit and debt instruments with maturities greater than one
year. IRIS considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. IRIS places its cash
and investments with high credit-quality institutions and the United States
government. At times, these deposits may be in excess of the federally insured
limit.
Accounts Receivable:
IRIS sells predominantly to entities in the Healthcare Industry, primarily
domestic hospitals. IRIS grants uncollateralized credit to its customers.
Property and Equipment and Depreciation:
IRIS uses the straight-line method in computing depreciation over the
estimated useful lives of the assets which are: leasehold improvements
(remaining life of the lease); furniture and fixtures (3 years); machinery and
equipment (3 years); automotive equipment (5 years); and tools, dies, and molds
(3 years).
Costs of maintenance and repairs are charged to expense when incurred;
costs of renewals and betterments are capitalized. Upon sale or retirement, the
cost and related accumulated depreciation are eliminated from the respective
accounts and the resulting gain or loss is included in current income.
Software Development Costs:
IRIS capitalizes certain software development costs in accordance with
Statement of Financial Accounting Standards (SFAS) No. 86 -- "Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed" for new
products currently under development. IRIS amortizes software costs using the
greater of the straight line method over the estimated product life, or a
percentage of total units sold over the projected sales. Amortization of
software development costs was $30,853 and $81,000 for the nine months ended
September 30, 1995 and 1994, respectively.
Revenue Recognition:
IRIS recognizes revenue when the following conditions are all met: (i) an
authorized purchase order has been received in writing, (ii) customer credit
worthiness has been established and (iii) shipment of the product to the
customer designated location has occurred.
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<PAGE>
Warranties:
IRIS recognizes the full estimated cost of warranty expense, including
installation costs, at the time of shipment.
Research and Development Expenditures:
Except for certain software development costs required to be capitalized as
described above (see Software Development Costs), research and development
expenditures are charged to operations as incurred.
Development Contracts:
Revenues are recognized under development contracts in amounts equivalent
to development costs incurred on the related project plus, and where
contractually provided for, an amount to cover general and administrative costs
of the project.
Income Taxes:
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes" which
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statement
and the tax basis of assets and liabilities using enacted tax rates in effect
for the year in which the differences are expected to reverse.
3. MARKETABLE DEBT SECURITIES
On January 1, 1994, IRIS adopted SFAS No. 115 -- "Accounting for Certain
Investments in Debt and Equity Securities" and determined that all its debt
securities should be classified as "held-to-maturity" based on the Company's
intent and ability to hold those securities to maturity. Under this standard,
debt securities classified as "held-to-maturity" are carried at amortized cost.
At September 30, 1995, IRIS had the following debt securities included in
short-term and long-term investments:
<TABLE>
<CAPTION>
Amortized Expected Maturity and Value
Security Cost Within One Year One to Five Years
-------- --------- ---------------------------------------
<S> <C> <C> <C>
US Treasury Bills $ 3,977,770 $ 4,055,000 --
</TABLE>
4. INVENTORIES.
Inventories, with the exception of rental units, are carried at the lower
of first-in, first-out cost or market and are composed of the following:
<TABLE>
<CAPTION>
Inventory Class December 31, 1994 September 30, 1995
--------------- ----------------- ------------------
<S> <C> <C>
Finished goods $ 471,318 $ 468,391
Work-in-process 351,682 404,752
Raw materials 894,805 1,664,286
Rental units, net 56,084 108,438
---------- ----------
$1,773,889 $2,645,867
---------- ----------
---------- ----------
</TABLE>
-7-
<PAGE>
Rental units are carried at cost less accumulated depreciation of $153,549
at September 30, 1995 and $136,136 at December 31, 1994 computed using the
straight-line method. These units are classified as inventory because they are
available for sale at the conclusion of their lease terms, typically one year.
Future minimum rental revenue on noncancellable leases as of September 30, 1995
is $21,100, due during 1995.
5. PROPERTY AND EQUIPMENT.
Property and equipment is composed of the following :
<TABLE>
<CAPTION>
December 31, 1994 September 30, 1995
----------------- -------------------
<S> <C> <C>
Leasehold improvements $ 257,534 $ 281,547
Furniture and fixtures 80,532 108,018
Machinery and equipment 1,736,869 2,091,764
Tools, dies, and molds 135,859 210,707
----------- -----------
2,210,794 2,692,036
Less accumulated depreciation (1,763,544) (2,015,010)
----------- -----------
$ 447,250 $ 677,026
----------- -----------
----------- -----------
</TABLE>
At September 30, 1995 and December 31, 1994 totals include $1,466,735 and
$1,270,363 in fully depreciated assets which remain in service.
6. ACCRUED EXPENSES.
Accrued expenses are composed of the following:
<TABLE>
<CAPTION>
December 31, 1994 September 30, 1995
----------------- ------------------
<S> <C> <C>
Accrued bonus $ 206,451 $ 229,805
Accrued commission 55,133 31,879
Accrued payroll 56,074 --
Accrued vacation 109,999 124,281
Accrued professional fees 88,261 97,845
Accrued taxes 19,159 36,953
Accrued warranty expense 344,822 301,072
---------- ----------
$ 879,899 $ 821,835
---------- ----------
---------- ----------
</TABLE>
7. INCOME TAXES.
The income tax provision for the three and nine months ended September 30,
1995 and 1994 consists of estimated alternative minimum taxes and reflects the
utilization of net operating loss carryforwards for both federal and state
purposes.
At September 30, 1995, IRIS had federal net operating loss carryforwards of
$14 million which expire in fiscal years ending in 1997 through 2009.
As of September 30, 1995, IRIS had investment tax and R & D credit
carryforwards of approximately $72,000 expiring in fiscal years ending in 1997
through 2003.
8. LDA AND WARRANTS
In October of 1992, LDA Systems, Inc. (LDA) completed an initial public
offering of 107,750 units, each unit consisting of one share of callable LDA
common stock and ten IRIS warrants, each five (5) warrants entitling the holder
to purchase one share of IRIS common stock for $3.75. LDA received net proceeds
of $774,000 from the unit offering. These funds were used to engage IRIS to
conduct
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<PAGE>
research and development, clinical evaluations, and pre-market testing of The
White IRIS-TM- leukocyte differential analyzer, a proposed new product. IRIS
contributed approximately $500,000 to the development costs of The White IRIS-
TM- over a three-year period ending on June 12, 1995.
On April 25, 1994, LDA completed the sale of additional units to Corange
International Limited consisting of 85,714 shares of callable LDA common stock
and warrants to purchase and aggregate of 248,571 shares of IRIS common stock at
an exercise price of $3.75 per share. As part of the investment agreement,
Corange was granted the option to participate with IRIS and LDA in the joint
development, manufacture, and marketing of certain future hematology
instruments. This option expired October 20, 1995.
On June 12, 1995 IRIS completed the acquisition of LDA for approximately
498,000 shares of IRIS Common Stock. (See Note 13 below.) IRIS collected $1.6
million from the exercise of warrants in connection with both of LDA offerings.
All the warrants that were not exercised, expired on July 31, 1995.
9. CAPITAL STOCK.
Stock Issuances:
During 1990, the IRIS Board of Directors adopted an Employee Stock Purchase
Plan designed to allow IRIS employees who qualified as sophisticated investors
to buy shares of IRIS Common Stock at 50% of the market price, provided that
they agreed to hold the shares purchased for a minimum of 2 years, during which
time payments for the 50% portion may be made at the option of the employee
either by payroll deduction or by lump sum payment, but in no event may it
exceed more than 15% of the employee's salary plus bonus for the year. The
remaining 50% portion is recorded as deferred compensation and amortized over
the vesting period. The shares may not be transferred, except following the
death of the employee or a change in control of the Company. During the period
of the limitation on transfer, IRIS has the option to repurchase the shares at
the employee's purchase price per share if the employee's employment with IRIS
is terminated either voluntarily or as result of termination for cause. During
the nine month periods ended September 30, 1995 and 1994, IRIS issued 17,737 and
44,004 shares of common stock, respectively, under the plan for an aggregate
cash purchase price of $36,963 and $71,042, respectively.
In addition, during the nine month period ended September 30, 1995, IRIS
issued 21,900 shares of stock on exercise of stock options granted to employees,
former employees and consultants and 483,173 shares on exercise of IRIS warrants
granted in connection with both LDA offerings.
Stock Options:
For the nine months ended September 30, 1995, options to purchase 75,400
and 3,600 shares of common stock, respectively, were granted under the 1994 and
1986 Stock Option Plans, respectively. There were 21,900 options exercised and
9,700 were canceled. At September 30, 1995, options to purchase 483,301 shares
of common stock were issued and outstanding under IRIS stock options plans. The
outstanding options expire by the end of 2005. The exercise price for these
options ranges from $1.10 to $5.95 per share and in aggregate $1,784,746. At
September 30, 1995 there were an additional 462,167 shares available for the
granting of future options.
Warrants:
At September 30, 1995, there were a number of warrants outstanding and
exercisable to purchase 236,337 shares of common stock exercisable at $10.00 per
share until December 31, 1995. Also, all of the warrants issued in connection
with both LDA offerings that were not exercised, expired on July 31, 1995. In
addition, there were warrants outstanding and exercisable to purchase 250,000
shares of common stock at $7.375 per share until February 6, 1998, 75,000
shares at $8.125 per share until March 30, 1998, 304,000 shares at $6.50 per
share until September 29, 1998 and 95,000 shares at $7.80 per share until
September 28, 2000.
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<PAGE>
Preferred Stock:
IRIS is authorized to issue 3,000,000 shares of preferred stock in one or
more series with such terms as may be designated by the Board of Directors.
There is no preferred stock outstanding.
10. COMMITMENTS.
Leases:
IRIS leases its primary business location at a monthly rent of $13,402,
subject to increases based on the Consumers Price Index. IRIS has the option to
renew the lease for two additional three-year periods commencing on July 3,
1997.
At September 30, 1995, the minimum lease payments due over the remaining
term of this lease and two automobile leases were:
<TABLE>
<CAPTION>
Year ending
December 31, Amount
------------ ------
<S> <C>
1995 $ 40,365
1996 160,824
1997 93,814
--------
$295,003
--------
--------
</TABLE>
Rental expense under all operating leases during the nine month periods
ended September 30, 1995 and 1994 were $134,595 and $111,147, respectively.
Other:
Effective September 1, 1988, IRIS entered into a consulting and licensing
agreement with Cytocolor, Inc. relating to the use of a patented leukocyte stain
in The White IRIS-TM-, a product currently under development by IRIS. Under the
terms of the agreement, IRIS is subject to the following future minimum royalty
payments:
<TABLE>
<S> <C>
1996 20,000
1997 20,000
1998 20,000
1999 20,000
2000 20,000
Years thereafter 260,000
--------
$360,000
--------
--------
</TABLE>
11. EARNINGS PER SHARE.
The computation of earnings per share for the three months ended September
30, 1995 are based on the weighted average number of shares outstanding and
common share equivalents outstanding during the period. Fully diluted and
primary earnings per share were $.08. The computation of earnings per share for
the nine months ended September 30, 1995 are based on the weighted average
number of shares outstanding for the period. Common share equivalents were
excluded in the loss per share calculation as their inclusion would be anti-
dilutive.
The computations of per share amounts for the three and nine months ended
September 30, 1994 are based on the weighted average number of common shares and
common share equivalents outstanding for the period. Fully diluted and primary
earnings per share were $.08 and $.17 for the three and nine month periods ended
September 30, 1994.
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<PAGE>
12. RESEARCH AND DEVELOPMENT FUNDING.
Upon completion of LDA's initial public offering in October 1992, IRIS
entered into a Research and Development Agreement with LDA for the joint
development of The White IRIS-TM- leukocyte differential analyzer. (See Note 8
above.) In February 1995, IRIS entered into a Research, Development and
Distribution Agreement with Boehringer Mannheim GmbH (BMG) for the joint
development and distribution of an automated urinalysis system for reference
laboratories. (See Note 13 below.)
In connection with the development agreement entered into with PSI, IRIS
has agreed to fund over a three-year period commencing on September 29, 1995 up
to $500,000 of the cost incurred to conduct the research, development, clinical
evaluation and pre-market testing of several proposed new products to enhance
automation in the urinalysis field. (See Note 13 - PSI Development Agreement)
For the nine month periods ended September 30, 1995 and 1994 contract
revenues and costs connected with these project, were as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
------------------------------
1994 1995
---- ----
<S> <C> <C>
Revenues $ 551,266 $ 794,719
Costs (686,266) (883,710)
--------- ---------
$(135,000) $ (88,991)
--------- ---------
--------- ---------
</TABLE>
Pursuant to earlier payments and certain agreement with TOA Medical
Electronics Co., Ltd. (TOA), TOA has developed a urine sediment analyzer under
license from IRIS using pre-1989 IRIS technology in exchange for a 3% royalty on
sales. In June 1995, IRIS granted TOA a temporary non-exclusive license to use
such technology for the limited purpose of developing, manufacturing and
marketing industrial instruments in Japan. In exchange, TOA agreed to
temporarily increase the amount of royalty from 3% to 5% and the scope of the
royalty to include revenues on consumables and service contracts. These changes
were made retroactive to October 1994 and expire with TOA's temporary license in
September 1996, at which time the scope and the amount of royalty will revert to
their original terms. Including the retroactive effect of these changes, IRIS
received royalties from TOA of approximately $17,000 and $20,000 for the three
months ended September 30, 1995 and 1994, respectively, and approximately
$84,000 and $92,000 for the nine months ended September 30, 1995 and 1994,
respectively.
13. SIGNIFICANT EVENTS
Acquisition of LDA Systems, Inc.:
In June 1995, IRIS completed the acquisition of LDA for approximately
498,000 shares of IRIS Common Stock. Prior to the acquisition, IRIS and LDA had
been engaged in a joint program to complete commercial development of The White
IRIS-TM- leukocyte differential analyzer -- an instrument developed from
technology originally pioneered by IRIS. IRIS acquired LDA pursuant to the
exercise of its call option under the LDA Restated Certificate of Incorporation
to purchase all of the outstanding shares of LDA Common Stock. For this
purpose, the IRIS Common Stock was valued at $7.7625 per share -- the average
closing price of a share of IRIS Common Stock on the American Stock Exchange for
the 20 trading days preceding the call date. Accordingly, IRIS tendered 2.5765
shares of IRIS Common Stock for each share of LDA Common Stock. As a result of
the acquisition, IRIS incurred a non-recurring, non-cash charge of $3.5 million
against earnings in the second quarter for the acquisition of in-process
research and development (i.e. work in process not yet cleared for interstate
commerce by the Food and Drug Administration), the recognition of deferred
warrants costs and other expenses.
Reference Lab Agreement:
During the first quarter of 1995, IRIS and BMG announced a joint project to
develop a high capacity, automated urinalysis system primarily for reference
laboratories based on the proprietary technologies of both companies. The
program is jointly funded by both companies. In addition to designing specific
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<PAGE>
components of the new system, BMG has agreed to pay IRIS a fixed amount of
$640,000, for its research and development of the project. In connection with
this project and certain distribution considerations, IRIS issued Corange (an
affiliate of BMG) warrants to purchase 250,000 shares of IRIS Common Stock at an
exercise price of $7.375 per share and granted Corange certain registration
rights with respect to the shares of IRIS Common Stock issuable upon exercise of
these warrants.
Product Line Acquisition:
During the first quarter of 1995. IRIS acquired the digital refractometer
product line of Biovation, Inc. for $850,000 in cash and warrants to purchase
75,000 shares of IRIS Common Stock at an exercise price of $8.125 per share.
IRIS granted Biovation certain registration rights with respect to the shares of
IRIS Common Stock issuable upon exercise of these warrants. The product line
consists of a patented device known as a digital refractometer and the related
consumables used in the operation and maintenance of the refractometer.
PSI Development Agreement:
On September 29, 1995, Poly U/A Systems, Inc. (PSI) engaged IRIS to
develop several new products based on IRIS and other technology to further
enhance automation in the urinalysis field. Under the terms of the project, PSI
will have the right to use the IRIS technology and any newly developed
technology for developing, manufacturing and marketing the new products as
stand-alone devices, and IRIS will have the right to use any newly developed
technology for any other purpose and to incorporate the new products into The
Yellow IRIS-Registered Trademark-. PSI has retained IRIS to conduct the
research, development, clinical evaluation and pre-market testing of the
proposed new products. IRIS will fund the first $15,000 per month (up to a
maximum of $500,000) of the cost of the project, and PSI will reimburse IRIS for
the excess. IRIS has an option until 121 days after termination of the project
(which terminates not later than July 31, 1998) to acquire all of the Common
Stock of PSI at prices rising over time from $14 to $20 per share of PSI Common
Stock. IRIS may pay the option exercise price in cash or with shares of IRIS
Common Stock. IRIS is also providing financial and administrative services to
PSI at cost.
