<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
---------------
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
---------------
COMMISSION FILE NUMBER: 0-11625
MICROFLUIDICS INTERNATIONAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 04-2793022
--------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30 OSSIPEE ROAD, P.0. BOX 9101
NEWTON, MASSACHUSETTS 02164-9101
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(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 969-5452
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, $.01
PAR VALUE
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 the
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of Common Stock held by non-affiliates of the
registrant as of March 21, 1997 was $8,580,615.
The number of shares outstanding of the registrant's Common Stock as of March
21, 1997 was 4,903,212 shares.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a definitive proxy statement pursuant to
Regulation 14A within 120 days of the end of the fiscal year ended December 31,
1996. Portions of such proxy statement are incorporated by reference into Part
III of this report.
<PAGE>
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ITEM 1. BUSINESS:
COMPANY OVERVIEW:
- ----------------
Microfluidics International Corporation ("Microfluidics" or the
"Company"), through its wholly-owned subsidiaries, Microfluidics Corporation
("MFC") and MediControl Corporation ("MediControl"), which is currently
inactive, specializes in producing and marketing proprietary Microfluidizer/(R)/
materials processor devices used for the creation of micro-droplets and
dispersions in liquid streams for very fine mixing and blending applications.
Microfluidizer devices have wide-spread use in chemical, pharmaceutical,
biotechnology, cosmetics and food processing applications.
Microfluidizer equipment is used to formulate emulsions, dispersions,
and liposomes, and is used in cell disruption. Emulsions are found in a broad
variety of common products, including processed foods, medicines and
photographic films. Dispersions are often employed in products such as inks,
pigments and coatings. The Company believes that the processing technique of
the Microfluidizer equipment enhances the stability and consistency of emulsions
and dispersions due to the equipment's unique ability to consistently produce
uniform micron scale particles in many applications. Liposomes, which are
biodegradable cell-like structures, are used to encapsulate medications or
nutrients, and are typically used in cosmetic or pharmaceutical products. In
addition, Microfluidizer equipment may be used in biotechnology applications to
harvest, through cell disruption, the cultivated product contents of plant and
animal cells.
The Company was incorporated in Delaware in 1983. The Company,
formerly named Biotechnology Development Corporation, changed its name effective
June 8, 1993 to Microfluidics International Corporation (MFIC). Its principal
executive offices are located at 30 Ossipee Road, in Newton, Massachusetts, and
its telephone number is (617) 969-5452.
THE TECHNOLOGY:
- --------------
The Company's Microfluidizer devices are based on patents and related
technology that was licensed by MFIC from Arthur D. Little & Co. in 1983 and
subsequently purchased by MFIC in 1985. The Company holds two United States
patents related to the apparatus and process used to intimately mix liquids and
disperse particulate solids in microemulsions.
The Company's Microfluidizer device is used in the processing
industries to mix materials that are normally very difficult to mix. The
Microfluidizer devices allow manufacturers in such industries as chemicals,
pharmaceuticals, biotechnology, cosmetics, and food processing, to produce
higher quality products with better characteristics on a more consistent basis
than with other blending and mixing techniques.
In the Microfluidizer device, two or more ingredients are pumped into
the device under high pressure. The fluid streams are then injected at very
high speeds into the proprietary interaction chamber where the streams collide
in a confined space and resultingly interact. This collision of fluids under
these conditions causes the thorough mixing and integration of the component
ingredients. The
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result is a uniform, consistent, and lump-free product. The process can also be
used in biotechnology cell-rupture applications. The precision with which the
Microfluidizer device can be used to break up materials allows the encapsulating
cell wall to be ruptured with minimum damage to or contamination of the cell
contents. The advantage of Microfluidics' equipment is its ability to: (i)
reduce the particle size of ingredients to minute levels using extremely high
pressures [up to 40,000 pounds per square inch ("psi")]; and (ii) precisely
control the process so all component ingredients are uniformly affected by
interaction.
The Company believes its patented Microfluidizer device, with its
unique ability to consistently produce micron and sub-micron-size particles,
allows users to manufacture new and improved formulations with enhanced product
stability and formulation consistency. The Company's technology is
distinguished by its ability to provide uniform treatment of all elements of a
formulation. The Company believes that causing processed material to flow
through fixed channels under nearly constant high pressure into a confined
liquid collision zone within its proprietary interaction chamber differentiates
its equipment from the equipment of its competitors. The resulting high
intensity forces of shear (flow), impact and cavitation (vapor bubble implosion)
forces caused thereby uniformly affect all materials in the collision zone,
reducing the size of droplets or particles in the material flow to a uniform
micron-size scale. Smaller and more uniform particles result in increased
surface area that can substantially improve the compatibility of formulation
ingredients, allowing a much higher level of homogeneity. In contrast, the
Company believes that other mixing technologies are limited by non-uniform
pressure, variable geometry processes, lower practical operating pressures and
accordingly impart less energy in mixing and produce less uniform formulations
that are inferior to those produced with the Microfluidizer device.
Among the benefits believed to be imparted by Microfluidizer
processing for various industries are:
* extension of shelf life
* enhanced flavor and texture
* consistency of color and fragrance
* improved delivery of drugs and cosmetics
* elimination of additives and solvents
* more uniform product appearance
* more effective (higher yield) cell rupture
In February 1995, the Company introduced the Diamond Interaction
Chamber as a product enhancement to the Microfluidizer. This chamber uses
diamond surfaces in the high wear regions of the chamber, rather than the
Company's proprietary ceramic materials. While the standard ceramic interaction
chamber is generally acceptable for most applications, the Diamond Interaction
Chamber was designed to reduce wear in the chamber from applications that
introduce abrasive materials into the process stream, such as metal oxides, and
cause significant wear to areas of high energy transfer. Proprietary material
preparation, machining and assembly methodologies for the Company's Diamond
Interaction Chamber were developed during 1993 and 1994.
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The Company believes that the equipment of its competitors generally
incorporate mechanical components in the mixing valves that move continually
during processing, allowing variable size particles to pass through and
resulting in non-uniform, inconsistent products. In contrast, the Company's
equipment contains no in-line moving parts in the high energy mixing zone. In
addition, while the Company believes that competing equipment frequently needs
to repeat a mixing process cycle, Microfluidics' equipment can achieve results
that are similar or superior to its competitor's results with fewer mixing
cycles. An additional advantage of the Microfluidizer equipment is that it can
be scaled up to larger, higher volume product requirements in a reliable manner.
COMMERCIAL APPLICATIONS:
- -----------------------
The Microfluidizer equipment can be used to mix and formulate
emulsions, dispersions and liposomes, and for cell disruption.
Emulsions are homogenous mixtures of oil and water components (or
other normally immiscible components), which, if mixed properly, do not readily
separate. Emulsions make up many products, such as processed foods, medicines,
photographic films, hydraulic fluids and polymers. The Company believes that,
generally, an emulsion processed with a Microfluidizer equipment will exhibit
improved stability and require reduced concentrations of costly emulsifying
agents that are otherwise needed to enhance product stability.
Dispersions are mixtures of fine solids suspended in liquid so that
the two do not separate readily after processing. Similar to emulsions,
dispersions are used in a variety of consumer and industrial products, including
pigments for paints and inks, iron oxide for magnetic tapes and mascara,
phosphorescent coatings for TV screens and fluorescent lamps, barium titanate
for capacitors, toners and inks.
Liposomes are biodegradable cell-like structures, formed from
materials such as cholesterol and lecithin, that can be used to encapsulate
medications or nutrients. Pharmaceutical and cosmetic manufacturers use
liposomes as a delivery system to target active ingredients for specific
anatomical sites and to prolong their efficacy. To date, liposomes have been
used commercially primarily in the area of medical diagnostic agents and
cosmetics. Applications include the encapsulation of dye to be used as a marker
in medical diagnostic tests and the encapsulation of ingredients for deeper skin
penetration, or time release control, as well as pharmaceutical, food and
specialized agricultural applications.
In the biotechnology industry, Microfluidizer equipment is currently
used to harvest, by cell rupture, the contents of plant or animal cells. The
precision with which the Microfluidizer can be used to break up materials allows
the encapsulating cell wall to be ruptured without damage to or contamination of
the cell contents. As a result, the Microfluidizer equipment minimizes the
amount and presence of cell wall debris, thus resulting in maximum yields.
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With the introduction of the Diamond Interaction Chamber, the Company
targeted the markets for processing abrasive materials by wet milling and wet
grinding, which cause deagglomeration and dispersion of these materials into
slurries.
The Company continually seeks to expand the applications for which the
Microfluidizer materials processing technology can be used. The Company is
exploring other applications for the Microfluidizer processing technology in
research and licensing arrangements with Worcester Polytechnic Institute ("WPI")
and Catalytica, Inc. ("Catalytica"). See "Research and Development".
THE PRODUCTS:
- ------------
Microfluidics currently manufactures and markets the following lines
of equipment that range in price from $12,000 to $500,000:
The HC Series: The HC Series, also known as "Homogenizers," is a
-------------
laboratory-scale series of equipment that is intended to impart moderate levels
of energy into a customer's product with greater flow rates than the more energy
intensive Microfluidizer devices. Operating pressures of products in the
Company's HC Series can range from under 500 psi to as high as 8,000 psi, and
will process as much as two liters of fluid per minute. The original
pneumatically driven laboratory-scale Microfluidizer device has been
supplemented by more costly, electrically driven unit.
The M-110 Series: The 110 Series, a laboratory product line, is
----------------
designed primarily for research and development applications. . Standard models
can operate at pressures as high as 25,000 psi and have a flow rate that exceeds
one-half of a liter of product per minute. The original pneumatically driven
laboratory-scale Microfluidizer device has been supplemented by a newer, more
costly, electrically driven unit.
The M-140K: The M-140K, introduced in June of 1994, is a laboratory-
----------
scale unit developed for customers in chemical, biotechnology, pharmaceutical,
cosmetic and food processing industries who require elevated operating pressures
to achieve better performance. The M-140K can achieve operating pressures up to
40,000 psi. The M-140K has a built-in hydraulic system and utilizes a double
ended intensifier pump that provides a highly uniform pressure profile. It has
been designed with important safety features such as an explosion proof motor,
starter and electrical controls.
The M-210 Series: The 210 Series is primarily marketed to
----------------
manufacturers who have created a successful new or improved formulation on a 110
series unit and would like to increase their productive capacity. The 210
Series unit is typically used for testing formulations at greater volume levels
before initiating full scale production. Pneumatically driven 210 Series
devices have been supplemented by more costly, electrically driven units. For
some customers (such as pharmaceutical product manufacturers), the 210 series
may have the capacity to function as a production unit.
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The M-610 Series: The 610 Series consists of custom built models used
----------------
for large-scale manufacturing. These units have flow rates of up to 50 gallons
per minute and generate operating pressures up to 40,000 psi.
MARKETING AND SALES:
- -------------------
The Company's strategy is to sell laboratory Microfluidizer systems
such as the M-110 Series or the M-140K into customers' research and development
departments where chemists, formulators, scientists and process engineers are
searching for new and better formulations of their products. If the laboratory
Microfluidizer systems and technology are effective in creation or
reformulation of products, then Microfluidizer systems such as the 210 Series or
the 610 Series are placed in a customer's operations department for use in
commercial quantity manufacture of such new or improved products.
Marketing is conducted through advertising, direct mail, seminars,
trade shows and telemarketing. In addition, the Company has an active program
of field demonstrations, as well as demonstrations to potential users in the
Company's applications laboratory. International distributors and sales agents
are supported with trade advertising, collateral literature and trade show
materials. The distributors also advertise directly on their own behalf and
attend regional and international trade shows. As an aid to the marketing and
sales activity for the equipment, the Company provides a complete applications
testing laboratory service. This service includes free processing and particle
size and distribution analysis of a prospective customer's sample formulation.
Additionally, a prospective customer may pay for subsequent laboratory time and
services on a fee for services basis, which includes equipment rentals.
The Company sells its equipment in the U.S. through a network of
independent regional sales representative firms who are overseen and assisted by
the Company's regional sales managers. In Canada, the Company has an exclusive
distributor. In Europe, the Company utilizes a network of independent regional
sales agents and distributors who are assisted by the Company's resident sales
manager and his staff. In Asia, the Company sells through regional distributors
who are assisted by the Company's manager of Asian Sales.
CUSTOMERS:
- ---------
The users of Microfluidizer systems are industrial producers of high
value added fluid materials in the chemical, pharmaceuticals, food, cosmetic and
biotechnology industries. Mizuho Industrial Co. Ltd., a distributor, accounted
for 17% of revenues in 1996. One other distributor (Inland) accounted for 10% of
revenues in 1996. A reduction or delay in orders from Mizuho or other
significant customers could have a material adverse effect on the Company's
results of operations.
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COMPETITION:
- -----------
The Company believes that its Microfluidizer equipment competes with
high and low pressure homogenizers and high energy mechanical dispersing
equipment. Homogenizers are directly descended from the first milk homogenizer,
introduced around 1900. Mechanical dispensers employ high shear technology,
which consists of blades rotating in a vessel containing the material to be
dispersed. The Company believes that machines produced by other manufacturers
have, in general, more moving parts and operate at lower pressures and impart
less intense process energy. Colloid mills are also used to produce emulsions
and dispersions. Other types of rotor-stator mixing equipment, which are
sometimes referred to as low-shear mixers, are generally not competitive in
function with the Company's equipment, but may be useful in pre-mixing product
for subsequent processing by other means, including Microfluidizer processing.
With respect to emulsions, the Company believes that, generally, an
emulsion processed with a Microfluidizer unit will exhibit improved stability
characteristics and require reduced concentrations of costly emulsifying agents.
Competing homogenizer equipment operates by impacting the pressurized ejection
of a formulation upon a ring of metal. The Company believes that these devices
have several operational disadvantages, including variable treatment of
formulation elements, particle size reduction limitations, cleaning difficulty,
energy inefficiency and imprecise temperature control.
With respect to dispersions, the available competing equipment ("media
mills") uses milling media (beads of ceramic, metal, etc.) to facilitate
dispersion of the solid component in the liquid. This technology, however,
often results in crushed formulation particles. In contrast, the Microfluidizer
process does not damage the primary solid. In addition, when using a media
mill, the media used is often fragmented in the mixing process, thus
contaminating the final dispersion. Using its fluid stream mixing process, the
Microfluidizer unit avoids the need for an additional processing step to remove
such impurities.
The Company believes that most competing technologies in cell rupture
processing frequently contaminate the cell contents with membrane debris, and/or
by introducing contamination from media breakdown, requiring additional
downstream separation and purification and resulting in lower yield. Further,
such technologies usually require multiple passes to adequately process cells.
The Company believes that competing equipment and processes generally
require more treatment cycles in order to attain a similar result to that
produced on Microfluidizer equipment. Also, in many instances even repetitive
treatment cycles on such competing equipment will not yield a similar result to
that obtained with the use of Microfluidizer processing.
There are several competing technologies that can be used to
manufacture liposomes. However, the Company believes that these production
methods suffer from their lot size limitations, lack of consistency, requisite
use of detergents or emulsifiers and an inability to operate in a continuous
process mode. In addition, to the Company's knowledge, only the Microfluidizer
system has demonstrated the ability to produce small, uniform, unilamellar
(single membrane) liposomes on a commercial production scale.
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RESEARCH AND DEVELOPMENT:
- ------------------------
The Company's research and development efforts are focused on
developing new mixing techniques for the process industries and further
enhancing the functionality, reliability and performance of existing products.
Research and development costs were $762,620, $691,466, and $450,477 in 1994,
1995, and 1996, respectively. Certain costs of cooperative undertakings
discussed below are included in the research and development expenditures.
COOPERATIVE RESEARCH ARRANGEMENTS:
- ---------------------------------
The Company subsidizes research and development activities centered
around Microfluidizer processing technology at a number of research centers and
universities. The Company's subsidy of these activities takes the form of
substantial reduction or elimination of the customary rental charges for the
Microfluidizer equipment provided for use. Currently, the Company is subsidizing
research and development in the following fields at the following universities:
The University of Massachusetts, Lowell - biotechnology; Lehigh University -
polymer chemistry; Universite Laval (Quebec) - food science; Worcester
Polytechnic Institute ("WPI") - catalytic chemistry; Rutgers University -
ceramics; and Purdue University - pharmaceuticals. In addition to their
research activities, these universities provide the Company with contacts at
industrial companies that may utilize the Microfluidizer processing technology.
In addition to providing subsidies, the Company has entered into the
following research arrangements:
Worcester Polytechnic Institute (WPI)
-------------------------------------
The Company has supported research and development at WPI since 1988.
In 1992, the Company entered into a cooperative venture with WPI to develop,
patent and license for commercial applications the Microfluidizer process
technology in the following fields: (i) the production of catalysts used in
chemical and petroleum processing; (ii) the manufacture of advanced ceramic
materials; and (iii) the destruction of volatile organic compounds and other
organic contaminants in process waste water. The Company and WPI applied for
United States and foreign patents in 1992 and 1993, respectively, which cite the
Microfluidizer processing technology as enabling the above process technologies.
The two applied-for United States patents were both granted and issued in the
United States in 1995. In 1996 one applied for patent was granted in France for
European entry in the PCT countries. Patent issuance for these process
technologies in several other foreign jurisdictions is either pending or in the
latter stages of prosecution.
Based upon market research and technical evaluation to date, the
Company is focusing its activities on the synthesis of advanced zeolite and
metal oxide catalysts using the WPI process technology. A catalyst is a
substance that initiates, accelerates and determines the course of a chemical
reaction. The Company believes that properties of proprietary catalysts may
improve industrial process economics by making more efficient use of raw
materials, reducing energy requirements and increasing product yields. The
Company believes that the catalytic materials
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produced by the Microfluidizer process may result in improved efficiency and
extended life, compared with conventional catalysts.