PSI, a privately-held company based in Los Angeles, California, was
organized in June 1995 to undertake the commercial development of several
potential products based on technology developed or licensed by IRIS. In order
to fund its share of the project, PSI recently raised net proceeds of $1.25
million through the sale of 76 units at a price of $20,000 per unit. Each unit
consists of 2,000 shares of PSI's Callable Common Stock and a warrant to
purchase 4,000 shares of IRIS Common Stock. In the aggregate, investors
purchased 152,000 shares of PSI's callable Common Stock and warrants to purchase
304,000 shares of IRIS Common Stock. The IRIS warrants are exercisable at $6.50
per share during the last two years of their three-year duration. IRIS also
issued warrants to the placement agent and the finder to purchase an aggregate
of 95,000 shares of IRIS Common Stock. These warrants are exercisable at $7.80
per share for a five year period and include certain registration rights.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased by $2.4 million since December 31 1994 to a total
of $9.7 million at September 30, 1995. During this period, cash, cash
equivalents and short-term investments increased approximately $1.5 million.
IRIS generated cash of $46,000 from the sale of stock to employees and $1.6
million from the exercise of warrants issued in connection with both of LDA
Systems, Inc. offerings (discussed bellow). IRIS invested approximately
$433,000 in new machinery and equipment, $850,000 in the acquisition of a new
product line from Biovation, Inc. (discussed below) and $69,000 in the
construction of workstations for rental. Total accounts receivable decreased
slightly as increases in accounts receivable on service contracts and research
and development contracts were offset by the elimination of the account
receivable from LDA upon its acquisition by IRIS. Inventory increased $872,000
to accommodate several new products including CHEMSTRIPS/IRISstrips-TM-
(discussed below). Current liabilities were relatively unchanged during the
period.
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In February 1995, IRIS, Boehringer Mannheim Corporation (BMC) and its
German affiliate, Boehringer Mannheim GmbH (BMG), entered into an agreement to
develop a high-capacity, automated urinalysis system for reference laboratories
based on the proprietary technologies of both companies. The program is jointly
funded by IRIS and BMG. In addition to designing specific components for the
new system, BMG has agreed to pay IRIS a fixed amount, $640,000, for IRIS
research and development on the project. IRIS had earned approximately $520,000
of this amount by September 30, 1995 and expects to earn the balance by January
1996. IRIS and BMC jointly unveiled a prototype of the new reference laboratory
system, the IRIS/BMC 900UDX-TM- Urine Pathology System, at the July meeting of
the Clinical Laboratory Management Association. Pending clearance from the Food
and Drug Administration (FDA), the 900UDX-TM- will be manufactured by IRIS in
its Chatsworth, California facility and distributed by IRIS in North America and
through BMG and its affiliates overseas.
In September 1995, IRIS and PSI entered into a joint project to develop
several new products based on IRIS technology (the PSI Products) to further
enhance automation in the urinalysis field. These products are expected to have
dual potential as both stand-alone products and enhancements to the IRIS
flagship products, The Yellow IRIS-Registered Trademark- series of urinalysis
workstations. Under the terms of this project, PSI will have the right to use
the IRIS technology and any newly developed technology for developing,
manufacturing and marketing the new products as stand-alone devices, and IRIS
will have the right to use the newly developed technology for any other purpose
and to incorporate the new products into The Yellow IRIS-Registered Trademark-.
PSI has retained IRIS to conduct research, development, clinical evaluation and
pre-market testing of the proposed new products. IRIS will fund the first
$15,000 per month (up to a maximum of $500,000) of the cost of the project, and
PSI will reimburse IRIS for the excess.
PSI, a privately-held company based in Los Angeles, California, was
organized by IRIS in June 1995 to undertake the commercial development of the
PSI Products. In order to fund its share of the project, PSI recently raised
net proceeds of approximately $1.25 million through the sale of 76 units at a
price of $20,000 per unit. Each unit consisted of 2,000 shares of PSI's
Callable Common Stock and a warrant to purchase 4,000 shares of IRIS Common
Stock. The IRIS warrants are exercisable at $6.50 per share during the last two
years of their three-year duration. IRIS also issued warrants to the placement
agent ant the finder to purchase an aggregate of 95,000 shares of IRIS Common
Stock at $7.80 per share for a period of five years.
IRIS has an option until 121 days after termination of the project with
PSI (which terminates not later than July 31, 1998) to acquire all of the Common
Stock of PSI at prices rising over time from $14.00 to $20.00 per share of PSI
Common Stock or an aggregate of $2.1 million to $3.0 million for all the
oustanding shares of PSI Common Stock. IRIS may pay the option exercise price
in cash or with shares of IRIS Common Stock valued at the 20-day average closing
price just prior to exercise. If, at the time of exercise, PSI has completed
product development and obtained FDA clearance to market any new products, IRIS
would likely capitalize that portion of the purchase price attributable to
completed products and amortize it over the estimated useful life of the
completed technology. IRIS would allocate the balance of the purchase price
(plus any PSI liabilities outstanding at the time of acquisition) to any
products which have not been completed and approved for marketing by the FDA and
would record a nonrecurring, noncash (if purchased with IRIS stock) charge
against earnings in that amount for the acquisition of in-process research and
development (i.e. work-in-process not yet cleared by the FDA). IRIS would also
record a nonrecurring, noncash charge against earnings for the recognition of
any remaining deferred warrant costs and other expenses associated with PSI's
unit sale.
RESULTS OF OPERATIONS
In 1991 IRIS introduced a lower priced version of The Yellow IRIS-
Registered Trademark-. The lower-priced version accounted for approximately
half of all new systems sold during the first nine months of 1995. The lower
priced version is likely to remain a significant percentage of total system
sales because of its appeal to more numerous community hospitals. While the
gross margin on the lower-priced version is less, IRIS believes it contributes
incrementally to the aggregate gross margin earned as it appeals to a market
segment that ordinarily would not buy the more expensive model. Because its
incremental margin
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<PAGE>
exceeds the incremental operational expenses connected with its sale, its
contributes positively to the profitability of IRIS.
During the fourth quarter of 1994, IRIS began marketing an improved version
of The Yellow IRIS-Registered Trademark- featuring a new CHEMSTRIP-Registered
Trademark- urine test reader and CHEMSTRIP/IRIStrip-TM- urine test strips, both
designed and manufactured by BMC especially for The Yellow IRIS-Registered
Trademark-. The combination of the CHEMSTRIP-Registered Trademark- reader with
the CHEMSTRIP/IRIStrip-TM- test strips is expected to provide the fastest, most
accurate urine test strip on the market. BMC has granted IRIS the exclusive
distributorship of the CHEMSTRIP/IRIStrip-TM- test strips. The test strips used
by the less advance version of The Yellow IRIS-Registered Trademark- are
currently supplied to IRIS customers by various laboratory products
distributors. IRIS is offering its existing customers an opportunity to upgrade
their existing workstations with the new CHEMSTRIP-Registered Trademark- reader
for use with the CHEMSTRIP/IRIStrip-TM-. Approximately one third of the
existing customers have upgraded their workstations.
In March 1995, IRIS acquired the digital refractometer product line from
Biovation, Inc. for $850,000 in cash and warrants to purchase 75,000 shares of
IRIS Common Stock at an exercise price of $8.125 per share. The product line
consists of manufacturing and marketing a patented device known as a digital
refractometer and the related consumables use in its operation and maintenance.
Revenues from this product line averaged approximately $495,000 over Biovation's
last three fiscal years. IRIS is continuing to market the refractometer and
related consumables under the Biovation trade name through existing distribution
channels.
In June 1995. IRIS completed the acquisition of LDA for approximately
498,000 shares of IRIS Common Stock. IRIS originally formed LDA in 1992 to
complete commercial development of The White IRIS-TM- leukocyte differential
analyzer and subsequently entered into a joint development program with LDA
similar to the current program with PSI. As a result of the acquisition, IRIS
incurred a non-recurring, non-cash charge of $3.5 million against earnings in
the second quarter for the acquisition of in-process research and development
(i.e. work-in-process not yet cleared by the FDA) and the recognition of
deferred warrants cost and other expenses. IRIS submitted an application for
The White IRIS-TM- to the FDA late in the second quarter of the year.
IRIS introduced two new models (the Model 300 and Model 500) to its
flagship product line, The Yellow IRIS-Registered Trademark- series of
urinalysis workstations, at the American Association for Clinical Chemistry held
in July. A new and faster workstation, the Model 500, introduces a series of
technology upgrades that make it the most accurate, fastest and easiest-to-use
urine profiling systems ever built, replacing the long-established Model 450
version of The Yellow IRIS-Registered Trademark-. A new and faster low-cost
Model 300 workstation also replaces the earlier Model 250 version. IRIS began
marketing the new models late in the third quarter of this year.
In November 1995, IRIS executed a Letter of Intent for the acquisition of
Norfolk Scientific, Inc. for approximately $3.0 million payable in IRIS Common
Stock. The acquisition is expected to qualify as a pooling-of-interests and a
tax-free reorganization. Norfolk, operating under the trade name of StatSpin
Technologies, manufactures special purpose centrifuges and other small
laboratory instruments widely used in clinical, veterinary, physician office and
research laboratories. Among other benefits, the acquisition of StatSpin is
expected to enhance IRIS distributions of urinalysis products to smaller
laboratories such as those in physician offices. The acquisition is subject to
a number of significant conditions, including negotiation of a mutually
acceptable acquisition agreement, board approval from both companies and
approval of the StatSpin stockholders. Accordingly, there can be no assurances
that IRIS will complete this acquisition.
IRIS, like many companies in the clinical laboratory instrumentation
business, is feeling the impact of current economics imposed by managed care
which have intensified the review and curtailed the expenditure of capital by
hospitals. One result has been slower than expected replacement sales as IRIS
customers postpone capital expenditures and continue using The Yellow IRIS-
Registered Trademark- beyond its five-year anticipated life. On the other hand,
IRIS believes the impact of intensified capital expenditures reviews may be
mitigated by the current pressure to reduce operational costs, especially labor.
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In 1993, President Clinton announced his intention to reform the existing
health care system of the United States. While hospitals appear to have
postponed important decisions regarding capital expenditures during the first
quarter of 1994 when congressional deliberations were at their peak, such
expenditures appear to have resumed. However, the healthcare reform debate is
intensifying and the predictability of capital expenditures by customers is
again clouded. At the present time, IRIS believes that the effectiveness of The
Yellow IRIS-TM--Registered Trademark- should be even more beneficial to
hospitals if their revenues are further controlled.
THREE AND NINE MONTHS 1995 COMPARED TO THREE AND NINE MONTHS 1994
Net income for the three months ended September 30, 1995 increased to
$517,000 from $442,000 for the comparable period in 1994. This increase is due
to the combined effect of an increase in net sales of approximately $288,000 and
an increase in interest and other income of approximately $20,000. For the nine
month period ended September 30, 1995, IRIS recorded a net loss of approximately
$2.1 million as a result of recognizing a $3.5 million non-recurring charge in
connection with the acquisition of LDA (discussed above). Excluding the effect
of the acquisition, IRIS had net income for this nine month period of
approximately $1.3 million, an increase of $446,000 from the comparable period
in 1994. This increase is due primarily to the resumption of increasing sales
of workstations and related supplies following an industry-wide slowdown in the
first quarter of 1994.
These results include interest income from investments of $69,000 and
$207,000, respectively, for the three and nine month periods ended September 30,
1995, compared to $49,000 and $114,000 for the comparable periods in 1994. The
respective $20,000 and $93,000 increases in interest income are due largely to
the increased amounts of invested cash, generally higher interest rates and cash
transfers from interest-bearing bank accounts to short-term investments. "See
Liquidity and Capital Resources."
The above results also include other income consisting of royalties from
TOA of $17,000 and $84,000 , respectively, for the three and nine month periods
ended September 30, 1995, compared to $20,000 and $92,000, respectively, for the
comparable periods in 1994. The 1995 royalty amounts reflect an agreement with
TOA to temporarily increase the amount of the royalty from 3% to 5% and the
scope of the royalty to apply to revenues on consumables and service contracts,
as well as instruments. These changes were made retroactive to October 1994 and
expire in September 1996, at which time the scope and amount of the royalty will
revert to their original term.
Net sales (excluding revenues from research and development contracts),
increased 12% to $3.0 million for the third quarter of 1995 from $2.6 million
during the comparable period in 1994. The $.4 million increase was attributable
primarily to an increase in sales of workstations and related supplies. Cost of
good sold (excluding the cost of research and development contracts) increased
from approximately $1.3 million in the third quarter of 1994 to approximately
$1.4 million in the third quarter of 1995 and decreased as a percentage of sales
from 50% to 46% as a result of improved utilization of service parts and
increased sales of consumables. Net sales (excluding revenues from research and
development contracts) of $8.4 million for the nine month period ended September
30, 1995 increased approximately $1.6 million or 24% from the comparable period
in 1994. Cost of good sold (excluding the cost of research and development
contracts) increased to $3.9 million from $3.5 million and decreased as a
percentage of sales from 52% to 47% during the comparable period in 1994, as a
result of improved utilization of service parts and increased sales of
consumables.
Total research and development expenses, including the costs of development
contracts, increased to $331,000 and $1.3 million, in the three and nine month
periods ended September 30, 1995, respectively, from $300,000 and $909,000,
respectively, in the comparable periods of 1994, as IRIS continued to invest in
the development of new applications and further improvements in its technology.
Research and development expenses related to The White IRIS-TM- decreased
to $79,000 and $416,000, for the three and nine months ended September 30, 1995
from $237,000 and $686,000, respectively, in the comparable periods of 1994, and
were offset by related revenues of $.00 and $247,000 for the respective periods
in 1995 and $134,000 and $551,000 in 1994 from LDA (see Note 12). Following
completion of the acquisition of LDA, research and development related to The
White IRIS-TM- has decreased significantly, but IRIS no longer benefits from
offsetting revenues from LDA under
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<PAGE>
the Research and Development Agreement. (See "Liquidity and Capital Resources"
for further information regarding LDA.) Research and development expenses
related to the reference laboratory system were $147,000 and $545,000,
respectively, for the three and nine months ended September 30, 1995 and were
offset entirely by revenues from BMG. (See "Liquidity and Capital Resources" for
further information regarding the development program with BMG.) Research and
development expenses unrelated to The White IRIS-TM- and the reference
laboratory system increased to $208,000 and $374,000, respectively, during the
three and nine month periods ended September 30, 1995 from $63,000 and $222,000,
respectively, during the comparable periods in 1994 as research and development
activity, in general, was intensified. In September 1995, IRIS and PSI entered
into a joint development project for the PSI Products. IRIS will fund the
first $15,000 per month (up to a maximum of $500,000) of the cost of the
project, and PSI will reimburse IRIS for the excess. (See "Liquidity and
Capital Resources" for further information regarding the development program
with PSI.)
Marketing and selling expenses in the three and nine month periods ended
September 30, 1995 increased by almost $115,000 and $445,000, respectively, to
$580,000 and $1.8 million, respectively, as compared to the same periods of
1994. These increases are due largely to a greater emphasis on direct marketing.
General and administrative expenses of $408,000 and $1.2 million in the three
and nine months periods ended September 30, 1995, respectively, increased by
$53,000 and $261,000 from the same periods in 1994. The increase in these
expenses is due to a variety of factors including increases related to enlarged
business, and the installation of a new computer network.
INFLATION
IRIS does not foresee any material impact on its operations from inflation.
PART II- OTHER INFORMATION
ITEM 1 - Legal Proceedings.
In 1994, IRIS become aware that a company called Intelligent Medical
Imaging, Inc. (IMI), was demonstrating a new slide-based microscopic imaging
system at various trade shows. After further examination of the IMI system,
IRIS notified IMI that its system infringed at least two IRIS patents. The
parties then entered into negotiations regarding the licensing of these and
possibly other IRIS patents to IMI. The parties were unable to reach an
agreement and, on October 19, 1995, IMI filed a complaint in the United States
District Court for the Southern District of Florida. In its complaint, IMI
seeks, among other things, declaratory judgments that (i) IMI's system does not
infringe either of the two IRIS patents in question, (ii) both of such IRIS
patents are invalid and (iii) both of such IRIS patents are unenforceable
against IMI due to misuse of the patents by IRIS. IRIS intends to vigorously
defend both patents and pursue infringement claims against IMI.
ITEM 6 - Exhibits and Reports on Form 8-K.
(a) Exhibits
<TABLE> <C> <S>
3.1 Articles of Incorporation.1/
3.2 Bylaws.2/
10.1 Lease of the Registrant's facilities.3/
10.2 1980 and 1982 Stock Option Plans, and forms of Stock
Option Agreement for each Plan.4/
10.3 1983 and 1986 Stock Option Plans, and forms of Stock
Option Agreement for each Plan.5/
10.4 Amended and Restated 1986 Stock Option Plan.6/
10.5 1994 Stock Option Plan and forms of Stock Option
Agreements.7/
10.6 Various Agreement with TOA.8/
10.7 Agreement for a Strategic Alliance in Urinalysis dated
January 7, 1994 between IRIS and BMC.9/
10.8 Securities Purchase Agreement dated as of April 20, 1994
by and among IRIS, LDA and Corange International
Limited.10/
</TABLE>
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<PAGE>
<TABLE>
<C> <S>
10.9 Warrant Certificate dated April 22, 1994 issued to Corange
International Limited.9/
10.10 Research and Development and Distribution Agreement dated
February 6, 1995 by and among IRIS, LDA and Corange
International Limited.9/
10.11 Warrant Certificate dated February 6, 1995 issued to
Corange International Limited.9/
10.12 Asset Purchase Agreement dated as of March 20, 1995
between IRIS and Biovation, Inc.9/
10.13 Warrant Certificate dated March 20, 1995 issued to
Biovation, Inc.9/
10.14 Technology License Agreement dated as of September 29,
1995 between IRIS and PSI.
10.15 Research and Development Agreement dated as of September
29, 1995 between IRIS and PSI.
10.16 $100 Class "A" Note dated September 29, 1995 issued by PSI
in favor of IRIS.
10.17 Certificate of Incorporation of PSI. (See Article FOUR
regarding the IRIS option.)
11 Statement re Computation of Per Share Earnings.
</TABLE>
--------------------------
1/ Incorporated by reference to the Company's Current Report
on Form 8-K dated August 13, 1987 and its Quarterly Report
on Form 10-Q for the quarter ended September 30, 1993.
2/ Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1994.
3/ The original lease and all prior amendments are
incorporated by reference to the Company's Annual Report
on Form 10-K for the year ended December 31,1989, its
quarterly report on Form 10-Q for the quarter ended
September 30, 1993 and its Annual Report on Form 10-K for
the year ended December 31, 1994.
4/ Incorporated by reference to the Company's Registration
Statement of Form S-2, as filed with the Securities and
Exchange Commission on May 10, 1982.
5/ Incorporated by reference to the Company's Registration
Statement on Form S-8, as filed with the Securities and
Exchange Commission on May 10, 1982.
6/ Incorporated by reference to the Company's Annual Report
on Form 10-K for the year ended December 31, 1992.
7/ Incorporated by reference to the Company's Registration
Statement of Form S-8, as filed with the Securities and
Exchange Commission on August 8, 1994.
8/ Incorporated by reference to the Company's Current Report
on Form 8-K dated July 15, 1988 and its Quarterly Report
on Form 10-Q for the quarter ended June 30, 1995.
9/ Incorporated by reference to the Company's Annual Report
on Form 10-k for the year ended December 31, 1994.
10/ Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1994.
(b) Reports on Form 8-K
IRIS filed a Current Report on Form 8-K on September 29, 1995
announcing that IRIS and Poly U/A Systems, Inc. (PSI) entered into a
joint project to develop several new products based on IRIS technology
to further enhance automation in the urinalysis field.
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STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Nine months ended September 30
------------------------------
1994 1995
---- ----
<S> <C> <C>
Actual Weighted Average Shares Outstanding for the Period 5,002,975 5,405,526
Dilutive Effects of Stock Options and Warrants Using Average
Market Price 234,306 --
---------- ----------
Total Shares Based on Shares Outstanding and the
Assumption that All Share Equivalents Are Exercised at
Average Stock Market Price. 5,237,281 5,405,526
Additional Dilutive Effect of Stock Options and Warrants
Being Exercised Using Ending Market Price 77,492 --
---------- ----------
Total Shares Based on Shares Outstanding and the
Assumption That All Stock Options and Warrants are
Exercised at Ending Market Price -5,314,773 5,405,526
---------- ----------
---------- ----------
Net Income (Loss) Applicable to Fully Diluted Earnings Per
Share $ 892,479 $ (2,143,003)
---------- ------------
---------- ------------
Fully Diluted Net Income (Loss) Per Share $ 0.17 $ (.40)
------- -------
------- -------
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
Three months ended September 30
-------------------------------
1994 1995
---- ----
Actual Weighted Average Shares Outstanding for the Period 5,035,18 65,977,011
Dilutive Effects of Stock Options and Warrants Using Average
Market Price 242,218 250,361
---------- ----------
Total Shares Based on Shares Outstanding and the Assumption that
All Share Equivalents Are Exercised at Average Stock Market Price. 5,277,404 6,227,372
Additional Dilutive Effect of Stock Options and Warrants Being
Exercised Using Ending Market Price 69,580 20,728
---------- ----------
Total Shares Based on Shares Outstanding and the Assumption That All
Stock Options and Warrants are Exercised at Ending Market Price 5,346,984 6,248,100
---------- ----------
---------- ----------
Net Income Applicable to Fully Diluted Earnings Per Share $ 441,532 $ 517,021
---------- ----------
---------- ----------
Fully Diluted Net Income Per Share $ .08 $ .08
------ ------
------ ------
</TABLE>
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
Dated: November 10, 1993 By: /S/ E. EDUARDO BENMAOR
-----------------------------------------
E. Eduardo Benmaor
Controller, Principal
Accounting Officer, and Secretary
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EXHIBIT 10.14
TECHNOLOGY LICENSE AGREEMENT
This TECHNOLOGY LICENSE AGREEMENT (the "Agreement") is made and entered
into as of September 29, 1995, by and between Poly U/A Systems, Inc., a Delaware
corporation ("PSI"), and International Remote Imaging Systems, Inc., a Delaware
corporation ("IRIS"), with reference to the following facts:
A. Simultaneously with entering into this Agreement, IRIS and PSI have
entered into the Development Agreement.
B. IRIS is the owner or licensee of rights in certain technology relating
to the Proposed Products.
C. IRIS is willing to grant to PSI, and PSI desires to acquire from IRIS,
an exclusive, worldwide license to such technology for the purpose of
developing, manufacturing and marketing the Proposed Products.
D. Pursuant to the Development Agreement, PSI has engaged IRIS to employ
the technology licensed hereunder in conducting research and development for and
on behalf of PSI.
E. During the course of such research and development, IRIS may develop
new technology. PSI is willing to grant to IRIS an exclusive, worldwide license
to use such new technology for purposes other than developing, manufacturing or
marketing the Proposed Products.
NOW, THEREFORE, based upon the above premises and in consideration of the
mutual covenants and agreements contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
parties hereby agree as follows (capitalized terms not defined herein shall have
the meanings set forth in Schedule A attached hereto):
1. CROSS LICENSES.
1.1 GRANT OF LICENSE TO PSI.
1.1.1 GRANT OF LICENSE TO THE IRIS TECHNOLOGY. Subject to
the other provisions of this Section 1.1, IRIS hereby grants to PSI an exclusive
(as against IRIS and all other Persons), worldwide, royalty-free right and
license in perpetuity to use the IRIS Technology solely for purposes of
developing, manufacturing and marketing the Proposed Products. IRIS shall
retain the exclusive (as against PSI) right to use, and sublicense others to
use, the IRIS Technology for all purposes other than developing, manufacturing
or marketing the Proposed Products.
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<PAGE>
1.1.2 TRANSFERS OF THE IRIS TECHNOLOGY. Until the Option
Expiration Date, PSI shall not have the right to sublicense, encumber, sell,
assign or otherwise transfer any rights to the IRIS Technology to any Person
other than IRIS or its Affiliates pursuant to the Development Agreement. On and
after the Option Expiration Date, PSI shall have the right to sublicense,
encumber or otherwise transfer any rights to the IRIS Technology licensed to it
hereunder to any Person that agrees in writing to be bound by the terms and
conditions of this Agreement and who PSI reasonably believes will adhere to
those terms and conditions. PSI shall provide IRIS with notice of any
sublicense, encumbrance or other transfer by PSI of any rights to the IRIS
Technology licensed to it hereunder (along with a copy of the relevant
instrument of transfer) at least thirty (30) days prior to the effective date of
such sublicense, encumbrance or other transfer. Any attempted transfer of such
rights in violation of this Section shall be null and void.
1.1.3 THIRD-PARTY LICENSES. With respect to that portion of
the IRIS Technology held at any time by IRIS pursuant to agreements with Persons
other than PSI (for purposes of this Section 1.1.3, "Third-Party Licenses"), the
license granted to PSI under Section 1.1.1 shall be limited to the rights which
IRIS has a right to grant under such Third-Party Licenses and shall be subject
to any obligations, including royalty obligations, assumed by IRIS under such
Third-Party Licenses. PSI agrees to indemnify and hold IRIS harmless against
any Loss caused by the failure of PSI to pay any royalties due under any Third-
Party License as a result of the activities of PSI. During the term of the
Development Agreement, IRIS will use commercially reasonable efforts to obtain
the right to grant sublicenses to PSI under any new Third-Party Licenses on
terms reasonably acceptable to PSI at the sole cost and expense of PSI. PSI
shall not be obligated to accept any grant of rights or assume any obligations
under any new Third-Party Licenses without its consent. IRIS shall notify PSI
of any new Third-Party License and deliver a copy thereof to PSI within fifteen
(15) days of its effective date. PSI shall not take any action, or fail to take
any action within its control, that would constitute or give rise to a breach or
other violation by IRIS of any Third-Party License. PSI acknowledges and
accepts the limitations and royalty obligation under the Technology License
Contract between the Mayo Foundation for Medical Education and Research and IRIS
effective August 1, 1992, as subsequently amended.
1.1.4 TOA RESTRUCTURING AGREEMENTS. The license granted to
PSI under Section 1.1.1 shall also be limited by, and subject to, any
conflicting rights which IRIS may have granted to TOA under the TOA
Restructuring Agreements.
1.2 GRANT OF LICENSES TO IRIS.
1.2.1 GRANT OF LICENSE TO THE PSI TECHNOLOGY. Subject to the
other provisions of this Section 1.2, PSI hereby grants to IRIS an exclusive (as
against PSI and all other Persons), worldwide, royalty-free right and license in
perpetuity to use the PSI Technology for all purposes other than developing,
manufacturing or marketing the Proposed Products. PSI shall retain the
exclusive (as against IRIS) right to use the PSI Technology solely for purposes
of developing, manufacturing and marketing the Proposed Products.
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1.2.2 TRANSFERS OF THE PSI TECHNOLOGY. IRIS shall have the
right to sublicense, encumber or otherwise transfer any rights to the PSI
Technology licensed to it hereunder to any Person that agrees in writing to be
bound by the terms and conditions of this Agreement. IRIS shall provide PSI
with notice of any sublicense, encumbrance or other transfer by IRIS of any
rights to the PSI Technology licensed to it hereunder (along with a copy of the
relevant instrument of transfer) at least thirty (30) days prior to the
effective date of such sublicense, encumbrance or other transfer. Any attempted
transfer of rights by IRIS to the PSI Technology in violation of this Section
shall be null and void.
1.2.3 THIRD-PARTY LICENSES. With respect to that portion of
the PSI Technology held at any time by PSI pursuant to agreements with Persons
other than IRIS (for purposes of this Section 1.2.3, "Third-Party Licenses"),
the license granted to IRIS under Section 1.2.1 shall be limited to the rights
which PSI has a right to grant under such Third-Party Licenses and shall be
subject to any obligations, including royalty obligations, assumed by PSI under
such Third-Party Licenses. IRIS agrees to indemnify and hold PSI harmless from
and against any Loss caused by the failure of IRIS to pay any royalties due
under any Third-Party Licenses as a result of the activities of IRIS. During
the term of the Development Agreement, PSI will use commercially reasonable
efforts to obtain the right to grant sublicenses to IRIS under any new Third-
Party Licenses on terms reasonably acceptable to IRIS at the sole cost and
expense of IRIS. IRIS shall not be obligated to accept any grant of rights or
assume any obligations under any new Third-Party Licenses without its consent.
PSI shall notify IRIS of any new Third-Party License and deliver a copy thereof
to IRIS within fifteen (15) days of its effective date. IRIS shall not take any
action, or fail to take any action within its control, that would constitute or
give rise to a breach or other violation by PSI of any Third-Party License.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS.
2.1 REPRESENTATIONS, WARRANTIES AND COVENANTS OF IRIS. IRIS
represents, warrants and covenants to PSI as follows:
2.1.1 IRIS is a corporation duly organized, validly existing
and in good standing under the laws of the state of Delaware with corporate
powers adequate for executing and delivering, and performing its obligations
under, this Agreement;
2.1.2 the execution, delivery and performance of this
Agreement by IRIS have been duly authorized by all necessary corporate action;
2.1.3 this Agreement has been duly executed and delivered by
IRIS and is a legal, valid and binding obligation of IRIS, enforceable against
IRIS in accordance with its terms;
2.1.4 the execution, delivery and performance of this
Agreement by IRIS do not conflict with or contravene any provision of the
charter documents or by-laws of IRIS or, in any material respect, any agreement,
document, instrument, indenture or other obligation of IRIS;
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2.1.5 IRIS shall not enter into any agreement, make any
commitment, take any action or fail to take any action that would contravene any
material provision of, or materially derogate or restrict any of the rights and
licenses granted to PSI under, this Agreement; and
2.1.6 IRIS is not in default (nor has there transpired an
event which with notice or lapse of time or both would become a default) under
any agreement, document, instrument, indenture or other obligation of IRIS
pertaining to the IRIS Technology.
2.2 REPRESENTATIONS, WARRANTIES AND COVENANTS OF PSI. PSI
represents, warrants and covenants to IRIS as follows:
2.2.1 PSI is a corporation duly organized, validly existing
and in good standing under the laws of the state of Delaware with corporate
powers adequate for executing and delivering, and performing its obligations
under, this Agreement;
2.2.2 the execution, delivery and performance of this
Agreement by PSI have been duly authorized by all necessary corporate action;
2.2.3 this Agreement has been duly executed and delivered by
PSI and is a legal, valid and binding obligation of PSI, enforceable against PSI
in accordance with its terms;
2.2.4 the execution, delivery and performance of this
Agreement by PSI do not conflict with or contravene any provision of the charter
documents or by-laws of PSI or, in any material respect, any agreement,
document, instrument, indenture or other obligation of PSI; and
2.2.5 PSI shall not enter into any agreement, make any
commitment, take any action or fail to take any action that would contravene any
material provisions of, or materially derogate or restrict any of the rights and
licenses granted to IRIS under, this Agreement.
3. DISCLOSURE OF INFORMATION AND TECHNICAL ASSISTANCE.
3.1 DISCLOSURE OF INFORMATION. IRIS and PSI shall disclose to each
other, as reasonably requested, all of the technology licensed hereunder,
including documents, drawings, specifications, processes, formulas, protocols,
devices, software, equipment and other tangible manifestations thereof,
reasonably necessary to enable the other party to make use thereof. Nothing
contained herein shall be construed to require either party to deliver any
information received from any non-Affiliate third-party under a confidentiality
agreement, except on such terms and conditions as are permitted under such
confidentiality agreement.
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3.2 TECHNICAL ASSISTANCE. IRIS and PSI shall make available to each
other, at standard rates and terms then in effect, reasonable services of
technical personnel (consistent with their other obligations) to instruct and
assist the other in utilizing the technology licensed hereunder.