Catalytica, Inc.(Catalytica)
----------------------------
In 1993, the Company entered into a licensing agreement as co-licensee
with Catalytica, and WPI, and concurrently formed a collaboration with
Catalytica. WPI granted to Microfluidics and Catalytica, jointly, an exclusive,
worldwide license to develop and commercialize the Microfluidizer process
technology developed at WPI for the synthesis of nanometer size, high purity,
solid state metal oxide materials. Microfluidics and Catalytica are currently
focusing on technically refining this process with the objectives of licensing
the process to catalysts manufacturers, or producing advanced catalysts for
resale.
In November of 1994, the Company and Catalytica were jointly awarded a
$2 million matching funds grant under the Advanced Technology Program of the
United States Department of Commerce's National Institute of Standards and
Technology. The Advanced Technology Program is designed to assist in funding
emerging, economically important projects with well defined research and
development, technology and business objectives. The grant was awarded to the
Company and Catalytica to develop and demonstrate the ability, using patented
Microfluidizer equipment, to synthesize nanometer size catalysts providing
enhanced performance for use in the chemical and petroleum refining industries.
The project targets three types of nanometer-size catalysts: mixed metal oxides
used in chemical manufacturing, non-crystalline zeolites used for petrochemical
production and colloidal catalysts used for processing by the petroleum refining
industry. During the remaining year of the project, the Company has budgeted
expenditures of approximately $350,000. Under this grant, the Company will be
reimbursed 48% of its expenditures. The first year of the project sought to
demonstrate technical aspects such as synthesis techniques and catalyst
performance, followed by prototyping-typing proof of principle and scale up for
pilot production in year two, and customer evaluation in year three. In 1996,
in Phase 2 of the grant, the Company delivered to Catalytica a highly modified
Microfluidizer system which functions as a "continuous chemical reactor" for
advanced materials formulation. There can be no assurances that this project
will result in technology useful for the chemical and petroleum refining
industries or that any revenue will be generated from the results of this
project.
PATENTS AND PROPRIETARY RIGHTS PROTECTION:
- -----------------------------------------
To protect its proprietary rights, the Company relies on a combination
of U.S. patent and trademark laws, trademark laws, trade secrets,
confidentiality agreements, contractual provisions and technical means. In the
event of patent infringement or breach of confidentiality, there can be no
assurance that these measures will be adequate or that the Company will have
sufficient resources to prosecute or prevail in an action against a third party.
In addition, the Company has not sought patent or trademark protection for its
interaction chamber in any country other than the United States and, as such,
its proprietary rights are not subject to the protection of patent or trademark
laws
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of foreign countries where the Company's equipment is sold. The Company's
process patent expires March 13, 2007 and its equipment patent expires August 6,
2002.
MANUFACTURING:
- -------------
At present, the Company subcontracts the manufacture of many of the
components of its equipment to many third parties, with the Company undertaking
the remaining fabrication, assembly and performance testing. The Company has
selected certain primary suppliers based upon pricing terms and the quality of
their products. The Company believes that there are adequate available
alternate manufacturing sources and suppliers for the Company's components and
raw materials.
GOVERNMENT REGULATION:
- ---------------------
Certain of the Company's customers utilize the Microfluidizer
equipment in processes and production that are subject to governmental
regulation. For example, the manufacturing and marketing of pharmaceutical
products requires the approval of the Food and Drug Administration ("FDA")
within the United States and of comparable agencies in foreign countries. The
FDA has established mandatory procedures, safety standards and protocols that
apply to the manufacture, clinical testing and marketing of new pharmaceutical
products in the United States. The process of seeking and obtaining FDA
approval of a new product often takes a number of years and often involves the
expenditure of substantial resources. The FDA approval process contributes to
the extremely long lead times that are attendant to manufacturing equipment
orders for these applications.
Further, in addition to product approvals, the FDA imposes
requirements as to manufacturing practices, record keeping and reporting ("Good
Manufacturing Practices" or "GMP"). GMP-regulated companies are subject to
inspections by the FDA (inclusive of Microfluidizer equipment) and product
approvals may be withdrawn if GMP are not met.
At present, the Company's customers include companies who are making
FDA approved drugs and preparations for external use and companies who utilize
Microfluidizer equipment for the formulation or production of FDA approved
parenteral (injectable) drugs or compounds.
Various laws, regulations and recommendations relating to safe working
conditions, laboratory practices and the purchase, storage, movement, import and
export, use and disposal of harmful or potentially harmful substances that may
be used in connection with the Company's research work are or may be applicable
to its activities. These laws include, among others, the United States Atomic
Energy Act, the Clean Air Act, the Clean Water Act, the Occupational Safety and
Health Act, the National Environmental Policy Act, the Toxic Substances Control
Act, the Resource Conservation and Recovery Act, national restrictions on
technology transfer, import, export and customs regulations and other present
and possible future local, state or Federal regulation. The extent of adverse
governmental regulation which might result from future legislation or
administrative action cannot be accurately predicted. Certain agreements that
may be entered into by the Company involving exclusive license rights may also
be subject to national or supranational antitrust regulatory control, the effect
of which cannot be predicted.
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BACKLOG:
- -------
The Company's backlog of accepted and unfilled orders at March 21,1997
and March 26, 1996 was $926,758, and $635,697 respectively. Revenue is not
recognized until equipment is shipped. Backlog as of any particular date should
not be relied upon as indicative of the Company's net revenues for any future
period.
EMPLOYEES:
- ---------
The Company has approximately 40 full-time employees. None of the
Company's employees are covered by a collective bargaining agreement, and the
Company considers its relations with its employees to be excellent. The Company
believes that its future success will depend in large part on its ability to
attract and retain highly skilled employees.
ITEM 2. PROPERTIES
The Company rents approximately 32,000 square feet of offices,
production and research and development facilities in Newton, Massachusetts for
administrative, development and production activities at an annual expense of
approximately $150,000. The lease term expires on May 31, 1998. The Company
believes that this facility will be adequate for operations for the next two
years, assuming an extension of the present lease.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is traded on The Nasdaq National Market
under the symbol "MFIC". The following table sets forth the range of quarterly
high and low bid quotations for the last two fiscal years, as furnished by the
National Association of Securities Dealers Automated Quotation System. The
quotations represent interdealer quotations without adjustment for retail
markups, markdowns, or commissions, and may not necessarily represent actual
transactions.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Quarters Ended 12/31 9/30 6/30 3/31 12/31 9/30 6/30 3/31
1996 1996 1996 1996 1995 1995 1995 1995
Common Stock
Low 1-3/16 1-1/2 1-5/8 1-1/2 1-15/32 2-7/8 3-1/8 3-1/2
High 2-1/32 1-15/16 2-5/8 2-3/8 3-5/8 4-3/8 4-3/8 4-3/8
</TABLE>
As of March 21, 1997, there were approximately 442 holders of record
of the Company's Common Stock.
The Company has never paid any cash dividends on its Common Stock and
presently anticipates that no dividends on its Common Stock will be declared in
the foreseeable future. The Company's current policy is to retain all of its
earnings to finance future growth. In, addition, pursuant to loan covenants
contained in the Company's loan agreement with its commercial leader, the
Company may not pay dividends without the commercial leader's prior approval.
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ITEM 6. SELECTED FINANCIAL DATA
The selected financial information presented below is derived from the
consolidated financial statements of the Company for the five years ended
December 31, 1996. The information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and related
Notes included elsewhere in this Form 10-K.
SELECTED INCOME STATEMENT DATA
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Total revenues................................ $ 6,273,768 $ 5,273,399 $ 7,298,416 $ 6,778,098 $ 4,496,645
Operating expenses............................ 5,922,885 6,556,747 6,796,397 5,897,569 4,085,009
Operating income (loss)....................... 350,883 (1,283,348) 502,019 880,529 411,636
Net interest.................................. 100,612 98,675 43,608 23,705 6,977
Other income.................................. 50,009
Gain on sale of investments and assets........ 174,776 34,096 94,599
----------- ----------- ----------- ----------- -----------
Income (loss) before taxes and
extraordinary item........................ 501,504 (1,009,897) 545,627 938,330 513,212
Income tax benefit (provision)................ (1,107,422) 791,058 (55,979) (211,058)
----------- ----------- ---------- ----------- -----------
Income (loss) before
extraordinary item and cumulative
effect of accounting change............... 501,504 (2,117,319) 1,336,685 882,351 302,154
----------- ----------- ----------- ----------- -----------
Extraordinary item............................ 186,807
Cumulative effect of change in
accounting for income taxes............... 290,609
----------- ----------- ----------- ----------- -----------
Net income (loss)............................. $ 501,504 ($2,117,319) $ 1,336,685 $ 1,172,960 $ 488,961
=========== =========== =========== =========== ===========
Income (loss) per primary share
before extraordinary item and
cumulative effect of an
accounting change......................... $ .10 $ (.43) $ .26 $ .20 $ .08
Extraordinary item per primary
share..................................... .05
Cumulative effect of change in
accounting for income taxes per
primary share............................. .07
----------- ----------- ----------- ----------- -----------
Net income (loss) per primary share........... $ .10 $ (.43) $ .26 $ .27 $ .13
=========== =========== =========== =========== ===========
SELECTED BALANCE SHEET DATA
Working Capital............................... $ 6,072,621 $ 5,599,714 $ 6,626,006 $ 5,758,763 $ 2,371,938
Total Assets.................................. 7,183,324 6,715,986 9,192,505 7,455,910 3,714,664
Stockholders' equity.......................... $ 6,428,523 $ 6,029,081 $ 8,069,524 $ 6,467,414 $ 2,735,827
</TABLE>
<PAGE>
-15-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
--------
During 1996 Microfluidics International Corporation made a marked
financial recovery and continued to implement changes, begun in 1995, that
strengthened the Company's overall organization strategically. In the latter
half of 1995, the Company began to revamp its senior management team and realign
its sales structure and network. During 1996 a great deal of progress was made
toward implementing these and other changes. These changes were effected in
order to return the Company to sales growth and profitability. A partial list of
the Company's efforts includes:
.The appointment of a new and seasoned management team including a President,
Vice President of Sales/Marketing, Controller, and Design Engineering Manager.
.The expansion of the Company's management efforts and capabilities that focus
on European sales.
.The replacement and augmentation of sales representative organizations and
agents in North America and Europe.
.The strengthening of the Company's Customer Service Department.
RESULTS OF OPERATIONS
FISCAL 1996 COMPARED TO FISCAL 1995
-----------------------------------
Total Company revenues for fiscal 1996 were $6,273,768 as compared to
revenues of $5,273,399 in fiscal 1995, representing an increase of $1,000,369,
or 19%. This increase in revenues was primarily the result of increased unit
shipments in North America, offset by a decrease in unit shipments in foreign
markets. During fiscal 1996, there were no increases in prices. For fiscal 1996,
North American sales increased 52% to $4,213,766 from $2,775,000 for fiscal
1995. Foreign sales were $2,060,000 for fiscal 1996, compared to $2,497,248 for
fiscal 1995, a decrease of $437,248, or 18%, due to a decrease in demand.
Management believes that, overall, the increased unit shipments were due to an
increase in the demand in the various markets for the Company's products. There
can be no assurance that these market conditions will continue to generate
increased unit shipments or revenues.
<PAGE>
-16-
Sales of the M-110 laboratory Series increased by approximately
$818,000, or 50% of sales to $3,155,682, in 1996 from $2,337,878, in 1995, while
spare part sales increased by approximately $658,000, or 28% of sales to
$1,778,000 in 1996, from $1,120,000 in 1995. Sales of the M-210 Series decreased
by approximately $109,000 to $977,045, or 16% of sales in 1996 from $1,086,318,
or 21% of sales in 1995. Sales of the HC Series decreased by approximately
$130,000, or 1% of sales to $86,370 in 1996, from $216,488 in 1995. In addition,
the Company's sale of large volume production units in fiscal 1996 was one unit,
down from two units in fiscal 1995, representing a decrease of approximately
$257,000.
Cost of goods sold for fiscal 1996 was $2,847,224, or 45% of revenue,
as compared to $2,813,801, or 53% of revenue, in fiscal 1995. The increase in
the absolute dollar amount of cost of goods sold in 1996 primarily reflects the
increased number of units sold. The decrease in the cost of goods sold, as a
percentage of revenue, was primarily the result of a 7% decrease in material
cost to $2,295,285 in 1996, or 36% of revenue, from $2,263,606 in 1995, or 43%
of revenue.
The Company's three major product lines have different profit margins,
as well as multiple profit margins within each product line. In the course of
the periods compared, there may be significant changes in the cost of revenues
as a percentage of revenue depending on the mix of product sold. Also, the cost
of sales as a percent of revenue will differ between laboratory and pilot plant
units sold due to the difference in costs between air driven and electric-
hydraulic units.
Operating expenses for fiscal 1996 were $3,075,662 or 49% of revenue,
as compared to $3,742,946, or 71% of revenue for fiscal 1995, a decrease of
$667,284, or 18%.This was a result of management's efforts to control costs.
Research and development expenses decreased to $450,477 in fiscal 1996 from
$691,466 in fiscal 1995, primarily due to a reduction in payroll and related
expenses from $507,159 to $370,996, and a decrease in research and development
expenses from $141,153 to $32,709 of which approximately $97,000 was due to a
reduction in costs related to a research project to solve equipment performance
problems in the field. Sales and marketing expenses in fiscal 1996 decreased to
$1,674,941, or 27% of revenue, from $1,895,274, or 36% of revenue, in fiscal
1995 as a result of a conscientious effort by management to make more cost
effective expenditures in this area. Key line items reduced and the
<PAGE>
-17-
amount of the reductions were: payroll and related expenses of $90,048; travel
and entertainment of $70,473; advertising expenses of $31,105, and delivery
expenses of $30,858. General and administrative expenses deceased to $950,243,
or 15% of revenue, in fiscal 1996 from $1,156,206 in fiscal 1995, or 22% of
revenue. The line items reduced and the amount of the reductions were:
professional fees of $59,837; investor relations of $50,514, and payroll and
related expenses of $35,158.
Interest income increased 2% to $100,612 in fiscal 1996 from $98,675
in fiscal 1995. This increase is due to an increase in the amount available for
investment. No interest expense was incurred in either fiscal 1996 or fiscal
1995.
The Company received other income of $50,009 for fiscal 1996. The
other income resulted from royalty income of $4,168 per month due to the sale of
the Company's Dermasome/(R)/ product line in December, 1995.
<PAGE>
-18-
FISCAL 1995 COMPARED TO FISCAL 1994
-----------------------------------
Total Company revenues for fiscal 1995 were $5,273,399, as compared to
$7,298,416 in fiscal 1994, a decrease of $2,025,017, or approximately 28%. This
decline was primarily the result of decreased unit shipments in North America by
42% from approximately $4,753,000, in 1994 to $2,775,000, in 1995. Foreign
revenue for the year was $2,497,248, representing approximately 47% of total
revenue, as compared to $2,543,566 or 35% of total revenue in fiscal 1994.
Management believes that the decreased unit shipments were due to a decrease in
demand in various markets for the Company's products. There were no price
increases in fiscal 1995.
Sales of the M-110 Series decreased by approximately $416,000, or 15%
to $2,337,878 in 1995 from $2,753,613 in 1994. Sales of the M-210 Series
decreased by approximately $540,000 or 33% of sales, to $1,086,318 in 1995 from
$1,626,428 in 1994. In addition, the Company's sale of large volume production
units in fiscal 1995 was two units, down from five units in fiscal 1994, and
represented a decrease of approximately $868,000 to $637,397, or 58% of sales,
in 1995 from $1,505,380 in 1994.
Cost of goods sold for fiscal year 1995 was $2,813,801, or 53% of
revenue, as compared to $2,968,030, or 41% of revenue, in fiscal 1994. The
increase in the cost of goods sold, as a percentage of revenue, was primarily
the result of a 7% increase in material cost to $2,263,606 in 1995, or 43% of
revenue, from $2,628,839 in 1994.
Labor related costs increased to $428,439, or 8% of revenue in 1995,
compared to $267,250 in 1994. Obsolete inventory was $66,565, or 2% of sales in
1995.
<PAGE>
-19-
The Company's product lines each have different profit margins, as
well as multiple profit margins within each product line. In year-to-year
comparisons, there may be significant changes in the cost of goods sold as a
percentage of revenue, depending on the mix of products sold. Generally, full
scale production units yield lower profit margins than laboratory or pilot
production units and electric hydraulic units yield lower profit margins than
air driven units.
Operating expenses for fiscal 1995 were $3,742,946 as compared to
$3,828,367 for fiscal 1994, a decrease of $85,421 or 2%. Research and
development expenses decreased to $691,466 in fiscal 1995 from $762,620 in
fiscal 1994, primarily due to a grant reimbursement from the United States
Department of Commerce in the amount of $118,638 for 1995 in connection with the
Company's continued research efforts with Worcester Polytechnic Institute and
Catalytica, Inc. Sales and Marketing expenses increased to $1,895,274, or 36% of
revenue, from $1,764,060, or 24% of revenue, in fiscal 1994 as a result of the
Company's continued efforts to expand and strengthen its sales force. General
and administrative expenses decreased to $1,156,206 in fiscal 1995 from
$1,301,687 in fiscal 1994.
Interest income increased 126% to $98,675 in fiscal 1995 from $43,608
in fiscal 1994, reflecting the amount of cash available for investment due to
the collection of accounts receivable in 1995. No interest expense was incurred
in either fiscal 1995 or fiscal 1994.
In fiscal 1995, the Company recognized a gain of $93,239 on the sale
of a portion of its holdings in PolyMedica Industries, Inc. The market value for
the remaining 13,940 shares owned by the Company at December 31, 1995 was
$83,640.
On December 27, 1995, the Company sold to ChemMark Development, Inc.