4. CONFIDENTIALITY.
4.1 CONFIDENTIALITY OBLIGATIONS. The parties hereby acknowledge and
agree that the IRIS Technology and the PSI Technology contain valuable
confidential information and trade secrets developed or acquired, or which will
be developed or acquired, through the expenditure of significant amounts of time
and money. Accordingly, except as expressly permitted by Section 4.2 or the
Development Agreement, IRIS and PSI shall maintain the confidential nature of,
and not disclose to any third party, any Confidential Information.
4.2 PERMITTED DISCLOSURES. The obligations of confidentiality
contained in this Agreement shall not apply to the disclosure of any
Confidential Information if, and to the extent:
4.2.1 reasonably necessary to market products, including,
without limitation, by making disclosures to prospective customers as will
adequately explain the nature and operation of the product;
4.2.2 reasonably necessary to effect sublicenses permitted
under this Agreement;
4.2.3 independently developed by the receiving party outside
the scope of the Development Agreement;
4.2.4 reasonably necessary to carry out its obligations under
the Development Agreement;
4.2.5 reasonably necessary to secure governmental or
regulatory approvals or clearances; and
4.2.6 the disclosure is required by a judicial order or
decree of governmental law or regulation, provided that the receiving party
promptly notifies the disclosing party of such requirement and reasonable
opportunity is allowed for the disclosing party to obtain a protective order or
otherwise proceed under applicable law to protect its interests.
4.3 EMPLOYEE CONFIDENTIALITY AND ASSIGNMENT OF INVENTIONS. Prior to
allowing an employee access to any Confidential Information, the employing party
shall obtain from the employee an executed agreement regarding confidentiality
and assignment of inventions in a form reasonably satisfactory to the other
party.
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4.4 INJUNCTIONS; PROOF WAIVED. The parties agree that, due to the
unique and proprietary nature of the Confidential Information, the remedies at
law for a breach by either party of its obligations under this Section 4 will be
inadequate and that, in the event of such breach, the other party shall be
entitled to equitable relief (including without limitation injunctive relief and
specific performance) in addition to all other remedies provided under this
Agreement or available at law. PSI acknowledges the secret nature and quality
of the IRIS Technology as legally protectable proprietary information and
intellectual property and agrees to waive proof of such fact in any litigation
or arbitration between the parties.
5. DISCLAIMER OF WARRANTY; LIMITATIONS OF LIABILITY.
5.1 DISCLAIMER OF WARRANTY. Except as provided in Section 2, the
parties hereto disclaim any and all representations and warranties, express or
implied, concerning the IRIS Technology or the PSI Technology, including without
limitation (i) whether such technology, to the extent not already developed,
will be developed, (ii) the performance, utility, reliability, suitability for
any particular purpose or accuracy of such technology, (iii) whether the use of
the technology licensed hereunder will infringe any patent or other proprietary
rights of any third party, and (iv) whether any of the technology is or will be
entitled to protection under patent, copyright or other proprietary laws.
5.2 LIMITATIONS ON LIABILITY. Neither party to this Agreement shall
be entitled to recover from the other any incidental, consequential, special or
punitive damages for any breach of this Agreement.
6. PATENTS.
6.1 PATENT APPLICATIONS. IRIS may prepare, prosecute and/or maintain
patents with respect to any of the IRIS or PSI Technology. All patents relating
to the PSI Technology shall be assigned to PSI, subject to the rights of IRIS
under Section 1.2 of this Agreement, in exchange for payment of any costs
thereof. In the event that IRIS considers but elects not to prepare, prosecute
or maintain specific patents with respect to the IRIS or PSI Technology, IRIS
shall promptly notify PSI of such decision, and PSI shall have the right to
prepare, prosecute and/or maintain any such patent at its sole expense. Each
party agrees to cause each of its employees and agents to take all actions and
to execute, acknowledge and deliver all instruments or agreements reasonably
requested by the other party and necessary for the perfection, maintenance,
enforcement or defense of that party's rights as set forth in this Section 6.1.
6.2 ENFORCEMENT OF PATENT RIGHTS. If IRIS or PSI has actual notice
of infringement by any Person of any patent or patent application relating to
the IRIS Technology or the PSI Technology, the respective officers of IRIS and
PSI shall confer to determine in good faith an appropriate course of action to
enforce such patent rights or otherwise abate the infringement thereof. If IRIS
determines that enforcement of the patent rights is appropriate, IRIS shall have
the right, but not the obligation, at its own expense, to take appropriate
action to enforce such patent rights; PROVIDED, HOWEVER, that, if IRIS elects to
enforce such patent rights, PSI shall have the right to participate by agreeing
to bear a
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percentage of the costs of such enforcement in such amount as the parties shall
reasonably determine. All amounts recovered in any action to enforce patent
rights undertaken by IRIS and PSI, whether by judgment or settlement, shall be
retained by IRIS and PSI pro rata according to the respective percentages of
expenses borne by them in enforcing such patent rights. If, within six (6)
months after notice of infringement of the IRIS Technology or the PSI
Technology, IRIS has not commenced action to enforce such patent rights or
thereafter ceases to diligently pursue such action, PSI shall have the right, at
its expense, to take appropriate action to enforce such patent rights as its
sole remedy hereunder. All amounts received in any action to enforce patent
rights undertaken solely by PSI at its expense, whether by judgment or
settlement, shall be retained by PSI. IRIS and PSI shall fully cooperate with
each other in the planning and execution of any action to enforce patent rights
relating to the IRIS Technology or the PSI Technology. Neither IRIS nor PSI
shall enter into any settlement that includes the grant of a license under,
agreement not to enforce, or any statement prejudicial to the validity or
enforceability of any patent rights relating to the IRIS Technology or the PSI
Technology without the consent of the other, which consent shall not be
unreasonably withheld.
7. INDEMNIFICATION.
7.1 INDEMNIFICATION OF PSI. Subject to Section 5.2, IRIS shall
indemnify and hold PSI harmless from and against any Loss including, without
limitation, any Loss based upon negligence, warranty, strict liability,
violation of government regulation or infringement of patent or other
proprietary rights, arising out of (a) any use of the IRIS Technology or the PSI
Technology by IRIS or any Affiliate, agent or sublicensee of IRIS (other than
PSI) for purposes other than Research and Development or (b) any breach of this
Agreement by IRIS.
7.2 INDEMNIFICATION OF IRIS. Subject to Section 5.2, PSI shall
indemnify and hold IRIS harmless from and against any Loss including, without
limitation, any Loss based upon negligence, warranty, strict liability,
violation of government regulation or infringement of patent or other
proprietary rights, arising out of (a) any use of the IRIS Technology or the PSI
Technology by PSI or any Affiliate, agent or sublicensee of PSI (other than IRIS
for purposes other than Research and Development) or (b) any breach of this
Agreement by PSI.
7.3 INDEMNIFICATION PROCEDURES. Upon the Indemnified Party becoming
aware of a fact, condition or event for which a claim for Losses in respect
thereof is to be made against the Indemnifying Party under Sections 7.1 or 7.2,
the Indemnified Party will with reasonable promptness notify the Indemnifying
Party in writing of such fact, condition or event. The Indemnifying Party may
undertake full responsibility for the defense or prosecution in connection with
any claim brought by any third party and may contest or settle it on such terms
as the Indemnifying Party may choose; PROVIDED THAT the Indemnifying Party will
not have the right, without the Indemnified Party's written consent, to settle
any such claim if such settlement (i) arises from or is part of any criminal
actions, suit or proceeding, (ii) contains a stipulation to, confession of
judgment with respect to, or admission or acknowledgment of, any liability or
wrongdoing on the part of the Indemnified Party, or (iii)
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provides for injunctive relief, or other relief or finding other than money
damages, which is binding on the Indemnified Party. Such defense or prosecution
will be conducted by reputable attorneys retained by the Indemnifying Party at
the Indemnifying Party's cost and expense, but the Indemnified Party will have
the right to participate in such proceedings and to be separately represented by
attorneys of its own choosing. The Indemnified Party will be responsible for
the costs of such separate representation.
7.4 COOPERATION. The Indemnified Party and the Indemnifying Party
shall cooperate in determining the validity of any third-party claim for any
Loss for which a claim of indemnification may be made hereunder. Each party
shall also use all reasonable efforts to minimize all Losses under this
Agreement.
8. MISCELLANEOUS.
8.1 COMPLETE AGREEMENT; MODIFICATIONS. This Agreement and any
documents referred to herein or executed contemporaneously herewith constitute
the parties' entire agreement with respect to the subject matter hereof and
supersede all agreements, representations, warranties, statements, promises and
understandings, whether oral or written, with respect to the subject matter
hereof. This Agreement may not be amended, altered or modified except by a
writing signed by the parties.
8.2 WAIVERS STRICTLY CONSTRUED. With regard to any power, remedy or
right provided herein or otherwise available to any party hereunder (a) no
waiver or extension of time shall be effective unless expressly contained in a
writing signed by the waiving party; and (b) no alteration, modification or
impairment shall be implied by reason of any previous waiver, extension of time,
delay or omission in exercise, or other indulgence.
8.3 FORCE MAJEURE. Neither party shall be responsible for delays or
failure to perform under this Agreement due to causes beyond the reasonable
control and without fault or negligence of such party.
8.4 NOTICES. Unless otherwise specifically permitted by this
Agreement, all notices under this Agreement shall be in writing and shall be
delivered by personal service, telegram, telex, facsimile or certified mail (or,
if certified mail is not available, then by first class mail), postage prepaid,
to such address as may be designated from time to time by the relevant party,
and which shall initially be as follows:
(i) If to IRIS:
International Remote Imaging Systems, Inc.
9162 Eton Avenue
Chatsworth, California 91311
(818) 700-9661 (facsimile)
Attention: Fred H. Deindoerfer, President
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(ii) If to PSI:
PSI Systems, Inc.
9162 Eton Avenue
Chatsworth, California 91311
(818) 700-9661 (facsimile)
Attention: Fred H. Deindoerfer, President
Any notice sent by certified mail (or by first class mail if certified mail
is not available) shall be deemed to have been given three (3) days after the
date on which it is mailed. All other notices shall be deemed given when
received. No objection may be made to the manner of delivery of any notice
actually received in writing by an authorized agent of a party.
8.5 ADDITIONAL DOCUMENTS. Each party hereto agrees to execute any
and all further documents and writings and to perform such other actions which
may be or become necessary or expedient to effectuate and carry out this
Agreement.
8.6 SUCCESSORS AND ASSIGNS. Except as provided herein to the
contrary, this Agreement shall be binding upon and inure to the benefit of the
parties, their respective successors and permitted assigns.
8.7 ASSIGNMENTS. IRIS may assign its rights and obligations after
prior written notice thereof to PSI to any Person that agrees in writing to be
bound by the terms and conditions of this Agreement. On and after the Option
Expiration Date, PSI may assign its rights and obligations after prior written
notice thereof to IRIS to any Person that agrees in writing to be bound by the
terms and conditions of this Agreement and who PSI reasonably believes will
adhere to those terms and conditions. Except as provided above or otherwise
expressly permitted under this Agreement, neither party may assign any of its
rights or delegate any of its obligations under this Agreement, in whole or in
part, including without limitation pursuant to a merger or consolidation,
without the prior written consent of the other party, which may be withheld in
the sole discretion of the other party. Any attempt to assign or delegate any
portion of this Agreement in violation of this Section shall be null and void.
8.8 GOVERNING LAW. This Agreement has been negotiated and entered
into in the State of California, concerns only California businesses and all
questions with respect to the Agreement and the rights and liabilities of the
parties shall be governed by the laws of that state, regardless of the choice of
laws provisions of California or any other jurisdiction. Any litigation or
arbitration between the parties shall be conducted in Los Angeles, California.
Except as provided above or otherwise expressly permitted under this Agreement,
neither party may assign any of its rights or delegate any of its obligations
under this Agreement, in whole or in part, including without limitation pursuant
to a merger or consolidation, without the prior written consent of the other
party, which may be withheld in the sole discretion of the other party. Any
attempt to assign or delegate any portion of this Agreement in violation of this
Section shall be null and void.
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8.9 REMEDIES. The parties acknowledge that the remedy at law for any
breach, or threatened breach, of any of the provisions of this Agreement will be
inadequate. Therefore, each party to this Agreement shall be entitled to seek
specific performance as a remedy for any breach of this Agreement. Such remedy
shall not be deemed to be the exclusive remedy of a party hereto for the breach
of this Agreement by the other party hereto or its representatives, but shall be
in addition to all other remedies available at law or in equity to the party
suffering such breach.
8.10 ARBITRATION AS EXCLUSIVE REMEDY. Except for actions seeking
injunctive relief, which may be brought before any court having jurisdiction,
any claim arising out of or relating to (i) this Agreement, including, but not
limited to, its validity, interpretation, enforceability or breach, or (ii) the
relationship between the parties (including its commencement and termination)
whether based on breach of covenant, breach of an implied covenant or
intentional infliction of emotional distress or other theories, which are not
settled by agreement between the parties, shall be settled by arbitration in Los
Angeles, California before a board of three arbitrators, one selected by each
party, and the third by the two persons so selected, all in accordance with the
Commercial Arbitration Rules of the American Arbitration Association ("AAA")
then in effect. The notice of intent to arbitrate shall name one arbitrator,
and the party(ies) receiving the notice shall name the second arbitrator within
15 days or the moving party may select the second arbitrator from a list
supplied by the AAA. In the event that these two arbitrators cannot agree upon
a third arbitrator within 15 days, then the third arbitrator shall be selected
from the list provided by the AAA with the parties striking names in order with
the party striking first to be determined by the flip of a coin. The parties
hereby (i) consent to the in personam jurisdiction of the Superior Court of the
State of California for purposes of confirming any such award and entering
judgment thereon; (ii) agree to use their best efforts to keep all matters
relating to any arbitration hereunder confidential; and (iii) agree that the
arbitrators may not assess any remedy other than the awarding of actual damages
suffered and/or an injunctive order (including temporary, preliminary and
permanent relief) when appropriate. In any arbitration proceedings hereunder,
(a) all testimony of witnesses shall be taken under oath; (b) discovery will be
allowed under the provisions of Section 1283.05 of the California Code of Civil
Procedure, as presently in force, which are incorporated herein; and (c) upon
conclusion of any arbitration, the arbitrators shall render findings of fact and
conclusions of law in a written opinion setting forth the basis and reasons for
any decision reached and deliver such documents to each party to this Agreement
along with a signed copy of the award in accordance with Section 1283.6 of the
California Code of Civil Procedure. Each party agrees that the arbitration
provisions of this Agreement are its exclusive remedy and expressly waives any
right to seek redress in another forum. Each party shall bear the fees of the
arbitrator appointed by it, and the fees of the neutral arbitrators shall be
borne equally by each party during the arbitration, but the fees of all
arbitrators shall be borne by the losing party.
8.11 ATTORNEYS' FEES. Should any litigation or arbitration be
commenced (including any proceedings in a bankruptcy court) between the parties
hereto or their representatives concerning any provision of this Agreement or
the rights and duties of any person or entity hereunder, the party or parties
prevailing in such proceeding shall be
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entitled, in addition to such other relief as may be granted, to the attorneys'
fees and court costs incurred by reason of such litigation.
8.12 SEVERABILITY. The validity, legality or enforceability of the
remainder of this Agreement shall not be affected even if one or more of the
provisions of this Agreement shall be held to be invalid, illegal or
unenforceable in any respect. To the extent permitted by applicable law, the
parties hereby waive any provision of law that would render any provision hereof
prohibited or unenforceable in any respect.
8.13 NO THIRD-PARTY BENEFITS. None of the provisions of this
Agreement shall be for the benefit of, or enforceable by, any third-party
beneficiary.
8.14 HEADINGS. The headings in this Agreement are inserted only as a
matter of convenience, and in no way define, limit, or extend or interpret the
scope of this Agreement or of any particular provision.
8.15 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first written above.
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
By
---------------------------------------------
Fred H. Deindoerfer, Chairman of the Board,
President and Chief Executive Officer
POLY U/A SYSTEMS, INC.
By
---------------------------------------------
Fred H. Deindoerfer, President
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SCHEDULE A
GLOSSARY
"ADMINISTRATION AND SERVICES AGREEMENT" shall mean the Administration and
Services Agreement dated as of September 29, 1995 between IRIS and PSI, as
amended, modified or supplemented from time to time.
"AFFILIATE" of a Person shall mean a Person that directly, or indirectly
through one or more intermediaries, controls, is controlled by or is under
common control with such Person. "Control" (and, with correlative meanings, the
terms "controlled by" and "under common control with") shall mean the possession
of the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting stock, by contract or
otherwise. In the case of a corporation "control" shall mean, among other
things, the direct or indirect ownership of more than fifty percent (50%) of its
outstanding voting stock.
"ANNUAL WORKPLAN AND BUDGET" shall mean the reasonably detailed workplans
and budgets for Research and Development to be provided by IRIS to PSI for each
annual period in accordance with Sections 1.1.1 and 1.1.4 of the Development
Agreement.
"AVAILABLE FUNDS" shall have the meaning set forth in Section 2.1 of the
Development Agreement.
"BANKRUPTCY CODE" shall mean the Bankruptcy Reform Act of 1978, as amended,
modified or supplemented from time to time.
"CONFIDENTIAL INFORMATION" shall mean all information disclosed by IRIS to
PSI or by PSI to IRIS pursuant to the Technology License Agreement or the
Development Agreement, except information that (i) was known to the receiving
party prior to its receipt from the disclosing party (except that information
first developed pursuant to the Development Agreement shall not be considered
known by IRIS), (ii) is or becomes part of the public domain through no fault of
the receiving party or (iii) is disclosed to the receiving party on an
unrestricted basis by a third party that is legally free to disclose such
information.
"DEVELOPMENT AGREEMENT" shall mean the Research and Development Agreement
dated as of September 29, 1995 between PSI and IRIS, as amended, modified or
supplemented from time to time.
"FDA" shall mean the United States Food and Drug Administration or any
successor agency or authority, the approval of which is required to market
medical laboratory instruments in the United States.
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"IMPROVEMENTS" shall mean all methods, procedures, processes, techniques,
systems, inventions, apparatus, information, formulas, trade secrets, concepts,
ideas, proprietary rights (including, without limitation, patents), know-how,
data and test results made, conceived, discovered or developed by IRIS
exclusively in the course of conducting Research and Development.
"INDEMNIFIED PARTY" shall mean, with respect to any alleged Loss, the party
seeking indemnity under the terms of this Agreement.
"INDEMNIFYING PARTY" shall mean, with respect to any alleged Loss, the
party from whom indemnity is being sought under the terms of this Agreement.
"IRIS" shall mean International Remote Imaging Systems, Inc., a Delaware
corporation.
"IRIS COMMON STOCK" shall mean the common stock, $0.01 par value per share,
of IRIS or such security that IRIS stockholders receive in connection with any
consolidation, merger, or sale of all or substantially all of the assets of IRIS
or, if such securities were not received, the common stock (or equivalent
thereto) of the Person surviving any consolidation of IRIS with or merger of
IRIS with or into any other Person or any sale, lease or other transfer of all
or substantially all of the assets of IRIS to any other Person (including any
individual, partnership, joint venture, corporation, trust or group thereof).
"IRIS TECHNOLOGY" shall mean all methods, procedures, processes,
techniques, systems, inventions, apparatus, information, formulas, trade
secrets, concepts, ideas, proprietary rights (including, without limitation,
existing and pending patents), know-how, data and test results (excluding the
PSI Technology) which IRIS owns, or to which IRIS has the right to grant
sublicenses, on or prior to the expiration of the Development Agreement.
"LOSS" shall mean any loss, damage, claim, liability or expense, including
without limitation, interest, penalties and reasonable attorneys' fees, net of
any tax adjustments, settlements or other effects which actually result from the
Loss and its payment by the Indemnifying Party.
"MAYO ADVANCED URINE CHEMISTRY SYSTEM" means a Stand Alone wet chemistry
system for urine chemistry.
"OFFERING" shall mean the offering of Units as described in the Offering
Memorandum.
"OFFERING MEMORANDUM" shall mean the Offering Memorandum relating to the
Units dated June 29, 1995, as supplemented by the Supplemental Information to
Offering Memorandum dated Septebmer 25, 1995.
"OFFERING START DATE" shall mean the original date of the Offering
Memorandum.
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"OPTION EXPIRATION DATE" shall mean 121 days after termination of the
Development Agreement.
"PERSON" shall mean any individual, partnership, corporation, firm,
association, unincorporated organization, joint venture, trust or other entity.
"PROPOSED PRODUCTS" shall mean the Sonic Macrometer, the Mayo Advanced
Urine Chemistry System, the Urine Sediment Analyzer, and the Specimen
Accessioning Station.
"PSI" shall mean Poly U/A Systems, Inc., a Delaware corporation.
"PSI COMMON STOCK" shall mean the common stock, $.01 par value per share,
of PSI.
"PSI TECHNOLOGY" shall mean all methods, procedures, processes, techniques,
systems, inventions, apparatus, information, formulas, trade secrets, concepts,
ideas, proprietary rights (including, without limitation, existing and pending
patents), know-how, data and test results (excluding the IRIS Technology) which
PSI owns, or to which PSI has the right to grant sublicenses, on or prior to the
expiration of the Development Agreement, including the Improvements.
"RESEARCH AND DEVELOPMENT" shall have the meaning set forth in Section 1.1
of the Development Agreement.
"RESEARCH AND DEVELOPMENT COSTS" shall mean all direct and indirect costs,
fees and out-of-pocket or other expenses incurred, paid or accrued by IRIS in
connection with performing the Research and Development for PSI under the
Development Agreement, determined in accordance with Section 2.3 thereof, but
excluding in all events any such costs, fees or expenses paid by PSI to IRIS
under the Administration and Services Agreement.
"SONIC MACROMETER" means a Stand Alone instrument designed to automatically
measure all of urine specific gravity, pH and urine color and clarity in a
single instrument.
"SPECIMEN ACCESSIONING STATION" means a Stand Alone system consisting of
collection cups and an automatic pipetting device designed to transfer urine
from collection cups into standard clinical laboratory tubes.
"STAND ALONE" shall mean an instrument which is designed and sold primarily
to conduct the test or combination of tests described in the definition of the
instrument and not bundled with or generally sold or marketed with significant
additional features or incorporated into another instrument.
"TECHNOLOGY LICENSE AGREEMENT" shall mean the Technology License Agreement
dated as of September 29, 1995 between IRIS and PSI, as amended, modified or
supplemented from time to time.
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"TOA" shall mean TOA Medical Electronics Co., Ltd., a Japanese corporation.
"TOA RESTRUCTURING AGREEMENTS" shall mean the following agreements between
TOA and IRIS dated as of July 15, 1988: (i) Restructuring Agreement, (ii)
Amended and Restated Distribution Agreement, (iii) License Agreement and (iv)
Security Agreement and Collateral Assignment.
"UNITS" shall mean the units described in the Offering Memorandum, each
consisting of two thousand shares of PSI Common Stock and a warrant to purchase
four thousand shares of IRIS Common Stock.
"URINE SEDIMENT ANALYZER" means a Stand Alone instrument for automatically
conducting the microscopic portion of a urinalysis only through a slide-based
microscope but will not include a complete urinalysis work station or any other
part of a complete urinalysis.
"WORKPLAN AND BUDGET" shall mean the workplan and budget for Research and
Development to be provided by IRIS to PSI for the duration of the Development
Agreement in accordance with Section 1.1.1 thereof.
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EXHIBIT 10.15
RESEARCH AND DEVELOPMENT AGREEMENT
This RESEARCH AND DEVELOPMENT AGREEMENT (the "Agreement") is made and
entered into as of September 29, 1995, by and between Poly U/A Systems, Inc., a
Delaware corporation ("PSI"), and International Remote Imaging Systems, Inc., a
Delaware corporation ("IRIS"), with reference to the following facts:
A. Simultaneously with entering into this Agreement, IRIS and PSI have
entered into the Technology License Agreement.
B. Pursuant to the Technology License Agreement, IRIS has granted to PSI,
and PSI has acquired from IRIS, an exclusive, worldwide license to certain
technology for the purpose of developing, manufacturing and marketing the
Proposed Products. Also pursuant to the Technology License Agreement, PSI has
granted to IRIS an exclusive, worldwide license to use all new technology
developed during the course of performing such services for purposes other than
developing, manufacturing or marketing the Proposed Products.
C. IRIS has the experience, facilities, equipment and employees to
provide the research, development, clinical evaluation and pre-market testing to
enable PSI to develop, manufacture and market the Proposed Products.
D. PSI desires to engage IRIS to perform such services, and IRIS is
willing to provide such services, on the terms and conditions set forth herein.
NOW, THEREFORE, based upon the above premises and in consideration of the
mutual covenants and agreements contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows (capitalized terms not defined herein shall have
the meanings set forth in Schedule A attached hereto):
1. RESEARCH AND DEVELOPMENT.
1.1 RESEARCH AND DEVELOPMENT SERVICES. PSI hereby engages IRIS, and
IRIS hereby agrees to undertake, good faith efforts towards research,
development, clinical evaluation and pre-market testing of the IRIS Technology
for the purpose of enabling PSI to develop, manufacture and market the Proposed
Products (the "Research and Development"). Such services shall be provided as
follows:
1.1.1 WORKPLAN AND BUDGET. Within thirty (30) days of the date
hereof, IRIS will submit to PSI a workplan and budget acceptable to PSI covering
the period beginning on November 1, 1995 for the anticipated duration of the
Research and Development (the "Workplan and Budget"). IRIS and PSI may make
changes in the Workplan and Budget from time to time as approved by an
authorized representative of each party.
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1.1.2 RESEARCH AND DEVELOPMENT. During the term of this
Agreement, IRIS shall use commercially reasonable efforts to (a) conduct the
Research and Development on behalf of PSI in a prudent and skillful manner in
accordance, in all material respects, with the Workplan and Budget and
applicable laws, ordinances, rules, regulations, orders, licenses and other
requirements now or hereafter in effect and (b) diligently execute the Workplan
and Budget and report to PSI any significant deviations therefrom in a timely
manner. IRIS shall, at PSI's expense as described below, furnish all labor,
supervision, services, supplies and materials necessary to perform the Research
and Development in accordance with the Workplan and Budget. In addition to its
undertakings pursuant to the Technology License Agreement, IRIS agrees to use
commercially reasonable efforts to attempt to obtain, on behalf of and at the
expense of PSI, any patent or technology license or sublicense from any Person,
including IRIS, that IRIS reasonably determines to be necessary or useful to the
Research and Development.
1.1.3 OTHER ACTIVITIES; SUBCONTRACTS. During the term of this
Agreement, IRIS shall devote such time and effort to the Research and
Development as may be necessary to fulfill its duties as described in this
Section 1; PROVIDED, HOWEVER, that IRIS shall not be required to devote itself,
on a full time basis, to the Research and Development and that IRIS shall have
the right to engage in its own research and development activities and in other
business activities with other Persons, and PSI shall not, by virtue of this
Agreement, have any right, title or interest in or to such independent
activities or to the income or profits derived therefrom and nothing set forth
in this Agreement shall limit or reduce the ability of IRIS to carry on such
other activities. PSI acknowledges and agrees that, in performing the Research
and Development, IRIS may, and is hereby authorized to, without the prior
consent of PSI, engage or agree or otherwise collaborate with other Persons,
including, without limitation, Affiliates of IRIS or research institutions
performing other research and development activities for IRIS, to provide
assistance in carrying out the Research and Development; PROVIDED, FURTHER, that
any payments to Affiliates charged to PSI shall not exceed the direct and
indirect costs of such Affiliates in performing such services.
1.1.4 REPORTS AND RECORDS.
1.1.4.1 QUARTERLY COST REPORTS. Within sixty (60) days
after the end of each calendar quarter during the term of this Agreement, IRIS
shall provide to PSI a reasonably detailed report setting forth the total
Research and Development Costs for such quarter.
1.1.4.2 SEMIANNUAL PROGRESS REPORTS. On a regular basis
(but at least twice a year), IRIS will provide to PSI a reasonably detailed
report setting forth (a) a summary of the work performed hereunder by IRIS and
its employees and agents and (b) a description of any material developments
relating thereto.
1.1.4.3 FINAL REPORT. IRIS shall prepare a final report,
within ninety (90) days after the expiration or termination of this Agreement,
setting forth in reasonable detail a summary of the work performed hereunder and
the material developments relating thereto and containing a final statement of
all Research and Development Costs.
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1.1.4.4 MAINTENANCE OF RECORDS. IRIS shall maintain, in
accordance with generally accepted accounting principles consistently applied,
true, accurate and complete records and books of account documenting all
Research and Development Costs.
1.1.4.5 INDEPENDENT AUDIT. At PSI's request and expense,
IRIS shall permit a certified independent public accountant selected by PSI to
have access, no more than once in each fiscal year during the term of this
Agreement and once during the three (3) years following the expiration or
termination hereof, during regular business hours and upon reasonable notice to
IRIS, to such records and books for the sole purpose of determining the
appropriateness of Research and Development Costs invoiced hereunder; PROVIDED,
HOWEVER, that if such certified independent public accountant reasonably
determines that Research and Development Costs have been overstated by an amount
greater than ten percent (10%) of the actual Research and Development Costs,
IRIS shall promptly refund any such overpayment to PSI and pay all reasonable
fees and disbursements of such certified independent public accountant incurred
in the course of making such determination.
1.1.5 LICENSE TO TECHNOLOGY FOR DEVELOPMENT. PSI hereby grants
to IRIS an exclusive (as against PSI and all other Persons), worldwide, royalty-
free right and license, including the right to license or sublicense to other
Persons, during the term of this Agreement, to use of the IRIS Technology and
the PSI Technology for purposes of Research and Development. This license is
granted in addition to, and not in substitution for, any other license granted
to IRIS, whether pursuant to the Technology License Agreement or otherwise.
1.1.6 SALE OF THE PRODUCT PRIOR TO REGULATORY APPROVAL. PSI
appoints IRIS as its exclusive agent for the manufacture and sale of the Product
during the term of this Agreement for the sole purpose of conducting the
clinical evaluation and pre-market testing required to obtain FDA or other
regulatory clearance for marketing the Products. PSI shall reimburse IRIS in
accordance with Section 2.4 hereof for all costs relating to the manufacture and
sale of the Product as Research and Development Costs, and IRIS shall remit to
PSI any revenues received by it from the sale of the Products.
1.2 DISCLAIMER OF WARRANTIES. IRIS cannot and does not guarantee
that the Research and Development will be successful in whole or in part, that
any of the Proposed Products will be developed or that, if developed, it will be
successful in the marketplace. To the extent that IRIS has complied with
Section 1.1.2 hereof, the failure of IRIS to successfully develop any of the
Proposed Products will not constitute a breach by IRIS of any representation,
warranty, covenant or other obligation under this Agreement or the Technology
License Agreement. In addition, neither IRIS nor PSI makes any representation
or warranty or guaranty that the Available Funds will be sufficient for the
completion of the Research and Development of, or to begin commercialization
with respect to, the Proposed Products.
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1.3 RIGHTS TO PROPERTY. Subject to the rights granted to IRIS under
this Agreement or the Technology License Agreement, all right, title and
interest in and to any Improvements shall be the exclusive property of PSI.
2. PAYMENT FOR SERVICES; TIMING OF PAYMENTS.
2.1 PAYMENTS. As consideration for conducting the Research and
Development and subject to Sections 2.2 and 2.4, PSI shall reimburse IRIS for
all Research and Development Costs incurred since the Offering Start Date in
excess of $500,000 up to a maximum aggregate amount equal to the Available
Funds. "Available Funds" shall mean Funds less Expenses. "Funds" shall mean
the net proceeds of the Offering and any interest earned on the Funds.
"Expenses" shall mean the sum of (a) all general and administrative expenses
incurred by PSI (including payments under the Administration and Services
Agreement), (b) all royalty, license and similar fees incurred in connection
with the use or acquisition of technology useful in the Research and Development
and (c) $25,000 to be retained by PSI as working capital. PSI agrees to expend
all of the Available Funds on the Research and Development conducted by IRIS
pursuant to this Agreement.