("ChemMark") its business of manufacturing and distributing proprietary cosmetic
liposomal formulations, sold under the trade name Dermasome/(R)/. In return for
ChemMark's payment of $50,000, the Company transferred to ChemMark its
Dermasome/(R)/ trademark, its customer list, its products list, all unfilled
Dermasome/(R)/ orders, and all products and product literature. Additionally,
the Company granted to ChemMark a two year, world-wide, exclusive license to use
the Company's proprietary technology and know-how to manufacture and distribute
Dermasome products. In exchange, the Company received a one-time, non-
refundable $50,000 rights grant acquisition fee, and the payment over the
license term of a percentage royalty equal to ten percent (10%) of the net sales
realized by ChemMark on the sale of products derived from the Company's
technology. Notwithstanding the amount of such percentage royalty, ChemMark was
obligated to pay a minimum royalty payment in the amount of $100,000, payable in
22 equal monthly installments of $4,168, with a final payment of $8,333 due upon
the second anniversary of the agreement. As security for ChemMark's performance
of its obligations to the Company, the Company retains a security interest in
the Trademark. The Company recognized a gain of $81,537 upon the sale of the
Dermasome/(R)/ business.
The tax provision of $1,107,422 principally resulted from the
recording of valuation allowance for net operating loss carryforwards, tax
credits carryforwards, and other deferred tax assets, which may not be realized.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through the use of
cash and cash equivalents on hand, and cash flows from operations.
The Company generated cash of $1,014,631 and $182,545 from operations
in 1996 and 1995, respectively. In 1994, the Company used $1,674,344 to fund
operations. In 1996, this amount was principally the result of net income from
operations, increased by a decrease in both inventory and accounts receivable
and other receivables. In 1995, this amount was principally the result of a net
loss from operations, increased by an income tax provision, and a decrease in
inventory and accounts receivable and other receivables. In 1994, this amount
was principally the result of net income from operations, decreased by an income
tax benefit, and an increase in inventories and accounts receivable and other
receivables.
The Company utilized $21,636, $9,017 and $51,470 for investing
activities in 1996, 1995 and 1994, respectively. Net cash used for investing
activities in each period related primarily to purchasing fixed assets and
leasehold improvements. In addition, in 1995, cash needed for investing
activities also included the purchases of an intangible asset, offset by
proceeds from the sale of the Dermasome/(R)/ business ($101,800), as well as a
$93,239 gain on the sale of 10,000 shares of PolyMedica Industries, Inc. stock.
As of December 31, 1996, the Company had no material commitments for capital
expenditures.
For financing activities, the Company utilized cash of $109,859 in
1996, and generated cash of $56,079 and $202,582 in 1995 and 1994, respectively.
In 1996, this amount was principally the result of the purchase of treasury
stock. In both 1995 and 1994, these amounts were principally the result of
purchases of common stock under both the employee stock purchase plan, and the
employee stock option plan.
The cash and cash equivalents balance at December 31, 1996 was
$2,786,554, an increase of $883,136 from the December 31, 1995 balance of
$1,903,418. The Company continues to maintain a line of credit with the Bank of
Boston equal to the lesser of $750,000 or 80% of the domestic accounts
receivable that are less than 60 days old. The available line, as of March 21,
1997, was $436,835. The accounts receivable balance as of March 21, 1997 was
$866,533.
Assuming that there is no significant change in the Company's
business, the Company believes that cash flows from operations, together with
existing cash balances will be sufficient to meet its, working capital
requirements for at least the next twelve months.
The Company may, from time to time, consider an acquisition of
complementary businesses, products or technologies, although it has no present
understandings, commitments or agreements with respect to any such acquisitions.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per share" ("SFAS
128"), which is effective for fiscal years ending December 15, 1997, including
interim periods. Earlier application is not permitted. However, an entity is
permitted to disclose pro forma earnings per share amounts computed using SFAS
128 in the notes to financial statements in periods prior to adoption. SFAS 128
requires restatement of all prior-period earnings per share data present after
the effective date. SFAS 128 specifies the computation, presentation and
disclosure requirements for earnings per share and is substantially
similar to the standard recently issued by the International Accounting
Committee entitled International Accounting Standard, "Earnings Per Share" ("IAS
33"). The Company plans to adopt SFAS 128 in 1997 and has not yet determined the
impact.
BUSINESS OUTLOOK
The Company believes that this report contains forward-looking
statements that are subject to certain risks and uncertainties. These forward
looking statements include statements regarding expansion of sales,
profitability liquidity, the adequacy of the Company's facilities, the
development of the Company's products, and potential strategic arrangements.
Such statements are based on management's current expectations and are subject
to a number of factors and uncertainties that could cause actual results to
differ materially from those described in the forward-looking statements. Such
factors and uncertainties include, but are not limited to, the uncertainty that
the performance advantages of the Microfluidizer equipment will be realized
commercially or that a commercial market for Microfluidizer equipment will
continue to develop; the dependence by the Company on key customers; the loss of
the services of one or more of the Company's key employees, which could have a
material adverse impact on the Company; the development of competing or superior
technologies and products from manufacturers, many of which have substantially
greater financial, technical and other resources than the Company; the cyclical
nature of the materials processing industry, which has historically negatively
affected the Company's sales of Microfluidizer equipment during industry
downturns and which could do so in the future; the availability of additional
capital to fund expansion on acceptable terms, if at all; and general economic
conditions.
<PAGE>
-20-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements of the Company and its
Subsidiaries appear on the following pages of this Form 10-K.
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Accountants F-1
Consolidated Balance Sheets as of December 31, 1996 and 1995 F-2 & F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1996, 1995 and 1994 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
- ---------
The information concerning directors of the Company required under
this item is incorporated herein by reference to the Company's definitive proxy
statement pursuant to Regulation 14A, to be filed with the Commission not later
than 120 days after the close of the Company's fiscal year ended December 31,
1996.
EXECUTIVE OFFICERS
- ------------------
The information concerning executive officers of the Company required
under this item is incorporated herein by reference to the Company's definitive
proxy statement pursuant to Regulation 14A, to be filed with the Commission no
later than 120 days after the close of the Company's fiscal year ended December
31, 1996.
<PAGE>
-21-
ITEM 11. EXECUTIVE COMPENSATION
The information required under this item is incorporated herein by
reference to the Company's definitive proxy statement pursuant to Regulation
14A, to be filed with the Commission not later than 120 days after the close of
the Company's fiscal year ended December 31, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required under this item is incorporated herein by
reference to the Company's definitive proxy statement pursuant to Regulation
14A, to be filed with the Commission not later than 120 days after the close of
the Company's fiscal year ended December 31, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under this item is incorporated herein by
reference to the Company's definitive proxy statement pursuant to Regulation
14A, to be filed with the Commission within 120 days after the close of the
Company's fiscal year ended December 31, 1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A)(1.) CONSOLIDATED FINANCIAL STATEMENTS.
The following Consolidated Financial Statements are included
in Item 8:
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Changes in Stockholders' Equity for
the years ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Report of Independent Accountants
(A)(2.) FINANCIAL STATEMENT SCHEDULES.
All schedules are omitted because they are not applicable or
the required information is shown in the financial statements
or the notes thereto.
<PAGE>
-22-
(A)(3.) LIST OF EXHIBITS.
Exhibit
Number Description of Exhibit
------ ----------------------
3(a) Certificate of Incorporation for the Company, as amended
(filed as Exhibit 2A to Registration Statement No. 0-11625
on Form 8-A and incorporated herein by reference).
*3(b) Amended and Restated By-Laws for the Company.
10(a) 1987 Stock Plan (filed as Exhibit 10(g) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1987 and incorporated herein by reference).
10(b) 1988 Stock Plan (filed as Exhibit 10(g) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1988 and incorporated herein by reference).
10(c) 1989 Non-Employee Directors Stock Option Plan (filed as
Exhibit 10.1 to the Company's registration statement on Form
S-8 filed October 22,1996 and incorporated herein by
reference).
10(d) Loan Agreement between The First National Bank of Boston and
Microfluidics International Corporation dated as of December
10, 1993 (filed as Exhibit 10.1 to Form 8-K filed on
December 27, 1993 and incorporated herein by reference).
10(e) Lease for 30 Ossipee Road, Newton, Massachusetts dated April
22, 1993 between Microfluidics International Corporation and
J. Frank Garrity, Trustee of 1238 Chestnut Street Trust
under Declaration of Trust dated May 23, 1969, recorded with
Middlesex South Registry of Deeds in Book 11682, Page 384
(filed as Exhibit 3.10(e) to the Company's Form 10-K for the
fiscal year ended December 31, 1993 and incorporated herein
by reference).
10(f) Letter of Understanding between Microfluidics International
Corporation and Worcester Polytechnic Institute dated as of
April 3, 1992 (filed as Exhibit 3.10(f) to the Company's
Form 10-K for the fiscal year ended December 31, 1993 and
incorporated herein by reference).
10(g) Agreement between Microfluidics International Corporation
and Catalytica, Inc. dated as of October 18, 1993 (filed as
Exhibit 3.10(g) to the Company's Form 10-K for the fiscal
year ended December 31, 1993 and incorporated herein by
reference).
<PAGE>
-23-
*10(h) Amendment to agreement dated September 1, 1994 between
Microfluidics International Corporation and Catalytica, Inc.
dated as of October 18, 1993.
*10(i) Amendment to agreement dated March 31, 1995 between
Microfluidics International Corporation and Catalytica, Inc.
dated as of October 18, 1993.
10(j) License Agreement among Microfluidics International
Corporation, Worcester Polytechnic Institute and Catalytica,
Inc. dated as of October 18, 1993 (filed as Exhibit 3.10(h)
to the Company's Form 10-K for the fiscal year ended
December 31, 1993 and incorporated herein by reference.)
10(k) Agreement, dated July 27, 1995, between Microfluidics
International Corporation and Michael T. Rumley. (filed as
Exhibit 3.10(i) to the Company's Form 10-K for fiscal year
ended December 31, 1995 and incorporated herein by
reference.)
10(l) Letter, dated August 16, 1995, from Microfluidics
International Corporation to Michael T. Rumley. (filed as
Exhibit 3.10(j) to the Company's Form 10-K for fiscal year
ended December 31, 1995 and incorporated herein by
reference.)
*10(m) Letter, dated December 31, 1995 from Microfluidics
International Corporation to Irwin J.Gruverman.
10(n) Warrant for the Purchase of Shares of Common Stock, dated
July 15, 1993, in favor of Ladenburg, Thalmann & Co. Inc.
(filed as exhibit 3.10(l) to the Company's Form 10-K for the
fiscal year ended December 31, 1995 and incorporated herein
as reference.)
*10(o) Letter, dated December 31, 1996, from Microfluidics
International Corporation to Irwin J. Gruverman.
*10(p) Agreement between Microfluidics International Corporation
and Catalytica, Inc. dated January 1,1995 regarding
participation in and management of the Advanced Technology
Program (ATP).
*10(q) Consulting Agreement dated March 3, 1997 between James
Little and Microfluidics International Corporation.
*11 Statement regarding computation of per share earnings.
*21 Subsidiaries of the Registrant.
<PAGE>
-24-
*23 Consent of Coopers & Lybrand L.L.P.
*27 Financial Data Schedule
_____________________
*Filed herewith
(B) REPORTS ON FORM 8-K.
Not applicable.
(C) EXHIBITS.
The Company hereby files as part of this Form 10-K the Exhibits
listed in Item 14(a)(3) as set forth above.
(D) FINANCIAL STATEMENT SCHEDULES.
See (a)(2) above.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and
Stockholders of Microfluidics
International Corporation:
We have audited the accompanying consolidated balance sheets of Microfluidics
International Corporation and Subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Microfluidics
International Corporation and Subsidiaries as of December 31, 1996 and 1995, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 12, 1997
<PAGE>
MICROFLUIDICS INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------
1996 1995
------------ -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $2,786,554 $1,903,418
Marketable securities (Note C) 67,437 83,640
Accounts receivable, less allowance of $41,076
and $47,382 in 1996 and 1995, respectively (Note F) 1,605,932 1,751,199
Other receivables 53,873 29,820
Inventory (Notes D and F) 2,291,768 2,456,389
Prepaid expenses 21,858 62,153
---------- ----------
Total current assets 6,827,422 6,286,619
Equipment and leasehold improvements, at cost(Note F)
Furniture, fixtures and office equipment 312,664 297,228
Machinery and equipment 226,395 223,829
Leasehold improvements 114,883 111,249
---------- ----------
653,942 632,306
Less: Accumulated depreciation and amortization (509,091) (457,910)
---------- ----------
144,851 174,396
Patents, licenses and other intangible assets (net of
accumulated amortization of $335,629 in 1996
and $291,709 in 1995)(Note E) 211,051 254,971
---------- ----------
Total assets $7,183,324 $6,715,986
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
MICROFLUIDICS INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and other accrued expenses $ 602,939 $ 513,640
Accrued compensation 36,567 124,555
Accrued vacation pay 37,295 48,710
Customer advance 78,000
----------- -----------
Total current liabilities 754,801 686,905
Commitments and contingencies (Note K)
Stockholders' equity (Note J)
Common Stock, par value $.01 per share,
20,000,000 shares authorized; 5,094,781
and 5,058,203 shares issued
in 1996 and 1995, respectively 50,948 50,582
Additional paid-in capital 10,374,508 10,319,350
Accumulated deficit (3,468,416) (3,969,920)
Unrealized appreciation on marketable securities 67,437 83,640
Less: Treasury Stock, at cost, 192,119 and 107,019
at December 31, 1996 and 1995,
respectively (Note J) (595,954) (454,571)
----------- -----------
Total stockholders' equity 6,428,523 6,029,081
----------- -----------
Total liabilities and stockholders' equity $ 7,183,324 $ 6,715,986
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
MICROFLUIDICS INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
---------- ------------ -----------
<S> <C> <C> <C>
Revenues $ 6,273,768 $ 5,273,399 $ 7,298,416
Cost of goods sold 2,847,224 2,813,801 2,968,030
Research and development 450,477 691,466 762,620
Selling, general and administrative 2,625,184 3,051,480 3,065,747
----------- ----------- -----------
Total cost and expenses 5,922,885 6,556,747 6,796,397
----------- ----------- -----------
Income (loss) from operations 350,883 (1,283,348) 502,019
Interest income 100,612 98,675 43,608
Other Income 50,009
Gain on sale of investments (Note C) 93,239
Gain on sale of assets (Note M) 81,537
----------- ----------- -----------
Income (loss) before income taxes 501,504 (1,009,897) 545,627
Income tax benefit (provision) (Note I) (1,107,422) 791,058
----------- ----------- -----------
Net income (loss) $ 501,504 $(2,117,319) $ 1,336,685
=========== =========== ===========
Income (loss) per common share
Primary:
Average shares outstanding 4,948,506 4,939,989 5,047,849
----------- ----------- -----------
Net income (loss) per primary share $ .10 $ (.43) $ .26
=========== =========== ===========
Fully diluted:
Average shares outstanding 4,948,506 4,939,989 4,998,689
----------- ----------- -----------
Net income (loss) per fully diluted share $ .10 $ (.43) $ .26
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the finanical statements.
F-4
<PAGE>
MICROFLUIDICS INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1996 1995 1994
---------- ----------- -----------
<S> <C> <C> <C>
Cash flows from (used by) operations:
Net income (loss) $ 501,504 $(2,117,319) $ 1,336,685
Reconciliation of net income (loss) to cash
used by operations:
Depreciation and amortization 95,101 93,410 80,528
Issuance of common stock employee compensation 24,000
Bad debt expense 10,000 40,000
Gain on sale of investments (93,239)
Gain on sale of assets (81,537)
Income tax (benefit) provision 1,146,429 (805,820)
Changes in operating assets and liabilities:
Decrease (increase) receivables,
and other receivables 111,214 1,197,003 (1,401,814)
Decrease (increase) inventories 164,621 388,300 (1,032,354)
Decrease (increase) prepaid expenses 40,295 45,574 13,946
Increase (decrease) current liabilities 67,896 (436,076) 134,485
---------- ----------- -----------
Net cash from (used by) operations 1014,631 182,545 (1,674,344)
Cash flows from (used by) investing activities:
Purchase of intangible asset (96,680)
Proceeds from sale of investments 93,239
Proceeds from sale of assets 101,800
Purchase of fixed assets and leasehold improvements (21,636) (107,376) (51,470)
---------- ----------- -----------
Net cash (used by) investing activities (21,636) (9,017) (51,470)
Cash flows from (used by) financing activities:
Issuance of Common Stock under employee stock
purchase plan 21,861 21,724 21,740
Issuance of Common Stock under employee stock
option plan 9,663 42,729 180,842
Treasury stock purchased (141,383) (8,374)
---------- ----------- -----------
Net cash from (used by) financing activities (109,859) 56,079 202,582
Net increase (decrease) in cash and cash
equivalents 883,136 229,607 (1,523,232)
Cash and cash equivalents at beginning of year 1,903,418 1,673,811 3,197,043
---------- ----------- -----------
Cash and cash equivalents at end of year $2,786,554 $ 1,903,418 $ 1,673,811
========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for corporate income
taxes -- -- $ 42,000
========== =========== ===========
Treasury stock acquired by the exercise
of employees' stock repurchases (Note J) $ -0- $ (695) $ (52,500)
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the finanical statements.
F-5
<PAGE>
MICROFLUIDICS INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
UNREA-
LIZED APP-
NUMBER OF COMMON RECIATION NUMBER OF
SHARES OF STOCK AT ADDITIONAL ON MARKET- SHARES OF
COMMON PAR PAID-IN ACCUMUL- ABLE TREASURY TREASURY
STOCK VALUE CAPITAL LATED DEFICIT SECURITIES STOCK STOCK TOTAL
------ ------ -------- ------------- --------- ------- ------ -----
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance as of December 4,871,423 $48,713 $10,000,989 $(3,189,286) $ 0 91,839 $(393,002) $6,467,414
31, 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Unrealized appreciation on
marketable securities 62,843 62,843
Stock options exercised 143,925 1,439 231,903 233,342
Proceeds from employee stock
purchase plan 6,000 60 21,680 21,740
Treasury stock (Note J) 10,000 (52,500) (52,500)
Net income 1,336,685 1,336,685
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 5,021,348 50,212 10,254,572 (1,852,601) 62,843 101,839 (445,502) 8,069,524
- ------------------------------------------------------------------------------------------------------------------------------------
Unrealized appreciation on
marketable securities 20,797 20,797
Stock options exercised 27,875 280 43,144 43,424
Proceeds from employee stock
purchase plan 8,980 90 21,634 21,724
Treasury stock (Note J) 5,180 (9,069) (9,069)
Net Loss (2,117,319) (2,117,319)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 5,058,203 50,582 10,319,350 (3,969,920) 83,640 107,019 (454,571) 6,029,081
- ------------------------------------------------------------------------------------------------------------------------------------
Unrealized depreciation on
marketable securities (16,203) (16,203)
Stock options exercised 6,550 66 9,597 9,663
Stock in lieu of salary 16,000 160 23,840 24,000
Proceeds from employee stock
purchase plan 14,028 140 21,721 21,861
Treasury stock(Note J) 85,100 (141,383) (141,383)
Net income 501,504 501,504
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 5,094,781 $50,948 $10,374,508 $(3,468,416) $67,437 192,119 $(595,954) $6,428,523
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1. CONSOLIDATION
The consolidated financial statements of the Company include the
accounts of the Company and its wholly owned subsidiaries,
Microfluidics Corporation ("MFC") and MediControl Corporation
("MediControl").