2.2 TIMING OF PAYMENTS AND IRIS FUNDING. IRIS shall submit to PSI on
a monthly basis an invoice for all Research and Development Costs incurred
during the previous month (or, in the case of the first invoice, since the
Offering Start Date). Within ten (10) days of receipt of such invoice, PSI
shall pay to IRIS all amounts due thereunder. IRIS shall credit the account of
PSI with $15,000 in the first thirty-three (33) invoices and $5,000 on the
thirty-fourth (34th) invoice to account for the obligation of IRIS under Section
2.1 to fund $500,000 of the Research and Development Costs. To the extent such
credit exceeds the total Research and Development Costs reflected on an invoice
(together with amounts due and unpaid from previous invoices), the excess of
such credit shall be carried forward to the next monthly invoice until IRIS has
funded $500,000 of Research and Development Costs. Thereafter, IRIS shall have
no further obligation to fund Research and Development Costs.
2.3 CALCULATION OF COSTS. Direct costs attributable to performing
the Research and Development (including employee salaries and benefits) shall be
allocated on a reasonable and consistent basis and charged to PSI. The
expenditures and estimated expenditures of conducting the Research and
Development hereunder shall be determined using the internal cost accounting
system of IRIS. Allocation of all indirect costs, including general and
administrative costs, will be made by IRIS on a reasonable basis consistent with
its internal cost accounting system.
2.4 PERFORMANCE OF RESEARCH AND DEVELOPMENT ON A CREDIT BASIS. If
the Available Funds are exhausted on or before July 31, 1998, IRIS shall have
the option (but not the obligation) of continuing the Research and Development
on a credit basis until July 31, 1998, and PSI shall be liable for one hundred
percent (100%) of the Research and Development Costs related thereto in excess
of the remaining IRIS funding commitment under Sections 2.1 and 2.2 (if any)
plus interest at a rate equal to the lesser of eight percent (8.0%) or the
maximum rate of interest permissible under applicable law. Such Research
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and Development Costs shall be payable upon demand by IRIS and shall accrue
interest from the date such Research and Development Costs are due under the
related invoice. Any Research and Development conducted pursuant to the terms
of this Section 2.4 may be terminated (i) by IRIS without cause at any time and
(ii) by PSI pursuant to Section 7.3.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS.
3.1 REPRESENTATIONS, WARRANTIES AND COVENANTS OF IRIS. IRIS
represents, warrants and covenants to PSI as follows:
3.1.1 IRIS is a corporation duly organized, validly existing
and in good standing under the laws of the state of Delaware with corporate
powers adequate for executing and delivering, and performing its obligations
under, this Agreement;
3.1.2 the execution, delivery and performance of this
Agreement by IRIS have been duly authorized by all necessary corporate action;
3.1.3 this Agreement has been duly executed and delivered by
IRIS and is a legal, valid and binding obligation of IRIS, enforceable against
IRIS in accordance with its terms;
3.1.4 the execution, delivery and performance of this
Agreement by IRIS do not conflict with or contravene any provision of the
charter documents or by-laws of IRIS or, in any material respect, any agreement,
document, instrument, indenture or other obligation of IRIS;
3.1.5 IRIS will propose the Workplan and Budget and any
amendments or modifications thereto in good faith;
3.1.6 except as otherwise provided herein, IRIS shall not
during the term of this Agreement initiate or undertake any research and
development for its own account or for the account of any other party for the
purpose of developing, manufacturing or marketing any of the Proposed Products;
and
3.1.7 IRIS shall not enter into any agreement or make any
commitment that would contravene any material provision of, or materially
derogate any of the rights of PSI under, this Agreement.
3.2 REPRESENTATIONS, WARRANTIES AND COVENANTS OF PSI. PSI
represents, warrants and covenants to IRIS as follows:
3.2.1 PSI is a corporation duly organized, validly existing
and in good standing under the laws of the state of Delaware with corporate
powers adequate for executing and delivering, and performing its obligations
under, this Agreement;
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3.2.2 the execution, delivery and performance of this
Agreement by PSI have been duly authorized by all necessary corporate action;
3.2.3 this Agreement has been duly executed and delivered by
PSI and is a legal, valid and binding obligation of PSI, enforceable against PSI
in accordance with its terms;
3.2.4 the execution, delivery and performance of this
Agreement by PSI do not conflict with or contravene any provision of the charter
documents or by-laws of PSI or, in any material respect, any agreement,
document, instrument, indenture or other obligation of PSI;
3.2.5 PSI shall consider and act upon the Workplan and Budget
and any amendments or modifications thereto in good faith; and
3.2.6 PSI shall not, during the term of this Agreement and
for two (2) years thereafter, without the prior written consent of IRIS, solicit
the employment of, or employ any person, in any capacity, who, at any time
during the term of this Agreement, shall have been an officer, director,
employee or agent of IRIS, except for individuals employed by PSI on the date
hereof.
4. CONFIDENTIALITY.
4.1 CONFIDENTIALITY OBLIGATIONS. The parties hereby acknowledge and
agree that the IRIS Technology and the PSI Technology (including the
Improvements) contain valuable, confidential information and trade secrets
developed or acquired, or which will be developed or acquired, through the
expenditure of significant amounts of time and money. Accordingly, except as
expressly permitted by Section 4.2 or the Technology License Agreement, IRIS and
PSI shall maintain the confidential nature of, and not disclose to any third
party, any Confidential Information. The obligations set forth in this
Section 4.1 shall survive the termination or expiration of this Agreement.
4.2 PERMITTED DISCLOSURES. The obligations of confidentiality
contained in this Agreement shall not apply to any Confidential Information if,
and to the extent:
4.2.1 reasonably necessary to market products, including,
without limitation, by making disclosures to prospective customers as will
adequately explain the nature and operation of the product;
4.2.2 reasonably necessary to effect sublicenses permitted
under this Agreement or the Technology License Agreement;
4.2.3 independently developed by the receiving party outside
the scope of this Agreement;
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4.2.4 reasonably necessary to carry out its obligations under
this Agreement;
4.2.5 reasonably necessary to secure governmental or
regulatory approvals or clearances; and
4.2.6 the disclosure is required by a judicial order or
decree of governmental law or regulation, provided that the receiving party
promptly notifies the disclosing party of such requirement and reasonable
opportunity is allowed for the disclosing party to obtain a protective order or
otherwise proceed under applicable law to protect its interests.
4.3 EMPLOYEE CONFIDENTIALITY AND ASSIGNMENT OF INVENTIONS. Prior to
allowing an employee access to any Confidential Information, the employing party
shall obtain from the employee an executed agreement regarding confidentiality
and assignment of inventions in a form reasonably satisfactory to the other
party.
4.4 INJUNCTIONS. The parties agree that, due to the unique and
proprietary nature of the Confidential Information, the remedies at law for a
breach by either party of its obligations under this Section 4 will be
inadequate and that, in the event of such breach, the other party shall be
entitled to equitable relief (including without limitation injunctive relief and
specific performance) in addition to all other remedies provided under this
Agreement or available at law. PSI acknowledges the secret nature and quality
of the IRIS Technology as legally protectable proprietary information and
intellectual property and agrees to waive proof of such fact in any litigation
or arbitration between the parties.
5. DISCLAIMER OF WARRANTY; LIMITATIONS OF LIABILITY.
5.1 DISCLAIMER OF WARRANTY. Except as provided in Section 3, the
parties hereto disclaim any and all representations and warranties, express or
implied, concerning the IRIS Technology or the PSI Technology, including without
limitation (i) whether such technology, to the extent not already developed,
will be developed, (ii) the performance, utility, reliability, suitability for
any particular purpose or accuracy of such technology, (iii) whether the use of
the technology licensed hereunder will infringe any patent or other proprietary
rights of any third party, and (iv) whether any of the technology is or will be
entitled to protection under patent, copyright or other proprietary laws.
5.2 LIMITATIONS ON LIABILITY. Neither party to this Agreement shall
be entitled to recover from the other any incidental, consequential, special or
punitive damages for any breach of this Agreement.
6. INDEMNIFICATION.
6.1 INDEMNIFICATION OF PSI. Subject to Section 5.2, IRIS shall
indemnify and hold PSI harmless from and against any Loss including, without
limitation, any Loss based upon negligence, warranty, strict liability,
violation of government regulation or
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infringement of patent or other proprietary rights, arising out of (a) any use
of the IRIS Technology or the PSI Technology by IRIS or any Affiliate, agent or
sublicensee of IRIS (other than PSI) for purposes other than Research and
Development or (b) any breach of this Agreement by IRIS.
6.2 INDEMNIFICATION OF IRIS. Subject to Section 5.2, PSI shall
indemnify and hold IRIS harmless from and against any Loss including, without
limitation, any Loss based upon negligence, warranty, strict liability,
violation of government regulation or infringement of patent or other
proprietary rights, arising out of (a) any use of the IRIS Technology or the PSI
Technology by PSI or any Affiliate, agent or sublicensee of PSI (other than IRIS
for purposes other than Research and Development) or (b) any breach of this
Agreement by PSI.
6.3 INDEMNIFICATION PROCEDURES. Upon the Indemnified Party becoming
aware of a fact, condition or event for which a claim for Losses in respect
thereof is to be made against the Indemnifying Party under Sections 6.1 or 6.2,
the Indemnified Party will with reasonable promptness notify the Indemnifying
Party in writing of such fact, condition or event. The Indemnifying Party may
undertake full responsibility for the defense or prosecution in connection with
any claim brought by any third party and may contest or settle it on such terms
as the Indemnifying Party may choose; PROVIDED THAT the Indemnifying Party will
not have the right, without the Indemnified Party's written consent, to settle
any such claim if such settlement (i) arises from or is part of any criminal
actions, suit or proceeding, (ii) contains a stipulation to, confession of
judgment with respect to, or admission or acknowledgment of, any liability or
wrongdoing on the part of the Indemnified Party, or (iii) provides for
injunctive relief, or other relief or finding other than money damages, which is
binding on the Indemnified Party. Such defense or prosecution will be conducted
by reputable attorneys retained by the Indemnifying Party at the Indemnifying
Party's cost and expense, but the Indemnified Party will have the right to
participate in such proceedings and to be separately represented by attorneys of
its own choosing. The Indemnified Party will be responsible for the costs of
such separate representation.
6.4 COOPERATION. IRIS and PSI shall cooperate in determining the
validity of any third-party claim for any Loss for which a claim of
indemnification may be made hereunder. Each party shall also use all reasonable
efforts to minimize all Losses under this Agreement.
7. TERM AND TERMINATION.
7.1 TERM. Subject to the obligation of IRIS to fund $500,000 of the
Research and Development Costs pursuant to Section 2.1 and the right of IRIS to
continue the Research and Development pursuant to Section 2.4, this Agreement
shall be effective as of the date hereof and shall continue in full force and
effect until the earlier of July 31, 1998, or submission of the monthly invoice
under Section 2 constituting the last of the Available Funds (which the parties
currently anticipate will be for the month ended July 31, 1998), unless earlier
terminated as provided in Sections 7.2 or 7.3 hereof.
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7.2 TERMINATION BY IRIS. IRIS shall have the right to terminate this
Agreement, effective upon written notice of termination to PSI, in the event
that:
7.2.1 PSI fails to perform or observe or otherwise breaches
any of its material obligations under this Agreement or the Technology License
Agreement and such failure or breach continues for a period of sixty (60) days
after written notice thereof to PSI from IRIS;
7.2.2 PSI shall (i) seek the liquidation, reorganization,
dissolution, winding-up of itself or the composition or readjustment of its
debts, (ii) apply for or consent to the appointment of, or the taking of
possession by, a receiver, custodian, trustee or liquidator of itself or of all
or a substantial part of its assets, (iii) make a general assignment for the
benefit of its creditors, (iv) commence a voluntary case under the Bankruptcy
Code, (v) file a petition seeking to take advantage of any other law relating to
bankruptcy, insolvency, reorganization, winding-up or composition or
readjustment of debts, or (vi) adopt any resolution of its stockholders or Board
of Directors for the purpose of effecting any of the foregoing; or
7.2.3 a proceeding or case shall be commenced without the
application or consent of PSI and such proceeding or case shall continue
undismissed, or an order, judgment or decree approving or ordering any of the
following shall be entered and continue unstayed and in effect, for a period of
forty-five (45) days from and after the date service of process is effected upon
PSI, seeking (i) the liquidation, reorganization, dissolution or winding-up of
PSI or the composition or readjustment of its debts, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of PSI or of all or any
substantial part of its assets, or (iii) similar relief in respect of PSI under
any law relating to bankruptcy, insolvency, reorganization, winding-up or the
composition or readjustment of debts.
7.3 TERMINATION BY PSI. PSI shall have the right to terminate this
Agreement, effective upon written notice of termination to IRIS, in the event
that:
7.3.1 IRIS fails to perform or observe or otherwise breaches
any of its material obligations under this Agreement or the Technology License
Agreement and such failure or breach continues for a period of sixty (60) days
after written notice thereof to IRIS from PSI;
7.3.2 IRIS shall (i) seek the liquidation, reorganization,
dissolution or winding-up of itself or the composition or readjustment of its
debts, (ii) apply for or consent to the appointment of, or the taking of
possession by, a receiver, custodian, trustee, liquidator of itself or of all or
a substantial part of its assets, (iii) make a general assignment for the
benefit of its creditors, (iv) commence a voluntary case under the Bankruptcy
Code, (v) file a petition seeking to take advantage of any other law relating to
bankruptcy, insolvency, reorganization, winding-up or composition or
readjustment of debts, or (vi) adopt any resolution of its stockholders or Board
of Directors for the purpose of effecting any of the foregoing; or
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7.3.3 a proceeding or case shall be commenced without the
application or consent of IRIS and such proceeding or case shall continue
undismissed, or an order, judgment or decree approving or ordering any of the
following shall be entered and continue unstayed and in effect, for a period of
forty-five (45) days from and after the date service of process is effected upon
IRIS, seeking (i) the liquidation, reorganization, dissolution or winding-up of
IRIS or the composition or readjustment of its debts, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of IRIS or of all or any
substantial part of its assets or (iii) similar relief in respect of IRIS under
any law relating to bankruptcy, insolvency, reorganization, winding-up or the
composition or readjustment of debts.
7.4 EFFECT OF TERMINATION. Upon the termination of this Agreement,
all rights and obligations of the parties hereunder will terminate without
liability of any party to any other party except for (i) liability for any
breach occurring prior to such termination and (ii) the obligations of the
parties set forth in Sections 1.1.4, 1.3, 2 (but solely to the extent services
have been rendered by IRIS prior to such termination), 4, 5, 6, 7.4, 8.8, 8.10,
8.11 and 8.16 which shall survive such termination.
8. MISCELLANEOUS.
8.1 COMPLETE AGREEMENT; MODIFICATIONS. This Agreement and any
documents referred to herein or executed contemporaneously herewith constitute
the parties' entire agreement with respect to the subject matter hereof and
supersede all agreements, representations, warranties, statements, promises and
understandings, whether oral or written, with respect to the subject matter
hereof. This Agreement may not be amended, altered or modified except by a
writing signed by the parties.
8.2 WAIVERS STRICTLY CONSTRUED. With regard to any power, remedy or
right provided herein or otherwise available to any party hereunder (a) no
waiver or extension of time shall be effective unless expressly contained in a
writing signed by the waiving party; and (b) no alteration, modification or
impairment shall be implied by reason of any previous waiver, extension of time,
delay or omission in exercise, or other indulgence.
8.3 FORCE MAJEURE. Neither party shall be responsible for delays or
failure to perform under this Agreement (other than the obligations of PSI to
make certain payments to IRIS pursuant to Section 2 hereof) due to causes beyond
the reasonable control and without fault or negligence of such party.
8.4 NOTICES. Unless otherwise specifically permitted by this
Agreement, all notices under this Agreement shall be in writing and shall be
delivered by personal service, telegram, telex, facsimile or certified mail (or,
if certified mail is not available, then by first class mail), postage prepaid,
to such address as may be designated from time to time by the relevant party,
and which shall initially be as follows:
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(i) If to IRIS:
International Remote Imaging Systems, Inc.
9162 Eton Avenue
Chatsworth, California 91311
(818) 700-9661 (facsimile)
Attention: Fred H. Deindoerfer, President
(ii) If to PSI:
PSI Systems, Inc.
9162 Eton Avenue
Chatsworth, California 91311
(818) 700-9661 (facsimile)
Attention: Fred H. Deindoerfer, President
Any notice sent by certified mail (or by first class mail if certified mail
is not available) shall be deemed to have been given three (3) days after the
date on which it is mailed. All other notices shall be deemed given when
received. No objection may be made to the manner of delivery of any notice
actually received in writing by an authorized agent of a party.
8.5 ADDITIONAL DOCUMENTS. Each party hereto agrees to execute any
and all further documents and writings and to perform such other actions which
may be or become necessary or expedient to effectuate and carry out this
Agreement.
8.6 SUCCESSORS AND ASSIGNS. Except as provided herein to the
contrary, this Agreement shall be binding upon and inure to the benefit of the
parties, their respective successors and permitted assigns.
8.7 ASSIGNMENTS. IRIS and PSI may assign their rights and
obligations after prior written notice thereof to the other to an Affiliate if
such Affiliate assumes all of the obligations of the assignee hereunder and this
Agreement remains binding upon the assignee, and IRIS may assign its rights and
obligations after prior written notice to PSI to any Person which acquires all
or substantially all of the assets of IRIS or which is the surviving Person in a
merger or consolidation with IRIS, if (a) such Person assumes all of the
obligations of IRIS hereunder and (b) such Person shall, immediately after
giving effect to such assignment or transfer, be solvent and have a tangible net
worth (determined in accordance with generally accepted accounting principles
then in effect) not materially less than the tangible net worth (as so
determined) of IRIS immediately prior thereto. Except as provided above or
otherwise expressly permitted under this Agreement, neither party may assign any
of its rights or delegate any of its obligations under this Agreement, in whole
or in part, including without limitation pursuant to a merger or consolidation,
without the prior written consent of the other party, which may be withheld in
the sole discretion of the other party. Any attempt to assign or delegate any
portion of this Agreement in violation of this Section shall be null and void.
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<PAGE>
8.8 GOVERNING LAW. This Agreement has been negotiated and entered
into in the State of California, concerns only California business and all
questions with respect to the Agreement and the rights and liabilities of the
parties shall be governed by the laws of that state, regardless of the choice of
laws provisions of California or any other jurisdiction. Any litigation or
arbitration between the parties shall be conducted in Los Angeles, California.
8.9 REMEDIES. The parties acknowledge that the remedy at law for any
breach, or threatened breach, of any of the provisions of this Agreement will be
inadequate. Therefore, each party to this Agreement shall be entitled to seek
specific performance as a remedy for any breach of this Agreement. Such remedy
shall not be deemed to be the exclusive remedy of a party hereto for the breach
of this Agreement by the other party hereto or its representatives, but shall be
in addition to all other remedies available at law or in equity to the party
suffering such breach.
8.10 ARBITRATION AS EXCLUSIVE REMEDY. Except for actions seeking
injunctive relief, which may be brought before any court having jurisdiction,
any claim arising out of or relating to (i) this Agreement, including, but not
limited to, its validity, interpretation, enforceability or breach, or (ii) the
relationship between the parties (including its commencement and termination)
whether based on breach of covenant, breach of an implied covenant or
intentional infliction of emotional distress or other theories, which are not
settled by agreement between the parties, shall be settled by arbitration in Los
Angeles, California before a board of three arbitrators, one selected by each
party, and the third by the two persons so selected, all in accordance with the
Commercial Arbitration Rules of the American Arbitration Association ("AAA")
then in effect. The notice of intent to arbitrate shall name one arbitrator,
and the party(ies) receiving the notice shall name the second arbitrator within
15 days or the moving party may select the second arbitrator from a list
supplied by the AAA. In the event that these two arbitrators cannot agree upon
a third arbitrator within 15 days, then the third arbitrator shall be selected
from the list provided by the AAA with the parties striking names in order with
the party striking first to be determined by the flip of a coin. The parties
hereby (i) consent to the in personam jurisdiction of the Superior Court of the
State of California for purposes of confirming any such award and entering
judgment thereon; (ii) agree to use their best efforts to keep all matters
relating to any arbitration hereunder confidential; and (iii) agree that the
arbitrators may not assess any remedy other than the awarding of actual damages
suffered and/or an injunctive order (including temporary, preliminary and
permanent relief) when appropriate. In any arbitration proceedings hereunder,
(a) all testimony of witnesses shall be taken under oath; (b) discovery will be
allowed under the provisions of Section 1283.05 of the California Code of Civil
Procedure, as presently in force, which are incorporated herein; and (c) upon
conclusion of any arbitration, the arbitrators shall render findings of fact and
conclusions of law in a written opinion setting forth the basis and reasons for
any decision reached and deliver such documents to each party to this Agreement
along with a signed copy of the award in accordance with Section 1283.6 of the
California Code of Civil Procedure. Each party agrees that the arbitration
provisions of this Agreement are its exclusive remedy and expressly waives any
right to seek redress in another forum. Each party shall bear the fees of the
arbitrator appointed by it, and the fees of the neutral arbitrators shall be
borne equally
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<PAGE>
by each party during the arbitration, but the fees of all arbitrators shall be
borne by the losing party.
8.11 ATTORNEYS' FEES. Should any litigation or arbitration be
commenced (including any proceedings in a bankruptcy court) between the parties
hereto or their representatives concerning any provision of this Agreement or
the rights and duties of any person or entity hereunder, the party or parties
prevailing in such proceeding shall be entitled, in addition to such other
relief as may be granted, to the attorneys' fees and court costs incurred by
reason of such litigation.
8.12 SEVERABILITY. The validity, legality or enforceability of the
remainder of this Agreement shall not be affected even if one or more of the
provisions of this Agreement shall be held to be invalid, illegal or
unenforceable in any respect. To the extent permitted by applicable law, the
parties hereby waive any provision of law that would render any provision hereof
prohibited or unenforceable in any respect.
8.13 NO THIRD-PARTY BENEFITS. None of the provisions of this
Agreement shall be for the benefit of, or enforceable by, any third-party
beneficiary.
8.14 HEADINGS. The headings in this Agreement are inserted only as a
matter of convenience, and in no way define, limit, or extend or interpret the
scope of this Agreement or of any particular provision.
8.15 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.16 NO JOINT VENTURE. It is understood and agreed that no agency,
employment, partnership or joint venture relationship is hereby created between
the parties. Neither party is an affiliate of the other and no claims or
representations will be made by either party which would create an apparent
agency, employment, partnership or joint venture relationship with the other.
Neither party has the authority to act for, create debts or
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obligations for, or bind the other, nor is either party responsible for the
obligations and debts of the other. The only relationship between the parties
is that of independent contractors.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
By
----------------------------------------------
Fred H. Deindoerfer, Chairman of the Board,
President and Chief Executive Officer
POLY U/A SYSTEMS, INC.
By
----------------------------------------------
Fred H. Deindoerfer, President
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<PAGE>
SCHEDULE A
GLOSSARY
"ADMINISTRATION AND SERVICES AGREEMENT" shall mean the Administration and
Services Agreement dated as of September 29, 1995 between IRIS and PSI, as
amended, modified or supplemented from time to time.
"AFFILIATE" of a Person shall mean a Person that directly, or indirectly
through one or more intermediaries, controls, is controlled by or is under
common control with such Person. "Control" (and, with correlative meanings, the
terms "controlled by" and "under common control with") shall mean the possession
of the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting stock, by contract or
otherwise. In the case of a corporation "control" shall mean, among other
things, the direct or indirect ownership of more than fifty percent (50%) of its
outstanding voting stock.
"ANNUAL WORKPLAN AND BUDGET" shall mean the reasonably detailed workplans
and budgets for Research and Development to be provided by IRIS to PSI for each
annual period in accordance with Sections 1.1.1 and 1.1.4 of the Development
Agreement.
"AVAILABLE FUNDS" shall have the meaning set forth in Section 2.1 of the
Development Agreement.
"BANKRUPTCY CODE" shall mean the Bankruptcy Reform Act of 1978, as amended,
modified or supplemented from time to time.
"CONFIDENTIAL INFORMATION" shall mean all information disclosed by IRIS to
PSI or by PSI to IRIS pursuant to the Technology License Agreement or the
Development Agreement, except information that (i) was known to the receiving
party prior to its receipt from the disclosing party (except that information
first developed pursuant to the Development Agreement shall not be considered
known by IRIS), (ii) is or becomes part of the public domain through no fault of
the receiving party or (iii) is disclosed to the receiving party on an
unrestricted basis by a third party that is legally free to disclose such
information.
"DEVELOPMENT AGREEMENT" shall mean the Research and Development Agreement
dated as of September 29, 1995 between PSI and IRIS, as amended, modified or
supplemented from time to time.
"FDA" shall mean the United States Food and Drug Administration or any
successor agency or authority, the approval of which is required to market
medical laboratory instruments in the United States.
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<PAGE>
"IMPROVEMENTS" shall mean all methods, procedures, processes, techniques,
systems, inventions, apparatus, information, formulas, trade secrets, concepts,
ideas, proprietary rights (including, without limitation, patents), know-how,
data and test results made, conceived, discovered or developed by IRIS
exclusively in the course of conducting Research and Development.
"INDEMNIFIED PARTY" shall mean, with respect to any alleged Loss, the party
seeking indemnity under the terms of this Agreement.
"INDEMNIFYING PARTY" shall mean, with respect to any alleged Loss, the
party from whom indemnity is being sought under the terms of this Agreement.
"IRIS" shall mean International Remote Imaging Systems, Inc., a Delaware
corporation.
"IRIS COMMON STOCK" shall mean the common stock, $0.01 par value per share,
of IRIS or such security that IRIS stockholders receive in connection with any
consolidation, merger, or sale of all or substantially all of the assets of IRIS
or, if such securities were not received, the common stock (or equivalent
thereto) of the Person surviving any consolidation of IRIS with or merger of
IRIS with or into any other Person or any sale, lease or other transfer of all
or substantially all of the assets of IRIS to any other Person (including any
individual, partnership, joint venture, corporation, trust or group thereof).
"IRIS TECHNOLOGY" shall mean all methods, procedures, processes,
techniques, systems, inventions, apparatus, information, formulas, trade
secrets, concepts, ideas, proprietary rights (including, without limitation,
existing and pending patents), know-how, data and test results (excluding the
PSI Technology) which IRIS owns, or to which IRIS has the right to grant
sublicenses, on or prior to the expiration of the Development Agreement.
"LOSS" shall mean any loss, damage, claim, liability or expense, including
without limitation, interest, penalties and reasonable attorneys' fees, net of
any tax adjustments, settlements or other effects which actually result from the
Loss and its payment by the Indemnifying Party.
"MAYO ADVANCED URINE CHEMISTRY SYSTEM" means a Stand Alone wet chemistry
system for urine chemistry.
"OFFERING" shall mean the offering of Units as described in the Offering
Memorandum.
"OFFERING MEMORANDUM" shall mean the Offering Memorandum relating to the
Units dated June 29, 1995, as supplemented by the Supplemental Information to
Offering Memorandum dated Septebmer 25, 1995.
"OFFERING START DATE" shall mean the original date of the Offering
Memorandum.
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<PAGE>
"OPTION EXPIRATION DATE" shall mean 121 days after termination of the
Development Agreement.
"PERSON" shall mean any individual, partnership, corporation, firm,
association, unincorporated organization, joint venture, trust or other entity.
"PROPOSED PRODUCTS" shall mean the Sonic Macrometer, the Mayo Advanced
Urine Chemistry System, the Urine Sediment Analyzer, and the Specimen
Accessioning Station.
"PSI" shall mean Poly U/A Systems, Inc., a Delaware corporation.
"PSI COMMON STOCK" shall mean the common stock, $.01 par value per share,
of PSI.
"PSI TECHNOLOGY" shall mean all methods, procedures, processes, techniques,
systems, inventions, apparatus, information, formulas, trade secrets, concepts,
ideas, proprietary rights (including, without limitation, existing and pending
patents), know-how, data and test results (excluding the IRIS Technology) which
PSI owns, or to which PSI has the right to grant sublicenses, on or prior to the
expiration of the Development Agreement, including the Improvements.
"RESEARCH AND DEVELOPMENT" shall have the meaning set forth in Section 1.1
of the Development Agreement.
"RESEARCH AND DEVELOPMENT COSTS" shall mean all direct and indirect costs,
fees and out-of-pocket or other expenses incurred, paid or accrued by IRIS in
connection with performing the Research and Development for PSI under the
Development Agreement, determined in accordance with Section 2.3 thereof, but
excluding in all events any such costs, fees or expenses paid by PSI to IRIS
under the Administration and Services Agreement.
"SONIC MACROMETER" means a Stand Alone instrument designed to automatically
measure all of urine specific gravity, pH and urine color and clarity in a
single instrument.
"SPECIMEN ACCESSIONING STATION" means a Stand Alone system consisting of
collection cups and an automatic pipetting device designed to transfer urine
from collection cups into standard clinical laboratory tubes.
"STAND ALONE" shall mean an instrument which is designed and sold primarily
to conduct the test or combination of tests described in the definition of the
instrument and not bundled with or generally sold or marketed with significant
additional features or incorporated into another instrument.
"TECHNOLOGY LICENSE AGREEMENT" shall mean the Technology License Agreement
dated as of September 29, 1995 between IRIS and PSI, as amended, modified or
supplemented from time to time.
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"TOA" shall mean TOA Medical Electronics Co., Ltd., a Japanese corporation.
"TOA RESTRUCTURING AGREEMENTS" shall mean the following agreements between
TOA and IRIS dated as of July 15, 1988: (i) Restructuring Agreement, (ii)
Amended and Restated Distribution Agreement, (iii) License Agreement and (iv)
Security Agreement and Collateral Assignment.
"UNITS" shall mean the units described in the Offering Memorandum, each
consisting of two thousand shares of PSI Common Stock and a warrant to purchase
four thousand shares of IRIS Common Stock.
"URINE SEDIMENT ANALYZER" means a Stand Alone instrument for automatically
conducting the microscopic portion of a urinalysis only through a slide-based
microscope but will not include a complete urinalysis work station or any other
part of a complete urinalysis.
"WORKPLAN AND BUDGET" shall mean the workplan and budget for Research and
Development to be provided by IRIS to PSI for the duration of the Development
Agreement in accordance with Section 1.1.1 thereof.
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EXHIBIT 10.16
CLASS A NOTE
$100.00 Dated: As of September 29, 1995
Los Angeles, California
For value received and intending to be legally bound, Poly U/A Systems,
Inc., a Delaware corporation ("Debtor"), promises to pay to International Remote
Imaging Systems, Inc., a Delaware corporation ("Lender"), the principal amount
of One Hundred Dollars ($100.00) without interest on the one hundred twenty
first (121st) day after termination of the Research and Development Agreement by
and between Debtor and Lender to be entered into at the closing of the offering
by Debtor of Units, each Unit consisting of two thousand shares of callable
common stock, $.01 par value, of Debtor and one warrant, each warrant entitling
the holder thereof to purchase four thousand shares of common stock, $.01 par
value, of Lender.
Debtor's obligations under this Class A Note shall be unconditional. This
Class A Note may not be prepaid in whole or in part for any reason.
Failure to pay any amount due under this Class A Note within five (5) days
after such amount becomes due shall constitute an event of default. Upon an
event of default, all sums due under this Class A Note shall become due and
payable, and commencing on the date such default occurs, shall bear and accrue
interest at a rate equal to the lesser of (i) ten percent (10%) per annum or
(ii) the maximum rate permissible under applicable law.
Debtor shall not, without the consent of Lender, while this Class A Note is
outstanding, (i) issue (by sale or otherwise) any shares of its capital stock,
(ii) merge, consolidate or reorganize with or into any other corporation or
other entity, (iii) sell, lease, transfer or otherwise dispose of all or
substantially all of its assets, (iv) declare or pay dividends, (v) redeem,
retire, repurchase or otherwise reacquire any shares of its capital stock, (vi)
borrow any funds in the aggregate in excess of Twenty-Five Thousand Dollars
($25,000.00), (vii) grant any options, warrants or other rights with respect to
its capital stock, (viii) undertake any voluntary dissolution or liquidation,
(ix) amend its Certificate of Incorporation or (x) commit to take any of the
foregoing actions.
This Class A Note may not be assigned or otherwise transferred, except that
Lender may, without the prior written consent of Debtor, assign or otherwise
transfer this Class A Note, by operation of law or otherwise, (a) to any person
or entity to which Lender has assigned, sold, leased, transferred or otherwise
disposed of all or substantially all of the assets of Lender, (b) to any
successor corporation resulting from any merger or consolidation of Lender with
or into another corporation or (c) to any wholly-owned subsidiary of Lender.