All significant intercompany transactions have been eliminated.
2. CASH EQUIVALENTS
The Company considers securities with maturities of three months or
less, when purchased, to be cash equivalents.
3. MARKETABLE SECURITIES
The Company's marketable securities are categorized as available for
sale securities as defined by the Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (SFAS 115). Unrealized holding gains and losses,
net of tax, are included as a component of stockholders' equity until
realized. For the purpose of computing realized gains and losses, cost
is identified on a specific identification basis.
4. INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined on a first-in, first-out basis.
5. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
The Company's equipment and leasehold improvements are recorded at
cost. Depreciation is computed on the straight-line method, based upon
useful lives of three to five years. Leasehold improvements are
amortized on the straight-line method based upon the lesser of the
estimated useful lives or remaining life of the lease. Expenditures
for maintenance and repairs are expensed as incurred. Upon retirement
or sale of property and equipment, the cost of the disposed asset and
the related accumulated depreciation are removed from the accounts and
any resulting gain or loss is credited or charged to operations.
6. INTANGIBLES
Patents, patent applications and rights are stated at acquisition
cost. Amortization of patents is recorded using the straight-line
method over the shorter of the legal lives
F-7
<PAGE>
or useful life of the patents. The Company periodically reviews the
carrying value of intangible assets and impairments are recognized
when the expected future operating cash flows derived from such
intangible assets is less than their carrying value.
7. INCOME TAXES
The Company provides for income taxes based on the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes," which requires recognition of deferred
tax assets and liabilities based on the expected future tax
consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based upon the difference between the
financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are
expected to be reversed. Under SFAS No. 109, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized as
income or loss in the period that includes the enactment date.
8. REVENUE RECOGNITION
Product sales and related cost of sales are reflected in income when
goods are shipped.
9. EARNINGS (LOSS) PER SHARE
Primary and fully diluted earnings per common and common equivalent
share are computed by dividing net income by the weighted average
number of shares of common stock and common stock equivalents
outstanding during the year. The calculation of fully diluted income
(loss) per common share uses a different market price assumption than
primary earnings (loss) per common share for the reacquisition of
common shares.
Net income (loss) per common share is calculated by dividing net
income (loss) by the weighted average number of shares of common stock
and common stock equivalents outstanding during the year. Options and
warrants are not reflected in the calculation of net income (loss) per
common share when their inclusion would be anti-dilutive.
10. USE OF ESTIMATES
The process of preparing financial statements in conformity with
generally accepted accounting principles requires the use of estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
F-8
<PAGE>
11. NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" ("SFAS 128"), which is effective for fiscal years ending
December 15, 1997, including interim periods. Earlier application is
not permitted. However, an entity is permitted to disclose pro forma
earnings per share amounts computed using SFAS 128 in the notes to
financial statements in periods prior to adoption. SFAS 128 requires
restatement of all prior-period earnings per share data present after
the effective date. SFAS 128 specifies the computation, presentation
and disclosure requirements for earnings per share and is
substantially similar to the standard recently issued by the
International Accounting Committee entitled International Accounting
Standard, "Earnings Per Share" ("IAS 33"). The Company plans to adopt
SFAS 128 in 1997 and has not yet determined the impact.
B. INDUSTRY SEGMENT AND MAJOR CUSTOMERS:
The Company has one business segment: the development, manufacture,
marketing and sale of process and formulation equipment. The
Company's sales are primarily to companies with processing needs in
the chemical, pharmaceutical, food, cosmetic, and biotechnology
industries.
Mizuho Industrial Co. Ltd. (a distributor) accounted for 17% of
revenues in 1996, 21% of revenues in 1995 and 20% of revenues in 1994.
Sales in Europe were approximately $772,000, $984,000, and $625,000,
and sales in Asia were approximately $1,288,000, $1,514,000 and
$1,919,000 in 1996, 1995 and 1994, respectively, of the total
revenues. One other distributor (Inland) accounted for 10% of
revenues in 1996. A reduction or delay in orders from Mizuho or other
significant customers could have a material adverse effect on the
Company's results of operations.
C. INVESTMENTS:
At December 31, 1996 and 1995, the Company held 13,940 shares of
PolyMedica Industries, Inc. at zero cost through its wholly owned
subsidiary MediControl. The Company also, as a result of a spinoff by
PolyMedica Industries, Inc., held 6,720 shares in a publicly traded
company, Cardiotech International, Inc. The total market value of
these shares at December 31, 1996 and 1995 was $67,437 and $83,640,
respectively.
During 1995, the Company sold 10,000 shares of PolyMedica Industries,
Inc. at a gain of $93,239. On October 28, 1994, the Company received
a stock dividend of 1,140 shares of common stock from PolyMedica
Industries, Inc.
F-9
<PAGE>
D. INVENTORY
The components of inventories at the respective dates are as follows:
<TABLE>
<CAPTION>
December 31,
1996 1995
----------- ----------
<S> <C> <C>
Raw materials $ 1,525,398 $1,530,614
Work in process 434,717 418,738
Finished goods 331,653 507,037
------------ ----------
$ 2,291,768 $2,456,389
============ ==========
</TABLE>
E. INTANGIBLE ASSETS:
The Company purchased the rights and title of certain liposome and
microemulsion technology devices from Arthur D. Little in 1985. The
unamortized license fee and patent are included in intangible assets
and are being amortized using the straight line method over the useful
life of the patent, 17 years. Patents and other intangible assets
were purchased in 1991 as a result of a share exchange by MediControl
stockholders. These patents and other intangible assets are being
amortized using the straight line method over five years. In
addition, in 1995, the Company capitalized $96,680 of patent costs
related to the cooperative-venture described in Note L. Amortization
charged to expense was $43,920 in 1996, and $53,412 in 1995 and 1994,
respectively.
F. LINE OF CREDIT
In December 1993, the Company entered into a loan and security
agreement (the "Agreement") for a line of credit with a local bank.
The available line or borrowing base is equal to the lesser of
$750,000 or 80% of net outstanding amount of base accounts, as defined
in the agreement.
The line is collateralized by all inventory, accounts receivable,
general intangibles, machinery and equipment and all other property of
the Company, excluding leased inventory and certain intangible assets.
There were no borrowings under this line of credit arrangement during
1996 or 1995.
H. EMPLOYEE BENEFITS:
Effective January 1, 1990, the Company offered a 401(k) profit-sharing
plan (the "Plan"), to its employees. All Company and related entity
employees who are eighteen years of age and have completed one hour of
service are eligible to participate in the Plan. Employees may
contribute from 1% to 20% of their
F-10
<PAGE>
compensation. The Company's contribution is discretionary, with
contributions made from time to time as management deems advisable.
The Company made no matching contributions during 1996, 1995 or 1994.
Plan administration expenses of $3,564 $2,755, and $2,110 were
incurred by the Company in 1996, 1995 and 1994, respectively. The
Company instituted a cafeteria plan in 1992, giving the employees
certain pre-tax advantages on specific payroll deductions, at an
administrative cost of $500 each in each of 1996, 1995 and 1994.
I. INCOME TAXES
The provision/(benefit) for income taxes for the current year is as
follows:
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
DECEMBER 31, 1996:
<S> <C> <C> <C>
Current
Deferred
----------- ----------- -----------
Total
=========== =========== ===========
DECEMBER 31, 1995:
Current $ 6,643 $ 6,643
Deferred $ 939,615 161,164 1,100,779
----------- ----------- -----------
Total $ 939,615 $ 167,807 $ 1,107,422
=========== =========== ===========
DECEMBER 31, 1994:
Current $ 14,762 $ 14,762
Deferred ($ 644,656) ( 161,164) ( 805,820)
----------- ----------- -----------
Total ($ 644,656) ($ 146,402) ($ 791,058)
=========== =========== ===========
</TABLE>
The approximate tax effect of each type of temporary difference and carryforward
before and after allocation of the valuation allowance is as follows:
<TABLE>
<CAPTION>
December 31,
1996 1995 1994
------------- ------------ -------------
<S> <C> <C> <C>
Net Operating Loss $1,012,386 $1,112,967 $866,721
Research and Development Credit 183,344 174,655 127,347
Inventory Capitalization 144,063 176,688 186,423
Other 31,348 30,437 27,106
SFAS 115 (26,975) (33,456) (41,895)
Depreciation and Amortization 15,338) (17,747) (458)
----------- ----------- -----------
Net Deferred Tax Asset Before
Valuation Allowance 1,328,828 1,443,544 1,165,244
----------- ----------- -----------
Valuation Allowance (1,328,828) (1,443,544) (60,710)
----------- ----------- -----------
Net Deferred Tax Asset After
Valuation Allowance $ 0 $ 0 $ 1,104,534
=========== =========== ===========
</TABLE>
F-11
<PAGE>
The Company has a net operating loss tax carryforward of approximately
$2,977,000 and research and development tax credit carryforwards of
approximately $183,000, expiring at various dates beginning in 2001
through 2011. Ownership changes may result in future limitations on
the utilization of net operating losses and research and development
tax credit carryforwards.
Due to uncertainty surrounding the realization of favorable tax
attributes in future years, the net deferred tax assets at December
31, 1996 and 1995 have been fully offset by a valuation allowance.
The following schedule reconciles the difference between the
federal income tax rate and the effective income tax rate:
<TABLE>
<CAPTION>
December 31,
<S> <C> <C> <C>
1996 1995 1994
------ ------ --------
Federal Income Tax Rate 34.0% 34.0% 34.0%
State Income Tax, Net - - 6.3%
Permanent Differences 2.7% 6.0% 3.2%
Net Operating Loss (36.7%) (40.0)% -
Valuation Allowance - 148.0% -
Recognition of Deferred Tax Assets - - (188.5%)
------ ------ --------
Total Effective Tax Rate 0% 148.0% (145.0%)
====== ====== ========
</TABLE>
J. STOCKHOLDER'S EQUITY:
The Company adopted the 1988 Stock Plan as the successor plan to the
1987 Stock Plan, which authorizes the grant of Stock Rights for up to
1,750,000 shares of Common Stock and the 1989 Non-Employee Director
Stock Option Plan which, as amended at the 1996 shareholders' meeting,
authorizes the grant of nonqualified stock options for up to 500,000
shares of Common Stock.
F-12
<PAGE>
Additionally, the Company has an employee stock purchase plan. Under the
employee stock purchase plan, participants are granted options to purchase the
Company's common stock twice a year at the lower of 85% of market value at the
beginning or end of each period. Calculation of the number of options granted,
and subsequent purchase of these shares, is based upon voluntary payroll
deductions during each six month period. The number of options granted to each
employee under this plan, is limited to a maximum amount of $1000 for each six
month period. The number of shares issued pursuant to this plan totaled 14,028
in 1996, 8,980 in 1995 and 6,000 in 1994.
The Company applies APB Opinion No. 25 and related interpretations in accounting
for its plans. In 1996, the Company adopted the disclosure provisions of FASB
Statement No.-123 "Accounting For Stock-Based Compensation". Pro forma
disclosures as if the Company adopted the cost recognition requirements under
SFAS 123 in 1995 are presented below.
The Company's stock option plans provide for the granting of nonqualified stock
options that 1.) are granted at prices which equate to or are above the market
value of the stock on the date of the grant; 2.) vest ratably over a three and
one half to four year service vesting period and 3.) expire ten years subsequent
to award.
A summary of the status of the Company's stock options as of December 31, 1996,
1995, and 1994 and changes during the year ended on those dates is presented
below:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------
1996 1995 1994
Wgtd. Avg. Wgtd Avg. Wgtd. Avg.
Shares Exer. Price Shares Exer. Price Shares Exer Price
---------- ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, at beginning of year 996,600 $ 3.09 783,150 $ 3.61 768,025 $ 3.01
Option shares:
Granted 369,300 1.65 281,500 1.80 178,300 4.65
Exercised 6,550 1.48 27,875 1.56 143,925 1.62
Cancelled 278,450 3.12 40,175 4.88 19,250 3.87
---------- ---------- ---------- ----------- ---------- ----------
Outstanding, at end of year 1,080,900 $ 2.62 996,600 $ 3.09 783,150 $ 3.61
========== ========== ========== =========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Price Range of Outstanding Options at Year End $1.16-7.44 $1.16-7.44 $1.16-7.44
Options Exercisable at Year End 496,763 489,938 359,926
---------- ---------- -----------
Options Available for Future Grant 582,550 435,900 677,225
---------- ---------- -----------
Weighted Average Fair Value of Options
Granted During the Year $ 0.88 $ 1.04
---------- ---------- -----------
</TABLE>
F-13
<PAGE>
The fair value of each option granted during both 1996 and 1995 is
estimated on the date of grant using the Black-Scholes option-pricing
model with the following assumptions: (i) dividend yield of 0%; (ii)
expected volatility of 60%; (iii) risk-free interest rate of 4.50% in
1996 and 4.854% in 1995; and (iv) expected life of four years.
Had compensation cost for the Company's 1996 and 1995 grants for
stock-based compensation plans been determined consistent with SFAS
123, the Company's net income, and net income per share for 1996 and
1995 would approximate the proforma amounts below:
<TABLE>
<CAPTION>
As Reported Proforma
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net Income/(Loss) $ 501,504 $(2,117,319) $ 357,235 $(2,142,746)
========== ============ ========== ===========
Net Income/(Loss) per Share $ .10 $ (0.43) $ .07 $ (.43)
========== ============ ========== ===========
</TABLE>
During 1995, and 1994, employees delivered shares to the Company in
payment for shares they were purchasing upon exercise of the stock
options they held. The aggregate amount of shares received during 1995
and 1994, were 180 and 10,000 shares respectively.
As partial compensation for financial advisory services rendered to
the Company by Ladenburg Thalmann & Co., Inc., an investment banking
firm ("Ladenburg"), the Company on July 15, 1993 granted to Ladenburg
a warrant to purchase up to 75,000 shares at a per share purchase
price of $4.50 commencing on July 14, 1994 and exercisable until July
14, 1998.
K. COMMITMENTS AND CONTINGENCIES:
At December 31, 1995 the Company had an operating lease for the rental
of its facilities which requires the following minimum payments during
the following years:
<TABLE>
<CAPTION>
Minimum Payments
----------------
<S> <C>
1997 $172,500
1998 90,000
--------
Total $262,500
========
</TABLE>
Rent expense for 1996, 1995 and 1994 was approximately $150,000,
$150,000, and $162,000 respectively. The current lease is due to
terminate on May 31, 1998.
F-14
<PAGE>
L. COOPERATIVE VENTURE:
In 1992, the Company formed a cooperative venture with Worcester
Polytechnic Institute to develop, patent, and license for commercial
application the Microfluidizer processing technology in certain
fields. Expenditures for this venture were approximately $ 0 in 1996
and $48,000 in 1995. The costs in connection with patent applications
of $96,680 have been included in intangible assets at December 31,
1995. Amortization began in December, 1995.
In September of 1993, the Company signed a license and research and
development agreement with Catalytica, Inc., as joint licensee, to
further the studies of the venture with Worcester Polytechnic
Institute, as licensor. The Company spent $216,301 and $247,162
respectively in 1996 and 1995, for this venture, of which the Company
was reimbursed $103,824 and $118,638 respectively in 1996 and 1995
from a government grant awarded jointly to Catalytica, Inc. and the
Company in relation to this project. The remainder of the expenditures
were included in research and development expense.
M. SALE OF ASSETS:
On December 27, 1995, the Company sold to ChemMark Development, Inc.
("ChemMark") its business of manufacturing and distributing
proprietary cosmetic liposomal formulations, sold under the trade name
Dermasome/(R)/. In return for ChemMark's payment of $50,000, the
Company transferred to ChemMark its Dermasome/(R)/ trademark, its
customer list, its products list, all unfilled Dermasome/(R)/ orders,
and all products and product literature. Additionally, the Company
granted to ChemMark a two year, world-wide, exclusive license to use
the Company's proprietary technology and know-how and to manufacture
and distribute Dermasome products. In exchange, the Company received
a one-time, non-refundable $50,000 rights grant acquisition fee, and
the payment over the license term of a percentage royalty equal to ten
percent (10%) of the net sales realized by ChemMark on the sale of
products derived from the Company's technology. Notwithstanding the
amount of such percentage royalty, ChemMark is obligated to pay a
minimum royalty payment in the amount of $100,000, payable in 22 equal
monthly installments of $4,168, with a final payment of $8,333 due
upon the second anniversary of the agreement. As security for
ChemMark's performance of its obligations to the Company, the Company
retains a security interest in the Trademark. The Company recognized
a gain of $81,537 on the sale of the Dermasome/(R)/ business in 1995.
F-15
<PAGE>
N. RELATED PARTY TRANSACTIONS:
During 1996, 1995 and 1994, the Company and an entity controlled by
Mr. Gruverman, the Company's Chairman, entered into an arrangement
whereby such entity reimbursed the Company for a portion of certain
administrative expenses. The Company was reimbursed approximately
$72,610, $31,155, and $21,800 by such entity during 1996, 1995 and
1994, respectively. The Company reimbursed the entity controlled by
Mr. Gruverman $ 0, $53,478, and $32,898 for consulting services (other
than those of Mr. Gruverman) paid by such entity on behalf of the
Company in 1996, 1995 and 1994, respectively.
F-16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the city of Newton,
Commonwealth of Massachusetts, on the 21st day of March, 1997.
MICROFLUIDICS INTERNATIONAL
CORPORATION
By: /s/ Michael A. Lento
--------------------
Michael A. Lento
President
F-17
<PAGE>
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------- ------------------------------- ---------------
<S> <C> <C>
/s/ Irwin J. Gruverman Chief Executive Officer March 21, 1997
- ------------------------- (Principal Executive Officer),
Irwin J. Gruverman Chairman of the Board of
Directors and Secretary
/s/ Michael A. Lento President and Treasurer March 21 , 1997
- ------------------------- (Principal Financial and
Michael A. Lento Accounting Officer)
/s/ Robert L. Bogomolny Director March 21, 1997
- -------------------------
Robert L. Bogomolny
/s/ Michael K. Hooker Director March 21, 1997
- -------------------------
Michael K. Hooker
/s/ James N. Little Director March 21, 1997
- -------------------------
James N. Little
</TABLE>
F-18
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------ ----------------------
3(a) Certificate of Incorporation for the Company, as amended (filed as
Exhibit 2A to Registration Statement No. 0-11625 on Form 8-A and
incorporated herein by reference).
*3(b) Amended and Restated By-Laws for the Company.
10(a) 1987 Stock Plan (filed as Exhibit 10(g) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987 and
incorporated herein by reference).
10(b) 1988 Stock Plan (filed as Exhibit 10(g) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1988 and
incorporated herein by reference).
10(c) 1989 Non-Employee Directors Stock Option Plan (filed as Exhibit 10.1
to the Company's registration statement on Form S-8 filed October
22,1996 and incorporated herein by reference).
10(d) Loan Agreement between The First National Bank of Boston and
Microfluidics International Corporation dated as of December 10, 1993
(filed as Exhibit 10.1 to Form 8-K filed on December 27, 1993 and
incorporated herein by reference).
10(e) Lease for 30 Ossipee Road, Newton, Massachusetts dated April 22, 1993
between Microfluidics International Corporation and J. Frank Garrity,
Trustee of 1238 Chestnut Street Trust under Declaration of Trust
dated May 23, 1969, recorded with Middlesex South Registry of Deeds
in Book 11682, Page 384 (filed as Exhibit 3.10(e) to the Company's
Form 10-K for the fiscal year ended December 31, 1993 and
incorporated herein by reference).
10(f) Letter of Understanding between Microfluidics International
Corporation and Worcester Polytechnic Institute dated as of April 3,
1992 (filed as Exhibit 3.10(f) to the Company's Form 10-K for the
fiscal year ended December 31, 1993 and incorporated herein by
reference).
10(g) Agreement between Microfluidics International Corporation and
Catalytica, Inc. dated as of October 18, 1993 (filed as Exhibit
3.10(g) to the Company's Form 10-K for the fiscal year ended December
31, 1993 and incorporated herein by reference).
*10(h) Amendment to agreement dated September 1, 1994 between Microfluidics
International Corporation and Catalytica, Inc. dated as of October
18, 1993.
*10(i) Amendment to agreement dated March 31, 1995 between Microfluidics
International Corporation and Catalytica, Inc. dated as of October
18, 1993.
<PAGE>
10(j) License Agreement among Microfluidics International Corporation,
Worcester Polytechnic Institute and Catalytica, Inc. dated as of
October 18, 1993 (filed as Exhibit 3.10(h) to the Company's Form 10-K
for the fiscal year ended December 31, 1993 and incorporated herein
by reference.)
10(k) Agreement, dated July 27, 1995, between Microfluidics International
Corporation and Michael T. Rumley. (filed as Exhibit 3.10(i) to the
Company's Form 10-K for fiscal year ended December 31, 1995 and
incorporated herein by reference.)
10(l) Letter, dated August 16, 1995, from Microfluidics International
Corporation to Michael T. Rumley. (filed as Exhibit 3.10(j) to the
Company's Form 10-K for fiscal year ended December 31, 1995 and
incorporated herein by reference.)
*10(m) Letter, dated December 31, 1995 from Microfluidics International
Corporation to Irwin J.Gruverman.
10(n) Warrant for the Purchase of Shares of Common Stock, dated July 15,
1993, in favor of Ladenburg, Thalmann & Co. Inc. (filed as exhibit
3.10(l) to the Company's Form 10-K for the fiscal year ended December
31, 1995 and incorporated herein as reference.)
*10(o) Letter, dated December 31, 1996, from Microfluidics International
Corporation to Irwin J. Gruverman.
*10(p) Agreement between Microfluidics International Corporation and
Catalytica, Inc. dated January 1,1995 regarding participation in and
management of the Advanced Technology Program (ATP).
*10(q) Consulting Agreement dated March 3, 1997 between James Little
and Microfluidics International Corporation.
*11 Statement regarding computation of per share earnings.
*21 Subsidiaries of the Registrant.
*23 Consent of Coopers & Lybrand L.L.P.
*27 Financial Data Schedule
_____________________
*Filed herewith
<PAGE>
EXHIBIT 3(B)
Amended and Restated
By-Laws of
MICROFLUIDICS INTERNATIONAL CORPORATION
(Formerly BIOTECHNOLOGY DEVELOPMENT CORPORATION)
----------------------------
A Delaware Corporation
Dated: February 11, 1997
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
Page
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<S> <C>
ARTICLE I MEETINGS OF STOCKHOLDERS.......................................1
Section 1. Place of Meetings..............................................1
Section 2. Annual Meeting.................................................1
Section 3. Special Meetings...............................................1
Section 4. Notice of Meetings.............................................1
Section 5. Voting List....................................................2
Section 6. Quorum.........................................................2
Section 7. Adjournments...................................................2
Section 8. Action at Meetings.............................................2
Section 9. Voting and Proxies.............................................3
Section 10.Action Without Meeting.........................................3
ARTICLE II DIRECTORS......................................................3
Section 1. Number, Election, Tenure and Qualification.....................3
Section 2. Enlargement....................................................3
Section 3. Vacancies......................................................4
Section 4. Resignation and Removal........................................4
Section 5. General Powers.................................................4
Section 6. Chairman of the Board..........................................4
Section 7. Place of Meetings..............................................4
Section 8. Regular Meetings...............................................4
Section 9. Special Meetings...............................................5
Section 10.Quorum, Action at Meeting, Adjournments........................5
Section 11.Action by Consent..............................................5
Section 12.Telephonic Meetings............................................5
Section 13.Committees.....................................................6
Section 14.Compensation...................................................6
ARTICLE III OFFICERS.......................................................7
Section 1. Enumeration....................................................7
Section 2. Election.......................................................7
Section 3. Tenure.........................................................7
Section 4. President......................................................7
Section 5. Vice-Presidents................................................8
Section 6. Secretary......................................................8
Section 7. Assistant Secretaries..........................................8
Section 8. Treasurer......................................................9
Section 9. Assistant Treasurers...........................................9
Section 10.Bond...........................................................9
ARTICLE IV NOTICES.......................................................10
Section 1. Delivery......................................................10
Section 2. Waiver of Notice..............................................10
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE V INDEMNIFICATION...............................................10
Section 1. Actions other than by or in the Right
of the Corporation............................................10
Section 2. Actions by or in the Right of the Corporation.................11
Section 3. Success on the Merits.........................................11
Section 4. Specific Authorization........................................11
Section 5. Advance Payment...............................................12
Section 6. Non-Exclusivity...............................................12
Section 7. Insurance.....................................................12
Section 8. Continuation of Indemnification
and Advancement of Expenses...................................12
Section 9. Severability..................................................12
Section 10.Intent of Article.............................................13
ARTICLE VI CAPITAL STOCK.................................................13
Section 1. Certificates of Stock.........................................13
Section 2. Lost Certificates.............................................13
Section 3. Transfer of Stock.............................................14
Section 4. Record Date...................................................14
Section 5. Registered Stockholders.......................................14
ARTICLE VII CERTAIN TRANSACTIONS..........................................15
Section 1. Transactions with Interested Parties..........................15
Section 2. Quorum........................................................15
ARTICLE VIII GENERAL PROVISIONS............................................15
Section 1. Dividends.....................................................15
Section 2. Reserves......................................................16
Section 3. Checks........................................................16
Section 4. Fiscal Year...................................................16
Section 5. Seal..........................................................16
ARTICLE IX AMENDMENTS....................................................16
Addendum Register of Amendments to the By-laws
</TABLE>
ii
<PAGE>
BIOTECHNOLOGY DEVELOPMENT CORPORATION
* * * * *
BY-LAWS
* * * * *
ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the stockholders shall be
-----------------
held at such place within or without the State of Delaware as may be fixed from
time to time by the board of directors or the chief executive officer, or if not
so designated, at the registered office of the corporation.
Section 2. Annual Meeting. An annual meeting of the stockholders, for the
--------------
election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held each year at such place, on such date, and at such time as the
Board of Directors shall fix.
Section 3. Special Meetings. Special meetings of the stockholders, for any
----------------
purpose or purposes, may, unless otherwise prescribed by statute or by the
certificate of incorporation, be called by the board of directors or the chief
executive officer and shall be called by the chief executive officer or
secretary at the request in writing of a majority of the board of directors, or
at the request in writing of stockholders owning a majority in amount of the
--------
entire capital stock of the corporation issued and outstanding and entitled to
vote. Such request shall state the purpose or purposes of the proposed meeting.
Business transacted at any special meeting shall be limited to matters relating
to the purpose or purposes stated in the notice of meeting.
Section 4. Notice of Meetings. Except as otherwise provided by law, written
------------------
notice of each meeting of stockholders, annual or special, stating the place,
date and hour of the meeting and, in the case of a special meeting, the purpose
or purposes for which the meeting is called, shall be given not less than ten or
more than sixty days before the date of the meeting, to each stockholder
entitled to vote at such meeting.
Section 5. Voting List. The officer who has charge of the stock ledger of
-----------
the corporation shall prepare and make, at least ten days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder
<PAGE>
and the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least ten days
prior to the meeting, either at a place within the city or town where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 6. Quorum. The holders of a majority of the stock issued and
------
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business, except as otherwise provided by statute, the
certificate of incorporation or these by-laws.
Section 7. Adjournments. Any meeting of stockholders may be adjourned from
------------
time to time to any other time and to any other place at which a meeting of
stockholders may be held under these by-laws, which time and place shall be
announced at the meeting, by a majority of the stockholders present in person or
represented by proxy at the meeting and entitled to vote, though less than a
quorum, or, if no stockholder is present or represented by proxy, by any officer
entitled to preside at or to act as secretary of such meeting, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the original meeting. If the adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
Section 8. Action at Meetings. When a quorum is present at any meeting, the
------------------
vote of the holders of a majority of the stock present in person or represented
by proxy and entitled to vote on the question shall decide any question brought
before such meeting, unless the question is one upon which by express provision
of law, the certificate of incorporation or these by-laws, a different vote is
required, in which case such express provision shall govern and control the
decision of such question.
Section 9. Voting and Proxies. Unless otherwise provided in the certificate
------------------
of incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote for each share of capital stock having voting power held of
record by such stockholder. Each stockholder entitled to vote at a meeting of
stockholders, or to express consent or dissent to corporate action in writing
without a meeting, may authorize another person or persons to act for him by
proxy, but no such proxy shall be
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<PAGE>
voted or acted upon after three years from its date, unless the proxy provides
for a longer period.
Section 10. Action Without Meeting. Any action required to be taken at any
----------------------
annual or special meeting of stockholders, or any action which may be taken at
any annual or special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing.
ARTICLE II
DIRECTORS
Section 1. Number, Election, Tenure and Qualification. The number of
------------------------------------------
directors which shall constitute the whole board shall be not less than one.
Within such limit, the number of directors shall be determined by resolution of
the board of directors or by the stockholders at the annual meeting or at any
special meeting of stockholders. The directors shall be elected at the annual
meeting or at any special meeting of the stockholders, except as provided in
Section 3 of this Article, and each director elected shall hold office until his
successor is elected and qualified, unless sooner displaced. Directors need not
be stockholders.
Section 2. Enlargement. The number of the board of directors may be
-----------
increased at any time by vote of a majority of the directors then in office.
Section 3. Vacancies. Vacancies and newly created directorships resulting
---------
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director, and the directors so chosen shall hold office until the
next annual election and until their successors are duly elected and shall
qualify, unless sooner displaced. If there are no directors in office, then an
election of directors may be held in the manner provided by statute. In the
event of a vacancy in the board of directors, the remaining directors, except as
otherwise provided by law or these by-laws, may exercise the powers of the full
board until the vacancy is filled.
Section 4. Resignation and Removal. Any director may resign at any time
-----------------------
upon written notice to the corporation at its principal place of business or to
the chief executive officer or secretary. Such resignation shall be effective
upon receipt
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<PAGE>
unless it is specified to be effective at some other time or upon the happening
of some other event. Any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors, unless otherwise specified by law
or the certificate of incorporation.
Section 5. General Powers. The business and affairs of the corporation
--------------
shall be managed by its board of directors, which may exercise all powers of the
corporation and do all such lawful acts and things as are not by statute or by
the certificate of incorporation or by these by-laws directed or required to be
exercised or done by the stockholders.
Section 6. Chairman of the Board. If the board of directors appoints a
---------------------
chairman of the board, he shall, when present, preside at all meetings of the
stockholders and the board of directors. He shall perform such duties and
possess such powers as are customarily vested in the office of the chairman of
the board or as may be vested in him by the board of directors.
Section 7. Place of Meetings. The board of directors may hold meetings,
-----------------
both regular and special, either within or without the State of Delaware.
Section 8. Regular Meetings. Regular meetings of the board of directors may
----------------
be held without notice at such time and at such place as shall from time to time
be determined by the board; provided that any director who is absent when such a
determination is made shall be given prompt notice of such determination. A
regular meeting of the board of directors may be held without notice immediately
after and at the same place as the annual meeting of stockholders.
Section 9. Special Meetings. Special meetings of the board may be called by
----------------
the chief executive officer, secretary, or on the written request of two or more
directors, or by one director in the event that there is only one director in
office. Two days' notice to each director, either personally or by telegram,
cable, telecopy, commercial delivery service, telex or similar means sent to his
business or home address, or three days' notice by written notice deposited in
the mail, shall be given to each director by the secretary or by the officer or
one of the directors calling the meeting. A notice or waiver of notice of a
meeting of the board of directors need not specify the purposes of the meeting.
Section 10. Quorum, Action at Meeting, Adjournments. At all meetings of the
---------------------------------------
board a majority of directors then in office, but in no event less than one
third of the entire board, shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the board of directors,
- 4 -
<PAGE>
except as may be otherwise specifically provided by law or by the certificate of
incorporation. For purposes of this section, the term "entire board" shall mean
the number of directors last fixed by the stockholders or directors, as the case
may be, in accordance with law and these by-laws; provided, however, that if
less than all the number so fixed of directors were elected, the "entire board"
shall mean the greatest number of directors so elected to hold office at any one
time pursuant to such authorization. If a quorum shall not be present at any
meeting of the board of directors, a majority of the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 11. Action by Consent. Unless otherwise restricted by the
-----------------
certificate of incorporation or these by-laws, any action required or permitted
to be taken at any meeting of the board of directors or of any committee thereof
may be taken without a meeting, if all members of the board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the board or committee.
Section 12. Telephonic Meetings. Unless otherwise restricted by the
-------------------
certificate of incorporation or these by-laws, members of the board of directors
or of any committee thereof may participate in a meeting of the board of
directors or of any committee, as the case may be, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.
Section 13. Committees. The board of directors may, by resolution passed by
----------
a majority of the whole board, designate one or more committees, each committee
to consist of one or more of the directors of the corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Any
such committee, to the extent provided in the resolution of the board of
directors, shall have and may exercise all the powers and authority of the board
of directors in the management of the business and affairs of the corporation,
and may authorize the seal of the corporation to be affixed to all papers which
may require it; but no such committee shall have the power or authority in
reference to amending the certificate of incorporation, adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the corporation's property and assets,
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the by-laws of the corporation; and,
unless the resolution designating such committee or the certificate of
incorporation expressly so provide, no such committee shall have the power or
- 5 -
<PAGE>
authority to declare a dividend or to authorize the issuance of stock. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the board of directors. Each committee
shall keep regular minutes of its meetings and make such reports to the board of
directors as the board of directors may request. Except as the board of
directors may otherwise determine, any committee may make rules for the conduct
of its business, but unless otherwise provided by the directors or in such
rules, its business shall be conducted as nearly as possible in the same manner
as is provided in these by-laws for the conduct of its business by the board of
directors.
Section 14. Compensation. Unless otherwise restricted by the certificate of
------------
incorporation or these by-laws, the board of directors shall have the authority
to fix from time to time the compensation of directors. The directors may be
paid their expenses, if any, of attendance at each meeting of the board of
directors and the performance of their responsibilities as directors and may be
paid a fixed sum for attendance at each meeting of the board of directors and/or
a stated salary as director. No such payment shall preclude any director from
serving the corporation or its parent or subsidiary corporations in any other
capacity and receiving compensation therefor. The board of directors may also
allow compensation for members of special or standing committees for service on
such committees.
ARTICLE III
OFFICERS
Section 1. Enumeration. The officers of the corporation shall be chosen by
-----------
the board of directors and shall be a president, a secretary and a treasurer and
such other officers with such titles, terms of office and duties as the board of
directors may from time to time determine, including a chairman of the board,
one or more vice-presidents, and one or more assistant secretaries and assistant
treasurers. If authorized by resolution of the board of directors, the chief
executive officer may be empowered to appoint from time to time assistant
secretaries and assistant treasurers. Any number of offices may be held by the
same person, unless the certificate of incorporation or these by-laws otherwise
provide.