Lender shall provide written notice to Debtor of any such assignment or transfer
setting forth the identity and address of the assignee or transferee and
summarizing the terms of the assignment or transfer.
<PAGE>
Subject to the foregoing, this Class A Note shall inure to the benefit of
Lender and shall be binding upon Debtor and its permitted successors and
assigns. This Note is Debtor's Class A Note referenced in Article FIVE of the
Certificate of Incorporation of the Debtor filed with the Secretary of the State
of the State of Delaware on the 16th day of June, 1995, and is entitled to the
benefits thereof. This Class A Note shall be governed by and construed under
the laws of the State of Delaware.
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
By:
---------------------------------------------
Fred H. Deindoerfer, Chairman of the Board,
President and Chief Executive Officer
POLY U/A SYSTEMS, INC.
By:
---------------------------------------------
Fred H. Deindoerfer, President
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EXHIBIT 10.17
CERTIFICATE OF INCORPORATION OF
Poly U/A SYSTEMS, INC.
ONE: The name of this corporation is:
Poly U/A Systems, Inc.
TWO: The address of its registered office in the State of Delaware is
1050 S. State Street, Dover, Delaware 19901, County of Kent. The name of its
registered agent at such address is CorpAmerica, Inc.
THREE: The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the Delaware General Corporation Law ("DGCL").
FOUR: The corporation is authorized to issue one class of stock which
will be designated Common Stock; the total number of shares which the
corporation shall have authority to issue is Five Hundred Thousand (500,000),
and the par value of each of such shares is one cent ($.01).
The Common Stock shall be subject to the following purchase option:
A. OPTION. International Remote Imaging Systems, Inc., a
Delaware corporation ("IRIS"), holds an exclusive, irrevocable option (the
"Option") to purchase all (but not less than all) of the outstanding Common
Stock of this corporation upon the terms and conditions set forth in this
Restated Certificate of Incorporation. The Option will be exercisable at any
time prior to 5:00 p.m., Los Angeles time, on the one hundred twenty first
(121st) day (the "Expiration Date") following termination of the Research and
Development Agreement by and between this corporation and IRIS. If the
Expiration Date is not otherwise a business day, then the Expiration Date shall
be 5:00 p.m., Los Angeles time, on the next succeeding business day.
B. EXERCISE PRICE. Upon exercise of the Option, IRIS shall
make payment for each share of Common Stock (the "Exercise Price") as follows:
EXERCISE DATE EXERCISE PRICE
On or before July 31, 1996 $ 14.00
From August 1, 1996 through July 31, 1997 17.00
From after August 1, 1997 through the 20.00
Expiration Date
<PAGE>
C. FORM OF PAYMENT. Except as provided in Paragraph F and the
last sentence of this Paragraph, the Exercise Price may be paid in cash or IRIS
Common Stock (but not a combination thereof) at the sole discretion of IRIS.
For purposes of determining the number of shares of IRIS Common Stock to be
delivered in payment of all or a portion of the Exercise Price, shares of IRIS
Common Stock will be valued if then traded on a national securities exchange,
according to the average of the closing prices on the principal national
securities exchange on which listed asked prices quoted in the NASDAQ over-the-
counter market or, if then quoted on the NASDAQ National Market System, the
average closing prices thereon, on each of the 20 trading days immediately
preceding the date the Option is exercised. If the IRIS Common Stock is not so
quoted or traded during such 20-day period, the Exercise Price will be paid
entirely in cash.
D. MANNER OF EXERCISE. The Option shall be exercised on or
before the Expiration Date by written notice from IRIS to each holder of record
of the Common Stock at the address last indicated on the records of this
corporation (i) stating that the Option is being exercised, (ii) setting forth
the Exercise Price and the date on which IRIS will purchase all of the Common
Stock (such date to be not less than ten (10) nor more than sixty (60) days
after the date of such notice) (the "Closing Date") and (iii) stating that a
letter of transmittal containing instructions for securing payment of the
Exercise Price will be mailed promptly after the Closing Date to all holders of
record of Common Stock on the Closing Date.
E. PAYMENT AGENT. Subject to the provisions of Paragraph F
below, on or before the Closing Date, IRIS shall deposit the full amount of the
Exercise Price for all of the Common Stock with a bank, transfer agent or
similar entity (the "Payment Agent") which shall have been designated by IRIS to
pay, on its behalf, the Exercise Price. The cash or IRIS Common Stock deposited
with the Payment Agent shall be delivered in trust for the benefit of the
holders of the Common Stock, and IRIS shall provide the Payment Agent with
irrevocable instructions to pay, on or after the Closing Date, the Exercise
Price for the Common Stock to such holders upon surrender of their certificates
representing shares of the Common Stock. Promptly after the Closing Date, IRIS
shall, or shall cause the Payment Agent to, mail to each holder of record of the
Common Stock on the Closing Date a letter of transmittal containing instructions
for securing payment of the Exercise Price. Any cash or IRIS Common Stock
deposited with the Payment Agent pursuant to this Paragraph E that remains
unclaimed for one (1) year following the Closing Date, and all interest earned
thereon, shall be automatically returned to IRIS.
F. REGISTRATION OR LISTING. If IRIS fails by the Closing Date
to have (a) any required registration statement declared effective under the
Securities Act of 1933, as amended, with respect to the shares of IRIS Common
Stock, if any, to be delivered as payment pursuant to the exercise of the Option
or (b) the shares of IRIS Common Stock to be issued in connection therewith (i)
listed on the principal national securities exchange on which IRIS Common Stock
is then listed or (ii), if IRIS Common Stock is not then listed on a national
securities exchange, listed on either the NASDAQ
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National Market System or the over-the-counter system, then in either of such
cases IRIS shall be obligated to make such payment all in cash on the Closing
Date.
G. TRANSFER OF TITLE. Transfer of title to IRIS of all of the
Common Stock shall be deemed to occur automatically on the Closing Date, and
thereafter the corporation shall treat IRIS as the sole holder of all the Common
Stock, notwithstanding the failure of any holder of record of shares of Common
Stock to tender certificates representing such shares to the Payment Agent for
payment therefor in accordance with Paragraph E hereof. After the Closing Date,
the record holders of the Common Stock as determined in accordance with
Paragraph D hereof shall have no rights in connection with such Common Stock
other than the right to receive the Exercise Price.
H. ANTIDILUTION. Pursuant to Article FIVE of this Certificate
of Incorporation, this corporation is prohibited from, among other things,
issuing any shares of its capital stock, paying any dividends, merging or
consolidating with any corporation, reacquiring any shares of its capital stock,
dissolving or liquidating. In the event that this corporation violates any of
such restrictions, the Option shall include, at no additional cost to IRIS, the
right to receive all securities or other property distributed with respect to
shares of Common Stock in violation of such restrictions, and payment by the
Paying Agent may, at the option of IRIS, be conditioned on receipt of any such
securities or other property along with the certificates representing the
relevant shares of Common Stock.
I. ASSIGNMENT BY HOLDERS OF COMMON STOCK. Shares of Common
Stock shall automatically continue to be subject to the Option and the other
terms and conditions related thereto contained in this Certificate of
Incorporation, without regard to any assignment, sale or other transfer of the
Common Stock.
J. LEGEND. Until the expiration or exercise of the Option, any
certificates evidencing shares of the Common Stock shall bear a legend in
substantially the following form:
The shares of Poly U/A Systems, Inc. evidenced hereby are
subject to an option granting International Remote Imaging
Systems, Inc. the right to purchase such shares at a
purchase price and during a period set forth in the
Certificate of Incorporation of Poly U/A Systems, Inc.
Copies of the Certificate of Incorporation of Poly U/A
Systems, Inc. are available at its principal place of
business, 9162 Eton Avenue, Chatsworth, California 91311,
and will be furnished without cost to any stockholder upon
written request.
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K. AMENDMENT. Paragraphs A through L of this Article FOUR may
be amended only by the approval of IRIS and the holders of record of two-thirds
(2/3) of the then outstanding shares of Common Stock.
L. PRESERVATION OF RIGHTS OF IRIS. This corporation shall not
take, or permit any other person or entity within its control to take, any
action inconsistent with the rights of IRIS under this Article FOUR. In
addition, this corporation shall not enter into any arrangement, agreement or
understanding, either oral or written, that is inconsistent with the rights of
IRIS and the obligations of this corporation under this Article FOUR.
FIVE: This corporation shall not, without the written consent of IRIS
and the holder of this corporation's Class A Note, dated as of the original date
of filing of this Certificate of Incorporation, in the principal amount of
$100.00 (the "Class A Note"), while the Class A Note is outstanding, (i) issue
(by sale or otherwise) any shares of its capital stock, (ii) merge, consolidate
or reorganize with or into any other corporation or other entity, (iii) sell,
lease, transfer or otherwise dispose of all or substantially all of its assets,
(iv) declare or pay dividends, (v) redeem, retire, repurchase or otherwise
reacquire any shares of its capital stock, (vi) borrow any funds in the
aggregate in excess of twenty-five thousand dollars ($25,000), (vii) grant any
options, warrants or other rights with respect to its capital stock,
(viii) undertake any voluntary dissolution or liquidation, (ix) amend this
Certificate of Incorporation or (x) commit to take any of the foregoing actions,
except that this corporation may repurchase the initial one hundred (100) shares
of its common stock at no gain or loss.
SIX: The following provisions are inserted for the
management of the business and the conduct of the affairs of the corporation,
and for further definition, limitation and regulation of the powers of the
corporation and of its directors and stockholders:
A. The business and affairs of the corporation shall be managed
by or under the direction of the Board of Directors. In addition to the powers
and authority expressly conferred upon them by the DGCL or by this Certificate
of Incorporation or the Bylaws of the corporation, the directors are hereby
empowered to exercise all such powers and do all such acts and things as may be
exercised or done by the corporation.
B. The Board of Directors may adopt, amend or repeal the
Bylaws of the corporation.
C. Election of directors need not be by written ballot.
SEVEN: The officers of the corporation shall be chosen in such a manner,
shall hold their offices for such terms and shall carry out such duties as are
determined solely by the Board of Directors, subject to the right of the Board
of Directors to remove any officer or officers at any time with or without
cause.
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EIGHT: No director of the corporation shall be personally liable to the
corporation or its stockholders for monetary damages for any breach of fiduciary
duty by such a director as a director. Notwithstanding the foregoing sentence,
a director shall be liable to the extent provided by applicable law (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the
DGCL or (iv) for any transaction from which such director derived an improper
personal benefit. No amendment to or repeal of this Article SEVEN shall apply
to or have any effect on the liability or alleged liability of any director of
the corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal. If the DGCL is amended hereafter
to further eliminate or limit the personal liability of directors, the liability
of a director of the corporation shall be limited or eliminated to the fullest
extent permitted by the DGCL, as amended.
NINE: A. RIGHT TO INDEMNIFICATION. Each person who was or is made a
party to or is threatened to be made a party to or is involuntarily involved in
any action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "Proceeding"), by reason of the fact that he or she is or was a
director or officer of the corporation, or is or was serving (during his or her
tenure as director and/or officer) at the request of the corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, whether the basis of such Proceeding
is an alleged action or inaction in an official capacity as a director or
officer or in any other capacity while serving as a director or officer, shall
be indemnified and held harmless by the corporation to the fullest extent
authorized by the DGCL (or other applicable law), as the same exists or may
hereafter be amended, against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) reasonably incurred or suffered by such person
in connection with such Proceeding. Such director or officer shall have the
right to be paid by the corporation for expenses incurred in defending any such
Proceeding in advance of its final disposition; provided, however, that, if the
DGCL (or other applicable law) requires, the payment of such expenses in advance
of the final disposition of any such Proceeding shall be made only upon receipt
by the corporation of an undertaking by or on behalf of such director or officer
to repay all amounts so advanced if it should be determined ultimately that he
or she is not entitled to be indemnified under this Article EIGHT or otherwise.
B. RIGHT OF CLAIMANT TO BRING SUIT. If a claim under this
Article NINE is not paid in full by the corporation within ninety (90) days
after a written claim has been received by the corporation, the claimant may at
any time thereafter bring suit against the corporation to recover the unpaid
amount of the claim, together with interest thereon, and, if successful in whole
or in part, the claimant shall also be entitled to be paid the expense of
prosecuting such claim, including reasonable attorneys' fees incurred in
connection therewith. It shall be a defense to any such action (other than
action brought to enforce a claim for expenses incurred in defending any
Proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the corporation) that the claimant has
not met the standards of conduct
-5-
<PAGE>
which make it permissible under the DGCL (or other applicable law) for the
corporation to indemnify the claimant for the amount claimed. Neither the
failure of the corporation (or of its full Board of Directors, its directors who
are not parties to the Proceeding with respect to which indemnification is
claimed, its stockholders, or independent legal counsel) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the DGCL (or other applicable law),
nor an actual determination by any such person or persons that such claimant has
not met such applicable standard of conduct, shall be a defense to such action
or create the presumption that the claimant has not met the applicable standard
of conduct.
C. NON-EXCLUSIVITY OF RIGHTS. The rights conferred by this
Article NINE shall not be exclusive of any other right which any director,
officer, representative, employee or other agent may have or hereafter acquire
under the DGCL or any other statute, or any provision contained in the
corporation's Certificate of Incorporation or Bylaws, or any agreement, or
pursuant to a vote of stockholders or disinterested directors, or otherwise.
D. INSURANCE AND TRUST FUND. In furtherance and not in
limitation of the powers conferred by statute:
(1) the corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against any liability asserted against him or her and
incurred by him or her in any such capacity, or arising out of his or her status
as such, whether or not the corporation would have the power to indemnify him or
her against such liability under the provisions of law; and
(2) the corporation may create a trust fund, grant a
security interest and/or use other means (including, without limitation, letters
of credit, surety bonds and/or other similar arrangements), as well as enter
into contracts providing indemnification to the fullest extent permitted by law
and including as part thereof provisions with respect to any or all of the
foregoing, to ensure the payment of such amount as may become necessary to
effect indemnification as provided therein, or elsewhere.
E. INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION.
The corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification, including the right to be paid by
the corporation the expenses incurred in defending any Proceeding in advance of
its final disposition, to any employee or agent of the corporation to the
fullest extent of the provisions of this Section or otherwise with respect to
the indemnification and advancement of expenses of directors and officers of the
corporation.
-6-
<PAGE>
F. EFFECT OF REPEAL OR MODIFICATION. Articles EIGHT and NINE
herein are also contained in Article VIII, Sections 1 through 6, of the
corporation's Bylaws. Any repeal or modification of this Article NINE shall not
change the rights of any officer or director to indemnification with respect to
any action or omission occurring prior to such repeal or modification.
TEN: The corporation reserves the right to repeal, alter, amend, or
rescind any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred on
stockholders herein are granted subject to this reservation.
ELEVEN: The name and mailing address of the sole incorporator are as
follows:
Daniel G. Christopher, Esq.
c/o Irell & Manella
1800 Avenue of the Stars, Suite 900
Los Angeles, California 90067
I, THE UNDERSIGNED, being the incorporator, for the purpose of forming a
corporation under the laws of the State of Delaware, do make, file and record
this Certificate of Incorporation, do certify that the facts stated are true,
and accordingly, have hereto set my hand this 16th day of June, 1995.
______________________________________
Daniel G. Christopher
Incorporator
-7-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET, INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,166,297
<SECURITIES> 4,697,170
<RECEIVABLES> 2,639,801
<ALLOWANCES> (35,443)
<INVENTORY> 2,645,867
<CURRENT-ASSETS> 12,002,494
<PP&E> 2,692,036
<DEPRECIATION> (2,015,010)
<TOTAL-ASSETS> 16,203,738
<CURRENT-LIABILITIES> 2,350,513
<BONDS> 0
<COMMON> 60,089
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 16,203,738
<SALES> 9,194,648
<TOTAL-REVENUES> 290,998
<CGS> 4,799,142
<TOTAL-COSTS> 3,318,520
<OTHER-EXPENSES> 3,480,987<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,183,003)
<INCOME-TAX> 30,000
<INCOME-CONTINUING> (2,143,003)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,143,003)
<EPS-PRIMARY> (.40)
<EPS-DILUTED> 0
<FN>
<F1>NON-RECURRING.
</FN>
</TABLE>