Section 2. Election. The board of directors at its first meeting after each
--------
annual meeting of stockholders shall choose a president, a secretary and a
treasurer. Other officers may be appointed by the board of directors at such
meeting, at any other meeting, or by written consent.
Section 3. Tenure. The officers of the corporation shall hold office until
------
their successors are chosen and qualify, unless a different term is specified in
the vote choosing or appointing
- 6 -
<PAGE>
him, or until his earlier death, resignation or removal. Any officer elected or
appointed by the board of directors or by the chief executive officer may be
removed at any time by the affirmative vote of a majority of the board of
directors or a committee duly authorized to do so, except that any officer
appointed by the chief executive officer may also be removed at any time by the
chief executive officer. Any vacancy occurring in any office of the corporation
may be filled by the board of directors, at its discretion. Any officer may
resign by delivering his written resignation to the corporation at its principal
place of business or to the chief executive officer or the secretary. Such
resignation shall be effective upon receipt unless it is specified to be
effective at some other time or upon the happening of some other event.
Section 4. President. The president shall be the chief operating officer of
---------
the corporation. He shall also be the chief executive officer unless the board
of directors otherwise provides. The president shall, unless the board of
directors provides otherwise in a specific instance or generally, preside at all
meetings of the stockholders and the board of directors, have general and active
management of the business of the corporation and see that all orders and
resolutions of the board of directors are carried into effect. The president
shall execute bonds, mortgages, and other contracts requiring a seal, under the
seal of the corporation, except where required or permitted by law to be
otherwise signed and executed and except where the signing and execution thereof
shall be expressly delegated by the board of directors to some other officer or
agent of the corporation.
Section 5. Vice-Presidents. In the absence of the president or in the event
---------------
of his inability or refusal to act, the vice-president, or if there be more than
one vice-president, the vice-presidents in the order designated by the board of
directors or the chief executive officer (or in the absence of any designation,
then in the order determined by their tenure in office) shall perform the duties
of the president, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the president. The vice-presidents shall
perform such other duties and have such other powers as the board of directors
or the chief executive officer may from time to time prescribe.
Section 6. Secretary. The secretary shall have such powers and perform such
---------
duties as are incident to the office of secretary. He shall maintain a stock
ledger and prepare lists of stockholders and their addresses as required and
shall be the custodian of corporate records. The secretary shall attend all
meetings of the board of directors and all meetings of the stockholders and
record all the proceedings of the meetings of the corporation and of the board
of directors in a book to be kept for that purpose and shall perform like duties
for the standing committees when required. He shall give, or cause to be
- 7 -
<PAGE>
given, notice of all meetings of the stockholders and special meetings of the
board of directors, and shall perform such other duties as may be from time to
time prescribed by the board of directors or chief executive officer, under
whose supervision he shall be. He shall have custody of the corporate seal of
the corporation and he, or an assistant secretary, shall have authority to affix
the same to any instrument requiring it and when so affixed, it may be attested
by his signature or by the signature of such assistant secretary. The board of
directors may give general authority to any other officer to affix the seal of
the corporation and to attest the affixing by his signature.
Section 7. Assistant Secretaries. The assistant secretary, or if there be
---------------------
more than one, the assistant secretaries in the order determined by the board of
directors, the chief executive officer or the secretary (or if there be no such
determination, then in the order determined by their tenure in office), shall,
in the absence of the secretary or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the board of directors,
the chief executive officer or the secretary may from time to time prescribe. In
the absence of the secretary or any assistant secretary at any meeting of
stockholders or directors, the person presiding at the meeting shall designate a
temporary or acting secretary to keep a record of the meeting.
Section 8. Treasurer. The treasurer shall perform such
----------
duties and shall have such powers as may be assigned to him by the board of
directors or the chief executive officer. In addition, the treasurer shall
perform such duties and have such powers as are incident to the office of
treasurer. The treasurer shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the board of directors. He shall
disburse the funds of the corporation as may be ordered by the board of
directors, taking proper vouchers for such disbursements, and shall render to
the chief executive officer and the board of directors, when the chief executive
officer or board of directors so requires, an account of all his transactions as
treasurer and of the financial condition of the corporation.
Section 9. Assistant Treasurers. The assistant
---------------------
treasurer, or if there shall be more than one, the assistant treasurers in the
order determined by the board of directors, the chief executive officer or the
treasurer (or if there be no such determination, then in the order determined by
their tenure in office), shall, in the absence of the treasurer or in the event
of his inability or refusal to act, perform the duties and exercise the powers
of the treasurer and shall perform such other duties and have such other powers
as the board of directors, the
- 8 -
<PAGE>
chief executive officer or the treasurer may from time to time prescribe.
Section 10. Bond. If required by the board of directors, any
-----
officer shall give the corporation a bond in such sum and with such surety or
sureties and upon such terms and conditions as shall be satisfactory to the
board of directors, including without limitation a bond for the faithful
performance of the duties of his office and for the restoration to the
corporation of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control and belonging to the corporation.
ARTICLE IV
NOTICES
Section 1. Delivery. Whenever, under the provisions of
---------
law, or of the certificate of incorporation or these by-laws, written notice is
required to be given to any director or stockholder, such notice may be given by
mail, addressed to such director or stockholder, at his address as it appears on
the records of the corporation, with postage thereon prepaid, and such notice
shall be deemed to be given at the time when the same shall be deposited in the
United States mail. Unless written notice by mail is required by law, written
notice may also be given by telegram, cable, telecopy, commercial delivery
service, telex or similar means, addressed to such director or stockholder at
his address as it appears on the records of the corporation, in which case such
notice shall be deemed to be given when delivered into the control of the
persons charged with effecting such transmission, the transmission charge to be
paid by the corporation or the person sending such notice and not by the
addressee. Oral notice or other in-hand delivery (in person or by telephone)
shall be deemed given at the time it is actually given.
Section 2. Waiver of Notice. Whenever any notice is
-----------------
required to be given under the provisions of law or of the certificate of
incorporation or of these by-laws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
ARTICLE V
INDEMNIFICATION
Section 1. Actions other than by or in the Right of the Corporation. The
--------------------------------------------------------
corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding,
- 9 -
<PAGE>
whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, or is or
was 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 expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceedings, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
---- ----------
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 2. Actions by or in the Right of the Corporation. The corporation
---------------------------------------------
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the corporation to procure a judgment in its favor by reason of the fact that
he is or was a director, officer, employee or agent of the corporation, or is or
was 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 expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable unless and only to the
extent that the Court of Chancery of the State of Delaware or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery of the State of Delaware or such other court shall
deem proper.
Section 3. Success on the Merits. To the extent that any person described
---------------------
in Section 1 or 2 of this Article V has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in said
Sections, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
- 10 -
<PAGE>
Section 4. Specific Authorization. Any indemnification under Section 1 or
----------------------
2 of this Article V (unless ordered by a court) shall be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of any person described in said Sections is proper in the
circumstances because he has met the applicable standard of conduct set forth in
said Sections. Such determination shall be made (1) by the board of directors
by a majority vote of a quorum consisting of directors who were not parties to
such action, suit or proceeding, or (2) if such a quorum is not obtainable, or
even if obtainable a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, or (3) by the stockholders of
the corporation.
Section 5. Advance Payment. Expenses incurred in defending a civil or
---------------
criminal action, suit or proceeding may be paid by the corporation in advance of
the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of any person described in said Section to repay
such amount if it shall ultimately be determined that he is not entitled to
indemnification by the corporation as authorized in this Article V.
Section 6. Non-Exclusivity. The indemnification and advancement of
---------------
expenses provided by, or granted pursuant to, the other Sections of this Article
V shall not be deemed exclusive of any other rights to which those provided
indemnification or advancement of expenses may be entitled under any by-law,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office.
Section 7. Insurance. The board of directors may authorize, by a vote of
---------
the majority of the full board, the corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was 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 and incurred by him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liability under the provisions of this Article V.
Section 8. Continuation of Indemnification and Advancement of Expenses.
-----------------------------------------------------------
The indemnification and advancement of expenses provided by, or granted pursuant
to, this Article V shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
Section 9. Severability. If any word, clause or provision of this
------------
Article V or any award made hereunder shall for any
- 11 -
<PAGE>
reason be determined to be invalid, the provisions hereof shall not otherwise be
affected thereby but shall remain in full force and effect.
Section 10. Intent of Article. The intent of this Article V is to provide
-----------------
for indemnification and advancement of expenses to the fullest extent permitted
by Section 145 of the General Corporation Law of Delaware. To the extent that
such Section or any successor section may be amended or supplemented from time
to time, this Article V shall be amended automatically and construed so as to
permit indemnification and advancement of expenses to the fullest extent from
time to time permitted by law.
ARTICLE VI
CAPITAL STOCK
Section 1. Certificates of Stock. Every holder of
----------------------
stock in the corporation shall be entitled to have a certificate, signed by, or
in the name of the corporation by, the chairman or vice-chairman of the board of
directors, or the president or a vice-president and the treasurer or an
assistant treasurer, or the secretary or an assistant secretary of the
corporation, certifying the number of shares owned by him in the corporation.
Any or all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the corporation with the same effect as if he were such officer, transfer
agent or registrar at the date of issue. Certificates may be issued for partly
paid shares and in such case upon the face or back of the certificates issued to
represent any such partly paid shares, the total amount of the consideration to
be paid therefor, and the amount paid thereon shall be specified.
Section 2. Lost Certificates. The board of directors
------------------
may direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the corporation alleged to
have been lost, stolen or destroyed. When authorizing such issue of a new
certificate or certificates, the board of directors may, in its discretion and
as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate or certificates, or his legal
representative, to give reasonable evidence of such loss, theft or destruction,
to advertise the same in such manner as it shall require and/or to give the
corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the corporation with respect to the certificate alleged
to have been lost, stolen or destroyed or the issuance of such new certificate.
- 12 -
<PAGE>
Section 3. Transfer of Stock. Upon surrender to the
------------------
corporation or the transfer agent of the corporation of a certificate for
shares, duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, and proper evidence of compliance with
other conditions to rightful transfer, it shall be the duty of the corporation
to issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon its books.
Section 4. Record Date. In order that the corporation
------------
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the board of directors may fix, in
advance, a record date, which shall not be more than sixty days nor less then
ten days before the date of such meeting, nor more than sixty days prior to any
other action to which such record date relates. A determination of stockholders
of record entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of the meeting; provided, however, that the board of
directors may fix a new record date for the adjourned meeting. If no record
date is fixed, the record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of business on
the day before the day on which notice is given, or, if notice is waived, at the
close of business on the day before the day on which the meeting is held. The
record date for determining stockholders entitled to express consent to
corporate action in writing without a meeting, when no prior action by the board
of directors is necessary, shall be the day on which the first written consent
is expressed. The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating to such purpose.
Section 5. Registered Stockholders. The
------------------------
corporation shall be entitled to recognize the exclusive right of a person
registered on its books as the owner of shares to receive dividends, and to vote
as such owner, and to hold liable for calls and assessments a person registered
on its books as the owner of shares, and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by the laws of Delaware.
- 13 -
<PAGE>
ARTICLE VII
CERTAIN TRANSACTIONS
Section 1. Transactions with Interested Parties.
-------------------------------------
No contract or transaction between the corporation and one
or more of its directors or officers, or between the corporation and any other
corporation, partnership, association, or other organization in which one or
more of its directors or officers are directors or officers, or have a financial
interest, shall be void or voidable solely for this reason, or solely because
the director or officer is present at or participates in the meeting of the
board or committee thereof which authorizes the contract or transaction or
solely because his or their votes are counted for such purpose, if:
(a) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the board of
directors or the committee, and the board or committee in good faith
authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or
(b) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
(c) The contract or transaction is fair as to the corporation as of
the time it is authorized, approved or ratified, by the board of directors,
a committee thereof, or the stockholders.
Section 2. Quorum. Common or interested directors may be
-------
counted in determining the presence of a quorum at a meeting of the board of
directors or of a committee which authorizes the contract or transaction.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of
----------
the corporation, if any, may be declared by the board of directors at any
regular or special meeting or by written consent, pursuant to law. Dividends
may be paid in cash, in property, or in shares of the capital stock, subject to
the provisions of the certificate of incorporation.
- 14 -
<PAGE>
Section 2. Reserves. The directors may set apart out of
---------
any funds of the corporation available for dividends a reserve or reserves for
any proper purpose and may abolish any such reserve.
Section 3. Checks. All checks or demands for money and
-------
notes of the corporation shall be signed by such officer or officers or such
other person or persons as the board of directors may from time to time
designate.
Section 4. Fiscal Year. The fiscal year of the
------------
corporation shall be fixed by resolution of the board of directors.
Section 5. Seal. The board of directors may, by resolution,
-----
adopt a corporate seal. The corporate seal shall have inscribed thereon the
name of the corporation, the year of its organization and the word "Delaware".
The seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise. The seal may be altered from time to time
by the board of directors.
ARTICLE IX
AMENDMENTS
These by-laws may be altered, amended or repealed or new by-laws may be
adopted by the stockholders or by the board of directors, when such power is
conferred upon the board of directors by the certificate of incorporation, at
any regular meeting of the stockholders or of the board of directors or at any
special meeting of the stockholders or of the board of directors provided,
however, that in the case of a regular or special meeting of stockholders,
notice of such alteration, amendment, repeal or adoption of new by-laws be
contained in the notice of such meeting.
Register of Amendments to the By-laws
Date Section Affected
---- ----------------
3/16/87 Article V
2/11/97 Article I, Section 2
- 15 -
<PAGE>
Exhibit 10(H)
AMENDMENT NO. 1
TO THE
CATALYTICA/MICROFLUIDICS AGREEMENT
THIS IS AN AMENDMENT ("Amendment No. 1") effective July __ 1994 ("Effective
Date") to the Agreement ("Agreement") dated October 18, 1993 between Catalytica.
Inc. of Mountain View, California ("Catalytica") and Microfluidics International
Corporation of Newton, Massachusetts ("Microfluidics").
WHEREAS, Catalytica and Microfluidics have agreed to the work plan and
budget for each Party's Phase I Research Program as set forth in the Agreement
for the six (6) month period of July to December of 1994; and
WHEREAS, as it is anticipated that Catalytica's share of the approved costs
for Phase I Research Program will be significantly greater than Microfluidic's
approved costs at the end of the aforesaid six (6) month period, the Parties
have agreed upon a mechanism whereby Microfluidics will have the option of
reimbursing Catalytica for costs incurred by Catalytica above those incurred by
Microfluidics, or, if not, Catalytica's share of the benefits of
commercialization under the Agreement will be increased proportionally based on
the ratio of the total approved costs incurred by each Party by the end of the
aforesaid six (6) month period.
NOW, THEREFORE, in consideration of the terms and conditions hereinafter
set forth, Catalytica and Microfluidics agree to amend the Agreement as follows:
1. Agreed-Upon Phase I Research Costs through December 1994. The mutually-
--------------------------------------------------------
agreed upon budgets (Under Paragraph 2 of the Agreement) for the six (6) month
period of July to December of 1994 for each of Catalytica and Microfluidics are
set forth in Appendix A and Appendix B hereto, respectively. These approved
budgets include all costs for post-doctoral and analytical work at Worcester
Polytechnic Institute, post-doctoral work at the University of Namur and
Professor William Moser's consulting fees, which will all be shared equally by
the Parties during the aforesaid six (6) month period. In this regard, both
Parties agree to limit their approved costs to the total amounts set forth in
the Appendices for the six (6) month period unless prior written approval is
obtained from the other Party for any cost increase.
2. Option for Cost Reimbursement or Ownership Annortionment. By or before
--------------------------------------------------------
January 20, 1995 each Party will provide the other Party with a written report
on the budgeted Phase I research costs actually incurred during the six (6)
month period ending December 31, 1994- By February 15, 1995, Microfluidics, at
its own option, will (i) pay to Catalytica one-half the difference between
Catalytica and Microfluidic's actual approved Phase I research costs for the six
(6) month period from July through December of 1994, and Catalytica and
Microfluidics will retain equal ownership to the commercial benefits of their
collaboration under Paragraph 7(b) of
<PAGE>
the Agreement; or (ii) not make such payment to Catalytica iu which case the
ownership of the commercial benefits of the collaboration under Paragraph 7(b)
of the Agreement shall be adjusted in proportion to the total approved costs
incurred by each Party for the collaboration up to the December 31, 1994 date;
for example, if Catalytica has iucurred 55 percent (55%) of the total costs and
Microfluidics only 45 percent (45%) the ownership shall be 55 percent (55%)
Catalytica's and 45 percent (45%) Microfluidic's.
3. Inconsistent Terms. The terms and conditions set forth above shall
------------------
supersede and replace any provision of the Agreement which is inconsistent with,
or contrary to, the terms and conditions of this Amendment No-1. In all other
respects, the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the Parties hereto have caused this Amendment No. 1 to
be executed as of the day and year first written above.
Accepting for CATALYTICA, Inc. Accepting for MICROFLUIDICS
INTERNATIONAL CORPORATION
______________________________ ___________________________
Signature Signature
______________________________ ___________________________
Name Name
______________________________ ___________________________
Title Title
______________________________ ___________________________
Date Date
<PAGE>
Appendix A
Nanoscale Materials
2nd Half 1994 Catalytica Budget
-------------------------------
<TABLE>
<CAPTION>
Jul-94 Aug-94 Sep-94 Oct-94 Nov-94 Dec-94 Total
<S> <C> <C> <C> <C> <C> <C> <C>
Labor Costs 44,844 50,750 50,750 50,750 44,844 44,844
286,782
Direct Costs
Moser
consulting 2,500 2,500 5,000
WPI Post
Doc 13,000 13,000 26,000
Zeolite
Post Doc 7,500 7,500
Other 5,000 5,000 5,000 5,000 5,000 5,000 30,000
------ ------ ------ ------ ------ ------ -------
TOTAL 20,500 5,000 5,000 28,000 5,000 5,000 68,500
Total Costs 65,344 55,750 55,750 78,750 49,844 49,844 355,282
</TABLE>
<PAGE>
Appendix B
----------
Nanoscale Materials
2nd Half Microfluidics Budget
<TABLE>
<S> <C>
Salaries and Benefits $110,000
Moser Consulting 5,000
WPI Post Doc 12,500
Zeolite Post Doc 7,500
Consultants 3,000
Microfluidizers 5,000
Travel 6,000
Supplies / other 6,000
- ----------------
Total $155,000
</TABLE>
<PAGE>
EXHIBIT 10(I)
AMENDMENT NO.2
TO THE
CATALYTICA / MICROFLUIDICS AGREEMENT
THIS IS THE SECOND AMENDMENT ("Amendment No. 2") effective February __,
1995 (''Effective Date") to the Agreement (''Agreement'') dated October 18, 1993
between Catalytica, Inc. of Mountain View, California (" Catalytica") and
Microfluidics International Corporation of Newton, Massachusetts
("Microfluidics") which was previously modified by Amendment No. 1 in July 1994.
WHEREAS, pursuant to Amendment No. 1 to the Agreement, Microfluidics has
elected not to reimburse Catalytica for one-half of the difference between
Catalytica and Microfluidics' actual approved Phase I research costs for the six
(6) month period ending December 31, 1994 and has chosen, as set forth in said
Amendment No. 1, to allow Catalytica's share of the benefits of
commercialization to be proportionally increased;
WHEREAS, Gatalytica and Microfluidics have agreed that for the duration of
Phases I and II of the Program as defined in the Agreement, that is, up to the
time technology development is completed and ready for commercialization, the
Parties will not cost share in each other's Program research and development
expenses, and during this period, each Party's share of the benefits
of commercialization under the Agreement will be adjusted based on the ratio
of the cumulative, approved Program costs for each Party, regardless of whether
costs for that Party are reimbursed by any third party; and
WHEREAS, as part of the development effort for the technology,
Microfluidics recognizes and agrees that Catalytica shall represent the interest
of both Microfluidics and Catalytica under the Agreement between Mitsubishi
Corporation ("MC") and Catalytica to market the technology to potential
customers in Japan, and accordingly, Microfluidics agrees to be bound by the
terms of the Agreement between Catalytica and MC regarding marketing of the
technology in Japan.
NOW, THEREFORE. in consideration of the terms and conditions hereinafter
set forth, Catalytica and Microfluidics agree to amend the Agreement as follows:
March 24, 1995
<PAGE>
1. Option Exercise Under Paragraph 2 of Amendment No. 1
-----------------------------------------------------
Microfluidics has agreed to exercise its option to not make a payment
to Catalytica for one-half of the difference between Catalytica and
Microfluidics' actual approved Phase I research costs in the six (6) month
period from July to December 1994. Accordingly. Catalytica's ownership of the
commercial benefits of the collaboration under Paragraph 7(b) of the Agreement
shall be adjusted in proportion to the total approved costs incurred by each
Party for the collaboration up to December 31, 1994. In this regard, it is
agreed that as of December 31, 1994. Catalytica's total approved expenditures
are $634,727 whereas Microfluidics' total approved costs are $404,573, and
therefore the ownership of commercialization benefits is reallocated such that
Catalytica owns sixty-one percent (61%) and Microfluidics owns thirty-nine
percent (39%) of the benefits.
2. Commercial Benefits Ownership Allocation for the Remainder of Phases I
----------------------------------------------------------------------
and II of the Program
---------------------
The Parties agree that beginning on January 1, 1995 and for the
remainder of Phases I and II of the Program, or until the technology development
is complete and ready for commercialization, that the ownership of the
commercial benefits of the collaboration under Paragraph 7(b) of the Agreement
shall be divided on an ongoing basis in accordance with the cumulative approved
Program costs for each Party regardless of whether such costs are paid or
reimbursed, by a third party to the Party incurring the costs. When the Parties
agree that technology development is completed and Phase III ofthis Program to
commercialize the technology is initiated, the costs of such commercialization
shall be shared according to the then prevailing ownership allocation.
3. The Agreed-Upon Research Budget for the First Half of 1995
----------------------------------------------------------
The mutually agreed-upon budgets (under Paragraph 2 of the Agreement)
for the six (6) month period of January to June 30, 1995 for each of Catalytica
and Microfluidics are set forth in Exhibit A hereto. The Parties anticipate that
budgets for subsequent six (6) month periods will be agreed upon.
March 24, 1995
<PAGE>
at least thirty (30) days before the beginning of the next six (6) month period
in question and the Parties shall use all good-faith efforts to meet this
anticipated schedule.
4. Development and Commercialization Activities in Japan Under the
---------------------------------------------------------------
Catalytica / MC Agreement
-------------------------
Microfluidics has reviewed the Cooperative Marketing Agreement between
Catalytica and MC for commercial exploitation of certain technologies/products
in Japan and agrees that Catalytica shall have the sole and exclusive right to
represent the interests of both Catalytica and Microfluidics in technology
resulting from the collaboration under the Agreement insofar as Catalytica
elects to include it in the list of technologies/products which MC shall market
to potential customers in Japan on Catalytica's behalf. In this regard,
Microfluidics agrees to be bound by, and to otherwise honor, the terms of the
Cooperative Marketing Agreement between MC and Catalytica, as it applies to
technology resulting from the collaboration under the Agreement, and to take
action which may be reasonably necessary to take advantage of any commercial
opportunity identified by MC.
5. Inconsistent Terms
------------------
The terms and conditions set forth above shall supersede and replace
any provisions of the Agreement as previously amended which is inconsistent
with, or contrary to, the terms and conditions of this Amendment No. 2. In all
other respects, the Agreement, as previously amended, shall remain in full force
and effect.
March 24, 1995
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Amendment No. 2 to be
excecuted by as of the day and year first written above.
Accepting for MICROFLUIDICS Accepting for CATALYTICA,INC.
INTERNATIONAL CORPORATION
___________________________ ______________________________
Signature Signature
___________________________ ______________________________
Name Name
___________________________ ______________________________
Title Title
___________________________ ______________________________
Date Date
March 24, 1995
<PAGE>
Nanoscale Materials
2nd Half 1994 Catalytica Budget
- -------------------------------
<TABLE>
<CAPTION>
Jul-94 Aug-94 Sep-94 Oct-94 Nov-94 Dec-94 Total
<S> <C> <C> <C> <C> <C> <C> <C>
LABOR COSTS:
Budget 44,844 50,750 50,750 50,750 44,844 44,844 286,782
Actual 46,911 60,114 59,274 46,876 53,725 35,854 302,754
DIRECT COSTS:
Moser
Consulting 2,500 2,500 5,000
WPI Post
Doc 13,000 13,000 26,000
Zeolite
Post Doc 7,500 7,500
Other 5,000 5,000 5,000 5,000 5,000 5,000 30,000
------ ------ ------ ------ ------ ------ -------
TOTAL 20,500 5,000 5,000 28,000 5,000 5,000 68,500
ACTUAL
Moser
Consulting 5,000 5,000
WPI Post
Doc 10,000 10,000
Zeolite Post
Doc 7,500 7,500
Other 1,109 2,112 4,966 3,892 567 9,897 22,543
------ ------ ------ ------ ------ ------ -------
Total 1,109 2,112 4,966 8,892 8,067 19,897 45,043
TOTAL COSTS:
Budget 65,344 55,750 55,750 78,750 49,844 61,792 347,797
Actual 48,020 62,226 64,240 55,768 61,792 55,751 347,797
</TABLE>
NOTE: Catalytica has actually paid $15,000 for Zeolite Post Doc and $0 for WPI
Post Doc
<PAGE>
1st Half 1995 Catalytica Budget
- -------------------------------
<TABLE>
<CAPTION>
Jan-95 Feb-95 Mar-95 Apr-95 May-95 Jun-95 Total
<S> <C> <C> <C> <C> <C> <C> <C>
LABOR
COSTS: 53,738 53,738 66,863 66,863 66,863 66,863 374,929
DIRECT
COSTS:
Moser
Conslt. 2,500 2,500 5,000
WPI Post
Doc 6,500 6,500
Other 8,000 8,000 8,000 8,000 8,000 8,000 48,000
------ ------ ------ ------ ------ ------ -------
TOTAL 17,000 8,000 8,000 10,500 8,000 8,000 59,500
TOTAL
COSTS: 70,738 61,738 74,863 77,363 74,863 74,863 434,429
</TABLE>
<PAGE>
EXHIBIT 10(m)
MICROFLUIDICS INTERNATIONAL CORPORATION
30 Ossipee Road
Newton, Ma 02164
December 31,1995
Irwin J. Gruverman
16 Tanglewood Road
Needham, MA 02194
Dear Mr. Gruverman:
This will confirm our Agreement concerning your compensation as Chairman and CEO
of MFIC, and charges you will incur in connection with your activities for G & G
Diagnostics Corporation.
You may maintain an office in our premises at 30 Ossipee Road and will pay MFIC
$800.00 per month for space, incidental administrative support, minor supplies
usage, and limited use of telephone and copying resources. You will reimburse
MFIC for express charges, outside accounting help and materials and services
purchased through our system.
Subject to approval by the Board, we will pay you at a rate of $72,000 per year,
beginning January 1, 1996. Of that amount, 1/3 will be paid in restricted MFIC
stock,* at a price of $1.50/share, at this time. The balance will be paid in
cash, in 4 equal increments, at the beginning of each quarter. A bonus of up to
$28,000 will be paid, contingent on meeting performance goals to be agreed. You
agree that MFIC will withhold money from your compensation to pay appropriate
taxes. You will be included in MFIC's insurance and medical programs as in the
past years, at no cost to you, as part of your compensation.
Jack Swig will be an employee of MFIC. He will be available to G & G on a half-
time basis, and G & G will reimburse 50% of his salary fringes and tax costs to
MFIC on a quarterly basis.
MICROFLUIDICS INTERNATIONAL, INC.
/s/ Michael Lento /s/ Irwin Gruverman
- ------------------------------------- --------------------------------------
Michael Lento, President Irwin Gruverman
Individually and as President of G & G
Diagnostics Corporation
/s/ Irwin Gruverman
- ----------------------------------
Irwin Gruverman, CEO
* To be granted under the Corporations 1988 Stock Plan.
<PAGE>
Exibit 10(o)
MICROFLUIDICS INTERNATIONAL CORPORATION
30 Ossipee Road
Newton, Ma 02164
December 31, I996
Irwin J Gruverman
16 Tanglewood Road
Needham, MA 02I94
Dear Mr. Gruverman:
This will confirm our Agreement concerning your compensation as Chairman and CEO
of MFIC, and charges you will incur in connection with your activities for G & G
Diagnostics Corporation.
You may maintain an office in our premises at 30 Ossipee Road and will pay MFIC
$800.00 per month for space, incidental administrative support, minor supplies
usage and limited use of telephone and copying resources. You will reimburse
MFIC for express charges, outside accounting help and materials and services
purchased through our system.
Subject to approval by the Board, we will pay you at a rate of $95,000 per year
beginning January 1, 1997. Of that amount, $30,000 will be paid in restricted
MFIC stock, at a price of $1.501 share, at this time. The balance will be paid
in cash, in 4 equal increments at the beginning of each quarter. You will
participate in a bonus pool, if any, for management employees. You agree that
MFIC will withhold money from your compensation to pay appropriate taxes. You
will be included in MFIC's insurance and medical programs as in past years, at
no cost to you, as part of your compensation.
Jack Swig will be an employee of MFIC. He will be available to G & G on a half-
time basis, and G & G will reimburse 50% of his salary, fringes, and tax costs
to MFIC on a quarterly basis, subject to a maximum cost to MFIC of $45,000.
MICROFLUIDICS INTERNATIONAL, Inc.
/s/Michael Lento /s/ Irwin Gruverman
- ----------------- -------------------
Michael Lento, President Irwin Gruverman
Individually and as President of G&G
Diagnostics Corporation
/s/ Irwin Gruverman
- -------------------
Irwin Gruverman, CEO
<PAGE>
Exhibit 10(p)
AGREEMENT
- ---------
This Agreement effective as of the 1st day of January, 1995, is made between
--- -------
Catalytica, Inc., a Delaware corporation having its principal offices in
Mountain View, California, hereinafter referred to as "CATALYTICA" and
Microfluidics International Corporation, a Delaware corporation having its
principal offices in Newton, Massachusetts, hereinafter referred to as
"MICROFLUIDICS".
WHEREAS, CATALYTICA has accumulated data and know-how on cata1ysts and advanced
materials, including synthesis, properties and applications which it considers
confidential and proprietary;
WHEREAS, MICROFLUIDICS has accumulated data and know-how on processing using a
Microfluidizer(R) device, including synthesis, properties and applications which
it considers confidentiaI and proprietary;
WHEREAS, MICROFLUIDICS and CATALYTICA have a pre-existing collaborative
relationship with regard to the production of novel solid state materials using
the Microfluidizer device and have been selected for participation in the
Advanced Technology Program (" ATP"') administered by the National Institute of
Standards and Technology (''NIST'') as a joint venture to conduct certain
specified research; and
WHEREAS, MICROFLUIDICS and CATALYTICA have continued interest in collaborating
in order to develop technology using a Microfluidizer device for the 1)
production of catalysts and ceramics, 2) production of advanced materials
containin meta1 oxides, 3) the catalytic production of chemicals and for 4) the
destruction of organic waste materials, hereinafter referred to as the "FIELD",
to a stage suitable for industrial utiliztion, inc1uding techno1ogy deve1opment
under the ATP.
<PAGE>
NOW, THEREFORE, in consideration of file foregoing and of file mutual promises
hereafterr set forth, CATALYTICA and MICROFLUIDICS agree to file following:
1. Development Program. CATALYTICA and MICROFLUIDICS will collaborate to
-------------------
develop technology within the FIELD, hereinafter referred to as the ''PROGRAM",
for the purpose, if successful, of commercializing the technology. The PROGRAM
will initially focus on the development of catalytic materials within the FIELD
that exhibit improved performance in catalyzed reactions. The Parties agree that
the PROGRAM will be conducted primarily under the auspices of the ATP and agree
to carry out their responsibilities as set forthin the ATP Proposal No: 94-01-
0190, and any contract with NIST. Unless otherwise agreed, each party will be
responsible for its own cost and cost reimbursement from NIST under the ATP.
Other applications will be developed as mutually agreed upon.
2. Program Management. The PROGRAM will directed by a Management Committee
------------------
consisting of two representatives from each Party. The workplans and budget will
be mutually agreed upon. CATALYTICA and MICROFLUIDICS willeach provide to the
other timely reports on the result of their respective evaluations conducted
during the Program subject to the obligations of confidentiality set forthin
Paragraph 6.
The Parties agree that CATALYTICA will serve as Admninstrator (the
"Administrator'') for the joint venture and MICROFLUIDICS hereby grant to
CATALYTICA a Power of Attorney for the sole purpose of binding Microfluidics to
the terms and conditions of the NIST Cooperative Agreement The Administrator
will perform the day-to-day management and administration of the ATP in
accordance with alllegal and regulatory requirement, including the NIST
Cooperative Agreement
3. Techno1ogy Ownership. Any technology or know-how, whether
--------------------
patentable or not, brought by CATALYTICA to the PROGRAM or developed by
CATALYTICA under the PROGRAM shall be owned by CATALYTICA. Any technology or
know-how, whether patentable or not, brought by MICROFLUIDICS to the PROGRAM or
developed by MICROFLUIDICS under the PROGRAM shall be owned by MICROFLUIDICS.
Any technology or know-how, whether patentable or not, developed jointly by the
parties under the PROGRAM shall be jointly owned by MICROFLUIDICS and
CATALYTICA.
In the event CATALYTICA develops or acquires an ownership interest in technology
and/ or know-how re1ating to the Microfluidizer as result of collaborating on
the PROGRAM, CATALYTICA agrees to grant to MICROFLUIDICS a roya1ty-free,
exclusive license to practice under CATALYTICA's ownership interest in such
technology and/or know-how. Further, if MICROFLUIDICS develops or acquires an
ownership interest in technology and/or know-how relating to chemical processes
as result of collaborating on the PROGRAM, MICROFLUIDICS
<PAGE>
agrees to grant to CATALYTICA a royalty-free, exclusive license to practice
under MICROFLUIDICS's ownership interest in such technology and/or know-how. In
each case, the exclusive license granted shall be on a worldwide basis and shall
include the right to sublicense. The Parties will agree to grant to the United
States Government a non-exclusive, non-transferable, irrevocable, paid-up
license to practice or have practiced by or on behalf of the United States
Government throughout the world any invention conceived or first reduced to
practice in the course of the ATP.
The terms and conditions covering the sharing of benefits from commercialization
of technology developed under this Agreement will be covered by separate
Agreement.
4. Proprietary Information. In order to fulfill obligations under this
-----------------------
Agreement, it may be necessary for one party to disclose to the other party
certain proprietary information relating to the PROGRAM ("INFORMATION").
MICROFLUIDICS shal1not have any obligation to disclose to CATALYTICA any
INFORMATION relating to the interaction chamber of the Microfluidizer. Since
both parties wish to assure that INFORMATION is properly protected, they hereby
agree as follows:
INFORMATION may by disclosed in either oral or written form. Any INFORMATION
deemed confidential by the disclosing party will either be supplied in writing
and marked "CONFIDENTIAL", or, if supplied orally, summarized in writing within
thirty (30) days of disclosure and marked "CONFIDENTIAL".
The receiving party agrees to hold INFORMATION in strict confidence for a period
of ten (10) years from receipt and to use it only for the purposes under this
AGREEMENT. The receiving party agrees not to disclose the INFORMATION to any
third party unless prior written authorization has been obtained from the
disclosing party. These obligations shall not apply to:
INFORMATION which, at the time of disclosure, is already in the public domain.
INFORMATION which, after disclosure, becomes a part of the public domain by
publication or otherwise through no violation of this AGREEMENT.
INFORMATION which is shown by written record to be in the possession of the
receiving party prior to disclosure.
INFORMATION which is hereafter lawfully obtained by the receiving party from a
third party, which third party did not acquire the INFORMATION under a still
effective obligation of confidentiality to the disclosing party.
5. Precedence
----------
Should there be any conflict between the terms and conditions of this Agreement
and the NIST Cooperative Agreement, the NIST Cooperative Agreement shall take
precedence.
<PAGE>
6. Miscellaneous.
-------------
This Agreement constitutes the entire agreement between the parties, no
representations having been made by any of the parties except as are herein
specifically set forth. No rights or obligations other than those expressly
recited herein are to be implied from this Agreement
The validity, interpretation and effect of this Agreement shall be governed by
the laws of the State of California, U.S.A.
Any correspondence or notifications concerning this Agreement will be addressed
to the parties as follows:
TO: MICROFLUIDICS INTERNATIONAL CORPORATION
30 Ossipee Road
Newton, Massachusetts 02164
TO: CATALYTICA,INC.
Ferguson Drive, Building #3
Mountain View,California 94043
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective representatives.
Accepted for MICROFLUIDICS Accepted for CATALYTICA
_____________________________ ______________________________
Signature Signature
______________________________ _____________________________
Name Name
______________________________ _____________________________
Title Title
______________________________ _____________________________
Date Date
<PAGE>
EXHIBIT 10(q)
March 3, 1997
James N. Little
193 Eliot Street
South Natick, MA 01710
Re: Consultancy with Microfluidics International Corporation
Dear Jim,
Enclosed are two originals of your Consultancy and Developments Agreement with
Microfluidics. Each Agreement has a Confidentiality and Non-Disclosure
Agreement and a Non-Competition Agreement attached as exhibits. Mike Lento has
signed where necessary so I ask that you sign where indicated on all documents
and then return one fully executed set to me for MFIC's records.
Also, I am preparing the Board of Directors Minutes from the February 11th
meeting pursuant to a vote taken there you will be paid a $2,500 consulting fee
for your services rendered in 1996. Mike Lento asked me to inform you that the
payment for same will go out when we next do our check run - next Thursday at
latest.
Finally, your Director's options for 1997 under the 1989 Non-Employee Directors
Stock Option Plan should be going out to you shortly.
Yours truly,
Jack M. Swig, Esq.
cc: Michael A. Lento, President
Dennis Riordan, Controller
<PAGE>
CONSULTANCY AND DEVELOPMENTS AGREEMENT
This Agreement is made and entered into this 1st day January, 1997, by and among
Microfluidics International Corporation together with its wholly owned
subsidiary, Microfluidics Corporation, both being Delaware, U.S. corporations
(hereinafter jointly referred to as "MICROFLUIDICS") and James N. Little Ph.D.
("referred to hereafter as the "CONSULTANT").
WHEREAS, MICROFLUIDICS desires to avail itself of the services of CONSULTANT in
connection with the planning and furtherance of its sales and marketing program
("Sales/Marketing Program") to perform certain to be assigned engineering and
technical tasks, and
WHEREAS, CONSULTANT desires to furnish his services to MICROFLUIDICS.
NOW THEREFORE, for and in consideration of the mutual promises and premises
contained herein, MICROFLUIDICS and the CONSULTANT agree as follows:
ARTICLE 1
TERM
----
This Agreement shall be for an initial period of twelve (12) months from the
date of its execution but will automatically renew and extend for a period of
twelve (12) months unless earlier terminated by any either party at any time by
the provision in writing of notice of such party's election to do so provided at
least Ten (10) business days prior to the effective date of such termination.
ARTICLE 2
DUTIES
------
The CONSULTANT shall during the term of this Agreement generally render
consultative services to MICROFLUIDICS generally relating to the sales and
marketing strategy of MICROFLUIDICS for the sale of its Microfluidizer(R)
materials processing equipment and such further tasks or duties as MICROFLUIDICS
and CONSULTANT shall agree upon from time to time (the "Services").
ARTICLE 3
CONTROL AND STATUS
------------------
(A) The CONSULTANT shall have the exclusive right to establish its own working
hours, days of work and site(s) where work is performed. The CONSULTANT is
deemed to be an independent contractor for all purposes, including but not
limited to payroll withholdings, Workman's Compensation Insurance, health,
accident and disability insurance, and agency and authority to act on behalf of
MICROFLUIDICS.
(B) CONSULTANT shall only be required to devote such time and energies to
MICROFLUIDICS' consulting matters as he shall, after consultation with
MICROFLUIDICS, deem reasonably necessary to accomplish the tasks undertaken.
2
<PAGE>
ARTICLE 4
REIMBURSEMENT FOR EXPENSES
--------------------------
CONSULTANT will be reimbursed for certain of his expenses incurred in rendering
of the Services hereunder as follows:
A. During the term of this Agreement, the CONSULTANT shall, only with
prior approval, be allowed reimbursement of actual out-of-pocket expenses
incurred in connection with its activities hereunder, and shall be reimbursed on
a current basis (net 30 days from the presentation of original vouchers,
receipts or billing for same).
B. Notwithstanding the foregoing and the provisions of Article 5
hereinafter, CONSULTANT shall not be entitled to bill for or seek reimbursement
for travel time and expense from CONSULTANT's home or place of business to and
from MICROFLUIDICS.
ARTICLE 5
COMPENSATION
------------
As sole compensation for the Services rendered hereunder during the initial Term
Consultant shall be paid the sum of Seven Thousand Five Hundred Dollars ($7,500)
payable in arrears in three equal installments on April 30th, August 31st, and
December 31st.
ARTICLE 6
CONFIDENTIAL MATTERS
--------------------
The CONSULTANT may receive disclosure of certain of MICROFLUIDICS' proprietary,
confidential and trade secret information from time to time during the term of
its consultancy. Additionally, CONSULTANT may make disclosure to MICROFLUIDICS
of certain of CONSULTANTS' confidential and proprietary information. All such
confidential information is hereinafter referred to as the "Information".
A. CONFIDENTIALITY AGREEMENT
-------------------------
As a condition precedent to the execution of this Agreement by MICROFLUIDICS the
CONSULTANT and MICROFLUIDICS have entered into a Confidentiality and Non-
Disclosure Agreement attached hereto as EXHIBIT A which agreement is hereby
incorporated by reference (the "Confidentiality Agreement") which makes
definitive provision for the parties' use, protection and handling of such
Information.
B. USE OF CONFIDENTIAL INFORMATION The Information disclosed to CONSULTANT by
-------------------------------
MICROFLUIDICS shall be used by CONSULTANT solely in furtherance of the business
objectives of the Sales/Marketing Program and his rendering of the Services
hereunder and no other use of the Information is contemplated or permitted
hereunder.
3
<PAGE>
ARTICLE 7
INVENTIONS: OWNERSHIPS AND ASSIGNMENTS : NO LICENSE : DISCLOSURE : COOPERATION
- ------------------------------------------------------------------------------
IN PROSECUTION OF RIGHTS AND PATENTS
- ------------------------------------
(A) All equipment and/or process discoveries or inventions, whether or not
protected by patent, conceived of by MICROFLUIDICS shall belong solely to
MICROFLUIDICS. Any equipment discoveries or inventions made by CONSULTANT
either relating to MICROFLUIDICS' proprietary Microfluidizer(R) equipment, or
as a result of MICROFLUIDICS's disclosure of the Information shall be the
property MICROFLUIDICS and shall be assigned to MICROFLUIDICS by CONSULTANT at
MICROFLUIDICS' request and expense. Nothing contained herein shall be construed
as granting to CONSULTANT any license, or other rights of any kind or nature
with respect to any equipment, invention, discovery or intellectual property of
the disclosing party relating to disclosed Information whether or not covered by
any patent heretofore or hereafter issued to MICROFLUIDICS. HOWEVER, IN NO EVENT
SHALL CONSULTANT HAVE ANY CLAIM TO ANY EQUIPMENT MODIFICATION, IMPROVEMENT, OR
PROCESS RELATING IN ANY WAY TO THE MICROFLUIDIZER(R) MATERIALS PROCESSING
EQUIPMENT OR ANY COMPONENT THEREOF.
All process discoveries or inventions that are outside the scope of the
CONSULTANT's Services and related to MICROFLUIDICS''s proprietary equipment
whether or not protected by patent, conceived of by CONSULTANT shall belong
solely to MICROFLUIDICS. CONSULTANT agrees to transfer and assign all right,
title and interest in and to such inventions to MICROFLUIDICS. CONSULTANT will,
both during and after the term of this Agreement, execute such patent
applications and other documents, assist in patent prosecution, and take such
other action as are reasonably necessary to establish and protect MICROFLUIDICS'
intellectual property rights, all such activity to be at MICROFLUIDICS's sole
expense.
(B) The CONSULTANT agrees to promptly disclose to MICROFLUIDICS complete
information concerning each and every invention, device, technology, patentable
or copyrightable material whether considered by the CONSULTANT as patentable or
copyrightable or not, made, developed, perfected devised, conceived or reduced
to practice by the CONSULTANT relating to the Sales/Marketing Program as a
result of his rendering of its Services, whether made separately or jointly with
MICROFLUIDICS during the term of this Agreement without additional compensation,
and to any and all applications for Letters of Patent, and copyrights covering
same in the United States as well as any other foreign country.
(C) The CONSULTANT agrees that at all times during the term of this
Agreement or thereafter, upon request, to do all lawful acts, including the
execution of papers, documents, oaths and the giving of testimony, that in
opinion of MICROFLUIDICS may be necessary or desirable for obtaining,
sustaining, reissuing or renewing, and for enforcing, perfecting, recording and
maintaining MICROFLUIDICS' patent applications, patent and/or copyright
registrations both in the United States and for foreign patents and copyright
registrations on such copyrightable material. CONSULTANT shall be compensated
for time expended on such matters at reasonable rates to be determined among the
parties.
4
<PAGE>
(D) As to any invention or copyrightable material which relates to the
business, products, devices, practices, inventions or techniques of
MICROFLUIDICS concerning technologies which were made, developed, conceived,
reduced to practice or written by the CONSULTANT while rendering its Services,
whether separately or together with others during the term of this Agreement and
which the CONSULTANT claims for any reason to belong to an entity or person
other than MICROFLUIDICS, the CONSULTANT shall promptly disclose the same to
MICROFLUIDICS and shall not disclose the same to others.
ARTICLE 8
BUSINESS OPPORTUNITIES
----------------------
The CONSULTANT shall not, during the term of this Agreement directly or
indirectly, appropriate or exploit for its personal benefit or that of any other
person or entity any business opportunity in any way related to the business of
MICROFLUIDICS without the express written permission of MICROFLUIDICS and shall
inform MICROFLUIDICS of each such opportunity as promptly as is practicable
after he or it is informed or otherwise becomes aware or apprised thereof.
Further, the CONSULTANT will be restricted as to its ability to compete with
MICROFLUIDICS during and after the Term hereof by a Non-Competition Agreement
attached hereto as EXHIBIT B, which is hereby incorporated by reference.
ARTICLE 10
REPRESENTATIONS, WARRANTIES AND COVENANTS
-----------------------------------------
The CONSULTANT warrants, represents and covenants as follows:
(a) he has the full right and capacity to enter into this Agreement and to
perform all of its obligations hereunder, and neither this Agreement nor the
performance of any of its obligations hereunder are in violation of any other
agreement or instrument to which it is a party or by which it may be bound.
(b) he shall not willfully or recklessly make any proprietary claims or use
any technology or invention that would infringe on the patent, copyright or
other proprietary intellectually property rights of any third party, without
first obtaining written permission or license from such party.
ARTICLE 11
NON-REVELATION
--------------
CONSULTANT shall not, without MICROFLUIDICS' prior written consent, disclose to
any party the fact or existence of this Agreement or the related agreements and
the relationship contemplated hereby, any terms, conditions, facts, details, or
status with respect to this Agreement or the business or technical affairs and
matters of MICROFLUIDICS, specifically including the Sales/Marketing program.
5
<PAGE>
ARTICLE 12
TERMINATION: BREACH
--------------------
12.1 Notwithstanding the above, either party may terminate this Agreement
upon the occurrence of any of the following:
(a) CONSULTANT's breach of any of the provisions of the Confidentiality
Agreement;
(b) breach of any warranty, representation or covenant by the CONSULTANT;
(c) the bankruptcy or death of CONSULTANT.
(d) failure by either party to perform any material obligation hereunder.
ARTICLE 13
ASSIGNMENT
----------
The CONSULTANT may not assign either this Agreement or its rights and/or
obligations hereunder (except for an assignment to MICROFLUIDICS) without the
prior written consent of MICROFLUIDICS.
ARTICLE 14
NOTICE
------
Any notice which by any provision of this Agreement is required or provided to
be given shall be deemed to have been sufficiently given or served for all
purposes if sent by the United Stated Postal Service, postage prepaid, certified
mail with return receipt or by Federal Express or other private expedited
carrier or delivery service with signature required with all charges prepaid to
the parties at their respective addresses below:
If to MICROFLUIDICS TO: Michael A. Lento, President
Microfluidics International Corporation
30 Ossipee Road
Newton, MA 02164-9101
If to CONSULTANT to:
James N. Little
193 Eliot Street
South Natick, MA 01710
ARTICLE 15
DEFINITIVE AGREEMENT: AMENDMENT
--------------------------------
This Agreement and any schedule hereto, together with the Confidentiality
Agreement and the Non- Competition Agreement, constitutes the entire agreement
between the parties relating to the subject matter hereof, supersedes any
previous written or oral understandings or agreements and may only be amended in
writing by the parties.
6
<PAGE>
ARTICLE 16
RIGHTS AND REMEDIES
-------------------
The parties agree that in the event a breach or threatened breach of this
Agreement, MICROFLUIDICS' available damages and remedies at law would be
inadequate in that irreparable injury might be sustained by MICROFLUIDICS and,
accordingly, MICROFLUIDICS shall have the right to obtain temporary and/or
permanent injunctive relief or its equivalent under domestic or foreign law
against CONSULTANT and his agents to prevent the violation of an affirmative or
negative covenant as well as all other remedies that may be available to
MICROFLUIDICS. All legal and equitable rights, remedies and damages available
to MICROFLUIDICS shall be considered cumulative and the use or choice of a
particular remedy, damage or relief shall not preclude MICROFLUIDICS' further
exercise of other rights, remedies and damages. Damages and relief shall
specifically include an equitable accounting of all earnings, profits and other
benefits arising from a breach or violation including lost income potential and
lost business opportunity. No delay or omission in exercising any rights under
this Agreement shall operate as a waiver of that or any other right; a waiver or
consent given by MICROFLUIDICS on a certain occasion is effective only in that
instance and shall not constitute or be construed as a bar to, or a waiver of
any right on any other occasion, unless otherwise agreed to by MICROFLUIDICS.
ARTICLE 17
GOVERNING LAW: CONSTRUCTION: JURISDICTION
-----------------------------------------
This Agreement shall be governed by and construed under the laws of the
Commonwealth of Massachusetts, U.S.A. as an instrument under seal without regard
to its internal conflict of laws provision. The parties hereby consent to the
jurisdiction of the courts of the Commonwealth of Massachusetts or such other
jurisdiction as MICROFLUIDICS may find more convenient or effective for the
prosecution of any action hereunder.
ARTICLE 18
SEVERABILITY
------------
The parties agree that the provisions of this Agreement are severable. If any
provision hereof shall be declared to be invalid or unenforceable for any
reason, such unenforceability shall not affect the enforceability of the
remaining provisions of the Agreement, and such provision shall be reformed and
construed to the extent permitted by law so that the remainder is valid and
enforceable.
ARTICLE 19
SURVIVAL
--------
A termination hereunder shall only serve to stop the transfer of Information
and such termination shall not alter or affect CONSULTANT's obligations under
Articles 6 or 7 of this Agreement or the provisions of the Confidentiality
Agreement or the Non-Competition Agreement whether arising prior to or after
termination, which obligations shall specifically survive termination and
continue in full force and effect.
ARTICLE 20
BINDING NATURE OF OBLIGATIONS
-----------------------------
The obligations of CONSULTANT under this Agreement shall be binding respectively
upon any executors or administrators.
7
<PAGE>
ARTICLE 21
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 CONSULTANT and MICROFLUIDICS have each caused this
Agreement to be executed as a sealed instrument, and to be delivered one to
another as of the day, month and year first written above.
______________________________
James N. Little
MICROFLUIDICS INTERNATIONAL CORPORATION
By:_________________________________________
Michael A. Lento, President
8
<PAGE>
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Weighted Average Common
Stock Outstanding 4,941,041 4,939,989 5,047,849
Options Outstanding 6,795
Options Exercised 670
---------
4,948,506 4,939,989 5,047,849
========= ========== =========
Income (Loss) 501,504 (2,117,319) 1,336,685
========= ========== =========
Income (Loss) Per Share .10 (.43) .26
========= ========== =========
</TABLE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES
------------
Microfluidics Corporation, a Delaware Corporation
MediControl Corporation, a Delaware Corporation
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the incorporation by reference in the registration
statements of Microfluidics International Corporation on Form S-8 (File Nos. 33-
3242,33-6300, 33-19372 and 33-38928) of our report dated February 12, 1997, on
our audits of the consolidated financial statements of Microfluidics
International Corporation as of December 31, 1996 and 1995, and for the years
ended December 31, 1996, 1995 and 1994, which report is included in this Annual
Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 31, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,786,554
<SECURITIES> 67,437
<RECEIVABLES> 1,605,932
<ALLOWANCES> 0
<INVENTORY> 2,291,768
<CURRENT-ASSETS> 6,827,422
<PP&E> 653,942
<DEPRECIATION> 509,091
<TOTAL-ASSETS> 7,183,324
<CURRENT-LIABILITIES> 754,801
<BONDS> 0
0
0
<COMMON> 50,948
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,183,324
<SALES> 0
<TOTAL-REVENUES> 6,273,768
<CGS> 2,847,224
<TOTAL-COSTS> 5,922,885
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 501,504
<INCOME-TAX> 0
<INCOME-CONTINUING> 501,504
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 501,504
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
